HomeMy WebLinkAboutAgenda Bill 1ALate4Part1 I
~
Budgetary Impact of
New Retail Projects
Deer Creek Village and East Washington Place
axe ~
fi r i
~ Shopping Centers
Petaluma, California
Lon Hatamiya, MBA, JD
Director
Navigant Consulting, Inc.
February, zoo
N,VIGANT
C O N S U L T I N G
N~,VIGANT
CON 5 ll I T I N G
Table of Contents
I. Introduction 1
II. Objective of Report 1
III. Major Findings 2
A. City of Petaluma Fiscal Analysis ................................................................2
B. City of Petaluma Retail Analysis ................................................................3
IV. Methodology 4
A. Design .........................................................................................................4
B. Scope of Analysis .......................................................................................7
C. Data .............................................................................................................7
V. Results of Analysis 8
A. Changes in the City's General Fund Fiscal Year Budgets .........................8
B. Changes in the City's Sales Tax Revenues ................................................10
C. Changes to the City's Expenditures-Programs and Services
Reduction ...................................................................................................12
D. Potential Revenue Enhancement to the City with the
Development of Deer Creek Village and East Washington
Place Shopping Centers .............................................................................14
E. Comparison and Validation of FEIAs' Results ...........................................15
F. Petaluma's Fiscal Situation with and without Additional Retail
Development ..............................................................................................20
VI. Summary of Analysis 22
Budgetary Impact of New Retail Projects
February zoio i
N/`~VIGANT
C O N S U L T I N G
List of Charts
CHART ~ -City of Petaluma -Total Revenues
CHART z -City of Petaluma -Total Expenditures and Expenses
CHART 3 -City of Petaluma -Total Sales Taxes
CHART 4 -City of Petaluma -Salaries and Benefits
CHART 5 -Capture of Retail Leakage Impact on Sales Taxes
CHART 6 -Addition of Target and Lowe's Impact on Sales Taxes
List of Tables
TABLE ~ -Taxable Retail Sales of Northern California Cities with Lowe's Stores
Openings, zoo3-zoo?
TABLE z -Taxable Retail Sales of Northern California Cities with Target Stores
Openings, zoo3-zoo?
List of Appendices
Appendix A -Curriculum Vitae for Lon Hatamiya
Appendix B -Taxable Retail Sales for Cities with Lowe's Stores Opened in
Northern California, zoo3-zoo?
Appendix C -Taxable Retail Sales for Cities with Target Stores Opened in
Northern California, zoo3-zoo?
N/`1VIGANT
CONSULT INC.
Executive Summary
The results of our independent and objective analysis of the City of Petaluma's
current fiscal crisis clearly and unequivocally demonstrate that the City of Petaluma would
be better off financially and commercially with greater retail availability. Without greater
retail diversity within the City, Petaluma residents will continue to spend their retail dollars in
other neighboring communities with no benefit to their own City's deteriorating fiscal
condition. Based upon our analysis of the available data and information, we believe that
the current fiscal crisis faced by the City of Petaluma will remain challenging for the
foreseeable future. Revenues will remain stagnant or continue to decline resulting in
further reductions in City expenditures, programs, and personnel. Without dramatic
changes to the City's revenue streams and/or resurgence in the local economy, the City will
be faced with ongoing budgetary problems and further difficult decisions.
