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HomeMy WebLinkAboutAttach 11 Technical MemoReal Estate Economics Regional Economics Public Finance Land Use Policy TECHNICAL MEMORANDUM To: From: Subject: Date: Chris Foss and Andy Byde Walter Kieser and Christine McMillan Fiscal Analysis of Proposed Dublin IKEA; EPS #12078 November 18, 2003 This Technical Memorandum evaluates the comparative fiscal effects of two development scenarios for a 27-acre site in Eastern Dublin. The subject property, situated along Hacienda Drive between 1-580 and Dublin Boulevard, was originally designated for office development when the Eastern Dublin Specific Plan was adopted. Subsequently a 780,000-square foot office development was proposed by Commerce One. This project was placed on hold in 2001 following a series of setbacks in the high technology industry. More recently, the IKEA Corporation has proposed developing a 317,000-square foot IKEA store, as well as 137,000 square feet of additional "outparcel" retail buildings. This fiscal analysis compares the fiscal performance (municipal revenues minus municipal service costs) of the proposed retail development with the office development that was originally envisioned. The findings presented in this Memorandum are influenced by a range of data and assumptions, including those provided by the City of Dublin, the IKEA Corporation, and through inde pendent analysis by the consultant. When presented with a range of plausible values for a given assumption, the conservative alternative was selected. SUMMARY OF FINDINGS 1. Development of the subject property is expected to result in a net fiscal surplus under either the office or retail development scenarios. Table I provides a summary of the fiscal analysis. While both projects would be fiscally positive, the proposed retail development can be expected to result in a significantly higher net fiscal surplus than the office alternative, if developed as proposed. BERKELEY SACRAMENTO DENVER 2501 Ninth St., Suite 200 Phone: 510-841-9190 ~ Phone: 916-649-8010 Phone: 303-623-3557 ATTACHMENT// Chris Foss and Andy Byde City of Dublin October 31, 2003 Page 2 General Fund revenues associated with the proposed IKEA project are expected to total $1.8 million annually at buildout, while General Fund costs are expected to approach $583,000 annually. Pursuant to the 1993 tax sharing agreement with Alameda County, the City's revenue from the development would be reduced by roughly $538,000, resulting in a net annual fiscal surplus of $680,000. Development of the 780,000-square foot office project originally proposed for the subject property could be expected to generate approximately $555,000 in General Fund revenues, $486,000 in annual costs, and $56,000 in county tax sharing obligation. The net result is an estimated annual fiscal surplus of $13,000. The office market in the Dublin/Pleasanton submarket will need to regain its strength before an office project of the magnitude originally proposed by Commerce One would be built. This means that it could be many years before any of the municipal revenues or costs would be realized. 2. Sales tax would be the primary revenue contributor from the retail development. o Sales taxes imposed on retail sales would generate an estimated $1.5 million annually, 85 percent of the retail development's annual contribution to the City's General Fund (see Table 1). As projected, the sales tax generated by the development would represent roughly 12 percent of the City's estimated sales tax for fiscal year 2002-2003. Although General Fund revenues from the office development would come primarily from property tax, about 29 percent of the General Fund revenue contributed by the office development would be from sal es tax, assuming typical "point of sale" business activities occur in the office project. As projected, the office alternative would produce about 1 percent ($160,000) of the estimated sales tax received by the City in fiscal year 2002-2003. This sales revenue would come from a combination of point-of-sale transactions in the offices, employees shopping in nearby facilities, and the on-site cafeteria. Property taxes would be a significant revenue stream for the City under either alternative. Development of the proposed IKEA project can. be expected to generate around $247,000 in property tax revenues, which accounts for 14 percent of all General Fund revenues expected from the project (see Table 1). However, the City's tax sharing agreement with Alameda County provides for property tax reductions that will absorb all of the property tax revenues generated by the IKEA project. The originally proposed office development would generate roughly $323,000 in annual property tax revenues to the City at buildout. This represents 58 percent of total revenues associated with the office project alternative. A portion of this revenue stream will be diverted to the County's General Fund through the tax sharing agreement. H: \ 12078dub \ Report \ October2803 \ FiscaLdoc Chris Foss and Andy Byde City of Dublin October 31, 2003 Page 3 The 27-acre site is part ora larger project area that is subject to a tax sharing agreement between the City of Dublin and the County of Alameda. According to a Tax Sharing Agreement entered into by the City of Dublin and Alameda County the County is entitled to a "property tax reduction" from the City equal to 35 percent of all retail sales taxes generated on the property.