MEMORANDUM. Jobs and Fiscal Revenues - North Mare Island

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1 ATTACHMENT 4 MEMORANDUM ADVISORS IN: REAL ESTATE AFFORDABLE HOUSING ECONOMIC DEVELOPMENT To: Kathleen Diohep City of Vallejo SAN FRANCISCO A. JERRY KEYSER TIMOTHY C. KELLY KATE EARLE FUNK DEBBIE M. KERN REED T. KAWAHARA DAVID DOEZEMA LOS ANGELES KATHLEEN H. HEAD JAMES A. RABE GREGORY D. SOO-HOO KEVIN E. ENGSTROM JULIE L. ROMEY SAN DIEGO PAUL C. MARRA From: Keyser Marston Associates, Inc. (KMA) Date: December 30, 2014 Subject: Executive Summary Jobs and Fiscal Revenues - North Mare Island The City of Vallejo has emphasized its desire that North Mare Island contribute to the city s economic development goals including the creation of new jobs and new tax revenues. The purpose of this memorandum is to address the magnitude of permanent jobs and fiscal revenues that might be generated by the four different development concepts proposed for North Mare Island. In summary, the tech office campus concept is projected to generate the largest number of permanent jobs at full build-out (6,300 jobs) and the wages of those jobs are generally the highest of all the development concepts. The casino resort concept is projected to generate the second largest number of jobs (3,500 jobs) but the wages of those jobs are generally the lowest of the development concepts. Finally, the industrial concept and the convention center/resort/hotel concept are projected to generate on the order of 3,000 jobs each. With respect to tax revenues the casino resort concept would likely generate the highest amount of revenues (final amount to be negotiated) followed by the convention center/resort/hotel concept ($4.0 million/year at full build-out, if it can be built), the tech office campus concept (roughly $2.5 million/year at full build-out), and finally the industrial concept ($0.6 to $0.7 million/year at full build-out). While jobs and fiscal revenues are the primary goals of development at North Mare Island, these estimates should be evaluated in conjunction with the market feasibility 160 Pacific Avenue, SUITE 204 San Francisco, CALIFORNIA PHONE: FAX:

2 Subject: Jobs and Fiscal Revenues - North Mare Island Page 2 analysis and other risk factors to better assess the likelihood of achieving these job and tax revenue numbers. I. Introduction Because of their importance to the City, this memorandum addresses the order-ofmagnitude number of jobs and amount of fiscal revenues that might be expected from the four development concepts being proposed for North Mare Island. Because the four concepts are at a very preliminary stage of planning and specific businesses and tenant types have not yet been identified, the estimates should be considered preliminary and subject to change. In preparing this analysis KMA reviewed for reasonableness the estimates prepared by each of the RFQ respondents and made adjustments where appropriate based on industry standard data. It is noted that a prerequisite of the ability to create jobs and revenues is the existence of both market feasibility and financial feasibility that ultimately drives what can actually be built on North Mare Island. In a separate memorandum, KMA addresses the market feasibility of the four North Mare Island development concepts. Financial feasibility considerations have not been analyzed at this early stage. II. Permanent Jobs a) Number of Permanent Jobs At full build out, major redevelopment of North Mare Island will likely result in thousands of new permanent jobs. The number and types of jobs will depend upon both the fundamental development concept eventually pursued (industrial vs. office campus vs. convention/resort/hotel vs. casino resort) as well as the specific businesses and tenants that ultimately occupy the buildings. As one example, both warehouse facilities and manufacturing facilities fall under the larger category of industrial uses, but manufacturing uses typically employ larger numbers of workers. Since it cannot be predicted with certainty today what the specific mix of tenant types will ultimately be, at this early stage the job estimates contained in this memorandum should be treated as orders of magnitude only. The job generation estimates start with assumptions regarding the building development program for each of the four basic development concepts. The building programs have been estimated based roughly upon the building densities proposed by the development teams. However, it is noted that since the development programs differs somewhat even within the same concept, a rough average has been assumed in each case. It is also noted that this analysis assumes that a roughly 45-acre portion of North Mare Island is

