Fiscal Impact Analysis North Downtown Specific Plan City of Walnut Creek

DRAFT REPORT

Prepared for: Raimi + Associates

Prepared by: Keyser Marston Associates, Inc.

June 2018

TABLE OF CONTENTS Page

I. EXECUTIVE SUMMARY 1 A. THE SPECIFIC PLAN AREA 1 B. DEVELOPMENT PROGRAM 2 C. NET ANNUAL CITY FISCAL IMPACTS 4 D. FISCAL IMPACTS OF RESIDENTIAL AND COMMERCIAL COMPONENTS 5 E. ONE-TIME CONSTRUCTION-RELATED REVENUE TO CITY 6 F. KEY FINDINGS 7

II. METHODOLOGY AND ASSUMPTIONS 8

III. LIMITING CONDITIONS 12

APPENDIX TABLES

Appendix 1: Summary Net Fiscal Impact Appendix 2: City of Walnut Creek Demographics, 2017 Appendix 3: Proposed Development Program Appendix 4: Project Demographics Appendix 5: Property Tax Revenue Projection Appendix 6: Property Transfer Tax Revenue Projection Appendix 7: Property Tax In-Lieu of VLF Revenue Projection Appendix 8: Sales Tax Revenue Projection Appendix 9: Transient Occupancy Tax Revenue Projection Appendix 10: Business License Fee Revenue Projection Appendix 11: Franchise Fee Revenue Projection Appendix 12: Licenses, Permits and Fees Projection Appendix 13: Police Department Cost Projections Appendix 14: Public Works Department Cost Projections Appendix 15: Arts and Recreation Department Cost Projections Appendix 16: General Government Cost Projections Appendix 17: Administrative Services Cost Projections Appendix 18: Community and Economic Development Cost Projections Appendix 19: Development Impact Fees by Land Use Appendix 20: Development Impact Fees by Fee Type Appendix 21: Report 'Fiscal Impact Analysis, West Downtown Specific Plan, Preferred Alternative, City of Walnut Creek,’ June 2014, by BAE

I. EXECUTIVE SUMMARY

The following report has been prepared by Keyser Marston Associates, Inc. (KMA) for the City of Walnut Creek, under contract with Raimi + Associates. The report addresses the fiscal impacts estimated to be generated by the proposed North Downtown Specific Plan’s land use plan. The principal objectives of the analysis are to evaluate the following: . The on-going annual fiscal impacts to be generated by the proposed Specific Plan land use plan (SPLUP) upon buildout; and . The magnitude of one time City impact fee revenue to be generated by the proposed development.

A. THE SPECIFIC PLAN AREA

The Specific Plan Area (Plan Area) is comprised of 191-acres, and is located on the western edge of Walnut Creek, directly north of traditional downtown and directly east of the Walnut Creek BART station. It is surrounded by predominantly residential neighborhoods further to the east and to the west across Interstate 680, the BART tracks, and by heavier commercial activity further north. The Plan Area is located within a larger Priority Development Area (PDA), as designated by Association of Bay Area Governments (ABAG) and the City.

Predominant land uses in the Plan Area are retail, automobile sales and services, and office uses. It also currently has a small amount of housing and public uses. Some of the City’s main thoroughfares provide access through the site, including Ygnacio Valley Road, North California Boulevard, North Main Street, North Broadway, and Civic Drive. The Plan Area includes a variety of auto sales and service businesses, and some of the City’s largest office buildings. The “Golden Triangle,” directly north of the BART station, is also in the Plan Area, and contains higher intensity office uses as well as some multi-family housing. Many of the City’s public buildings and facilities are located in and around the Plan Area, including City Hall, Library, a State Department of Motor Vehicles Office, a Social Security Office, a County Fire Station, the Lesher Center for the Performing Arts, an AT&T facility, and the Post Office.

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Figure 1. Plan Area Positioning within Downtown PDA

Source: ABAG, Google Maps

B. DEVELOPMENT PROGRAM

The Specific Plan will include a mix of new office, residential, retail, industrial, hotel, and auto sales/service uses within the Plan Area. Table 1 presents the estimated incremental development anticipated in the Specific Plan. This analysis assumes that the development will occur over the next 30 years.

