Economic Evaluation and Fiscal Impact Analysis of Gateway Oyster Point

Transcription

1 Report Economic Evaluation and Fiscal Impact Analysis of Gateway Oyster Point Prepared for: BioMed Realty Prepared by: Economic & Planning Systems, Inc. April 9, 2013 EPS #131017

2 Table of Contents 1. INTRODUCTION AND SUMMARY OF FINDINGS... 1 Summary of Key Findings ECONOMIC CONTEXT OF PROJECT The Biotechnology Industry PROJECT DESCRIPTION Project Employment Project Assessed Value ECONOMIC IMPACTS Biotech Development Employment Annual Fiscal Revenue Development Impact Fees FISCAL METHODOLOGY AND ASSUMPTIONS General Fund Revenues General Fund Expenditures APPENDIX A: Fiscal Model

3 List of Tables Table 1 Project Description Summary... 6 Table 2 Annual Fiscal Impact Summary at Project Buildout (2013$)... 7 Table 3 Annual Fiscal Impact Summary by Phase (2013$)... 8 Table 4 Expanded Annual Fiscal Impact Summary (2013$)... 9

4 1. INTRODUCTION AND SUMMARY OF FINDINGS At the request of BioMed Realty, Economic & Planning Systems, Inc. prepared this economic evaluation and fiscal impact analysis of the proposed Gateway Oyster Point development project (Project) in the City of South San Francisco. The total development program includes 1.23 million square feet of new developed Floor Area Ratio (FAR) space, consisting primarily of office/life science space and including approximately 48,000 gross square feet of amenity space. Approximately 3,200 above- and below-grade structured parking spaces are proposed to serve on-site employees and visitors. The on-site open space will be privately-maintained. The Project is proposed to be developed in four phases, with the first phase consisting of the iconic statement buildings at the corner of Oyster Point Boulevard and Gateway Boulevard, which will be visible from Highway 101 and to all vehicles exiting Highway 101 at Oyster Point. The analysis evaluates the fiscal effects by individual phase and at full buildout. Chapter 2 describes the economic context of the Project, and Chapter 3 provides description of the Project. Associated economic impacts are described in Chapter 4, and a detailed explanation of the methodology and assumptions can be found in Chapter 5. Appendix A provides the complete fiscal model in detail. Summary of Key Findings This report evaluates the proposed development program for the Project, presented in Table 1. The analysis is focused on the net new impact of the Project (future development less existing development) and the net fiscal impact to the City s General Fund (gross revenues less gross expenditures). The key findings of the fiscal impact analysis are described below and shown in Table 2, with results by phase shown in Tables 3 and 4. All results are in constant 2013 dollars. Below is a summary of the preliminary key economic and fiscal findings regarding this Project. 1. The Gateway Oyster Point Project will enhance the strength and vitality of South San Francisco s biotechnology and life sciences industry cluster, further establishing the City s reputation as a competitive and desirable place for biotech businesses to locate. The San Francisco Bay Area is one of the largest national and global concentrations of biotechnology, and South San Francisco possesses the largest amount of existing life sciences square footage among all Bay Area sub-markets with nearly 6 million square feet of supply. South San Francisco is within proximity to the Bay Area s major research centers and venture capital providers. As a result, South San Francisco is well-positioned to capture both established and emerging biotechnology companies seeking a location with access to skilled labor, research institutions and venture capital. The City also competes well based on its high-quality housing and neighborhoods that are relatively less expensive compared with San Francisco/other Silicon Economic & Planning Systems, Inc. 1 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

5 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 Valley cities as well as accessibility to a number of highly desirable communities throughout the Peninsula. 2. The Gateway Oyster Point Project represents a significant upgrade in the quality of design and construction and provision of campus amenities from what was originally proposed in the 2010 Master Plan. The Project Sponsor has re-planned and re-configured the Gateway Oyster Point campus to take advantage of the Project site s prominent location at the corner of Oyster Point Boulevard and Gateway Boulevard. The Project is envisioned to be an architecturally significant, Class A structure that will attract premium tenants at premium lease rates. A significant upgrade to the quality of design and finish is anticipated. 3. The Gateway Oyster Point Project will contribute to the implementation of the City s General Plan objectives for the Oyster Point area. There is an existing cluster of biotechnology firms located in the Oyster Point area and more than adequate infrastructure (e.g., roadway capacity, access to transit including the ferry, utility capacity, public safety service capacity) to accommodate the increased activity. The Gateway Oyster Point project can benefit from the existing infrastructure and industry activity and simultaneously catalyze future development toward realization of the City s objectives for the Oyster Point area. While it is reasonable to expect that a project of this scale and quality would induce fiscal benefits (i.e., increased property values) in the surrounding area, this analysis does not estimate these induced effects and instead focuses on those fiscal effects that are directly attributable to the Project (construction and operations). 4. At buildout, The Gateway Oyster Point Project proposes approximately 1.2 million square feet of R&D Biotech space and 33,000 square feet of amenity space for a total of 1.23 million square feet of developed FAR, which, if fully leased, will support approximately 4,000 jobs. The R&D space is expected to support approximately 3,900 highly-paid employees at an employment density of three jobs per 1,000 square feet, which is consistent with the assumptions in the Project s Transportation Demand Management Study. The average salary of a biotech employee in San Mateo County is $191,000, as of The Amenity space is expected to support approximately 100 jobs, based on a retail employment density of 500 square feet per employee. There are approximately 790 employees currently employed at the Project Site. Therefore, the net new employment generated by the Project is 3,200 jobs. At the completion of Phase I, the new development will provide capacity for 1,450 new employees. 1 Based on the 2011 Quarterly Census of Employment and Wages of NAICS Research and Development in Biotechnology for San Mateo County. Economic & Planning Systems, Inc. 2 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

