REPORT TO THE PLANNING COMMISSION rd Avenue NE, Woodinville, WA

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1 To: From: Subject: CITY OF WOODINVILLE, WA REPORT TO THE PLANNING COMMISSION rd Avenue NE, Woodinville, WA Planning Commission Date: March 5, 2014 David Kuhl, Development Services Director Study Session - Comprehensive Plan Review and Zoning Code Update - Housing and Employment Research ISSUE: Shall the Planning Commission review housing and employment research for the Comprehensive Plan and Zoning Code Update? STAFF RECOMMENDATION: To review and comment on the housing and employment research for the Comprehensive Plan and Zoning Code Update. POLICY DECISION: Woodinville Municipal Code (WMC) establishes that zoning code amendments, development regulations/amendments, area-wide zoning map amendments, Comprehensive Plan adoption/amendments, and annexations be reviewed by the Planning Commission. BACKGROUND/ANALYSIS: Our consultant, BERK, will present housing and employment research for incorporation in the Comprehensive Plan and Zoning Code update. RECOMMENDED ACTION: REVIEW AND PROVIDE FEEDBACK ON THE HOUSING AND EMPLOYMENT RESEARCH FOR THE COMPREHENSIVE PLAN AND ZONING CODE UPDATE. ATTACHMENTS: Attachment 1: Draft memo fiscal framework Attachment 2: Memo employment briefing

2 :~ 1 1 BERK Attachment 1 PHONE II f1rst Avenue, SUite 800 Sea ttle. WA wv1w b e rk con~u l t m g corn MEMORANDUM DATE: February 18, 2014 TO: FROM: RE: Dave Kuhl, Development Services Director, City of Woodinville Michael Hodgins and Lisa Grueter, BERK DRAFT Woodinville Comprehensive Plan Update, Fiscal Framework Memorandum Comprehensive Plan Updates are an opportunity not only to meet Washington State Growth Management Act (GMA) requirements, but also to solve public service and fiscal challenges in the short term, while at the same time laying the groundwork for economic opportunities, equitable services, and environmental sustainability over the long term. To achieve these outcomes, several strategies for comprehensive plan updates are outlined below. Assess the fiscal and economic situation to determine if policies create structural public service and fiscal issues. Establish core values with measurable objectives such as benchmarks and targets for success. Include a robust evaluation of alternatives both fiscally and environmentally. Evaluate service delivery models and interjurisdictional partnerships. Define key concepts and methods, i.e. organizing concepts to achieve the core values. For example, a city might decide to emphasize the concept of "complete neighborhoods" or different scales of "centers" or other features. Integrate regional transportation improvements with local transportation systems and land use patterns. Establish a physical framework (urban design element) with maps and graphics. Establish a plan structure that organizes the policies and identify how to determine priorities when two or more policies conflict. Develop a thoughtful implementation strategy including actions, priorities, timelines, capital plans, fiscal considerations, adaptive management approaches, and responsible parties. This presents a robust process that audits current plans, identifies the new baseline conditions, tests new futures, and creates updated policies, strategies, and outcomes to make the Comprehensive Plan more usable and to help a community create its best future. Running a city is a complex enterprise. On a daily basis, city policy makers and senior leadership grapple with an array of challenges. The most rewarding of these challenges are around outcomes: What actions can a city take to achieve the shared vision of the community? To put itself in a position to achieve outcomes however, a city must be effective in managing its means. Some of the key challenges include : 1. How do you ensure adequate resources? In a world of 1% property tax limits, stiff competition for retail dollars, and competing demands for taxpayer dollars, how does a city ensure a stable flow of resources? 1

