Loading...
HomeMy WebLinkAbout09/15/1998, C12 - SAN LUIS MARKETPLACE ECONOMIC ANALYSIS council. j acEnaa nEpont CITY OF SAN LUIS OBI SPO FROM: Bill Statler, Director of Finance SUBJECT: SAN LUIS MARKETPLACE ECONOMIC ANALYSIS CAO RECOMIVIENDATION Authorize the Mayor to execute an agreement with PCR Kotin to evaluate the fiscal and economic impacts of the San Luis Marketplace project, prepare a downtown marketing strategy, and assist the City with possible follow-on negotiations with the project applicant. DISCUSSION Overview As directed by the Council on July 21, 1998, the purpose of this consultant services contract is to assist the City in completing two critical "next steps" in processing the San Luis Marketplace application: ■ Analyzing the economic and fiscal impacts of this project, and preparing a downtown marketing strategy(Phase I services). ■ Entering into a Memorandum of Understanding (MOU) with the applicant setting forth the key principles under which the City will process and participate in this project(Phase 2 services). Paying for this work. The project applicant will be responsible for paying for Phase 1 services (economic analysis and downtown marketing strategy) which will cost $38,500. Compensation for any follow-on work in negotiating a subsequent MOU or development agreement will be determined when we get to that stage in the process. Selecting the consultant. Allan Kotin, a principal in the firm of PCR Kotin, has worked closely with the City on this project for several years, and has represented the City's interests very well. His firm has extensive experience in doing exactly the kind of work we need to do, and would be on the "short list" of any consultants we would consider for this project. As such, given the Council's direction to move quickly, we requested a proposal directly from him rather than issuing an RFP to a broader range of prospective firms (which would delay starting this work by at least 90 days). We believe the proposed fee for this work is reasonable, and we recommend contracting with PCR Kotin for this work. Background At their July 21, 1998 meeting, the Council directed staff to proceed with processing the San Luis Marketplace project application, subject to a clear set of conditions and caveats. At this point, key issues include: Cry-l Council Agenda Report—San Luis Marketplace Economic Analysis Page 2 ■ Completing environmental review and receiving discretionary land use approvals. ■ Financing the Prado Road interchange. ■ Timing in completing the interchange, and allowing the project to begin construction and open for business. ■ Sharing sales tax revenues. ■ Preparing a fiscal and economic impact analysis, and recommending downtown marketing strategies. ■ Entering into an MOU with the applicant that outlines,the key framework and principles under which the City will process and participate in this project. This would ultimately lead to entering into a Development and Disposition Agreement (DDA) with the project applicant. As reflected above, critical "next steps" in this process include preparing the downtown marketing and fiscal impact study; and entering into an MOU which sets forth the framework and key principles under which the City will process and participate in this project. Completing these tasks is the focus of this workscope. Workscope There are five main tasks to be completed as part of this workscope, organized into two phases: Phase I O Determine likely annual sales tax revenues from the project, and the percentage of these revenues that will be new to the City, versus those that are likely to be transferred from other businesses within the City. The results from this task will be needed as a precursor to the other four tasks in this workscope O Analyze operating fiscal impacts on the City if this project is approved: what new operating revenues is it likely to generate, and what new ongoing service costs will the City incur? © Recommend marketing strategies for how the downtown can best position itself to effectively compete with expanded retail development resulting from this project as well as elsewhere in the City and the region. Phase 2 O Assist the City in negotiating an MOU with the applicant which outlines the key framework and principles under which the City will process and participate in this project. Issues to be addressed in the MOU include: sharing sales tax revenues (what percent? net or gross? under what performance conditions?); open space dedication; establishing benchmarks for opening the project and completing the Prado Road interchange; forming a benefit assessment district; passing-through reimbursements to the applicant from subsequent new development benefiting for the interchange; drafting ea-Z Council Agenda Report—San Luis Marketplace Economic Analysis Page 3 MOU language; establishing pre-conditions for the City subsequently executing a DDA with the applicant; and other processing issues that may arise as part of this negotiation process. ® Assist the City in negotiating a DDA with the applicant, once all pre-conditions as set forth in the MOU have been met by the applicant. An excerpt from PCR Kotin's proposal detailing their