6 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 5. Construction of the Gateway Oyster Point Project will support approximately 3,000 temporary person-years of employment. Based on the estimated construction costs, the proportion of construction costs typically allocated to labor, and the average salary of a construction worker in the South San Francisco area, the development of the Gateway Oyster Point Project will support approximately 3,000 temporary person-years of employment. More specifically, the number of jobs associated with the construction activity of the Project depends on the construction timeline. If the entire Project were developed in one year, there would be support for 3,000 jobs in that year. If the Project were to develop over a 10-year horizon, the Project would support 300 jobs for each of the ten years of construction activity. 6. At the completion of Phase I, the Gateway Oyster Project will generate a fiscal surplus over and above the revenues required to cover the costs to the City of providing public services. The fiscal impact of the Project on the City s General Fund at the completion of Phase I will be positive, with the revenues generated by the Project estimated to be greater than the costs of providing additional public services. By the end of Phase I, the Project is expected to generate annual revenues of approximately $1.0 million. General Fund costs will sum to approximately $236,000 annually. The resulting net impact on the General Fund will be an annual positive surplus in the range of $769,000. The surplus is driven primarily by the property tax generated by the proposed Project, which is particularly high due to the anticipated high quality of the proposed construction and the value of the unsecured property associated with R&D space. 7. At buildout, the Gateway Oyster Project will generate a fiscal surplus over and above the revenues required to cover the costs to the City of providing public services. The fiscal impact of the Project on the City s General Fund at Project buildout will remain positive, with the revenues generated by the Project estimated to be greater than the costs of providing additional public services. By buildout, the Project is expected to generate annual revenues of approximately $3.0 million. General Fund costs will sum to approximately $523,000 annually. The resulting net impact on the General Fund will be an annual positive surplus in the range of $2.5 million. This buildout analysis demonstrates that the Project will be able to cover its service costs and provide surplus revenues to increase levels of service in other parts of the City. 8. General Fund revenues will come from a number of sources, though property tax will make up the majority of the City s new revenues. At Project buildout, Property Tax is expected to comprise 66 percent of the Project s revenues to the General Fund, with Property Tax in-lieu of VLF, Sales Tax, and Transient Occupancy Tax (TOT) together contributing another 30 percent. Property Tax revenues are based on the estimated assessed value of the property post-buildout and are estimated at approximately $1.98 million per year. The incremental assessed value of the property also drives the Property Tax in-lieu of VLF estimate, which is $533,000 per year. The new R&D space will generate business travel and demand for hotel stays. The TOT is estimated at Economic & Planning Systems, Inc. 3 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

7 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 approximately $112,000 each year. Sales tax revenues are based on an estimate of future employee spending in the City, business-to-business sales, and sales associated with food, drink and other incidental expenditures by hotel guests and are expected to be approximately $234,000 per year. Figure 1 below illustrates the composition of the annual Project-generated General Fund revenues at Project buildout. Figure 1 Composition of General Fund Revenues at Project Buildout Total annual General Fund revenues of $3.0 million at Project Buildout (see Table A-9 for additional detail). 9. Public Safety is expected to be the highest General Fund service expenditure item associated with the Project, followed by Public Works and General Government. New Public Safety expenditures, including police and fire services, will make up about 85 percent of new General Fund costs at approximately $442,000 each year at Project buildout. Public Works services comprise the next highest proportion of total costs at around $31,000 per year. General Government costs are expected to be approximately $15,000 each year, while Library costs are expected to be approximately $10,000 per year. Figure 2 below illustrates the composition of the annual Project-generated General Fund expenditures at Project buildout. Economic & Planning Systems, Inc. 4 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

8 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 Figure 2 Composition of General Fund Expenditures at Project Buildout $30,656 6% $14,746 $10,070 $25,216 3% 2% 5% Fire $240,218 46% Police Public Works Parks & Recreation General Government $202,058 38% Library Total annual General Fund expenditures of $523,000 at Project Buildout (see Table A-14 for additional detail). 10. Development of the Gateway Oyster Point Project will generate approximately $13.0 million in one-time development impact fee revenue. The development of Gateway Oyster Point will generate one-time development impact fees in addition to annual fiscal revenues. About $13.0 million in one-time impact fees to the City of South San Francisco is projected to help fund new or expanded public infrastructure improvements. At this time it is not clear if the Project will pay Childcare Impact Fees. Also at this time it is assumed that the Project will abate 50 percent of the Park in-lieu Fees and pay the remaining 50 percent. Total fee revenue could increase if the Childcare Impact Fee is required. Economic & Planning Systems, Inc. 5 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