~ The proposed IKEA project would result in a "property tax reduction" of approximately $538,000. The proposed office development would likely result in a much smaller reduction of roughly $56,000. Municipal service costs associated with either the retail or the office development would be dominated by costs for providing police protection and fire protection. Over 90 percent of the total General Fund expenditures under either scenario are expected to be associated with the Public Safety expenditures, as shown in Table 1. The proposed IKEA project can be expected to result in Public Safety expenditures totaling $564,000 and total General Fund expenditures of $583,000. The office development would require approximately $445,000 in Public Safety expenditures and $486,000 in total General Fund expenditures. FISCAL ANALYSIS DATA AND ASSUMPTIONS To evaluate the types and magnitude of ea ch project's fiscal impact, a number of assumptions were necessary to translate the respective project descriptions (see Table 2) into estimates of employees, tax revenues, and municipal service costs to the City of Dublin. The City's Fiscal Year 2002-2003 budget, interviews with City staff, and independent research contributed to this effort. Demographic data that were required in the analysis are presented in Table 3. For each cost and revenue item, the most appropriate forecasting methodology was identified and applied to the project description, as summarized below and illustrated in Table 4: Daytime Populationz. Cost and revenue items that are assumed to increase or decrease in relation to the number of people (residents and employees) citywide are estimated using a value per capita. First, the number of people that are expected to have an impact on the City's revenues and expenditures is calculated. Both residents and employee s impact the City's budget, though the amount of the impact differs. Consistent with the City's methods used in other fiscal studies, the daytime population is defined as the residential population plus 24 percent of employment. This calculation accounts for the relative service burden that re sidents versus ~ Exceptions to this requirement exist, as are explained later in this Memorandum. 2 A review of the per capita model assumptions made by MuniFinancial indicates that MuniFinancial assumes that the employee service population causes different impacts on the City for revenues and expenditures. The weight of the service population for revenues is 30% and for costs is 17%. As per a conversation with a Principal at MuniFinancial, Bob Spencer, the average of these two weights (24 percent) has been used for both revenues and expenditures in this model, as described above and detailed in the accompanying tables. H: \ 12078du b \ Report \ October2803 \ Fiscal. doc Chris Foss and Andy Byde City of Dublin October 31, 2003 Page 4 employees place upon the City. Second, the proportion of each budget item that is likely to increase or decrease (the variable portion) in relation to the size of the daytime population is estimated. Only the variable portiOn of the budget item is used to calculate the value per capita. Third, the citywide variable value per person was applied to the estimated daytime population of each project? Road Miles. Most of the Transportation Department budget is most appropriately linked to the creation and maintenance of roads. EPS estimated the cost of these budget items per one mile of road (road miles). Case Study. A "case study" approach is used to calculate budget items for which none of the above approaches is deemed appropriate, such as sales and property taxes. These are described further in the following section. Not Affected. Some budget items were not estimated because City revenues and expenditures will not be affected by new development associated with these project alternatives. Budget items, such as the Motor Vehicle Tax, that are linked solely to residential population were not estimated because neither alternative will directly increase the number of City residents. REVENUE ANALYSIS The following discussion outlines the analysis that was undertaken for each of the development scenarios, the results of which are incorporated into Table 4. Sales Tax, Property Tax, Transient Occupancy Tax, and Development Impact Fees are the revenues for which a case study was completed. They are discussed below in the order of most significant budget impacts from the IKEA retail proposal. In addition, there are two case studies that explain the anticipated Department of Public Safety expenditures. SALES TAX REVENUE Either proposal can be expected to generate sales tax revenues for the City of Dublin through a combination of point-of-sale transactions and increased retail expenditures outside of the study area by new employees of the project. The retail development, anchored by IKEA, is expected to generate over $1.5 million in sales tax revenue while the office development can be expected to create about $160,000 in sales tax revenue (see Table 5). 3 Because neither the retail nor office development will produce new Dublin residents, the daytime population in terms of the potential projects is half of the projected employment. H: \ 12078dub \ Report \ Oc tober2$03 \ Fiscal.doc Chris Foss and Andy Byde City of Dublin October 31, 2003 Page 5 IKEA Retail Development At buildout, the retail development has the potential to provide a significant annual revenue stream for the City's General Fund. With a total of 454,000 square feet in the retail development, 319,368 square feet of which contribute to taxable sales (see Table 2), the proposed development can be expected to generate $154 million in taxable sales at project stabilization annually (see Table 5). As shown in Table 2, the project description assumes retail sales per square foot of $550 for the IKEA store, $620 for the IKEA restaurant, $350 for the outparcel retail space, and $500 for the outparcel restaurants. These assumptions are based on a comprehensive review of comparable retail tenants in similar market areas, as well as information