3 Attachment 1 DISCUSSION DRAFT IVlf NIORANDLJ M 2. How do you manage escalating costs? When things like labor contract negotiations or efficiency assessments takes place in a political environment, how does a city ensure that politics do not trump the considerations of good government? 3. How do you manage your relationship with constituents? In a 1% property tax world, more and more cities find that they need to partner with their constituents to prevent erosion in their revenues. How do you do that in a world where constituents have limited t ime and energy to contemplate their relationship with city government? and 4. How do you manage challenges of continuity? In the face of turnover among policy makers, how does a city maintain among policymakers a sophisticated understanding of the landscape of city governance-an understanding of the fundamental constraints and trade-offs associated with policy choices? FISCAL BALANCE FRAMEWORK Perhaps the single greatest challenge facing cities is the ability to meet community expectations in a fiscally constrained environment. Since the Comprehensive Plan will define the long-term community vision and put into place a framework for regulatory and investment decisions it is the ideal process for considering fiscal sustainability issues. The sustainability challenge facing cities is to provide the services that the community needs (level-ofservice) at a price they can afford (reasonable tax burden). The key is that the characteristics of the community drive both the demand for services and provide the tax base that funds these services. This relationship is shown graphically in Error! Reference source not found.. Exhibit 1 Fiscal Balance Framework ( Mode of Service Delive ry I Gove rn nc I Scope of Services ~ Cost of Se rvices De m a nd for Se rvices level of Service (LOS) Man gemen t Administration Direct Services fof loo<j IOITII li!.cat i..-tllnabillty, llw1.o two...,_is """' 1><1 111 bal.an<o Population Employment Commercial Activity Oevelop<Jbl Land Location L nd B s Tax Bas Fiscal Policies Source: BERK Consulting The land base describes the cu rrent and expected future population, employment and demographic characteristics of the city. The magnitude, type, density and distribut ion of activity in the City of 2

4 Attachment 1 DISCUSS ION DRAFT!VIl:.MOFV\NDUM Woodinville will drive both the demand for public services and investments as well as becoming the foundation of the City's tax base from which funding of these needs must come. The following describes the elements of the framework and where the City can influence the balance. Cost of Services Demand for Services represents the demand for specific services to meet the needs of the community: the number of police or fire calls for service, permit requests, recreation needs, water consumption and wastewater treated, and requests to the Courthouse or City Hall for information. Governance/Scope is the statutory framework that guides how the government is organized and structured to deliver services. State law, charters, codes, and regulations guide this. Cities and counties have only limited control to change which services are mandated or discretionary. Level of Service is the level of specific service to be provided: police and fire response times, acceptable levels of traffic congestion, and number of parks. Governments may not choose whether they can provide certain direct services, but have flexibility to make choices about how services are delivered in the areas of management (overall coordination of services) and administration (planning, economic development, budgeting, information technology, human resources, and overhead). Mode of Service Delivery focuses on how direct services are delivered efficiently and productively by changing the coordination, deployment, and management of resources. Direct services include roads and streets, police, utilities, human services, and criminal justice. Mode of service delivery relates to workforce issues, front-line program implementation, and what the customer sees at the front counter. Revenue and Funding Tax Base includes property values, taxable retail sales, and commercial activity that could generate public sector revenue. Generally, there are three primary types of tax base: income, consumption, and wealth. Tax Laws are the boundaries within which the tax base can be turned into revenue to support services.l-747 changed one element of the fiscal balance equation by capping property tax levy growth. Fiscal Policies represent the government's actions to combine statutory authority and revenue capacity and to generate revenues: that is how is a government using its revenue authority to fund services? While the City has a number of policy levers to affect its fiscal balance, in practice most cities use the regular budget process to make level-of-service decisions based on revenue adequacy during each budget cycle. In this process there is often a clear tension between what people want (level-of-service) and what they are prepared to pay for (tax burden). THE SUSTAINABILITY CHALLENGE AND COMPREHENSIVE PLANNING The Comprehensive Planning process offers a unique opportunity to assess the potential long-term sustainability challenge and determine whether there are structural factors, such as land use patterns, that might improve the prospects for sustainability. In addition, these questions can be evaluated outside the specific short-term challenges of balance the current budget. 3

5 Attachment 1 DISCUSSION DRAFT MEMORANDUM In moving forward with the planning process, it important to consider the fiscal implications of various policy choices likely to be raised starting with land use alternatives. Any use of land within City boundaries will generate two counteracting fiscal forces: 1. It generates a stream of tax revenues, a share of which accrues to the City, principally from property tax, utility taxes, and retail sales tax; and 2. It generates demands for public services, including those typically provided by cities such as construction and maintenance of infrastructure, public safety services, parks construction and maintenance, recreation and community services, and a host of other City services that may be consumed less directly but are no less real. From a city's perspective, every type of land use generates a unique mix of revenues and service costs. Inevitably, some land uses are net "winners" for the City (meaning that they generate more dollars in new revenues to the City than they do costs) and some are net "losers". The inter-relationships between land uses and fiscal impacts are extremely complex, varying widely based on the place, time, and conditions surrounding the development in question. It is not enough to default to the "conventional wisdom" that residential development is a poor fiscal performer while commercial is always a net positive. While there may be some truth in this commonly held assumption, the real issue is the impact of the next wave of development on the fiscal balance of the city. Ultimately, when a city thinks about the fiscal implications of land uses, it is important to approach the questions from a strategic perspective. The city must recognize (1) potential paths for development (demand factors), (2) the true opportunities to develop a mix of uses that are mutually supporting (market opportunities), and (3) the ways in which opportunities fit with the City's goals and vision for its future. In this way, the emerging vision will be tested against the market realities facing the City and the feasibility of alternative Comprehensive Plan alternatives can be assessed in terms of the tradeoffs between an acceptable tax burden and community service and investment needs. Exhibit 2 Long-Term Sustainability Equilibrium PUBLIC INVESTMENT REQUIREMENTS Fiscal Considerations for Woodinville's Comp Plan Update As the economy stabilizes and begins to grow again, the City has an opportunity to effectively manage toward a more sustainable future using the economic recovery as a platform on which to build. In moving 4