work plan and approach is attached. Cost for Performing This Work Phase I services will cost $38,500. As directed by the Council on July 21, this cost will be fully reimbursed by the project applicant. Compensation and funding source for Phase 2 services will be determined once we arrive at that stage in the process. Because of the uncertainty of the nature and scope of Phase 2 services, this is likely to be compensated on a time and materials basis. Our best estimate at this time for Phase 2 services is $10,000 to $30,000. Approach to Performing This Work ■ Client While the project applicant will be.paying for the cost of Phase 1 services, the City will be the sole client for this work. ■ Collaborative process. Much of the work to be performed is "analytical" in nature. However, this is a highly visible project that will subsequently drive major policy decisions. For this reason, an essential part of the workscope is working collaboratively with key"stakeholders"in this process, including downtown merchants and the applicant. Consultant Selection PCR Kotin's project team has extensive experience is doing this type of work. This includes analyzing impacts of new retail developments on other businesses in the community, including downtowns (such as Santa Barbara, Santa Monica, Oxnard and Thousand Oaks), negotiating performance-based sales tax sharing agreements, and working closely with"stakeholder"groups. Rather than first requesting proposals from a broad range of funis, we recommend contracting with PCR Kotin at this time for the following reasons: ■ Extensive experience in doing this type of work — they would be on the "short list" of consultants we would consider for this work. ■ In addition to strong analytical abilities, they have excellent communication skills in a public setting—a critical requirement in our community. ■ Positive past working relationship with the City. ■ Familiarity with this complex project and with the community. ■ Reasonable fees. ■ Faster start-up and completion of the work. Council Agenda Report—San Luis Marketplace Economic Analysis Page 4 In summary, we believe this approach is consistent with Council direction to process this application as quickly as possible while assuring a quality work product, and better using our time, efforts and limited resources. Timeframe It will take 10 weeks to complete this work after contract award. This means that the Phase 1 report could be presented to the Council as early as December of 1998. MOU negotiations could start shortly thereafter depending on the results of the Phase 1 work. Assuming these take place, an MOU could be approved by the Council as early as March 1999. The following is a summary of the proposed approach compared with the tentative timeline presented in the July 21 agenda report for this work: Tasks July 21 Report Proposed • Prepare workscope 9/98 8/98 • Award contract 12/98 9/98 • Complete phase 2 work; start MOU discussions 3/99 12/98 • Complete MOU 6/99 3/99 CONCURRENCES ■ Project Applicant Contracting with PCR Kotin for this work is the project applicant's preferred approach. As Mr. Bird discussed with the Council at the July 21 meeting, he is very concerned about the time required to process his application. This approach will shorten this part of the process by at least 90 days. Completing Phase 1 services is essential to moving onto the MOU, which is critical to both the applicant and the City in' setting the"groundrules" for the City's participation in this project. The project applicant has agreed to fully pay for the consultant cost of this study. ■ Downtown Association. Downtown merchants are also key "stakeholders" in this process. Mr. Kotin and the downtown marketing sub-consultant, Ron Cano, met with the Economic Activities Committee of the Downtown Association on September 3'. The committee endorsed the hiring of the proposed consultant with the understanding that they be given ample opportunity to shape the downtown marketing component of the study to be most beneficial to the interests of downtown merchants. The scope of work is flexible enough to allow for this, and meetings between the consultant and downtown representatives have been tentatively set for October 8`b and 9`h. A formal recommendation from the Downtown Association shall be forwarded to the City Council following their board meeting on September 8w. Lein• Al Council Agenda Report—San Luis Marketplace Economic Analysis Page 5 FISCAL IMPACT ■ Phase I Services. There will be no direct fiscal impacts associated with Phase 1 services; the cost for consultant services ($38,500) will be fully covered by the project applicant. However, as discussed with Council on July 21, there will be significant staff costs in managing this project — as well as other key steps in this review process — that will not be recovered. ■ Phase 2 Services. It is not possible to identify Phase 2 costs and funding sources at this time. These will be more fully developed once we complete Phase 1 services. ALTERNATIVES ■ Do not proceed with the project This would be inconsistent with Council's direction on July 21, 1998. ■ Modify the workscope. We believe the workscope fully covers