3 Subject: Jobs and Fiscal Revenues - North Mare Island Page 3 set aside for Earthquake Protection Systems (EPS) expansion plans. Therefore, roughly 110 acres of the total 157-acre site is remaining to be developed by the to-be-selected development team. Once the development program assumptions have been made, the number of jobs can then be estimated by applying employee ratios or employee densities typical for the uses proposed. For example, office employee ratios are typically in the range of 4.0 employees per 1,000 square feet of building area. Thus a 100,000 square foot office building might be expected to generate on the order of 400 jobs. On this basis, the following are the order-of-magnitude estimates of permanent jobs that could be generated for the four basic development concepts: Figure 1. Order of Magnitude Permanent Job Generation North Mare Island Development Concepts Tech Office Campus Concept Mare-Tech 6,300 permanent jobs Industrial Concept DSP, Regal 3,000 permanent jobs Convention Center / Resort / NMI Development, Hotel Concept FOMI (non-casino alt.) 3,000 permanent jobs Casino Resort Concept Elem, Koi, FOMI 3,500 permanent jobs See attached Table 1 for further detail The job estimates shown above are similar to most of the estimates made by the development teams once adjustments for the 45-acre EPS expansion are taken into account (none of the developers initial proposals accounted for the EPS expansion). As one example, Mare-Tech estimated roughly 9,000 jobs for its 2.5 million square foot development plan. However KMA estimates on a preliminary basis that the office campus building program would need to be reduced by roughly 30% to accommodate the EPS expansion. Thus, the number of jobs is reduced by a roughly proportionate amount. b) Employee Wages As with the number of jobs that could ultimately be created, employee wages are also highly dependent upon the specific nature of businesses that occupy the buildings. In order to provide an approximation of the wages that might be supported by the four development concepts, KMA reviewed recent wage data reported by the California Employment Development Department (EDD) and isolated representative occupation categories that we felt mostly closely resembled the types of jobs that would be created by each concept. For example, for the industrial concept KMA selected the job categories of production jobs, heavy machinery operation, truck drivers, etc. For the

4 Subject: Jobs and Fiscal Revenues - North Mare Island Page 4 tech office concept the selected categories were high tech computer jobs such as computer programmers and web developers as well as biotech industry jobs such as biological technicians. Other jobs would likely be common to all three development concepts to some degree such as janitorial services or groundskeepers so those types of jobs have not been separately called out. The representative job categories and wages are shown on the attached Table 2. While this data is not intended to be a comprehensive listing of job categories for any of the concepts, it does indicate that, in general, the average tech office concept worker would likely earn the highest wages, followed by the industrial concept worker, followed by the casino resort worker. The average convention center/resort/hotel concept worker might have wages similar to those of the casino resort worker given the emphasis upon housekeeping, janitorial and other service related jobs. III. Tax Revenues In addition to job creation, major redevelopment of North Mare Island presents the opportunity to create significant new fiscal revenues for the City of Vallejo. Fiscal revenues are anticipated to primarily take the form of new tax revenues including property taxes, sales taxes, business license taxes, and transient occupancy (hotel) taxes. In addition to tax revenues, it is possible that disposition of the site will generate land sale or ground lease revenues. However, because the site requires offsite ( backbone ) infrastructure improvements and possibly expensive building foundation systems as a result of the site s geotechnical conditions, it may ultimately be determined that the land value of the North Mare Island site is nominal. Subsequent further study and financial feasibility analysis will be required of these issues. It is also noted that North Mare Island is part of the Mare Island Community Facilities District (CFD) that levies a special tax on the property. This CFD assessment funds municipal services on Mare Island and is established each year taking into account both the costs to provide the services and the tax revenues generated on Mare Island. Until the tax revenues generated on Mare Island as a whole exceed the municipal services costs covered by the CFD 2002, tax revenue growth at North Mare Island will reduce the assessments to property owners on the Island. Once tax revenues exceed services costs, the City's General Fund will benefit from the NMI tax revenues. In the 2014/2015 tax year, the CFD costs in excess of projected tax revenues were $3.3 million.