6 Attachment 1 DISCUSSION DRAFT MfiVl(lf' i\. N f>ll Nl forward, it worth identifying some the City's fiscal issues and challenges, particularly those that will have an influence on the longer-term sustainability challenge. The City is strategically located to continue to capture employment growth and additional housing. The City has aggressively moved to align costs and revenues in recent years and has taken steps to diversify its revenue base and rebuild reserves. Streamlined sales tax mitigation funding remains uncertain from one year to the next due to the State's financial deficits. The temporary funding has partially masked the significant erosion of the sales tax base in the city. The uncertainty of the streamlined sales tax mitigation led the city to shift utility tax revenue to the general fund and offset this by targeting the streamline mitigation to transportation, where there can be greater flexibility in addressing short term revenue shortfalls. While the recession was a key factor in declining revenues, there was a concomitant dramatic decline in the productivity of its retail tax base resulting from the implementation of sales tax streamlining. As the City considers its long-term sustainability, a key question that must be addressed frontally is how much the City reasonably expects to recover in terms of the productivity of its sales tax base. The answer will depend on several factors including: determining how much of the drop is structural (SST) versus cyclical (recession); what can be expected in terms of construction activity over the next several years; and how the City's commercial base is likely to develop as Woodinville continues to mature. The City has a diversifying economic base and a good jobs-to-housing balance which provides a solid platform from which to build in a fiscally sustainable way. Development activity was a significant casualty during the recession. Cities depend on a steady flow of new development activity to support its fiscal sustainability by adding to the sales tax base (sales tax on construction) and growing the property tax base beyond the 1% limitation. The property tax levy has been maintained at a constant level for a number of years, creating banked capacity while ensuring that the City is continuing to live within its means. The city enjoys a relatively low tax burden as a result of policy choices that have been and, as such has some untapped capacity to meet future needs Cost escalation for municipal services is likely to be higher than growth of major local tax sources. This is not unique to Woodinville, but more of function of recent tax limiting measures. As revenues improve there will be pressure to reinstate previous service and staffing cuts. However, given the structural nature of some of the changes, policy makers will need to carefully consider where to invest any increments of new funding capacity. As the City begins the alternatives development and analysis phase of the Comprehensive Plan update, the following are several key questions that should be integrated into this phase. 1. Does this land use alternative improve the City's ability to grow revenues without increasing tax rates? 2. Does this land use alternative offer development opportunities that will be competitive in the marketplace of encourage a steady and sustainable level of development activity? 3. Does this land use alternative provide the opportunity to leverage existing infrastructure and service capacity, such that incremental tax revenues are not offset by significant new service costs? I 5

7 Attachment 1 DISCUSSION DRAFT MFMOHANDUM 4. Does this land use alternative increase the ta x diversity of the City and provide greater resilience in times of recession? CONCLUSIONS AND NEXT STEPS The Comprehensive Plan Update is the ideal process to introduce broader fiscal sustainability issues to the City of Woodinville's policy context. As the planning process moves into the plan alternatives phase, BERK will conduct a high-level fiscal audit of the current land use pattern and mix which will provide a basis for considering the degree to which various Comprehensive Plan alternatives and concepts might make the City's fiscal sustainability challenges more or less challenging over the next 20 years. 6