9 Table 1 Project Description Summary, Phase I and Buildout Economic Evaluation and Fiscal Impact Analysis of Gateway Oyster Point; EPS # Land Use Phase I Buildout Office/R&D (Gross Square Feet) [1] 451,485 1,303,114 Amenity (Gross Square Feet) [2] 47,938 47,938 Total, All Buildings (Gross Square Feet) [3] 499,423 1,351,052 Parking (Spaces) 692 3,272 [1] Approximately 1.2 million square feet of Office/R&D space contribute to the net FAR. [2] Approximately 33,000 square feet of Amenity space contribute to the net FAR. [3] Total net FAR is expected to be approximately 1.23 million square feet at buildout. 6 Sources: Gateway Oyster Point Draft EIR; FLAD Architects; BioMed Realty; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 4/9/2013 P:\131000s\131017OysterPt\Model\131017FiscalModel_ xlsx

10 Table 2 Annual Fiscal Impact Summary, Phase I and Project Buildout (2013$) Economic Evaluation and Fiscal Impact Analysis of Gateway Oyster Point; EPS # City General Fund Phase I Buildout Revenues $1,005,000 $3,011,000 Expenditures $236,000 $523,000 Net Annual Fiscal Balance $769,000 $2,488,000 Note: The results of this fiscal impact analysis reflect those effects that are directly attributable to the development of the Project and do not include induced effects (e.g., positive effects on adjacent property values) that may also occur. 7 Sources: City of South Francisco; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 4/9/2013 P:\131000s\131017OysterPt\Model\131017FiscalModel_ xlsx

11 Table 3 Annual Fiscal Impact Summary by Phase (2013$) Economic Evaluation and Fiscal Impact Analysis of Gateway Oyster Point; EPS # City General Fund Phase I Phase II Phase III Phase IV Buildout Revenues $1,005,000 $639,000 $797,000 $609,000 $3,011,000 Expenditures $236,000 $147,000 $161,000 $107,000 $523,000 Net Annual Fiscal Balance $769,000 $492,000 $636,000 $502,000 $2,488,000 Note: The results of this fiscal impact analysis reflect those effects that are directly attributable to the development of the Project and do not include induced effects (e.g., positive effects on adjacent property values) that may also occur. Sources: City of South San Francisco; Economic & Planning Systems, Inc. 8 Economic & Planning Systems, Inc. 4/9/2013 P:\131000s\131017OysterPt\Model\131017FiscalModel_ xlsx

12 Table 4 Expanded Annual Fiscal Impact Summary (2013$) Economic Evaluation and Fiscal Impact Analysis of Gateway Oyster Point; EPS # Category Phase I Phase II Phase III Phase IV Buildout City General Fund Revenues Property Tax $652,195 $416,398 $515,452 $400,547 $1,984,591 Transient Occupancy Tax $50,689 $31,706 $34,531 $23,055 $112,476 Sales Tax $62,443 $38,557 $65,157 $49,071 $234,459 Business License Tax $33,975 $21,252 $23,145 $15,453 $75,390 Property Tax In-Lieu of VLF $173,588 $110,828 $137,192 $106,609 $532,995 Franchise Fees [2] $23,847 $14,917 $16,246 $10,847 $52,916 Fines & Forfeitures $8,391 $5,249 $5,716 $3,817 $18,620 Total General Fund Revenues $1,005,128 $638,906 $797,439 $609,399 $3,011,446 9 City General Fund Expenditures General Government [1] $6,646 $4,157 $4,527 $3,023 $14,746 Public Safety Police $91,060 $56,959 $62,033 $41,418 $202,058 Fire $108,258 $67,716 $73,749 $49,240 $240,218 Public Works $13,816 $8,642 $9,412 $6,284 $30,656 Library $4,538 $2,839 $3,092 $2,064 $10,070 Parks & Recreation $11,364 $7,108 $7,741 $5,169 $25,216 Total General Fund Expenditures $235,681 $147,421 $160,554 $107,197 $522,964 City General Fund - Net Annual Fiscal Balance $769,447 $491,485 $636,885 $502,202 $2,488,482 Note: The results of this fiscal impact analysis reflect those effects that are directly attributable to the development of the Project and do not include induced effects (e.g., positive effects on adjacent property values) that may also occur. Sources: City of South San Francisco; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 4/9/2013 P:\131000s\131017OysterPt\Model\131017FiscalModel_ xlsx