General Plan study requirements, the tasks identified in the July 21 agenda report, and the follow-on services we will need to negotiate an MOU with the project applicant. ■ Request proposals from a broader range of firms. As discussed previously, PCR Kotin would be on the "short list" of any firms that we would send an RFP. Given their past experience with the City and this project, and the reasonableness of their fees, it is highly likely that they would emerge as the strongest candidate under an expanded RFP process. In short, it is not clear what the benefits would be in undertaking this longer, more resource-intensive process. ATTACHMENTS ■ Agreement with PCR Kotin ■ Detailed work plan(excerpt from the PCR Kotin proposal) ON FILE IN THE COUNCIL OFFICE Agreement References ■ City's request for proposal from PCR Kotin (Specification No. 9255) ■ Proposal from PCR Kotin G:Finance/RFP's and IFB's/Contract Award to PCR Kotin AGREEMENT THIS AGREEMENT is made and entered into in the City of San Luis Obispo on this day of , by and between the CITY OF SAN LUIS OBISPO, a municipal corporation,hereinafter referred to as City,and PCR KOTIN,hereinafter referred to as Consultant. WITNESSETH: WHEREAS,on August 7, 1998,City requested a proposal from the Consultant for an economic analysis of the San Luis Marketplace project per Specification No.9255;and WHEREAS,pursuant to said request,Consultant submitted a proposal which was accepted by City for said service. NOW THEREFORE, in consideration of their mutual promises, obligations, and covenants hereinafter contained,the parties hereto agree as follows: 1. TERM. The term of this Agreement shall be from the date of this Agreement is made and entered,as fust written above,until acceptance or completion of said services. 2. INCORPORATION BY REFERENCE. City Specification No.9255 and Consultant's proposal dated August 24, 1998 are hereby incorporated in and made a part of this Agreement. 3. CITY'S OBLIGATIONS. For providing services as specified in this Agreement, City will pay and Consultant shall receive therefor compensation in a total sum not to exceed $38,500 for Phase 1 services; compensation for Phase 2 services will be mutually agreed upon between the City and Consultant upon completion of Phase 1 services,and authorization to proceed with Phase 2 services. 4. CONSULTANT'S OBLIGATIONS. For and in consideration of the payments and agreements hereinbefore mentioned to be made and performed by City, Consultant agrees with City to do everything required by this Agreement and the said specification. 5. AMENDMENTS. Any amendment,modification,or variation from the terms of this Agreement shall be in writing and shall be effective only upon approval by the City Administrative Officer. 6. COMPLETE AGREEMENT. This written Agreement, including all writings specifically incorporated herein by reference, shall constitute the complete agreement between the parties hereto. No oral agreement,understanding, or representation not reduced to writing and specifically incorporated herein shall be of eiz -6 Agreement with PCR Kotin Page 2 any force or effect,nor shall any such oral agreement,understanding,or representation be binding upon the parties hereto. 7. NOTICE. All written notices to the parties hereto shall be sent by United States mail, postage prepaid by registered or certified mail addressed as follows: City City Clerk City of San Luis Obispo 990 Palm Street San Luis Obispo,CA 93401 Consultant Allan Kotin PCR Kotin 12100 Wilshire Boulevard,Suite 1050 Los Angeles,CA 8. AUTHORITY TO EXECUTE AGREEMENT. Both City and Consultant do covenant that each individual executing this agreement on behalf of each party is a person duly authorized and empowered to execute Agreements for such party. IN WITNESS WHEREOF,the parties hereto have caused this instrument to be executed the day and year first above written. ATTEST: CITY OF SAN LUIS OBISPO,A Municipal Corporation By: City Clerk Mayor APPROVED AS TO FORM: PCR KOTIN +.rliy. By: Nle ry om biz-7 KOTIN Mr.Bill Statler August 21,1998 Page 2 SCOPE OF WORK Our scope of work presents the tasks for the retail analysis, the fiscal analysis and the downtown marketing strategy. We propose a detailed regional supply-demand analysis, as well as a focused assessment of retail sales leakage and capture. The fiscal analysis will provide a sound basis for formulation City policies regarding development agreements. Finally, the downtown strategy will strengthen the City's highly successful downtown, through opportunities analysis and working closely with the downtown business community. The balance of this proposal is in four main sections,generally following the organization of the RFP. The first section provides a detailed description of the Phase 1 tasks (the retail analysis,fiscal analysis and downtown marketing strategy),including the proposed budget and schedule. The second section deals with Phase 2,assistance in the Memorandum of Understanding and the Development and Disposition Agreement. This section provides a brief description of these tasks,which cannot be precisely budgeted at this time. The third section provides information on management,staffing,and