provided by IKEA Corporation. The weighted average of sales per square foot for the retail and restaurant space was used in the calculations in Table 5. IKEA's weighted average of sales per square foot is estimated to be $557, and the weighted average of the outparcel sales per square foot is $380. In addition to the sales generated on site, a small amount of taxable sales ($78,500) can be expected from new employees of the development who shop in the surrounding area. Together, both sources of retail sales can be expected to yield annual sales tax revenues for the City of $1.5 million. Office Development The propos ed office development would provide only modes t sales tax revenue to the City. Total sales tax revenue generated by the office development can be expected to reach approximately $160,000 (see Table 5). Most transactions conducted in an office setting would not generate sales tax, but there are instances of point of sale transactions, which create taxable expenditures in an office environment. As shown in Table 2, it is assumed that the office development will generate $15 per square foot of taxable sales. In addition, the cafeteria will produce approximately $400 per square foot. As with the retail analysis, the weighted average of these sales per square foot assumptions was used to calculate the estimated taxable expenditures. The weighted average sal es per square foot for the office development is $17.52. Office employees can also be expected to generate retail sales in the area surrounding the office development. New taxable expenditures in the City of Dublin are estimated at $2.6 million. These calculations suggest annual sales tax revenue for the City of $160,000 at project buildout. H: \ 12078dub \ Report \ October2803 ~ Fiscal.doc Chris Foss and Andy Byde City of Dublin October 31, 2003 Page 6 PROPERTY TAX REVENUE Both proposals will generate a significant amount of property tax for the City. The Property Tax Revenue is derived from the improved value of each development. The improved value of the retail proposal was assumed to closely approximate the cost of construction. As shown in Table 6, this method results in an annual property tax revenue to the City of approximately $247,000. The value of the office development was more appropriately estimated by looking at the anticipated rent levels. The resulting estimate of property tax collected by the City is $323,000 (see Table 7). IKEA Retail Development It is assumed that the improved value of the property is equal to the sum of the purchase price of the land and construction costs (including both the buildings and parking lot). The calculations and cost assumptions are presented in Table 6. The IKEA Corporation has stated that they anticipate purchasing the land for around $29.9 million. Estimates provided by IKEA indicate that construction of the Dublin store would cost $110 per square foot. In addition to the construction of the building, it has been assumed that IKEA will spend $2,500 per parking space. Using these assumed values for the 317,000 square feet and 1,000 parking spaces in the project, the total construction cost (improved value) of the building and parking lot totals $36 million. Construction costs of the outparcels are comprised of the cost of constructing the shell ($180 per square foot), improving the interior ($70 per square foot), and developing the parking lot ($2,500 per parking space). As a result, the improved value of the outparcels is estimated to be $35 million. The total development cost of the retail proposal is approximately $101 million. With a property tax allocation rate of 1.06 percent and a tax allocation factor of 22.87 percent,4 the City can expect to receive approximately $247,000 annually from property taxes on this development. Office Develop ment Table 7 outlines the calculations for estimating the property tax collected by the City from the office alternative. The value of the office development was determined using conservative lease, vacancy, and capitalization rates. Based on a review of the lease rates for Class A office space in Dublin and the surrounding are a, it has been assumed that the development would command annual lease rates of approximately $27 per square foot and require operating expenditures of $8.50 per square foot. The net operating income per occupied square foot ($18.50) was reduced to $16.65 in order to account for an assumed 10 percent vacancy rate. The result is an estimated net operating income of $12.6 million. A 9.5 percent capitalization rate produces an estimated value for the project of $133 million. The property tax allocation rate (1.06 percent) and the tax allocation factor (22.87 percent) are the same for both the The unusual tax allocation factor is stipulated in the Tax Sharing Agreement with the County. H: \ 12078dub \ Report \ October2803 \ Fiscal.doc Chris Foss and Andy Byde City of Dublin October 31, 2003 Page 7 retail and office proposals. Based on these calculations, the City can expect to receive $323,000 in property tax revenue from the proposed office development on an annual basis. TRANSIENT OCCUPANCY TAX REVENUE In local markets that are not heavily influenced by leisure tourism, hotel demand is generally expressed as a function of both the residential and office markets in the local area. In fact, hotel market specialists assign an estimating factor for each resident and office worker in an area to forecast future hotel demand. These estimating factors vary from one source to the next, but for the purpose of this analysis, it is assumed that each office employee will generate demand for 2.35 hotel room nights per year. The number of office employees projected for each proposal was determined based on the number of square feet allotted to each