13 2. ECONOMIC CONTEXT OF PROJECT To evaluate the economic effects of The Gateway Oyster Point Project and the ways in which the Project may act to catalyze additional growth and development in the Oyster Point area, the Project needs to be evaluated within the economic context of South San Francisco and the region. The Biotechnology Industry Biotechnology, often abbreviated biotech, includes any businesses engaged in the research and development of technologies that interact with biological organisms or processes to produce commercial products and applications. This includes both high-level scientific research and manufacturing of resultant commercial products, the development of human medical applications as well as non-medical applications such as genetically-modified foods. Biotechnology is a cutting-edge and research-dependent field that thrives in locations including major research universities and venture capital. Global and National Context According to Ernst & Young s report Beyond Borders: Global Biotechnology Report 2010, 2 established concentrations of the biotechnology industry are located in the United States, Europe, Canada, and Australia, while China and India feature large, rapidly emerging biotechnology sectors. Small and large biotechnology companies alike compete on a global scale since product development occurs at globally-competitive institutions and companies, and manufacturing and distribution of products can be located worldwide. Global competition in all fields of biotechnology will intensify as India and China grow their educated workforces, emphasize development of cutting-edge research through government investments, and take advantage of their continued economic growth and low costs. Within the United States, the largest biotechnology clusters are found in the San Francisco Bay Area and Boston regions. These regions formed the earliest concentrations of biotechnology companies in the 1970s and are distinguished by their large concentrations of universities, highlevel research and development companies, and concentrations of venture capital. The United States biotechnology industry experienced minimal job losses between 2008 and 2010 despite overall national and global economic health and appears to once again be healthy and poised for additional growth. 2 Ernst & Young. Beyond Borders: Global Biotechnology Report Economic & Planning Systems, Inc. 10 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

14 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 Bay Area Context As mentioned above, the San Francisco Bay Area is one of the largest national and global concentrations of biotechnology. The region benefits from its inclusion of numerous research universities, research hospitals such as UC San Francisco, and the highest concentration of venture capital in the nation. Looking ahead, the greatest challenge to the Bay Area s biotechnology competitiveness comes from talent attraction and retention. The local biotechnology industry is well-established and dominant, but reports by Joint Venture Silicon Valley and other Bay Area economic development organizations, coupled with global growth trends of the cluster, indicate that it will become increasingly difficult to fill positions left open by retiring baby boomers. In addition, recent industry growth in Orange, San Bernardino and Riverside Counties has far outpaced that of the Bay Area, reflecting a number of factors such as the continuing implementation of cost-cutting measures within the industry as discussed in the 2012 BayBio Biomedical Industry Report. However, the Bay Area still outpaces all other California locations in venture capital dollars, the main driver for research and development in biotechnology and medical devices and will likely remain the leading biotechnology hub in the state. South San Francisco South San Francisco possesses the largest amount of existing life sciences square footage among all Bay Area sub-markets with nearly 6 million square feet and a healthy vacancy rate (6.82%) 3. Furthermore, South San Francisco is within close proximity to the Bay Area s major research centers and venture capital providers. As a result, South San Francisco is well positioned to capture both established and emerging biotechnology companies seeking a location with access to skilled labor, research institutions and venture capital. The City also competes well based on its inclusion of high-quality housing and neighborhoods that are relatively less expensive compared San Francisco/other Silicon Valley cities as well as accessibility to a number of highly desirable communities throughout the Peninsula. Given this context, the Gateway Oyster Point Project will enhance the strength and vitality of South San Francisco s biotechnology and life sciences industry cluster, further establishing the City s reputation as a competitive and desirable place for biotech businesses to locate. 3 Cornish & Carey. Bay Area Life Science: Market Report. Q Economic & Planning Systems, Inc. 11 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

15 3. PROJECT DESCRIPTION This analysis evaluates the annual fiscal effects of the proposed development of the Gateway Oyster Point Project (the Project) in the City of South San Francisco. The 22.6-acre project site is located at the corner of Gateway Boulevard and Oyster Point Boulevard. There are currently six single-story office/light industrial buildings on the site that, over the course of four phases, will be taken down to allow the development of 1.23 million square feet of primarily R&D space and associated parking. This analysis evaluates the impact of the net new development new construction less existing development so as not to double-count fiscal revenues or costs. The surrounding area includes a mix of R&D, light industrial and office employment uses and hotels. There are nearby vacant sites that are planned for development. Under the development program (the Project), a new R&D/life science campus is planned that would consist of 1.23 million square feet of development assuming a floor area ratio (FAR) of See Table A-1 for a detailed Project description and land use assumptions. The new space will be developed in six buildings: five R&D buildings and one amenities building. The amenities building is not fully programmed yet, but could offer child care, a fitness center, incidental retail, and food service. The Project is expected to provide 3,272 parking spaces through a mix of structured and underground lots. Additionally, there are open space and landscaped areas that are planned as part of the Project which will be accessible to the public. Though not officially part of the Project, 180 and 200 Oyster Point Boulevard are two recentlydeveloped R&D buildings (now owned by BioMed Realty, the Gateway Oyster Point Developer) that are expected to function as part of the Gateway Oyster Point campus. Construction is expected to occur in four phases, as shown on Table A-1, with the first phase consisting of the iconic statement buildings at the corner of Oyster Point Boulevard and Gateway Boulevard, which will be visible from Highway 101 and to all vehicles exiting Highway 101 at Oyster Point. The underground parking and the Amenity Building will also be part of the first phase. Project Employment The planned R&D space is expected to support three employees per 1,000 square feet and the amenities center is expected to support one employee per 500 square feet. At Project buildout, the development is expected to accommodate 4,003 employees, as shown on Table A-2. There are currently approximately 787 employees employed at the site. The new development will result in net new employment of 3,216. Because this Project will not directly generate any new residents, demand for public services will be driven by Project employees. For purposes of estimating public service costs, the number of new employees is converted to a residentequivalent or daytime population, which is typically calculated by adding the total residential population and one-half of employment in this case, just one-half of employment. The Project will support a daytime service population of 1,298. Economic & Planning Systems, Inc. 12 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