Keyser Marston Associates, Inc. Page 2 \\SF-FS2\wp\18\18600\001\005-001.docx Table 1. North Downtown Specific Plan Development Program Net New Existing Condition Upon Buildout Development Residential (Dwelling Units) 944 1,843 899 Retail (SF) 412,021 472,730 60,709 Office (SF) 2,841,452 3,659,440 817,988 Industrial/Custom Mfg. (SF) 0 16,000 16,000 Hotel (Rooms) 160 360 200 Auto Sales/Service (SF) 423,094 386,007 (37,087) Source: City of Walnut Creek, Raimi + Associates, Fehr & Peers, and LSA Associates, Inc., 2018

As a result of both escalating land values and policy, development within the Specific Plan is expected to become denser and more compact. Suburban automobile dealership formats are anticipated to evolve into more urban prototypes, such as two-story showroom buildings that replace large outdoor display lots. In addition to the expectation that dealerships will have smaller footprints, it is also anticipated that one of the Plan Area’s existing dealerships will relocate to a site that is north of the Plan Area but still within the City of Walnut Creek.

Per the development program, population within the Specific Plan will increase by approximately 1,519 and employment by approximately 3,546. Resident population has been calculated based on the household size of 1.69 persons per household. The development program will increase the City’s service population by approximately 3,300. Service population is defined as 100 percent of residents residing within a jurisdiction plus 50 percent of employees working in the jurisdiction. Calculating service population in this manner is an accepted practice in fiscal impact analyses and is intended to reflect the fact that local employment contributes to the jurisdictions daytime population, thereby increasing demands for governmental services.

Table 2. Estimated Net New Specific Plan Population and Employment Net Increase Resident Population 1,519 Employment Retail 121 Office 3,272 Industrial/Custom Manufacturing 35 Hotel 180 Auto Sales/Service (62) 3,546

Service Population1 3,292 See Appendix 4 for details. 1 Service Population is calculated as resident population plus half of employment population.

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C. NET ANNUAL CITY FISCAL IMPACTS

The fiscal impact analysis estimates the long-range municipal revenue and cost implications of new development that would be permitted under the Specific Plan. Given that this analysis models the conceptual land use plan contained in the Specific Plan rather than specific proposed development projects, the findings of the analysis should be considered as broad indicators of fiscal impacts rather than precise conclusions. It provides information that can be useful in preparing for future development and establishing mechanisms to ensure that new development enhances the fiscal health of the City of Walnut Creek.

As presented in Table 3, the net new development within the Specific Plan Area is expected to generate a net annual surplus to the City’s General Fund of approximately $1.08 million per year. Annual tax revenues directly generated by new development are estimated to total $2.85 million, with property taxes (including property transfer tax and property taxes in-lieu of vehicle license fees) being the single largest revenue source, totaling $1.11 million per year. The second and third major sources of revenue are transit occupancy tax (TOT) and sales tax1, respectively. Although TOT and sales tax are subject to variation based on market conditions, even with a significant decrease in these revenue sources there would be a net positive fiscal impact from the development program.

Annual expenditures on City services directly associated with the SPLUP’s new development are estimated to total $1.78 million per year. Police department and public works department costs are the two largest sources of expenditure and are estimated to total $850,000 and $390,000, respectively.

1 Sales tax revenues reflect sales from the additional 60,709 square feet of retail space contained in the SPLUP and do not include sales from existing retail and auto dealerships within the SP.

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Table 3. Estimated Net New Annual Fiscal Impact of New Development within the SP1 Annual Revenues Property Tax $1,110,000 Transit Occupancy Tax $920,000 Sales Tax $410,000 2 Other Revenues $410,000 Total Revenues $2,850,000

Annual Expenditures Police Department $850,000 Public Works Department $390,000 3 Other Expenditures $540,000 Total Expenditures $1,780,000

Net Annual Fiscal Surplus $1,080,000 See Appendix 1 for details; Figures may not add due to rounding 1Reflects revenues and expenses to be generated by net new development within the SP, and does not include revenues and expenses generated by existing development. 2 Other Revenues include Business License Revenues, Franchise Fees, and Licenses, Permits and Fees 3 Other Expenditures include Arts and Recreation department costs, General Government costs, Administrative Services costs, and Community and Economic Development costs

D. FISCAL IMPACTS OF RESIDENTIAL AND COMMERCIAL COMPONENTS

Each land use component of the SPLUP is anticipated to generate a net fiscal surplus to the City’s General Fund, including the residential component. As shown in Table 4, the residential component is anticipated to generate a slight annual fiscal surplus of approximately $150,000 per year. This result is consistent with other fiscal impact studies for infill residential developments in upscale Bay Area communities.