the qualifications and relevant experience of PCR Kotin and Downtown/Main Street Visions. PHASE 1 Task 1 Retail Analysis The purpose of the retail analysis is to estimate the net sales of the proposed San Luis Marketplace,after subtracting any sales captured by the San Luis Marketplace from existing retailers in the City of San Luis Obispo. These net sales will be based on a detailed analysis, considering local and areawide growth trends; including a retail supply-demand analysis; and a focused retail analysis, identifying retail capture and leakage for specific retail categories of greatest interest to the City. %W,0. KNMD KonN Mr.Bill Stader August 21,1998 Page 3 1.1 Economic and Demographic Analysis. This task will provide the foundation for the retail leakage analysis by describing and projecting economic development,housing and population in San Luis Obispo and surrounding areas. The task will begin with a description of the market area. Because of the large scale community nature of the retail activities contemplated, the market area will probably extend along the Highway 101 corridor from Santa Maria to Paso Robles. Housing and population data for this area will be assembled from the Census, the California Department of Finance E-5 series and from available projections. Employment data and projections will be obtained from ZIP Code Business Patterns,D&B Marketplace,the California Employment Development Department and local sources. 1.2 Retail Supply-Demand Analysis. The retail supply-demand analysis will consider the entire market area,and will provide a special focus on the City of San Luis Obispo and surrounding cities and communities. The retail supply-demand analysis will be prepared through the following three steps: 1. First,retail purchasing power for each city and community will be prepared on the basis of demand sources including residents, employees and visitors. This retail purchasing power will be segmented into retail levels (i.e.,neighborhood shopping centers, community shopping centers, automotive centers and regional shopping centers). It will also be segmented for each retail level into retail categories (i.e., general merchandise,food stores,building materials, etc.). This analysis will result in a matrix for each community, showing retail purchasing power (in dollars) by retail level and retail category. 2. Second, information on retail development and retail sales for each city and community will be obtained from a number of sources,including the California State Board of Equalization, D&B Marketplace, the California Retail Survey, the NRB Shopping Center Directory,and other specialized information from the City. The retail sales information will be tabulated by retail level and retail category,as for the demand analysis. C�/z-9 KMID KOTIN Mr.Bill Statler August 21,1998 Page 4 3. Third,a comparison between the purchasing power and sales analysis will be made to estimate supply-demand conditions,including leakage of purchasing power out of San Luis Obispo,and capture of outside purchasing power by retailers in San Luis Obispo. The above steps will provide a snapshot of retail supply and demand at a current point in time. Additional information will be collected to update the infomation for final analysis. This includes information on retail developments which are under construction,approved and proposed for all cities and communities in the market area. 1.3 Focused Retail Analysis. The supply-demand analysis will provide an overall picture of sales leakage and capture for all retail categories and levels throughout the study area. However,to fully analyze the impacts of the proposed development,a focused retail analysis will be prepared to address issues of particular importance to the City,including: 1. The degree to which demand for general merchandise and other comparative shopping goods show leakage from the City of San Luis Obispo 2. The sources of demand for the City's downtown retail activities, including local residents, visitors and businesses, and the sensitivity of such demand to outside competition This task will include the collection of available information from community level retailers in competing cities,preparation of a detailed inventory of downtown businesses,and an intercept and competition analysis of downtown retailing. Task 2 Fiscal Impact Analysis The fiscal impact analysis will draw upon the retail analysis for estimation of net taxable sales. It will also include estimation of other City revenues, and an analysis of municipal costs. The consultants have reviewed a fiscal analysis for the Airport Area recently prepared by the City and will utilize information and analytic approaches based on this report. Cii-iG ffMDI KOTIN Mr.Bill Statler August 21,1998 Page 5 2.1 Municipal Revenue and Cost Analysis. The municipal revenue analysis will include the following categories: 1. Sales and use tax 2. Other taxes,including business licenses,utility franchises,real property transfer tax and others 3. Fines and forfeitures, other revenues, including current service charges, miscellaneous revenues and interest The municipal revenue analysis will be based on analysis of the