16 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 Project Assessed Value To estimate the assessed value of the Project, this analysis relies on development costs provided by the Developer. Development costs include hard and soft construction costs and tenant improvements and are approximately $900 per square foot for the R&D space and approximately $800 per square foot for the amenity space. The unsecured assessed value is estimated at 25 percent of the secured assessed value, consistent with information provided by existing tenants at the Project site. The actual assessed value of the Project will be determined by the County Assessor s Office at the time of assessment. The total assessed value of the Project less the existing assessed value of the Project represents the net new assessed value, which is the basis of the property tax-related calculations in this analysis. The existing assessed value of the Project site is shown on Table A-3 and the new assessed value of the Project is shown on Table A-4. Economic & Planning Systems, Inc. 13 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

17 4. ECONOMIC IMPACTS Development of the Gateway Oyster Point Project will result in a number of benefits - some quantifiable, others not - to the City of South San Francisco. These benefits include economic development activity in a targeted area of the City, employment growth, increase in fiscal revenues and collection of development impact fees. These benefits are described below and shown in Table A-5. Biotech Development The Project is intended to create a high-density, iconic, high-quality bioscience space that adds approximately 1.2 million net new square feet of R&D space to the Oyster Point area of South San Francisco. The new space will support the ongoing evolution of the life sciences industry and continued development of the biotech cluster in South San Francisco. The new development is planned as a pedestrian friendly campus within proximity to the Caltrain station, BART and the recently-opened ferry terminal. Employment EPS estimates that development of the Gateway Oyster Point Project will support approximately 4,000 jobs, or 3,200 net new jobs after accounting for existing employment on the Project site. The majority of these jobs are expected to be in the biotech industry, with average annual salaries of approximately $191,000. EPS also estimates that development of the Gateway Oyster Point Project will create temporary construction jobs during the period of development. Assuming a Project development cost of approximately $700 million, construction of the new buildings is estimated to create approximately 3,000 one-time construction jobs over the construction period. New development projects can often generate economic multiplier effects as the businesses and the employees they support spend money in the local economy. Consequently, the new commercial space planned for the Project is likely to create more jobs in South San Francisco than those that are directly attributable to on-site employment. Economic multipliers are based on the concept that new demand for goods and services creates a ripple effect throughout the economy, as supplying firms hire workers and purchase other inputs necessary for production. Annual Fiscal Revenue As described in the following chapters, the City s annual fiscal revenues will increase by approximately $2.5million, due primarily to property-tax related revenues and sales tax revenues which will increase due to net new employment. The high quality of construction will increase the assessed value of the Project site and will generate new property tax related revenues to the City. New employees generated by the Project are estimated to spend about 10 percent of their total expenditures in South San Francisco though this estimate could be higher to the extent that the City s competitive retail supply can be effectively capitalized. Economic & Planning Systems, Inc. 14 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

18 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 Development Impact Fees The development of Gateway Oyster Point will generate one-time development impact fees in addition to annual fiscal revenues. As shown in Table A-6, about $13.0 million in one-time impact fees to the City of South San Francisco is projected to help fund new or expanded public infrastructure improvements. At this time it is not clear if the Project will pay Childcare Impact Fees. Also at this time, it is assumed that the Project will abate 50 percent of the Park in-lieu Fees and pay the remaining 50 percent. Development impact fees may change as the Project moves forward and are subject to review by an engineer. Economic & Planning Systems, Inc. 15 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

19 5. FISCAL METHODOLOGY AND ASSUMPTIONS This chapter describes the methodology and key assumptions used in estimating the fiscal impacts of the Gateway Oyster Point Project. The analysis is based on a number of sources including the City of South San Francisco's Adopted Operating Budget; City, County, and State data sources; public real estate data, data provided by BioMed Realty, and EPS s recent experience in South San Francisco and comparable jurisdictions. The analysis describes annual operating costs and revenue impacts on the City s General Fund. All revenue and expenditure forecasts are in constant 2013 dollars. For the purpose of evaluating the potential fiscal impact of the Project, this analysis considers impacts by phase and at buildout. The analysis uses standard estimating procedures to estimate new General Fund revenues and an average cost approach to estimate the incremental General Fund costs to the City of providing services to the Project. The average cost approach provides a planning-level estimate of the costs of supplying public services to the Project. Key assumptions and calculations are shown in Appendix Tables A-7 through A-16. General Fund Revenues This section describes the methodology and assumptions used for each General Fund revenue item. Citywide demographic assumptions that are used to estimate Project impacts are shown on Tables A-7 and A-8. Table A-9 provides a summary of the City's current General Fund revenues as estimated in the Adopted Operating Budget as well as impact estimating factors. A general description of the method used for this analysis is provided for each revenue item. Some items are not forecasted because they are not expected to be affected by the Project (e.g., intergovernmental revenues). Property Tax Though the actual assessed value of the Project will be determined by market conditions at the time of sale or assessment, this analysis relies on development costs to estimate the future secured assessed value of the Project. The new office/r&d space is assumed to generate assessed value of approximately $900 per square foot (including tenant improvements), and the amenity building is assumed to generate assessed value of approximately $800 per square foot. The associated unsecured value can be significant for R&D buildings that often include lab equipment. This analysis assumes the unsecured value is approximately 25 percent of the secured value, consistent with ratios of the existing tenants at the project site. The assessed value of the parking structures are based on weighted-average construction costs of approximately $38,000 per space, as provided by the developer. The underground spaces are estimated to cost approximately $50,000 per space and the structured parking spaces are estimated to cost approximately $35,000 per space. Full calculations are shown on Table A-4. Economic & Planning Systems, Inc. 16 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