8 Attachment 2 PHONE " Flfst Avenue, Suite 800 Seattle, WA corn MEMORANDUM DATE: February 18, 2014 TO: FROM: RE: Dave Kuhl, Woodinville Development Services Director Lisa Grueter, Manager, AICP, BERK Consulting Comprehensive Plan Update Briefing At the March 4, 2014 City Council meeting we will provide a briefing on the Comprehensive Plan Update including 1 responses to City Council questions regarding employment projections and capacity from the January 14, 2014 meeting. We will also address upcoming steps on a land use and fiscal analysis, a companion to the environmental analysis of alternatives that has just begun following the seeping process in January. This memo provides information on these topics and also transmits: DRAFT Woodinville Comprehensive Plan Update, 2031 Growth Targets, 2035 Planning Estimates, and Land Capacity, November 1, 2013, available at: Existing Conditions Report, see in particular the following sections, 2.3 Housing and 2.4 Economic Development, December 2013 available at: A BERK memo describing the relationship of land use and fiscal considerations, Februa ry 18, 2014 (attached). EMPLOYMENT PROJECTIONS AND CAPACITY The City Council requested a review of the location of office uses within Industrial areas, attraction of office to the Central Business District, and general job density assumptions in the land capacity analysis. Each topic is addressed below following an overview of trends. Historic Trends As noted in the December 2013 Existing Conditions Report, Section 2.4, over the last 20 years, Woodinville has increasingly become a retail center for the local region as the City's and surrounding area's population has grown. Most of this development has occurred in Downtown Woodinville. As Downtown Woodinville develops more multifamily housing, demand for more services and small-format retail typical in denser 1 Note: Separately, MAKERS will also present an overview of key Woodinville Code Updates. Information on this is transmitted under separate cover. 1

9 Attachment 2 MEMOfU\NDUM urban areas will grow. As the City and region grows, there will also be increasing pressure to redevelop and/or improve existing retail spaces. Woodinville is a sizable industrial center in the area, and has the largest amount of industrial and warehouse space of comparable Eastside communities. The overall outlook for industrial uses likely depends on who increasingly uses these spaces in Woodinville. Existing industrial or warehouse buildings may see conversion to other higher value industrial and/or commercial uses, such as wineries. This trend is already underway in Woodinville and likely to continue as the clustering of food and beverage businesses in the City increases. Woodinville is not an office center and does not have much traditional office development. Woodinville is unique in that the majority of the office space {64%) is in industrial zones. Office spaces in industrial buildings are typically a supportive function of the primary industrial use. As a result, the demand drivers for this type of office space are more closely linked to industrial demand. Most other office uses within Woodinville would likely fall under the personal service office category. As the area's population grows there should be increased demand for personal service office space. As we can discuss at the City Council session, attracting core office space could be more challenging in Woodinville than for other office centers (e.g. Canyon Park, Totem Lake, or Overlake) that are established; however, there may be opportunities longer term to attract companies whose business owners want to live and work in a desirable community with a high quality of life. Office Use in Industrial and CBD Zones Information presented at the January 14, 2014 City Council meeting indicated that office space has been constructed in several zones including industrial zones per Exhibit 1 below. Exhibit 1. Office Development by Building Square Feet and Year Built, 2012 A \I l'u.. t.'. " 0/lt(PYI!' \ ;!~ 0 ou Plut! 0 () Source: King County Assessor, 2012; BERK, 2013?

10 Attachment 2 r.t1 F IV10 1~AN L)UNl The Woodinville Zoning Code allows office as an accessory use in Industrial zones, not to exceed 49 percent of gross floor area. Office uses are allowed in the CBD zone with no restrictions. While office uses may not be as prevalent as retail development in the CBD, the current code does allow them. Added incentives for office can be explored in the Comprehensive Plan Update, including the potential planned action and infill exemption tools. Job Capacity Some City Council members requested information on the density of jobs assumed in the employment land capacity analysis. This section summarizes our employment capacity method and results. As noted in the DRAFT Woodinville Comprehensive Plan Update, 2031 Growth Targets, 2035 Planning Estimates, and Land Capacity, November 1, 2013, the commercial land capacity analysis considered two approaches to identifying vacant and redevelopable lands. The first method uses a standard buildable lands approach, while the second relies on identifying mixed uses parcels where the existing floor area ratio (FAR) is much lower than the code allows; this alternative method was applied to parcels in Woodinville's CBD zone to identify additional redevelopable parcels not already included based on the first method. Most of the vacant employment-zoned parcels are in the Industrial zone followed by the General Business zone. Other commercial and industrial zones have limited amount of vacant parcels. The CBD zone has by far the most redevelopable parcel area with over 120 acres. Industrial and General Business zones also have sizable amounts of redevelopable parcel area. Net buildable acres represent the amount of land available for actually development after critical areas, market factors, right-of-way needs, and other factors are considered. See Exhibit 2. Exhibit 2. Commercial Buildable Land by Zone, Gross Acres Net Acres Zone Vacant Redevelopable Vacant Redevelopable CBD GB NB R-48/ TBD Total Source: City of Woodinville, 2013; BERK, 2013 To determine the job capacity on net buildable acres two key assumptions are applied: A) the assumed FAR for new development (generally based on observed permit activity), and B) needed space per employee. Our FAR analysis considered current on-the-ground FAR conditions, building permit activity, and maximum achievable FAR. For the 2013 ana lysis, the assumed FAR for the Office (0) zone was increased to 0.56 from 0.30 based on commercial permit activity. All other zones used the same assumed FAR as the 2007 Buildable Lands Report given the lack of permit activity and inconsistencies with existing built space. See Exhibit 3.