employee in a typical office setting. A widely accepted industry average, which was used for both the retail and office alternatives, is 350 square feet per employee. The project description shown in Table 2 allocates the total building square feet among reta il, restaurant, office, and warehouse uses. Of the IKEA store's total building space, 6.5 percent has been allotted to office uses; no distinct office space is designated for outparcels since traditional retail does not warrant this use. Applying the as sumed square footage per employee to the estimated amount of office space in each propos al yields 59 office employees for the retail alternative and 1,950 employees for the office alternative. As shown in Table 8, the IKEA project can be expected to generate approximately $1,000 annually in Transient Occupancy Tax (TOT) revenues, while the office development would likely generate an estimated $31,000 in TOT revenue. DEVELOPMENT IMPACT FEES In addition to the annual revenues discussed above, the City can expect one-time revenues in the form of Development Impact Fees from each development in the year before it opens. The City of Dublin provides an explanation for calculating the approximate value of development impact fees based on the anticipated square footage and development value of the proposed project. Applying these allocation amounts to the project description (see Table 2) yields estimates for the one-time revenues. As shown in Table 9, the retail alternative would produce an estimated $9.4 million in fees, while the office development could be expected to generate approximately $5.8 million. These fees are designed to recover the costs associated with new development and for this reason are not considered in the net fiscal impact of either development on the City. H: \ 12078du b \ Report \ October2803 \ Fiscal.doc Chris Foss and Andy Byde City of Dublin October 31, 2003 Page 8 EXPENDITURES PUBLIC SAFETY EXPENDITURES As seen in Table 4, only the Police and Fire Departments should anticipate a significant increase in expenditures due to either development. The increased Fire and Police Department expenditures will result from an increase in the number of calls for service due to the new development (see Tables 10 and 11). The proposed IKEA development is expected to result in $564,000 in annual Public Safety expenditures (see Table 1) and the office development would produce an es timated $445,000. Fire Department Expenditures The cost per call of service was determined using the fiscal year 2002-2003 Fire Department Budget and the total calls for service in 2002 (see Table 10). While it is recognized that the Fire Department has some overhead that will not be affected by new development, it was not possible to estimate this amount. Therefore, the cost per call of service is based on the total Fire Department budget. The cost for the Fire Department to respond to each call averaged approximately $2,700. In order to determine the level of service required by the IKEA retail development, Hacienda Crossings, an approximately 500,000-square foot retail center located near the proposed development, was us ed as a comparable location at the suggestion of the City. Hacienda Crossings generated about 76 calls for service, or 0.17 calls per 1,000 square ' feet of development. This ratio was used for both the retail and office alternatives because historic fire data were not available for a comparable office si te in Dublin. In addition, experience in other cities indicates that office and retail generate calls for service from Fire Departments at approximately the same rate. With 454,000 square feet of retail, the proposed IKEA development would generate 77 calls for service annually, which results in an estimated cost to the Fire Department of $210,000. The significantly larger office development (780,000 square feet) will generate proportionately more calls for service and therefore have a larger impact on the Fire Department's annual budget. The office development is expected to generate 133 calls per year, with an estimated total cost of $363,000. Police Department Expenditures The method for estimating the police costs associated with each project uses the same underlying principles that generated the estimate for the cos ts to the Fire Department. However, the ratio of calls for service to square feet of development is adjusted to account for the differences in retail and office development (see Table 11). The rapid turnover in visitors to retail development, the layout of the stores, and the wide range of people patronizing retail establishments are all factors that increase the likelihood that police will be called. Because an office development has relatively little turnover throughout the work d ay and most of the people on the premises are known, there is generally less need for police service at office developments relative to retail developments. H: \ 12078du b \ Report \ October2803 \ Fiscal.doc Chris Foss and Andy Byde City of Dublin October 31, 2003 Page 9 The fiscal year 2002-2003 Police Department budget was used as a starting place for this analysis. As with the Fire Department, the full budget was used because it was not possible to determine an estimate of the overhead associated with the Police Department. With 52,708 calls for service in 2002, the average cost per call was $149. Again, Hacienda Crossings was used as a proxy for the retail development; in 2002, Hacienda Crossings had 3,082 calls for police service. Movie theaters and hotels generally have higher crime rates than retail and restaurant uses. Because Hacienda Crossings has a hotel and a movie theater, the calls for service was reduced by 25 percent. Excluding the hotel and movie theater from Hacienda Crossings