20 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 The annual property tax is 1 percent of assessed value, and the City receives approximately 16.9 percent of property taxes collected in the Project site s Tax Rate Area. 4 Approximately 17 percent is shifted to the State s Educational Revenue Augmentation Fund (ERAF). Taxes are calculated based on the net increase in assessed value from the existing assessed value of the proposed Project site, including the existing structures. Property tax is estimated as a net increase from the Project site s existing assessed value (secured and unsecured) of approximately $196 million. The annual property tax forecast at Project buildout is illustrated on Table A-10. While it is reasonable to expect that a project of this scale and quality would induce fiscal benefits (i.e., increased property values and increased property taxes) in the Project vicinity, this analysis does not estimate these induced effects and instead focuses on the property tax that is directly attributable to the Project. Property Tax in-lieu of VLF Revenue Property Tax in-lieu of VLF revenue is based on the growth of assessed value in the City. Based on the increase in Citywide assessed value that is expected to result from the Project over South San Francisco s base assessed value, Property Tax in-lieu of VLF revenue is expected to be approximately $534,000. These calculations and results are presented in Table A-11. Transfer Tax The City receives real property transfer tax for any property that is sold at a rate of $0.55 for every $1,000 of value. Because the entire campus will be owned by the Developer and then leased to one or more tenants, General Fund revenue from real property transfer tax will only materialize if and when the Developer sells the property. Because this is likely to be an irregular and infrequent occurrence, this analysis does not calculate transfer tax revenue. Transient Occupancy Tax (TOT) Though the Project does not include an on-site hotel, the new business activity is expected to generate demand for new hotel stays at a rate of 3.75 room nights per employee, based on previous EPS research. 5 As shown on Table A-12, an average transient occupancy tax amount is estimated per room night based on 2012/13 TOT revenue projections and the number of room nights available in the City assuming an 85 percent occupancy rate. The TOT rate is currently 10 percent, all of which goes to the General Fund. There is an additional Conference Center Tax (CCT) which is charged at the rate of $2.50 per occupied room and goes to the South San Francisco Conference Center. Sales Tax The Gateway Oyster Point Project is expected to generate sales tax in several ways: through employee spending on site and in the City, through spending in the City by hotel guests, and through business-to-business sales. To estimate the level of new retail sales generated by new 4 Based on pre-eraf City allocation for the relevant tax rate area. 5 An average based on previous EPS studies in Chula Vista and San Ramon. Economic & Planning Systems, Inc. 17 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

21 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 employees, retail expenditures as a percentage of an average annual per bio-tech employees are calculated, as shown in Table A-13. About 10 percent of total taxable expenditures are estimated to be captured by retailers located in South San Francisco, most of which is likely to occur on site through the purchase of prepared food. Off-site spending by employees is assumed to be modest given the location of the Project relative to other retail opportunities in the City. Of these sales, the City will collect 1 percent in sales tax from expenditures in the City. As described in the TOT discussion, new business activity is expected to generate demand for new hotel stays. These stays are likely to generate additional sales tax through the sale of prepared food and drink and other incidentals at the hotels and nearby establishments. Based on rates provided by the U.S. General Services Administration, EPS has assumed the amount spent on meals and incidentals is $61 per day 6 and 40 percent of these sales will be captured within the City. Of these sales, the City will collect 1 percent in sales tax from expenditures in the City. Sales tax generated by business-to-business sales is assumed to be $22 per employee based on previous EPS analyses and is calculated on Table A-13. Business License Tax The City of South San Francisco collects annual business license taxes. Business license taxes are estimated on a per employee basis as shown on Table A-9. Franchise Fees Franchise fees are paid by providers of cable, utilities, and waste management services in the City. The fee ranges from 0.5% to 10% of gross receipts depending on the type of service provided. Franchise fees are estimated on a per daytime service population basis as shown on Table A-9. Fines, Forfeitures, and Penalties The Adopted Operating Budget indicates that the City will receive approximately $1.17 million, or roughly $14.34 per daytime service population, in revenue from fines, forfeitures, and penalties. It is expected that the City will continue to collect fines and fees at this per daytime service population rate (see Table A-9). General Fund Expenditures This section describes the methodology and assumptions used for the General Fund expenditure items. Table A-14 provide a summary of the City's current General Fund expenditures as estimated in the Adopted Operating Budget as well as impact estimating factors. A general description of the method used for this analysis is provided for each item. A number of expenditure items are calculated on a per-daytime population basis. 6 FY 2012 Per Diem Rates for San Mateo / Foster City / Belmont, California Economic & Planning Systems, Inc. 18 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

