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Home My WebLink About12/17/2002, BUS 2 - REPORT ON THE FISCAL IMPACT OF THE PROPOSED SAN LUIS MARKETPLACE PROJECT AND IMPLICATIONS FOR DOWNT council ��Da f na j ac,Enaa Qepoat ,«N - CITY O F SAN LUIS O B I S P 0 FROM: Wendy George,ACAO � Prepared By: Shelly Stanwyck,Economic Development Manager ld1 SUBJECT: REPORT ON THE FISCAL IMPACT OF THE PROPOSED SAN LUIS MARKETPLACE PROJECT AND IMPLICATIONS FOR DOWNTOWN RETAIL ACTIVITY CAO RECOMMENDATION Receive and accept report On the Fiscal Impact of the Proposed San Luis Marketplace Project and Implications for Downtown.Retail Activity,by Allan Kotin, 2002.. DISCUSSION Background A proposed project for the development of a portion of the Dalidio Farm, the San Luis Marketplace(the "Marketplace Project'), has been submitted for review and processing by the City. This project is a revised version of an earlier project that was reviewed by the Council and various advisory bodies. When the Marketplace Project was originally proposed for the Dalidio Farm, and consistent with General Plan LUE Policy 3.1.3, the City required the developer to fund an economic and fiscal impact study to analyze the impacts of the proposed project on the Downtown. In February 1999, the Economic and Fiscal Impact.of Proposed San Luis Marketplace and Implications for Downtown Retail Activity was published and became known as the "Kotin Study". The Marketplace Project currently undergoing the development review process proposes the expansion of retail sales in the Madonna Road/Highway 101 area. In order to adequately address some of the more technical economic issues that surround the Marketplace Project, at its September 17, 2002 meeting, Council executed an agreement with Allan D. Kotin & Associates to perform an economic impact study of the new proposed project.. How it would transfer sales tax from existing retail areas and whether the proposed uses could be developed in existing retail areas has been analyzed in the updated 2002 Kotin Study. The Original Kotin Study The original Kotin Study provided detailed analysis of retail conditions in the City, as well as regionally, and strategies for the Downtown to respond to then market conditions. .The Study also analyzed the transfer effects the project would have on existing retail and identified existing sales leakage occurring from the City. Finally, the Study identified the.anticipated costs of a Prado Road interchange .and analyzed a sales tax sharing arrangement between the Developer and the City to fund a portion of those costs. a - � Council Agenda Report—2002 Kotin Study Page 2 For a variety of reasons, Council determined that the Kotin Study should be updated as part of the consideration of the revised Marketplace Project. In the three plus years since the original Kotin Study was published, significant changes in the City's retail character occurred including: the renovation of SLO Promenade, the remodel of Madonna Plaza, the construction of Home Depot at Froom Ranch and the approval of the Copelands Project. Regionally, the neighboring communities of Arroyo Grande, Atascadero, Santa Maria, and Paso Robles have added significant new retail opportunities. Last, the Downtown Association adopted a Strategic Plan, which required integration into the fiscal analysis report. The Developer agreed to reimburse the City for the costs associated with the update of the Kotin Study so that their proposed project could be analyzed within the context of these changed circumstances and the changes to the project itself. Overview of the New 2002 Kotin Study The 2002 Kotin Study is comprised of six sections. The sections are as follows: Introduction, Executive Summary, Project Description and Comparison, Regional Retail Analysis, Fiscal Impact Analysis and Interaction with Downtown Retailing. The Project Description and Comparison describes the proposed project as currently designed and compares the proposed project with the 1999 proposal. The Regional Retail Analysis evaluates the impacts of the proposed project on existing retailing throughout the Central Coast Analysis Area. Both existing and projected retail conditions are analyzed. The Fiscal Impact Analysis determines the fiscal impact (public costs and revenues) that the proposed project is expected to generate. Finally, the Interaction with Downtown Retailing section provides conclusions as to the impacts of the proposed project on the Downtown and on the Downtown Association's Strategic Business Plan. In addition to the six focused sections, the 2002 Kotin Study has three appendices which provide further analysis and detail about the following: Regional Retail Analysis (Appendix A), Derivation of Fiscal Impact (Appendix B) and Further Comments on Interaction with Downtown Retailing(Appendix Q. Study Conclusions The 2002 Kotin Study provides an excellent review of the City's retail position within our trade area. It contains valuable, current market data that is most relevant to the economic analysis required by the complexities of the Marketplace Project and is also relevant to other projects in the City, as well as to local businesses. The extent to which the Marketplace Project will generate additional revenues to the City(offset by costs)was one of the fundamental issues explored by the Study. Much of the Study is dedicated to defining the Project's revenues and offsets. Kotin has analyzed the projected gross revenues for the Marketplace and contextualized those revenues by discounting them for various transfer effects. In summary the Marketplace Project will provide: ■ $1.4-$1.5 million in additional total net revenue per year ■ $1.05-$1.12 million in net new sales tax per year(deducting 250/o-30% for transfer effects) ■ $280,000 in net new transient occupancy tax(TOT)per year, less a 20%transfer a �a Council Agenda Report—2002 Kotin Study Page 3 Because the Project and the City's Circulation Element require that a new interchange be constructed at Prado Road and Highway 101, the Developer will be responsible for the debt service of this construction using community facilities district(CFD)financing. Negotiations are underway as to how much the City will reimburse the developer for a portion of special CFD taxes, using additional net new sales taxes and TOT. Kotin has concluded that CFD financing, and some City reimbursement to the Developer is possible without undue burden to either the Developer or City. One of the other major components of the 2002 Kotin Study is an analysis of the interaction of the Marketplace Project with Downtown retailing. The project is expected to include a major department store, Macy's (this will be a small format store that is half the size of the typical Macy's). The inclusion of this particular tenant and the issues that it could create were analyzed extensively. Kotin has concluded that because of the Project's design as essentially a "Power Center", the inclusion of Macy's will have-a minimal, and at worst modestly detrimental,impact on retailing in Downtown. There is however the risk that a significant physical reconfiguration of the Project could change the tenant mix to attract those tenants that typically locate in downtowns. Therefore, as presently designed, the project fills a niche in San Luis Obispo as a destination retail center and Downtown continues to be our lifestyle center. . Presentation of the 2002 Kotin Study and Next Steps for the Marketplace Project's Processing Kotin and his associate, Victor Grgas attended the November 13, 2002, joint meeting of the Planning Commission and Architectural Review Commission and gave a summary presentation of the results of the 2002 Kotin Study and answered questions. If accepted by Council, the 2002 Kotin Study will provide the basis for continued negotiations of a sales tax sharing agreement between the City and the Developer for the construction of the Prado Road Interchange. Separate and apart from the studyof the economic impacts of the proposed project is the processing of necessary City entitlements. The project requires the following City entitlements: Annexation, Prezoning (including possible Planned Development zoning), a General Plan Amendment, Architectural Review, and an EIR. It is anticipated that the Council, Commissions and the public will have at least five public hearings to discuss the EIR and project including the mix of land uses, site layout, and building architecture. Reference Material A copy of the 2002 Kotin Study is available in the Council Reading Room. Originals were transmitted to Council in November 2002. 'The report is also available online at www.slocity.org/economicdevelopment/. GAProjects&Progm=\Dalidio\Council Agenda Reports\Presentation of Kotin Reportdoc e3