5 Subject: Jobs and Fiscal Revenues - North Mare Island Page 5 a) Tech Office Concept With regard to tax revenues from the tech office concept, Mare-Tech has estimated that $3.5 million/year in tax revenues would be generated by this concept. KMA has reviewed this estimate and concludes that it is a reasonable projection at this early stage. However, as noted in Section I of this memo, after accounting for the EPS expansion facility the tech office concept would need to be smaller than initially proposed by Mare- Tech. On the basis of a roughly 30% reduction of the tech office concept, a proportionate reduction in tax revenues would result in roughly $2.5 million/year in tax revenues to the city. b) Convention/Resort/Hotel Concept With regard to convention center/resort/hotel, the revenues from this concept are based on a blend of the development proposed by NMI Development and the non-casino alternative proposed by FOMI. On a preliminary basis, KMA estimates the tax revenues from this concept at roughly $4.0 million/year. The reason why the revenues from this concept are so high is because FOMI is proposing a very large number of hotel rooms (1,200 rooms) which, if built, would generate significant amounts of transient occupancy taxes (TOT). If the number of hotel rooms were closer to that proposed by the Mare- Tech (380 rooms), the tax revenues would probably be closer in magnitude to the $2.5 million/year cited above for the tech office concept. It is noted that the preliminary market feasibility analysis prepared by KMA determined that both the convention/resort/hotel concept and the tech office concept have comparatively high market risk relative to the industrial concept. c) Industrial Concept With regard to the industrial concept, neither DSP nor Regal provided a tax revenue projection. Based on an assumed 1.5 million square foot facility, a preliminary order-ofmagnitude estimate is that the project would yield roughly $600,000 to $700,000/year in tax revenues to the city. The tax revenues from the industrial concept are lower than the tech office concept and the convention center/resort/hotel concept primarily because the latter two concepts include a hotel while the industrial concept does not. d) Casino Resort Concept With regard to the casino resort concept, estimating the potential tax revenues is complicated by the fact that at least a portion of the project would need to be carved out and held in trust for operation of the gaming facility. It is KMA s understanding that the

6 Subject: Jobs and Fiscal Revenues - North Mare Island Page 6 portion of the project held in trust would be considered tribal sovereign land and not subject to local or state taxes. This is why Indian gaming projects include arrangements with the city to make payments in lieu of taxes ( PILOT payments). Such PILOT payments are negotiated as part of the larger business agreement between the tribe and the city and it would be premature at this stage to predict what amount of PILOT payments would ultimately be agreed to. It is noted however that in its submittal, Koi Nation proposes payments to the city in the amount of $20 million/year, although Koi notes that these payments would be used to offset the city s costs related to the proposed casino project. Municipal service costs associated with a resort casino would include costs such as public safety (police and fire) as well as maintenance of public improvements such as roadways and public utilities. It is also possible that the resort casino concept could result in additional impacts to the local economy which are difficult to quantify such as social service impacts related to gambling addictions or lost spending in the economy resulting from gambling losses. It is not within the scope of this preliminary assessment to quantify such costs but it is recognized that they are complicating factors when a casino project is proposed.