11 Attachment 2 MfMOHANOUM Exhibit 3. Floor Area Ratios (FAR) by Zone Permit Data Achieved Existing Assumed Assumed Zone Permits FAR FAR FAR FAR Max FAR CBD GB I NB R-48/ TBD INO In terms of employment densities (square feet per employee), the 2013 assumptions are the same as for the 2007 Buildable Lands Report (see Exhibit 4). A local survey of employees in the Northwest Gateway area which contains a mix of industrial and commercial space (predominantly industrial) has an average of 1 employee for 721 square feet of space). The assumed square feet for the Industrial zone is similar (700 square feet per employee). If considering McClendon's Hardware Store by itself its result is about 397 square feet per employee, similar to the 400 square feet assumption in some mixed use zones. Exhibit 4. Assumed Square Feet per Employee 2007 Zone SF/Emp. 2013SF/Emp.. CBD GB NB R-48/ TBD Based on the buildable lands analysis described above, the City has capacity for severa l thousand jobs (see Exhibit 5 and Exhibit 6). In comparison to the City's assigned growth target for , there would be a deficit of 869 jobs with the original redevelopable method and a slightly smaller deficit of 658 with the FAR based method.

12 Attachment 2 f\/1 E MORA 1\J D U lvi Exhibit 5. Employment Capacity Breakdown Original FAR Based Redevelopable Redevelopable Employment Capacity Method Method Land Capacity 3,360 3,571 Permits, Development Agreement Employment Capacity 4,131 4,342 Source: BERK, 2013; King County, 2007, City of Woodinville, 2013 Exhibit 6. Employment Capacity and 2031 Growth Target Comparison Original FAR Based Redevelopable Redevelopable Employment Capacity Method Method Target 5,000 5,000 Job Change, ,125-2, ncrement 7,125 7,125 Buildable Land Capacity 4,131 4,342 Capacity from Job Loss 2,125 2,125 Net Surplus/Deficit Source: BER K, 2013; City of Woodinville, 2013; Puget Sound Regio nal Council, 2013; King County, 2007 Builda ble Lands Report The Growth Target Comparison table shows a job loss during the recession (excluding construction jobs}, which is not unexpected. This should be acknowledged in planning efforts. Because the jobs were once "housed" in current buildings or sites, we assume the lost jobs would not require new land capacity to accommodate them. Planning for Employment Growth As described at the Council's January 14, 2014 meeting, the Comprehensive Plan Update will allow the City to consider refinements to its land use and zoning that can fulfill the City' s vision and address future employment and housing needs. Areas of focus for employment or mixed use growth include: the northern Industrial Area, Northwest Gateway, Riverfront Mixed Use and CBD. See Exhibit 7. Within the CBD, a planned action or mixed use infill exemption is under consideration to facilitate environmental review and attract growth desired in already adopted plans. The Consultant team, in collaboration with City staff, will be conducting an environmental and fiscal review of growth alternatives (see fiscal memo under separate cover}, and will bring that analysis forward with draft Comprehensive Plan Elements later in I

13 Attachment 2 fvi F IVl ORI\N DU 1\11 Exhibit 7. Preliminary Alternative Concepts General Concepts Making Policies and Code Work Better. For example:.,.. Accessory Dwelling Units.,.. Housing Incentives in CBD.,.. Other ideas from recent dockets and residen tial code updates litate vision of great!lr jobs and \ housing_ Facilitating the Vision of the CBD:.,.. lnfill Exemption. OR.,.. Planned Action '"'..\,,lo_.c;,. "''"l r,-...,"'~ r~'"' '-' ff'l!'ler..,xy.:i!;,\-"'~h O,t!-l-1 Riverfront: use options and 0 makejthe river fr~r! ~,9.~, ~ comml~ty C,1 amenity. Review job mix. U "'t.tlo~,, T ~ t,;:sth'j f1~~ J.. r.. :ty l'<'!>:d~<'!:'<.jiiot q