current City budget, interviews with City staff and project information. Special attention will be made in the estimation of taxable sales for estimation of sales and use tax. The results of Task 1 will be utilized to estimate the potential loss of taxable sales by existing retailers in the City,as well as capture of City purchasing power which previously has been spent outside the City. Other revenues will be estimated on the basis of project characteristics (e.g.,number and size of businesses) City schedules, such as business license tax schedules, and fiscal and budget relationships. Because the project involves an annexation,it is understood that no property tax will accrue to the City,according to the current tax sharing agreement with San Luis Obispo County. Under this agreement, the City receives 5% of property tax growth for residential development in annexations,but no increment for non-residential development. However, the information on project valuation, overall property tax increment, and accrual of this increment to the County and other agencies will be prepared for potential use by the City in the annexation proceedings. The municipal cost analysis will consider the following City costs: 1. Police protection 2. Structural fire protection 3. Streets maintenance KOTIN Mr.Bill Statler August 21,1998 Page 6 4. Citywide overhead costs (general government) The cost analysis will be based on existing municipal service levels,as determined through interviews with key City staff. The translation of service levels to annualized cost factors willbe based on budget analysis,discussions with the City finance department and in-depth review of the finance department methodology used for the Airport Area annexation. The cost analysis will use such unit measures as per lane-mile for streets maintenance and per WPS(weighted persons served)for other services. For some services,such as fire protection, special case study approaches to the cost analysis may be utilized. 2.2 Revenue and Cost Projections. Information on the project description and phasing and the municipal revenue and cost estimation factors will be combined in the consultant's fiscal model to produce revenue and cost projections. The projections will be on an annual basis,to reflect changes as phases of the project are developed and as the performance of the project may improve over time. Detailed tables will be prepared showing the annual revenues and costs by category, the projected surpluses,and the ratios of revenues to costs. Special tables will focus on sales and use tax, showing the capture of sales from purchasing power formerly going outside the City, and the capture of sales from existing retailers in the City, especially those in the Downtown area. Task 3 Downtown Marketing Strategy It is recognized that Downtown San Luis Obispo is very successful, with an exemplary Downtown Business Association. The focus of the downtown retail marketing strategy is on maintaining and enhancing the success of Downtown San Luis Obispo. The following tasks are designed to assist the downtown leadership build upon recent and planned retail and entertainment developments in the greater marketplace through the development of marketing strategies,and to create better destination value,by strengthening the downtown as a focal point for the local community and as a desirable destination for visitors. At the beginning of the work program, a briefing meeting will be attended by the key consultant staff, including principals of PCR Kotin and Downtown/Main Street Visions. da"�� TCOTIN Mr.Bill Statler August 21,1998 Page 7 This meeting will be held with representatives of the Downtown Business Association and City staff to identify key analytic and policy goals of the study at the outset,and to obtain input and direction from the City and downtown representatives. 3.1 Downtown Evaluation. Based on statewide experience regarding the necessary components for successful downtowns,Downtown San Luis Obispo will be evaluated in terms of its strengths,weaknesses,opportunities and constraints (SWOT). The analysis will identify factors which place small retailers at a disadvantage when competing with regional malls and big box retailers. Strategies to overcome these disadvantages, strengthen community support, and draw more people to Downtown San Luis Obispo will be identified. 3.2 Downtown Marketing Strategies. To a large degree,the success of Downtown San Luis Opispo has been maintained with the popularity of the well-planned and managed Farmers Market and Thursday Night Activities. However,with the emerging interest of cities throughout the state to revitalize downtown business districts,and more importantly, due to the retail competition to be posed by the San Luis Marketplace, it is increasingly important that the Downtown Association and the business community engage in more aggressive collaborative marketing and advertising campaigns. Current campaigns will be evaluated, and results-oriented strategies will be devised. These strategies will allow the Downtown Association and businesses to take advantage of economies of scale associated with collaborative efforts,as well as the nonprofit status of the Association. 