Given that the isolated net impact of both residential and commercial uses in the mixed-use development program have a net positive fiscal impact, it is anticipated that new development within the Plan Area will generate a fiscal surplus to the City irrespective of the specific combination of residential and commercial uses that are built in any particular year.

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Table 4. Estimated Net Annual Fiscal Impact: Residential Units Only (upon buildout) Revenues Property Tax $710,000 Sales Tax $220,000 Other Revenues1 $110,000 Net Revenues $1,040,000

Expenditures Police Department $390,000 Public Works Department $180,000 Other Expenditures2 $320,000 Net Expenditures $890,000

Net Fiscal Surplus $150,000 1 Other Revenues include Business License Revenues, Franchise Fees, and Licenses, Permits and Fees 2 Other Expenditures include Arts and Recreation department costs, General Government costs, Administrative Services costs, and Community and Economic Development costs

E. ONE-TIME CONSTRUCTION-RELATED REVENUE TO CITY

In addition to generating new recurring annual General Fund revenues, the construction of new development will also generate one-time revenues to the City. Development fees levied by the City of Walnut Creek include traffic impact fees, commercial linkage fees, inclusionary housing fees, public art in-lieu fees and parkland dedication fees. As presented in Table 5, City development fees are estimated to total $39.1 million2. The largest component of City impact fee revenue to be generated by the Specific Plan is inclusionary housing fees, which account for approximately 34% of City impact fee revenues.

Table 5. Estimated Specific Plan Development Fee Revenues One-time Development Fees Distribution Inclusionary Housing Fees $13,485,000 34% Public Arts Fee3 $7,390,000 19% Parkland Dedication Acreage/Fee $7,192,000 18% Traffic Impact Fees $5,895,000 15% Commercial Linkage Fees $5,163,000 13%

Total City Development Fees $39,125,000 100%

2 While this fiscal impact analysis only includes impact fee revenue derived from impact fees levied by the City of Walnut Creek, other service agencies, such as the school district, also levy impact fees on new development. 3 Projects are eligible to either provide public art equal in cost to 1% of the project’s construction cost or contribute the equivalent amount to the Public Art Fund. (prior to July 2021, the fee amount is .75% of construction costs.) Given the 30-year buildout period for this analysis, the fee amount contained in this report reflects 1% of estimated construction costs of the new development.

Keyser Marston Associates, Inc. Page 6 \\SF-FS2\wp\18\18600\001\005-001.docx Table 6 provides a breakdown of the projected impact fee revenue by land use. As shown, multifamily development is anticipated to contribute $26.5 million of impact fee revenue, which represents the largest share of any single land use. It is followed by the office component at $10.2 million and the hotel at $1.4 million.

Table 6. Estimated Specific Plan Development Fee Revenues by Land Use One-time Impact Fees % of Total Fee per Unit/SF Multifamily Residential $26,510,000 68% $29,488 per Unit Retail $764,000 2% $12.58 per Sq. Ft. Office $10,249,000 26% $12.53 per Sq. Ft. Hotel $1,419,000 4% $7,095 per Room Industrial/Custom Mfg. $181,000 0% $11.31 per Sq. Ft. Total One-Time Development Impact Fees $39,125,000 100%

F. KEY FINDINGS

. The Specific Plan’s land use plan upon buildout is expected to generate an annual net surplus to the City’s General Fund, of approximately $1.08 million per year. Annual tax revenues directly generated by new development are estimated to total $2.85 million, while annual City expenditures to provide services to the new residents and employees are estimated to total $1.78 million per year.

. Each type of land use, including residential is anticipated to generate a fiscal surplus to the City’s General Fund. As a result, new development in the Specific Plan is anticipated to generate annual fiscal surpluses to the City, irrespective of the combination of residential and commercial uses that are built in any particular year.

. The development of the Specific Plan land use plan is estimated to generate approximately $39.1 million of one-time development fee revenue to the City. The fee revenues must be used for specific purposes and are not unrestricted General Fund revenues.