7 Table 1. Order of Magnitude Job Generation North Mare Island Development Concepts Site Size (1) Building Program Jobs Ratio Total Jobs Industrial Concept 110 acres 1,500,000 sq. ft. (2) 2.00 /1,000 sq. ft. (6) 3,000 Tech Office Concept 110 acres 1,800,000 sq. ft. (3) 3.50 /1,000 sq. ft. (7) 6,300 Convention Center / Resort / Hotel 110 acres 1,200,000 sq. ft. (4) 2.50 /1,000 sq. ft. 3,000 Casino Resort Concept Casino 300,000 sq. ft. (5) 5.50 /1,000 sq. ft. (8) 1,650 Hotel 600 hotel rooms (5) 0.90 /hotel room 540 Retail 400,000 sq. ft. (5) 3.33 /1,000 sq. ft. 1,330 Total 110 acres 3,520 (1) Site size assumes approximately 45 acres is set aside for Earthquake Protection Systems expansion. (2) Industrial concept based roughly on DSP and Regal proposals (excluding the "exhibition center") adjusted for 110-acre site size. (3) Tech office concept based roughly on Mare-Tech proposal adjusted for 110-acre site size. (4) Convention / Resort / Hotel concept based roughly on NMI Development and FOMI (non-casino) proposals adjusted for 110-acre site size. (5) Casino resort concept based roughly on Koi/Cordish, Elem, and FOMI proposals adjusted for 110-acre site size. (6) Industrial concept job generation assumes a mix of warehouse, distribution, and manufacturing. (7) Tech office concept is heavily weighted toward office, but also includes retail, conference, and hotel uses. (8) Casino job generation estimate based on the 320,000 sq. ft. Graton Casino. In late 2013 Graton representatives reportedly estimated 2,000 permanent workers would eventually be hired, however the Santa Rosa Press Democrat reported that there were roughly 1,200 workers as of mid Prepared by: Keyser Marston Associates Filename: NMI Jobs xlsx; Sheet1

8 Table 2. Representative Occupations and Wages for NMI Development Concepts Mean Hourly Wage Mean Annual Wage Industrial Concept Management Occupations Industrial Production Managers $49.96 $103,928 Transportation, Storage, and Distribution Managers $45.51 $86,347 Non-Management Occupations Production Occupations (all) $20.57 $42,793 Industrial Engineering Technicians $33.18 $69,029 Heavy and Tractor-Trailor Truck Drivers $20.76 $43,170 Light Truck or Delivery Services Drivers $21.18 $44,054 Crane and Tower Operators $37.04 $77,041 Excavating and Loading Machine and Dragline Operators $30.18 $62,783 Industrial Truck and Tractor Operators $15.48 $32,194 Tech Office Campus Concept ("Google-plex") Management Occupations General and Operations Managers $51.97 $108,099 Computer and Information Systems Managers $44.79 $93,147 Non-Management Occupations Computer Programmers $45.31 $94,251 Web Developers $32.14 $66,854 Graphic Designers $25.05 $52,113 Business and Financial Operations Occupations $36.74 $76,412 Biological Scientists, Other (biotech) $48.74 $101,384 Biological Technicians (biotech) $23.88 $49,665 Office and Administrative Support Occupations $18.90 $39,318 Casino Resort Concept Management Occupations Gaming Managers* $52.97 $110,165 Food Service Managers $25.68 $53,420 Lodging Managers $28.52 $59,324 Non-Management Occupations Gaming Supervisors* $19.92 $41,425 Gaming Service Workers, Other* $13.57 $28,234 Gaming Cage Workers* $12.93 $26,884 Gaming Change Persons and Booth Cashiers* $9.47 $19,704 Gaming Dealers* $8.82 $18,329 Food Preparation and Serving-Related Occupations $10.91 $22,702 Retail Salespersons $12.17 $25,337 Maids and Housekeeping Cleaners $14.95 $31,096 Convention Center / Resort / Hotel Concept The convention center/resort/hotel concept includes convention space, retail, and hotel uses. The retail and service jobs would likely be similar to those shown for the casino resort concept, excluding the gaming-specific jobs. * Gaming occupations and wages from Alameda and Contra Costa Counties (no gaming data for Solano County). Source: Wages are per California Employment Development Department (EDD) as of Q for Solano County except where noted. Occupation types for each of the three NMI development concepts have been selected by Keyser Marston based generally on our understanding of the types of industries and jobs being proposed for each concept. Prepared by: Keyser Marston Associates Filename: EDD Data xls; Summary