yields approximately 440,000 square feet of retail and restaurant uses. There were an estimated 5.24 calls for police service per 1,000 square feet of retail space at Hacienda Crossings in 2002. Applying this ratio to the 454,000-square foot IKEA scenario produces an estimated 2,380 calls for service or an increase in Police Department costs associated with the IKEA retail development of $354,000. A review of comparable cities indicates that each 1,000 square feet of retail generates between 7 and 8 times more calls for service than each 1,000 square feet of office space. Therefore the ratio was reduced to 0.70 calls for service per 1,000 square feet of office space. Applying this ratio to the 780,000-office development generates approximately 546 calls for police service annually. The total impact on the police budget associated with the proposed office development would be about $81,000. COUNTY TAX SHARING AGREEMENT In 1993, the City of Dublin and County of Alameda entered into an Agreement to share in the revenue stream resulting from development in East Dublin. The Agreement pertains to five properties, each of which has a distinct methodology for calculating how revenue will be shared between the City and County. The site evaluated as part of this analysis is part of the "Santa Rita Property," a 613-acre area that was originally owned by the Surplus Property Authority of Alameda County (Authority). According to the Agreement, the City of Dublin receives a lower proportion (22.87 percent) of total sales taxes generated within the Santa Rita property than it otherwise would. Throughout mos t of Dublin, the City receives 25.4 percent of sales tax revenues. The Agreement provides for a Property Tax Reduction that is (in most cases) equal to 35 percent of the sales tax revenue generated within the Santa Rita property. In the event that the Property Tax Reduction would exceed total property tax revenues received by the City for the Santa Rita property, the difference is carried over to future years. The proposed IKEA development is expected to generate approximately $1.5 million in sales tax revenue, which would result in a Property Tax Reduction of about $538,000 (see Table 12). This Reduction amount ex ceeds the total property tax revenues of $255,000 that are anticipated from the propos ed project. However, it is assumed that existing development elsewhere within the Santa Rita property area generates sufficient H: \ 12078du b \ Report \ Oc tober2803 \ Fiscal.doc Chris Foss and Andy Byde City of Dub[in October 31, 2003 Page 10 property tax revenues to warrant the full Property Tax Reduction defined in the Agreement. Consequently, Table 12 shows a negative value of $283,000 as the net property tax revenue expected from the proposed IKEA project. The office alternative is expected to generate about $160,000 in sales tax revenue, resulting in a Property Tax Reduction of about $56,000. The net property tax revenue that the City will collect is expected to be $267,000 from the office project. NET FISCAL BALANCE A summary of the General Fund revenues and expenditures associated with buildout of each project alternative is presented in Table 1. Although both projects will result in a net fiscal surplus, the proposed IKEA project would generate significantly more revenue than the office alternative. At project buildout, the proposed IKEA project would result in a net fiscal balance of $688,000. The office development, on the other hand, would result in a net fiscal balance of roughly $13,000. The fiscal impacts associated with the office development would not be realized as quickly as those associated with the proposed IKEA project due to the lack of any current market demand for the office use. Table 13 provides a time series comparison of the two development scenarios. The IKEA development proposal is assumed to be built in two phases. In the first year, assumed to be 2005, IKEA would open, and in the following year the outparc els would be completed. By these assumptions, buildout is assumed in 2006, which is when the City can expect to experience the full benefit of the proposed development as discussed throughout this memorandum. Due to a market decline in the regional office market, office development cannot be expected to occur in the near term. Once construction begins, development is assumed to occur in four equally sized phases. Phase I is assumed to come online in 2007 with additional phases opening in 2009, 2011, and 2013. Therefore, the full budget impacts discussed throughout this memorandum will be delayed until after completion in 2013. Taking into consideration the long-term fiscal impacts of both development scenarios highlights the fiscal differences in the proposals. The IKEA development is projected to create a $~ million surplus ($7.5 million in today's dollars) between 2004 and 2013. The office development is projected to create a $336,000 surplus ($276,000 in today's dollars) during that same period (2004-2013). H: \ 12078du b \ Report \ October2803 \ Fiscal.doc oooo~e~ o_o.i~~m Table 2 Project Descriptions and Model Assumptions Fiscal Impact Analysis Item Retail Development Office IKEA Outparcels Total/Average Development Site Size (Acres) (1) Retail Square Feet Sales per Square Foot at Buildout (2) Restaurant Square Feet Sales per Square Foot at Buildout Office Square Feet Sales per Square Foot at Buildout Warehouse/Accessory Buildings Square Feet Sales per Square Foot at Buildout 14.4 13.1 27.5 27.5 162,863 109,600 272,463 N/A $550 $350 $450 N/A 19,50527 ,400 46,905 5,000 $620 $500 $560 $400 20,755 0 20,755 760,000 $o $o $o $15 113,877 0 113,877 15,000 $o $o $o $o Total Building Square Feet 317,000 Square Feet Generating Taxable Expenditures 182,368 Composite Sales per Square Foot (3) $557 Estimated Population Generation Square Feet per Employee (Retail) 800 Square Feet per Employee (Office) 350 Square Feet per Employee (Restaurant) N/A Square Feet per Employee (Accessory Building) 1,000 Vacancy Rate 0% Employees 380 Daytime Population (4) 91 137,000 454,000 780,000 137,000 319,368 765,000 $380 $466 $17.52 350 575 N/A N/A 350 350 250 250 250 N/A 1,000 1,000 5% 2.5% 10% 400 780 1,990 96 187 478 (1) The City estimated the size of the parcel at 27.44 acres. IKEA provided the above break down, which totals 27.5 acres. (2) EPS estimate based on typical large format "Big Box" store performance. (3) The "Composite Sales per Square Foot" is calculated by taking the weighted average of the sales per square foot for all space that generates sales. (4) "Daytime Population" is total residential population plus 24% total employment. Because neither scenario involves residential development, the daytime population for the proposed projects is half of total employment. Sources: IKEA Corporation, City of Dublin Economic Development Depadment, ABAG Projections 2002, and Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. ~0/31/2003 H://12078/dataA12078fisca14.xls " ~ Table 4 Fiscal Evaluation of IKEA Retail Proposal Budget Summary and Estimating Factors Item 2002-03 General Fund Percent Variable Costs (1) Allocation Method (2) Amount per Estimated Budget Impact (4_) Allocation IKEA Retail Office Method (3) Development Development GENERAL FUND REVENUES Property Tax $9,892,843 Sales & Use Tax $12,702,000 Real Property Transfer Tax $415,000 Motor Vehicle Tax $1,937,000 Transient Occupancy Tax $858,000 Use of Money & Property $1,373,538 Charges for Service $4,752,535 Franchise Fees $1,493,900 Business License Fee $117,000 Other Licenses & Permits $1,505,404 Fines and Forfeitures $114,000 Other Revenue (6) $879.533 Subtotal General Fund Revenues Subtotal Less Sales & Use Tax $36,040,753 Development Impact Fee Re~nues (7) GENERAL FUND EXPENDITURES General Government Administration (8) See Table 6 and Table 7 See Table 5 100% Property Transfers (5) 100% Resident Population See Table 8 0% Not Impacted Not Impacted 100% Daytime Population 100% Per Business Not Estimated 100% Daytime Population Not Estimated City Council $212,932 10% Daytime Population City Manager/Clerk $739,518 10% Daytime Population Central Services $319,600 10% Daytime Population Legal Services $659,076 10% Daytime Population Administrative Services (9) $1,038,223 10% Daytime Population Building Management $731,567 10% Daytime Population Insurance $386,665 10% Daytime Population Elections $20,940 10% Daytime Population Subtotal Government Administration $4,108,521 Public Safety Police Services S7,876,674 Crossing Guards $71,462 Animal Control $181,437 Traffic Signal & Street Lighting $0 Disaster Preparedness $60,959 Fire S5,108 279 Subtotal Public Safety $13,298,811 See Table 11 10% Resident Population 10% Daytime Population 0% Not Estimated 10% Daytime Population See Table 10 Transportatio~ Public Works Administration $616,631 10% Street Maintenance $10,427 100% Street Sweeping $132, 100 100% Street Tree Maintenance $70,337 100% Street Landscape Maintenance $507,726 100% Subtotal Transportation $1,337,221 Health & Welfare Waste Management $8,242 50% Child Care $15,000 10% Social Services $6,000 Housing Programs $39,759 Subtotal Health & Welfare $69,001 $247,000 $323,000 $1,537,000 $160,000 $0 $0 $54.37 $0 $0 $1,000 $31,000 $0.00 $0 $0 $0 $0 $37.84 $14,756 $37,646 $50.00 $500 $400 $2.89 $1,126 $2,873 $1,801,382 $554,919 $264,382 $394,919 $9,426,000 $5,751,000 $0.54 $210 $537 $1.87 $730 $1,864 $0.81 $316 $805 $1.67 $651 $1,661 $2.63 $1,025 $2,616 $1.85 $723 $1,844 $0.98 $382 $974 $0.05 $21 $53 $4,058 $10,353 $354,000 $81,000 $2.01 $0 $0 $0.46 $179 $457 $0.00 $0 $0 $0.15 $60 $154 $210,000 $363,000 $564,239 $444,611 Daytime Population $1.56 $609 $1,554 Per Road Mile $135 $62 $62 Per Road Mile $1,716 $779 $779 Per Road Mile $913 $415 $415 Per Road Mile $6,594 $2,995 $2,995 $4,860 $5,805 Daytime Population Daytime Population Not Estimated Not Estimated $0.10 $41 $104 $0.04 $15 $38 $56 $142 Economic & Planning Systems,/nc. 10/3'I/2003 H:~Y120781data~iscalmod4i?2078fisca14. xls Table 4 Fiscal Evaluation of IKEA Retail Proposal Budget Summary and Estimating Factors Item 2002-03 General Fund Percent Variable Costs (1) Allocation Method (2) Amount per Estimated Bud eg~[_lmpact (4~ Allocation IKEA Retail Office Method (3) Development Development Culture & Leisure Library Services $496,219 Cultural Activities $137.153 Heritage Center $90,771 Dublin Cemetery $37,418 Park Maintenance $1,263,230 Community Cable TV $70,906 Parks & Community Services $2,421,062 Parks &.Facilities Management $223,360 Subtotal Culture & Leisure $4,740,119 Community Development Community Development (10) Engineering Economic Development Subtotal Community Development Subtotal Expenditures (11) 10% Daytime Population $1.26 $490 $1,250 10% Daytime Population $0.35 $135 $346 - Not Estimated - Not Estimated 10% Daytime Population $3.20 $1,248 $3,183 Not Estimated 10% Daytime Population $6.13 $2,391 $6,101 10% Daytime Population $0.57 $221 $563 $4,485 $11,443 $3,574,889 10% Daytime Population $9.05 $3,531 $9,009 $1,852,477 10% Daytime Population $4.69 $1,830 $4,668 $285,875 Not Estimated $5,713,241 $5,361 $13,677 $29,266~914 $583~059 $486~031 (1) Percentage of costs in budget that increase/decrease as service population increases/decreases. (2) Some items were not estimated because they were not expected to be impacted by either development alternative. (3) "Amount per Allocation Method" = ("Percent Variable Cost" * "2002-03 General Fund") / "Allocation Method." The "Allocation Method" is expressed in terms of Residential Population, Daytime Population, or Road Miles. (4) "Estimated