Rebuttal to Merlone Geier Partners' Budget Report

The letter below was sent to the City after the Petaluma Neighborhood Association’s members evaluated the accuracy of Merlone Geir Partners consultant’s Budget Impact Study.
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Dear Planning Commissioners, Council Members & City Manager,

On February 10th, 2010 you received a letter from Greg Geertsen of Merlone Geier Partners attached to an “economic study” that was presented to the Petaluma Area Chamber of Commerce. This purported study is entitled, Budgetary Impacts of New Retail Projects (Deer Creek Village and East Washington Place Shopping Centers).

Geertsen’s letter, along with the aforementioned document drafted by Navigant Consulting, conveyed erroneous information in an attempt to draw support for two poorly designed large retail projects in Petaluma.

The Petaluma Neighborhood Association and its research team have read and conducted a full analysis of the Navigant study and have determined the document to be inconclusive and specious in its findings. In more instances then we can count, the report incongruously draws parallels between random bits of information. This is a deceitful attempt to justify and push through approvals of two proposals that do not comply with Petaluma’s General Plan. The fact that this report was commissioned and presented by the proponent of one of the two projects, and is offered as an “objective” report of some benefit to the city, is preposterous on the face of it.

Would the city be better off with Deer Creek Plaza and East Washington Place?

There is no evidence provided by the Navigant report that the City of Petaluma would be better off financially or commercially with either of these two projects in place.

By using the period 2003-07, which predates the global recession, as a benchmark for its findings, there is absolutely no relevance to the claims made by Mr. Geertsen that either of these two retail projects, if approved at an earlier time, would curtail the city’s financial crisis or aid in the city’s ability to rebound from the economic downturn. His theories are purely speculative.

Conversely, we may even draw a contrary determination when the circumstances and the financial burdens of both projects are analyzed more thoughtfully. Petaluma’s financial crisis would not be lessened by the approval of either of these two projects, and in fact could easily be further impacted when the added burdens on our infrastructure are counted over time, as it is local taxpayers who ultimately pay for them.

The city’s financial problems were brought on by a number of serious economic issues that the Navigant report never bothered to address. Like most every other city in California today, the downturn of the economy culminated in a situation which caused our city’s expenditures to outpace its revenues. These macro-economic factors so far outweigh the purported benefits claimed by this report that they pale into insignificance when compared to these larger factors.

What is the True Intent of Navigant’s Report?

In the executive summary of the report and in several other locations, it states that the nature of their analysis is “independent and objective”. A further investigation into the business practices of the Navigant Consulting firm instead reveals a clear bias motivating their methodology.

According to their website, Navigant specializes in “Construction Consulting Services.” They are so-called experts in the field of “Schedule and Delay/Acceleration Analysis.” They have little experience in the field of retail economics or municipal fiscal policies. The report they prepared clearly reflects their lack of knowledge of the subject and demonstrates how nonobjective they truly are with regards to both of these two retail projects being proposed in our city. This is a classic example of the piper calling the tune, where Merlone Geier Partners went out and hired a consultant to report back with the results they wanted, and should only be given the consideration that such a commercial effort deserves.

How are other cities faring with Target and Lowe’s?

The Navigant study attempts to justify the building of both Petaluma big-box projects by drawing comparisons which are focused on Lowe’s and Target stores that were opened in 17 Northern California cities from 2003 to 2007. Again, for their comparative analysis, the preparers of this report utilized data through the end of 2007 only. As a result of gathering only pre-recession data, excluding pertinent information in the following years, and ignoring the larger economic context, the report falls short of providing a true economic analysis of any budgetary burdens big-box projects such as these have had on the cities included in their report. Given this extremely skewed starting point, their conclusions of benefits are equally suspect.

However, our research team wanted to test their premise that these kinds of projects are beneficial to the cities where they are built. We analyzed the cities Navigant listed and put together a chart on the following page that lists all 17 cities and the current state of their municipal budgets, as well as actions that they have been force to take to adjust to recent conditions. The information provided clearly shows that the majority of these Northern California cities are in just as much a financial crisis as Petaluma, in some cities the situation is even more severe. Cities such as Fremont, Stockton, Hayward, and Manteca have allowed over expansion that has led to excessive burdens on city services and infrastructure. These communities paid little regard to sustainable planning practices and continued to approve large big-box projects such as Target and Lowe’s, which led in part to a substantial drain of their city resources. The impacts of such practices have crippled their ability to stabilize their budgets.

Subject Cities’ Deficits & Fiscal Impacts
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Antioch: -$3 Million City Hall, laid off 24 employees in
2009, implemented furloughs and
trimmed expenses by $11 million

Cotati: -$700,000, Cotati voters to approve a 5-year
general transactions and use tax of
one half cent.