However, these fiscal difficulties could be remedied with the approval and opening of
the proposed Deer Creek Village and/or East Washington Place Shopping Centers. The
report also provides an objective analysis of the potential projected revenue enhancements
to the City due to the proposed construction and operation of the Deer Creek Village
Shopping Center and the East Washington Place Shopping Center. Painful fiscal,
programmatic and personnel decisions by the Petaluma City Council could have been
greatly lessened, delayed, or more likely, averted. If the potential revenue enhancement
generated by both projects were totaled, they could possibly add approximately $~.7
million in annual revenues to the City's General Fund. If either or both developments had
been built over the past two years, City revenues would have been greatly enhanced. This
enhancement could have mitigated much of the reductions in City programs, saving many of
the 37 city employees eliminated due to resultant budget cuts. (See graph below)
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Ni~viGANT
C(~NSIII TINC~
- _ _ _
Capture of Retail Leakage Impact on Sales Taxes f
$14,000,000 513,331,flM'~
$13sDD,ODD -
$13,ODD,DOD
512,181,E
$12.500,000 -
$12.000,000 _ -
$11,DDD,ODD 511.65D.Dfl.: _ _
$9.DDO,ooD ~ ,
FY2007Actunl FY2008Attual FY2009Est.Actual FY2fllfl
-~-Current fProjECted
Under our own separate and independent analysis, we determined that Petaluma is
significantly under-retailed in many major retail categories, including Building Materials stores
and General Merchandise stores among others. Deer Creek Village and East Washington
Place have the potential to capture a sizable portion of these retail sector sales leakages,
which are local resident expenditures going to and benefitting neighboring communities
since no comparable retail options exist or are available within Petaluma. Deer Creek Village
will be anchored by a Lowe's store and East Washington Place will be anchored by a Target
store, with potential to deliver the following benefits:
• As demonstrated by our analysis, Taxable Retail Sales in the category of Building
Materials stores increased by an average of 4~.g% the year following the opening
of a Lowe's store as compared to the year prior to the opening in Northern
California communities.
• Similarly under our independent analysis, Taxable Retail Sales in the category of
General Merchandise stores increased -b~ an average of 58~°~ the year following
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N/~VIGANT
CONSlll TINS
the opening of a Target store as compared to the year prior to the opening in g
Northern California communities.
• If the Lowe's store had been opened in Petaluma in the past two years or into the
future, the City could generate an additional z o 00o in sales tax per year (see
graph below).
• If the Target store had been opened in Petaluma in the past two years or into the
future, the City could generate an additional z o 00o in sales tax per year (see
graph below).
Addition of Target & Lowe's Impact on Sates Taxes
$12,500.000 ---~~r:2c ~rt------_ - -
$12,000,000
M1tii4 +la:.
$11.500.000 - _ T;„ y
511,65D.D„T
$11,000,000 - -
$10,000,000 105~,~.~~,.. c ,E30,000
$9,500,000 -
$9,000.000 ,
FY2007ACtual FY200$Actual FY2009Est.Actual Fti201t3
-f--Current -FProjectec!
• In addition, Building Materials stores (Lowe's) and General Merchandise stores
(Target) opened in Northern California communities from 2003-2007, were
among the top 7 sales tax generators in each city the year following their opening
and continuing in successive years. As a result, these types of stores not only add
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N1~VIGANT
~(7NSUITING
greatly to the retail mix of a community, but also provide a steady source of sales
tax revenue.
Moreover, our independent Taxable Retail Sales analysis which solely focuses
upon the potential additional benefits of opening both a Lowe's store and a Target
store could also result at a minimum in over $550,000 in new sales tax just from those
two stores. Simply by opening the Lowe's and Target stores, at the very least the City
would be able to save three police officer positions and two firefighter positions slated
to be eliminated or left vacant in the FYzo~o budget.
All in all, the City of Petaluma faces enormous challenges and continuing fiscal
crises without alternative revenue generation opportunities or an upturn in the local
economy. However, it is clear from our analysis of the current situation that the City can
help itself with the approval of the Deer Creek Village Shopping Center and/or the East
Washington Place Shopping Center. Deer Creek Village and East Washington Place
would inject increased sales tax revenues into the City of Petaluma by diversifying the
retail base and available choices for consumers. These sales tax revenues would come
mainly from retail expenditures already being made by Petaluma residents, but
elsewhere in other cities. Most importantly, by providing greater retail choices for its
residents, Petaluma will not only benefit from improved convenience and efficiency,
but it will also benefit from greater sales tax revenues which will ensure the protection
O e55entlal Clty SerVl'_C'c~ i--r;r{ ~r r*r„?rn- ~t_t3'Irt? rr,+ir~.,~ t~€'?"i*~rj (-tt ~',r~;r~~,~~,r ~~,"'~i~
economic uncertainty.