22 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 General Government According to the City s Adopted Operating Budget, the City spends $6.16 million per year to provide General Government services, which specifically include the City Council, City Clerk, City Treasurer, City Attorney, City Manager, Finance, Non-Departmental, and Human Resources divisions. This analysis assumes that 15 percent of General Government costs are variable and likely to increase with the addition of new service population. Therefore costs resulting from the Gateway Oyster Point Project are estimated at approximately $11 per daytime service population (see Table A-14). Public Safety Through discussions with City staff, the police and fire departments have sufficient capacity to serve the new development. 7 The existing development is adequately served and the net new development will not require the construction of additional facilities to serve the area. EPS s calculations of public safety expenditures show the costs to maintain current service levels and thus represent a conservative (i.e., high) estimate of expenditures stemming from the project. They do not intend to suggest that any particular changes to staffing or organization structure will be required to serve the project adequately. Police Police expenditures in the City of South San Francisco include Police Patrol, Records & Communications, and Investigations. To capture the full cost of the police protection that will serve the Project, without consideration for the existing service capacity, EPS assumes that the current service level of 0.89 patrol officers per 1,000 daytime service population would be maintained and applied to the Project, resulting in a need for the equivalent of 1.2 new officers. An estimated annual average cost of $174,000 per officer (including employee costs and supplies and services) is applied to the projected number of new patrol officers that would be required by the Project s new daytime population at buildout. Forecasted police enforcement expenditures are illustrated in Table A-15. Fire Fire expenditures in the City of South San Francisco include Administrative, Fire Prevention, and Emergency Medical Services/Operations divisions. To capture the full cost of the police protection that will serve the Project, without consideration for the existing service capacity, EPS assumes that the current service level of 0.88 fire fighters per 1,000 daytime service population would be maintained and applied to the Project, resulting in a need for the equivalent of 1.1 new fire fighters. An estimated annual average cost of $211,000 per fire fighter (including employee costs and supplies and services) is applied to the projected number of new fire fighters that would be required by the Project s new daytime population at buildout. Forecasted fire expenditures are illustrated in Table A Meeting with Mike Lappen, February Economic & Planning Systems, Inc. 19 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

23 Fiscal Impact Analysis of Gateway Oyster Point Report 04/09/13 Economic & Community Development Beyond the Project planning stages, it is assumed that the Project will not generate demand for Economic & Community Development Services. It is not likely that the City would need to hire additional staff or otherwise increase Department resources to manage this Project s planning and approval. Public Works This department provides engineering, streets and storm drainage maintenance, sewer maintenance, fleet maintenance and operates the water quality control plant. The Public Works department will incur a marginal increase of costs associated with normal wear and tear elsewhere in the City from the Project s net new employees. Based on a review of the Department budget, the department s costs are assumed to be 60 percent variable, resulting in expenditures of $23.60 per daytime service population. Estimated total annual costs are shown in Table A-13. Library According to the City s Adopted Operating Budget, the City spends $4.2 million per year to provide Library services to the community. Though this Project is unlikely to trigger demand for additional library services, this analysis conservatively assumes that 15 percent of Library costs are variable and likely to increase with the addition of new service population. Therefore costs resulting from the Gateway Oyster Point Project are estimated at approximately $7.75 per daytime service population (see Table A-14). Parks and Recreation The Parks and Recreation department provides parks, facilities, and common green area maintenance services as well as recreation-related services for the City. The City of South San Francisco offers recreational opportunities that employees at the Site might be interested in joining, as part of a company-sponsored team or as an individual. In addition, the Site is located close to trails and parks that could be utilized by Project employees. To account for this use, EPS assumes 15 percent of the Parks and Recreation budget is variable, resulting in expenditures of nearly $20 per daytime service population (see Table A-14). The Project s site plan includes open space and landscaped areas, which will be privately maintained. Economic & Planning Systems, Inc. 20 P:\131000s\131017OysterPt\Report\131017_GatewayOysterPt_040913_v2.doc