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II. METHODOLOGY AND ASSUMPTIONS

The fiscal impact analysis provides a preliminary estimate of the annual recurring fiscal revenues and expenditures that would be generated to the City by the new development under the Specific Plan’s land use plan. This analysis focuses on impacts to the City’s General Fund because it is the major source of discretionary spending for key city services, including public safety, public works, and administrative services. Per direction by the City of Walnut Creek, this analysis is based on the methodology presented in the report ‘Fiscal Impact Analysis, West Downtown Specific Plan, Preferred Alternative, City of Walnut Creek,’ June 2014, by BAE.

This analysis measures the annual impacts upon buildout of the land use plan. Thus, the cost and revenue projections are estimated for the point in time when the for-sale units would be sold out, rental spaces would be fully leased, and income generating properties would have achieved stabilized operations. The major revenue and cost elements evaluated include property, transient occupancy, sales and use taxes, and police, fire, public works, and arts and recreation department service costs.

The fiscal impact analysis is in 2017 dollars and is based on both marginal estimating sources, such as assessed values and hotel room rate information, and average revenue and cost factors derived from the City’s Fiscal Year 2017-18 budget. The analysis is presented in the attached Appendix tables.

The key assumptions of the analysis and the methodologies used to calculate the revenue and cost impacts are as follows:

. Existing City of Walnut Creek Demographics – The data source for demographics is based on ESRI Business Analyst Demographic Forecasts for 2017 to 2022. (Appendix 2).

. Resident Equivalents – The estimates of franchise fee, and licenses, permits and fee, and most service costs use a modified per capita measure known as “resident equivalents.” This approach combines residents and employees to form a single service population. The resident equivalent approach weights an employee as 0.50 of a resident, such that two employees are viewed as having the same impact as one resident. (Appendix 2).

. Project Demographics – The data source for population and employment estimates are based on the data provided in North Downtown Growth Projection Assumptions Memo, Raimi + Associates, December 7, 2017. (Appendix 4).

. Assessed Property Values – In order to project property tax revenues, this analysis determines the assessed value of new development using market data for residential and commercial uses. This analysis uses the methodology present in the BAE report

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(June 2014), for calculating the new assessed values. As the land within the City is currently generating property tax revenues, this analysis excludes the existing land value from assessed value calculations; however it includes the increase in land values from existing levels for new residential developments. Upon rezoning to allow greater density, land values are estimated to increase by approximately 50 percent because each acre of land can support more development. This analysis assumes that residentially zoned parcels would change hands prior to development, triggering a reassessment of land values, and includes the increased value in assessed value calculations.

. Based on the methodology described above and the recent market data, the assessed value of multifamily for-sale units has been estimated at $656,000 per unit, and the value of rental units has been estimated at $408,000 per unit. Retail, Office, and Industrial land use values are derived from Marshall and Swift Valuation Service construction cost information. Estimates indicate new assessed values of $190, $300, and $180 per square foot of building area respectively, for these land use types. New assessed value for hotel development is estimated at $193,200 per room. (Appendix 5).

. Property Taxes – Development within the Specific Plan would be within the Tax Rate Area (TRA) 009-000. The City of Walnut Creek receives 9.41% of the 1% ad valorem property tax collected in this TRA. (Appendix 5).

. Property Transfer Taxes – The city receives $0.55 for every $1,000 of assessed value of properties upon sale. In order to project the annual property transfer taxes, this analysis assumes that one-seventh of all properties sell each year, at which point they are reassessed to current market value pursuant to Proposition 13 (as per BAE report, June 2014). (Appendix 6).

. Property Taxes In-lieu of Vehicle Licenses Fees – Property tax In-Lieu of Vehicle License Fees has been estimated in accordance with SB 1096, based on data from the California State Controller’s Office and projected assessed values. (Appendix 7).

. Sales and Use Taxes – In order to calculate the sales tax revenues, it is necessary to estimate the total taxable sales from new development. As per the BAE report (June 2014), this analysis calculates the total taxable sales from new development under the Specific Plan based on taxable sales per resident, and per employee; and not on the basis of taxable sales per commercial square foot.

. Sales tax from resident spending is based on the average percentage of income spent on retail and food services for Nine County Bay Area residents. KMA has assumed that the City would capture 65% of the resident spending. Sales tax from Employee spending is based on the average daily employee taxable sales expenditures presented in International Council of Shopping Centers’ report. KMA has assumed that the City would

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capture 80% of the employee retail spending. Also, this analysis estimates the sales tax from business to business sales based on the factor of $4,400 annual taxable business- business sales per office employee (as per BAE report, June 2014). (Appendix 8).