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C O N S U L T I N G
I. Introduction
With the onset of the worst economic recession in the United States since the Great
Depression, many cities across the state of California have experienced severe reductions in
their revenues over the past few years. This dramatic downturn in the global, national, state
and local economies have forced most state and local governments to drastically reduce
overall spending with a negative impact upon available and essential services. This situation
is particularly acute in the City of Petaluma, California ("Petaluma" or "City"), which
necessitates the further independent review of the city's fiscal situation. In this report, we
provide a comparative analysis of the year-over-year changes in Petaluma's budget, the
reduction in Petaluma's revenues, and the reduction in available services and programs.
These fiscal impacts were most definitely brought upon by the declining economy over the
past few years. However, this study also analyzes the potential for mitigating measures
despite the negative recessionary pressures upon the local economy.
II. Objective of Report
The objective of this report is to identify, quantify, and analyze changes to the City's
fiscal situation during the years of zoo6 through zoio. This fiscal analysis provides a baseline
measure to be compared with the succeeding years to further determine trends in City
revenues and expenditures. It also highlights the affects of budgetary changes upon
essential City services.
The report also provides an objective analysis of the potential projected revenue
enhancements to the City due to the proposed construction and operation of the Deer
Creek Village Shopping Center ("Deer Creek Village") and the East Washington Place
Shopping Center ("East Washington Place"). This analysis also allows a further
determination of the economic impact of the potential projected revenues of these
proposed developments upon the existing budgetary and fiscal status of the City.
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Lastly, this report also provides an independent and objective comparative analysis
of the City's actual versus potential fiscal situation based upon scenarios with and without
the future development of the additional proposed retail shopping centers of Deer Creek
Village and East Washington Place.
III. Major Findings
A. City of Petaluma Fiscal Analysis
• The City of Petaluma has experienced dramatic declines in General Fund revenues
over the past several years from a high of $5zmillion in FYzoo7 to a projected low
of $34million in FYzo~o, or a rapid drop of 34.6%.
• Declining revenues have resulted in comparable declines in General Fund
Expenditures from a high of $5~.6 million in FYzoo7 to a projected low of $35.5
million in FYzo~o, or a drop of 3~.z%.
• Sales Tax revenues make up the largest share of the City's General Fund Revenues
(between z5-3o% per year). Sales Tax revenues have declined by zo.z% in the last
two years from $1.65 million in FYzoo8-og to $9.3 million in FYzo~o-~~. This
compares with an anticipated modest increase in statewide sales taxes of X6.8%
across California during the same period.
• The declining fiscal condition of the City has resulted in the elimination of
essential services, programs, and people, as well as the reduction and depletion
of available reserves.
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B. City of Petaluma Retail Analysis
• The Leakage Analysis performed in the FEIA's for Deer Creek Village and East
Washington Place indicates that Petaluma is significantly under-retailed in many
major retail categories, including Building Materials stores and General
Merchandise stores among others.
• Deer Creek Village and East Washington Place have the potential to capture a
sizable portion of these sales leakages, which are local resident expenditures
going elsewhere.
• Taking into account local tax and fee revenues generated by Deer Creek Village
and city costs to provide services, the project will generate under the FEIA
Leakage Analysis an estimated net fiscal surplus of approximately 68~ o00
annually to the City's General Fund, mainly from the Sales Taxes generated.
• Taking into account local tax and fee revenues generated by East Washington
Place and city costs to provide services, the project will generate under the FEIA
Leakage Analysis an estimated net fiscal surplus of approximately S~ million
annually to the City's General Fund, mainly from the Sales Taxes generated.
• Under our own separate and independent analysis, Taxable Retail Sales in the
category of Building Materials stores increased by an average of 4~.9~ the year
following the opening of a Lowe's store as compared to the year prior to the
opening in ~o Northern California communities.
Budgetary Impact of New Retail Projects
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