24 APPENDIX A: Fiscal Model

25 Table A-1 Detailed Program Description by Phase Economic Evaluation and Fiscal Impact Analysis of Gateway Oyster Point; EPS # Total Planned Item Current Phase I Phase II Phase III Phase IV Development Existing Sq.Ft. 280, ,787 sq.ft. Demolish Sq.Ft ,367 49,273 55,069 74, ,787 sq.ft. Remaining Sq.Ft. 280, , ,147 74, sq.ft. New Construction (Gross Sq.Ft.) 0 499, , , ,890 1,351,052 sq.ft. New Construction (Developed FAR Sq.Ft.) [1] 0 419, , , ,419 1,230,570 sq.ft. Total, Remaining and New (Developed FAR Sq.Ft.) 280, , , , ,419 1,230,570 sq.ft. Net Cumulative FAR (Sq.Ft.) 280, , ,642 1,095,229 1,230,570 1,230,570 sq.ft. New Commercial Office / R&D (Gross Sq.Ft.) 0 451, , , ,890 1,303,114 sq.ft. Amenity (Gross Sq.Ft.) 0 47, ,938 sq.ft. Subtotal (Gross Sq.Ft.) 0 499, , , ,890 1,351,052 sq.ft. Office / R&D (Developed FAR Sq.Ft.) 0 386, , , ,419 1,197,352 sq.ft. Amenity (Developed FAR Sq.Ft.) 0 33, ,218 sq.ft. Subtotal (Developed FAR Sq.Ft.) 0 419, , , ,419 1,230,570 sq.ft. Total Net New (Developed FAR Sq.Ft.) 0 241, , , , ,783 sq.ft. Parking (Spaces) ,080 3,272 spaces [1] In Phase I, 69,940 square feet of basement space are constructed that do not contribute to the Developed Floor Area Ratio (FAR) per Section of the City's Mu Sources: Gateway Oyster Point Draft EIR; FLAD Architects; BioMed Realty; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 4/9/2013 P:\131000s\131017OysterPt\Model\131017FiscalModel_ xlsx

26 Table A-2 Employee Generation Assumptions by Phase Economic Evaluation and Fiscal Impact Analysis of Gateway Oyster Point; EPS # Item Assumption Current Phase I Phase II Phase III Phase IV Total Existing Employees Remaining Sq.Ft. of Existing Space 280, , ,147 74, ,787 sq.ft. Remaining Sq.Ft. of Leased Space 145, , ,000 70, ,000 sq.ft. Number of Employees [1] employees New Employees New Office / R&D (Sq.Ft.) 0 451, , , ,890 1,303,114 sq.ft. Number of Employees [2] 3 per 1,000 sq.ft. 0 1, ,909 employees New Amenity (Sq.Ft.) 0 47, ,938 sq.ft. Number of Employees [3] 2 per 1,000 sq.ft employees Total Employees 787 2,237 1,469 1, ,005 employees Total Net New Employees 0 1, ,218 employees Daytime Service Population [4] 40% ,299 employees [1] Employees by tenant provided by BioMed Realty; phasing based on demolition schedule. [2] Consistent with the employment densities assumed in the Gateway Business Park Transportation Demand Management Study. [3] Amenity space is treated as retail space with an average employment density of 500 square feet per employee, which is typical of retail uses. [4] "Daytime Service Population" equals 100 percent of City residents plus 40% of jobs in the City. This measure of service population is used for cost or revenue impacts where employment affects the demand for service but by less than the residential demand. See Table A-7. Sources: Gateway Oyster Point Draft EIR; FLAD Architects; BioMed Realty; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 4/9/2013 P:\131000s\131017OysterPt\Model\131017FiscalModel_ xlsx

27 Table A-3 Existing Assessed Value Assumptions Gateway Business Park Feasibility Assessment; EPS #18017 Secured Assessed Value Building Assessor Parcel Number Tax Rate Area Existing Area (sq.ft.) FY 2012/13 Assessed Value Land FY 2012/13 Assessed Value Improvements FY 2012/13 Assessed Value Total A.V. per sq.ft. Phase of Demolition 700 Gateway Blvd ,098 $14,994,000 $21,522,000 $36,516,000 $663 Phase III 750 Gateway Blvd. [1] ,133 $13,111,245 $19,894,494 $33,005,739 $633 Phase II 800 Gateway Blvd. [1] ,400 $11,417,922 $17,325,111 $28,743,033 $633 Phase I 850 Gateway Blvd. [1] ,272 $4,846,833 $7,354,395 $12,201,228 $633 Phase IV 900 Gateway Blvd. [2] ,875 $4,080,000 $306,000 $4,386,000 $163 Phase IV 900 Gateway Blvd. [2] ,125 $3,060,000 $714,000 $3,774,000 $163 Phase IV 1000 Gateway Blvd. [3] ,479 $3,876,000 $2,560,200 $6,436,200 $614 Phase I 1000 Gateway Blvd. [3] ,260 $1,938,000 $4,977,600 $6,915,600 $614 Phase I 1000 Gateway Blvd. [3] ,372 $8,976,000 $15,820,200 $24,796,200 $614 Phase I Total 284,013 $66,300,000 $90,474,000 $156,774,000 $552 [1] Gateway Blvd. are part of the same parcel. Assessed value for the total parcel is apportioned to each address based on the square footage of structure. [2] 900 Gateway Blvd. is on two parcels. The square footage of the structure is split between the parcels in proportion to the parcel's assessed value relative to the total assessed value. [3] 1000 Gateway Blvd. is on three parcels. The square footage of the structure is split between the parcels in proportion to the parcel's assessed value relative to the total assessed value. Sources: Chamberlin Associates; Economic & Planning Systems, Inc. Economic & Planning Systems, Inc. 4/9/2013 P:\131000s\131017OysterPt\Model\131017FiscalModel_ xlsx