Dublin: -$1.5 Million, unavail.

Fremont: -$5.7 Million, City workers furloughs and layoffs

Gilroy: -$2.7 Million, Police Union led effort to recall
Mayor- Eliminated 71 F/T positionsclosed
city museum

Jackson: -$900,000, City employees asked to take concessions.

Lincoln: -$2 Million, Laid off 25 city workers, including 5
police officers. Created citizens advisory
task force to analyze longterm solution

Stockton: -$31 Million, Layoffs, service reductions citywide.

Lodi: -$1.46 Million, unavail.

Yuba City: -$2 Million, Will lay off 16 employees and eliminate
40 positions total.

Albany: -$216,514, Unavail.

Hayward: -$14 Million, Seeking cost cutting measures,
deficit estimated to reach $19 Million
by the end of the year.

Napa: -$3,269, unavail.

Morgan Hill: -$1.7 Million, Eliminated 16 positions

Manteca: -$4.3 Million, Hiring Freeze, furloughs, and outsourcing.

Contradictory Findings

In the “major findings” section of Mr. Geertsen’s cover letter, he sites a rapid drop of Petaluma’s General Fund revenues “of 34.6% since 2007” but then goes on to cite taxable retail sales levels from between 2003-2007. Mr. Geertsen then proceeds to juxtapose the pre-recessionary taxable retail sales data to Petaluma’s current post-recession budgetary data. By drawing upon data from two incongruent time periods, one from before the recession, the other from just after the economic downturn, he has created a blatant contradiction that is difficult to take seriously. Rational conclusions cannot be drawn from such methods.

Furthermore, the estimate of $1.7 million in annual revenue for both projects is a highly optimistic overestimate of revenue generation, which is based upon inconclusive data from the flawed Fiscal and Economic Impact Assessment reports done for the city. Both FEIAs used primarily pre-recession data to establish a base line for their findings, made general unsubstantiated assumptions about employment income levels, types of jobs created, and impacts on existing businesses and therefore the sales taxes lost, just to name a few shortcomings. The current decline in Consumer Price Indexes along with cumulative retail redundancies were not factored into to the retail sales tax (RST) estimates for either project. They were found completely inadequate by the City Council in providing usable information.

The FEIA prepared for Regency Center’s East Washington Place neglected to factor in the shortfall of revenues through secondary market consumers. Retailers rely heavily on the revenues generated by secondary markets of any given trade area, that is, those who travel from outside a town or city to take advantage of available shopping destinations. A Target store located in Petaluma with existing Target stores in Novato, Rohnert Park, and Napa, would therefore not reap the benefit of drawing from a secondary market, because one does not exist.

Most of the estimated revenue data provided in the FEIA for the East Washington Place proposal was taken from Target stores in cities that had the benefit of a secondary market draw where portion of consumer-spending comes from outside. With Lowe’s stores in Cotati and San Rafael, there will be a limited secondary market here as well.

As Petaluma will not have a true secondary market for either project, the retail sales tax revenue figures that the study cites is grossly exaggerated and needs further examination before his conclusions can be accepted as real.

Is Petaluma Over-Retailed?

Presently, Petaluma has nine major shopping centers that are built to similar specifications to both proposed projects, Deer Creek Plaza and East Washington Place. These existing shopping centers are typical auto-centric projects with limited pedestrian/bike amenities and virtually no connectivity to the neighborhoods or the community surrounding them. Petaluma’s various shopping centers range from older 70’s- 80’s bunker styled buildings to the recently built Redwood Gateway Center (Kohl’s plaza). All are of the same conceptual design with very low-density layouts, large expanses of parking, and pedestrian-unfriendly spaces that hinder pedestrian activity and connectivity. Over the years, these poorly planned projects have resulted in street infrastructure that has been unable to keep pace with the traffic conditions they have generated. With retail vacancies in almost all of these nine existing centers, there is a clear indication that Petaluma’s existing retail outlets, for a multitude of reasons, are not living up to their revenue potential.

Conclusion

Clearly this report is a self-serving attempt to sway those who either don’t care to exercise critical thinking, be bothered by facts, or have a political ax to grind. Anecdotally, one doesn’t have to look too far to see what these kinds of development projects do to a city. Rohnert Park and Santa Rosa both have long treated them favorably, and today are in worse economic shape than Petaluma. Furthermore, this kind of pay-for-results consulting should be treated warily, with such biased results destroying any credibility such consultants may have at one time had. Crass self-serving commercialism such as this report embodies taints the public discourse, and reflects most clearly on its authors and patrons.

We trust that you will recognize the inconclusiveness of their report and advocate for sustainable planning practices, well designed, pedestrian oriented mixed-use projects that comply with Petaluma’s General Plan.

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