Budget Impact" = "Amount per Allocation Method" * the expected increase in units, found in Table 3. (5) It is assumed that there will be no property transfers for either development scenario. (6) "Other Revenue" includes "Other Revenues" and "Intergovernmental Revenues" line items from the City Budget. (7) The revenue from Development Impact Fees is only collected once. In this analysis it is assumed that collection will occur the year before the commercial development is open for business. (8) The budget includes a "Non-Departmental" line item under General Govemment Administration in the amount of $350,000. This amount includes $150,000 "Contingent Reserve" and $200,000 "Computers for our Schools Project." Neither of these amounts will be impacted by the proposed office or retail projects, and this line item has not been included. For this reason, the Expenditures subtotal shown will be $350,000 less than the total printed in the "Preliminary Budget and Financial Plan, Fiscal Year 2002-2003." (9) "Administrative Services" accounts for the Finance and IT Departments. (10) "Community Development" includes the Planning Department and the Building & Safety Department. (11) Subtotal Expenditures is $350,000 less than the printed 'q-otal Operating Expenditures" of $29,616,914. See Footnote (8) for the explanation. Sources: City of Dublin "Preliminary Budget and Financial Plan Fiscal Year 2002-2003" and Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 10/31/2003 H:llf2078[dataViscalmod4~f2078fisca14.xls d Table 6 Fiscal Evaluation of IKEA Retail Proposal Property Tax Calculation for the IKEA Retail Development (20035) Cost Item per Unit Unit Number of Units Total Construction Cost Estimates for IKEA Cost per Square Foot of Building (1) Cost per Parking Space (2) Total Improvement Value Construction Cost Estimates for Outparcels Cost per Square Foot of Building Cost per Square Foot of Tenant Improvement Cost per Parking Space Total Improvement Value Total Land Costs Total Development Costs Assessment Rates Property Tax Allocation Rate (3) Tax Allocation Factor (4) Property Tax Assessment Property Tax Collected by City (5) $110 Square Foot $2,500 Parking Space $180 Square Foot $70 Square Foot $2,500 Parking Space $1,087,273 Acre 317,000 700 137,000 137,000 480 $34,870,000 $1,750,000 $36,620,000 $24,660,000 $9,590,000 SI,200,000 $35,450,000 27.5 $29,900,000 $101,970,000 1.06% 22,87% $1,080,780 $247,000 (1) Industry standard costs including podium, shell, and interior improvements. (2) Approximately 500 spaces will be located under building podium; the cost for constructing these spaces is included in the building costs ($110 per square foot). (3) Property Tax Assessment rate provided by the County of Alameda Tax Assessor's Office. (4) The Tax Allocation Factor for this property is set by the County Tax Sharing Agreement. (5) Calculations rounded to the nearest hundred thousand. Due to rounding, some calculations may not sum. Sources: County of Alameda Tax Assessor's Office, County Tax Sharing Agreement, IKEA Corporation, and Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 10/31/2003 H:Wt2078dub~datati12078fisca14.xls Table 7 Fiscal Evaluation of IKEA Retail Proposal Property Tax Calcula§on for the Office Development (20035) Item Amount Office Development Assumptions Annual Lease Rate (Per SF of Class A Office) Operating Costs (Per SF of Class A Office) Net Operating Income per Occupied Square Foot Vacancy Rate Net Operating Income per Building Square Foot Office Square Feet (1) Net Operating Income Capitalization Rate Estimated Value of Land and Improvements Assessment Rates Property Tax Assessment Rate (2) Tax Allocation Factor (3) Property Tax Assessment Property Tax Collected by City (4) $27.00 ($8.50) $18.5o lO.OO% $16.65 76o,ooo $12,654,ooo 9.50% $133,2oo,ooo 1.06% 22.87% $1,411,787 $323,000 (1) The assessed value of the office development is calculated using the capitalization rate of the property rather than the construction value because the rents collected from an office development are more reflective of the property's value than the cost of developing the property. Lease revenue will be generated from the office space, not the accessory buildings. Depending on the arrangement with the restaurant, there might be additional revenue from this source; regardless, it will be a relatively minor contribution to the operating revenue and is not factored into these calculations due to the uncertainty. Therefore, only the office square footage (760,000) is used to calculate the property's value. See Table 2. (2) Property Tax Assessment rate provided by the County of Alameda Tax Assessor's Office. (3) The Tax Allocation Factor for this property is set by the County Tax Sharing Agreement. (4) Calculations rounded to the nearest hundred thousand. Due to rounding, some calculations may not sum. Sources: County of Alameda Tax Assessor's Office, County Tax Sharing Agreement, City of Dublin, and Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 10/31/2003 H:~12078dub~datali12078fisca14.xls Table 8 Fiscal Evaluation of IKEA Retail Proposal Transient Occupancy Tax (20035) Item Assumptions IKEA Retail Office Development Development Office Square Feet Vacancy Rate Square Feet per Office Employee Employees that Generate Hotel Stays (1) Occupied Room Nights per Year Average Cost of Room Transient Occupancy Tax Rate Total TOT Revenue for Development (2) 350 SF 2,35 per Employee $85 per Night 8% 20,755 760,000 O% 10% 59 1,950 139 4,583 $11,815 $389,555 $1,000 $31,000 (1) It is assumed that office employees will generate hotel stays in Dublin due to meetings with out-of-town businesses. It is further assumed that business conducted in the other types of space envisioned for both alternatives will not generate