3.3 Listening to the Downtown Business Community. Each downtown is unique and distinct. Therefore,as part of the downtown evaluation,key downtown property owners and business representatives will be interviewed to understand their views on the important issues in maintaining the success of the downtown, particularly with the additional competition from new retail and entertainment developments. Potential issues include marketing, advertising, business attraction and retention, parking, security and others. . Potential countermeasures for dealing with particular issues will be identified. 3.4 Interaction with Key Downtown Representatives. Intensive interactive sessions will be held with key representatives of the downtown community. Some of this interaction may be in the form of a day-long charrette to engage in a dialog with the downtown property owners and business representatives. The charrette would share the information MUM KOTINf Mr.Bill Statler August 21,1998 Page 8 generated from the economic analysis of the San Luis Marketplace,and the recommended marketing strategies. The project team would use its facilitative skills to educate,encourage discussion, and reach consensus support on moving forward on the implementation of marketing and advertising. However,if such extended outreach in the form of a day-long charrette is not needed, the same resources will be devoted to individual and small group briefings. Task 4 Report Preparation and Presentations 4.1 Draft Report Preparation. The draft report will document the retail analysis, the fiscal impact analysis and the downtown marketing strategy. A meeting will be held with the client to present the findings of the draft report. 4.2 Final Report Preparation. Based on the client review of the draft report, a final report will be prepared. A public presentation of the findings of the final report will be made. Our proposed budget for Phase 1 is$38,500,as shown in detail in the attached budget We feel that the Phase 1 assignment can be accomplished in a ten-week time schedule as presented in the attached schedule. PHASE 2 Phase 2,as outlined in the RFP,incorporates assistance by the consultant to the City in two major negotiations,the first dealing with a Memorandum of Understanding(MOU)with the applicant and the second with a Development and Disposition Agreement(DDA). Issues to be addressed in the MOU include the sharing of sales tax revenue and, more particularly,the establishment of an appropriate base for measurement of such revenue;the determination of what revenues are to be exempted as transferred;and the extent to which any assistance is to be performance based, i.e., to take effect only over certain thresholds. Related issues include the formation of a possible assessment district,reimbursements that may or may not be available to the applicant from future developments in the vicinity of the dl;t��� KOTIN Mr.Bill Statler August 21,1998 Page 9 interchange,detailed timing and scheduling considerations,and perhaps most critically a series of milestones and contingencies governing the continued processing of this project. Once the MOU has been approved, an even more extended negotiation may ensue involving a Development and Disposition Agreement and the associated side agreements, reimbursement agreements,etc. At this time, it is virtually impossible to create a budget for this since the magnitude and character of this negotiation has not been established. Prior experience in somewhat similar situations suggest that effective negotiation of the MOU could range from a minimum of $10,000 to perhaps a maximum of as much as$30,000. Typically,negotiation of the DDA and associated final documents are less involving for the consultant while at the same time more involving for the attorneys. In general those negotiations are likely to be in the order of one- quarter to one-third of the amount spent in getting to the adopted MOU. None of the foregoing should be taken as a bid or proposal for this. The information is merely provided in order to meet your request that some order of magnitude be provided. Depending on the outcome of Phase 1, an estimated budget range may or may not be provided for Phase 2. In general,the City will be billed only for the time and materials and according to PCR Kotin standard rates,a copy of which is attached to this proposal. PROJECT MANAGEMENT AND STAFFING Allan D. Kotin will be principal-in-charge, with participation in all aspects of the analysis and documentation, and will attend all major meetings and public presentations. Dennis Wambem will be project manager for Phase 1, and will be assisted by PCR Kotin staff members Ross Selvidge, John Rocca and Christine Zhou. Ronald E. Cano of Downtown/Main Street Visions will have major responsibilities in the formulation of the downtown marketing strategy. The staffing of Phase 2 will be somewhat different from Phase I in that the critical participation will probably be by Allan Kotin who will be the chief negotiator. He will be assisted as needed by Dennis Wambem, Ross Selvidge and Christine Zhou in the calculations and support analysis for negotiations.