stays at hotels. (2) Calculations rounded to the nearest hundred thousand. Due to rounding, some calculations may not sum. Source: Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 10/31/2003 H:ll12078idata~lO333fiscalmod4112078fisca14.xls Table 9 Fiscal Evaluation of IKEA Retail Proposal Summary of Impact Fee Revenues (20035) IKEA Retail Development Office Development Impact Fees Fee Total Fee Total Public Facilities Fee Traffic Impact Fee Noise Mitigation Fee Fire Development Fees Total City Fees (3) $1,486 per 1,000 SF $674,644 $2,886 per 1,000 SF See below (1) $8,694,447 ~See below (1) $24 per 1,000 SF $10,896 $7 per 1,000 SF See below (2) $46,440 See below (2) $9,426,000 $2,251,080 $3,34O,722 $5,460 $153,920 $5,751,000 (1) Includes Traffic Impact Fee, Pleasanton Interchange Fee, and Regional Traffic Fee. (2) Includes a range of fees. including the Fire Impact Fee and Fire Processing Fees. (3) Calculations rounded to the nearest hundred thousand. Due to rounding, some calculations may not sum. Sources: City of Dublin, Planning Division Code Enforcement "Permit Fee Schedule," and Economic & Planning Systems Economic & Planning Systems, Inc. 10/31/2003 H:lt12078~datailO333fiscalmod4t12078fisca14.xls Table 10 Fiscal Evaluation of IKEA Retail Proposal Fire Department Servi~e and Cost Estimates (20035) Item Amount IKEA Retail Office Development Development Annual Fire Department Budget (FY 02-03) Total Calls for Service (2002) (1) Average Cost per Call for Service ($2003) $5,108,279 1,872 $2,729 Square Feet of Retail/Restaurants at Hacienda Crossings (2) 440,879 Average Annual Calls for Service at Hacienda Crossings (3) 76 Average Annual Calls for Service per 1,000 Square Feet 0.17 Total Building Square Feet Projected Calls for Service at Proposed Development (4) Project Cost Estimate (5) 454,000 780,000 77 133 $210,000 $363,000 (1) The most recent count of calls for service is the 2002 count, provided in correspondence with the Fire Department. (2) Assumes Amerisuites Hotel comprises 75,121 SF of total 516,000 SF development estimate provided by Economic Development. (3) City of Dublin Economic Development Department. The average fire calls for service in 2001 and 2002 at Hacienda Crossings. (4) For the IKEA development, projected calls for service were estimated based on its proportionate share of square feet in relation to the Hacienda Crossings development. For the office development, the estimated calls for service were based on its proportionate share of square feet in relation to IKEA project. This method was used because limited historical fire data was available for office developments in Dublin, and experience with other cities indicates a similar ratio of service calls per development square foot for both office and retail developments. (5) Calculations rounded to the nearest hundred thousand. Due to rounding, some calculations may not sum. Sources: City of Dublin "Preliminary Budget and Financial Plan Fiscal Year 2002-2003," City of Dublin Fire Services Department, City of Dublin Economic Development Department, and Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 10/31/2003 H:~t12078idata~fiscalmod4112078fisca14. xls Table 11 Fiscal Evaluation of IKEA Retail Proposal Police Department Service and Cost Estimates (20035) Item Citywide IKEA Retail Office Totals Development Development Annual Police Department Budget (FY 02-03) Total calls for service (2002) Average cost per call for service ($2003) $7,836,674 52,708 $149 Calls for service at Hacienda Crossings Development (1) 3,082 Proportion of Service Calls Qriginating from Theatre/Hotel 25% Estimated Calls for Service Originating from Retail/Restaurants 2,312 Square Feet of Retail/Restaurants at Hacienda Crossings (2) 440,879 Estimated Calls for Service per 1,000 SF Retail 5.24 Estimated Calls for Service per 1000 SF Office (3) Total Building Square Feet Estimated Annual Calls for Service Generated by Project Project Cost Estimate (4) 0.70 454,000 780,000 2,379 546 $354,000 $81,000 (1) The police department prepares reports based on statistical areas of the city, which are subareas of the city determined by the police depadment. The Hacienda Crossings statistical area was recommended as a comparable site. (2) Assumes Amerisuites Hotel comprises 75,121 SF of total 516,000 SF development estimate provided by Economic Development. (3) A review of comparable cities indicates that each 1,000 square feet of retail generates between 7 and 8 times more calls for service than each 1,000 square feet of office space. (4) Calculations rounded to the nearest hundred thousand. Due to rounding, some calculations may not sum. Sources: City of Dublin "Preliminary Budget and Financial Plan Fiscal Year 2002-2003," City of Dublin Police Services Department, City of Dublin Economic Development Depadment, and Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 10/31/2003 H.'t~12078~data~lO333fiscalmod4112078fisca14.xls Table 12 Fiscal Evaluation of IKEA Retail Proposal County Tax Sharing Agreement (20035) Item IKEA Retail Office Development Development Sales Tax Revenue Property Tax Revenue Property Tax Reduction (1) Net Property Tax Revenue Collected by City (2) $1,537,000 $160,000 $247,000 $323,000 ($538,000) ($56,000) ($291,000) $267,000 (1) The Property Tax Reduction is defined as 35% of the Sales Tax Revenue. (2) A negative value indicates that the Property Tax Reduction exceeds anticipated property tax revenue. It is assumed that property values in other Santa Rita developments will be sufficient to cover this deficit. Sources: County Tax Sharing Agreement and Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 10/31/2003 H://12078idalai12078fisca131120781~sca14.xls A A o o o° o.o.o, o. o_ oo°°o° ~ o° o° oooo oo o° o° o.o. .... o.o.o, o_ o. o_