. Transient Occupancy Taxes – The City of Walnut Creek charges a 10% tax on hotel room revenues. The average daily room rate has been estimated at $180, based on a web survey of Walnut Creek hotel rates, and the hotel occupancy rate has been assumed at 70%. (Appendix 9).

. Business License Fees – The City of Walnut Creek receives business taxes from all businesses operating within its jurisdiction based on the total number of employees per business establishment. As currently there is not enough information to project the business license fee for businesses that will locate in new development within the Specific Plan, this analysis uses average tax per employee generated in 2017 to project new business taxes. (Appendix 10).

. Franchise Fees, and Licenses, Permits and Fees – These revenue sources are estimated based on an extrapolation of the current per resident equivalent amounts generated by the City’s residents and employment base. (Appendix 11 and 12).

. General Fund Services Costs – This fiscal impact analysis utilizes average cost multipliers derived from City of Walnut Creek’s 2017-18 Budget to project increased General Fund service costs associated with serving the Specific Plan. Police, public works, general government, administrative services, and community and economic development cost projections are based on the current city cost per service population, while arts and recreation department costs are based on the current city cost per resident population. (Appendix 13-18).

. Development Fees – In addition to generating annual General Fund revenues, new development under the Specific Plan will generate one-time development fee revenues. Development fees levied by the City of Walnut Creek include traffic impact fees, commercial linkage fees, inclusionary housing fees, parkland dedication fees, and a public art in-lieu fee. While developers are eligible to either provide public art on-site or pay a fee, for purposes of this analysis it is assumed that 100% of the art requirement is satisfied through the payment of the in-lieu fee. The City also levies a property development tax on development sites that were previously not improved with buildings. Given that a significant portion of the Specific Plan Area is comprised of improved property, most of the anticipated new development will likely occur on underutilized, but improved properties. This projection conservatively excludes property development tax revenues. The revenues reflect City fee levies as of May 1, 2018.

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. Inflation of Revenue and Expenses – The analysis is a static analysis of conditions upon buildout of the land use alternative under the Specific Plan. Revenues are presented in 2017 dollars.

. Continuity of Legal and Institutional Constraints – The revenue and cost experience of the City of Walnut Creek is based on the proposed FY 2017-18 budget. The projection assumes that the revenue sources will remain constant.

. Rounding of Decimal Places – In some cases the calculated summations presented in the appendix tables do not precisely match the summations presented in the body of the report. These differences are due to rounding.

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III. LIMITING CONDITIONS

. The analysis contained in this document is based, in part, on data provided by third parties and published data sources. While Keyser Marston Associates, Inc. (KMA) believes that the sources consulted are reliable, we cannot guarantee their accuracy. Per direction by the City of Walnut Creek, this analysis is based on the methodology presented in the report ‘Fiscal Impact Analysis, West Downtown Specific Plan, Preferred Alternative, City of Walnut Creek,’ June 2014, by BAE (Appendix 20).

. A projection of fiscal impacts is inherently based on judgment. The projections contained herein are based on the best information available at the time that this document was prepared. Actual impacts are likely to vary from the estimates contained in this report.

. The analysis is based on the assumption that the development of the land use alternative specified under the Specific Plan is supported by market place, is financially feasible, and will achieve full buildout.

. The assumed assessed values reflect current residential values in Walnut Creek, while commercial values are based on Marshall and Swift Valuation Service. If the real estate market changes or the nature of development varies from what has been assumed here, the findings of the report may not be valid.

. The analysis assumes that the economy will continue to grow at a moderate rate.

. Revenue and cost projections are based on the best project-specific and fiscal data available at this time. Material changes to costs, development program, or project performance may render the conclusions contained herein invalid.

. Revenue estimates are based on the assumption that sufficient market support exists for the proposed uses and that the land uses under the Specific Plan will achieve industry standard productivity levels.

. The findings are based on economic rather than political considerations. Therefore, they should not be construed as a representation that government approvals for development can be secured.

. It is assumed that all applicable laws and governmental regulations in place as of the date of this document will remain unchanged throughout the projection period. In the event that this does not hold true, for example, if any tax rates change, the analysis would need to be revised.

. KMA is not liable for the accuracy of any abstracts, excerpts or summaries of this report that are not prepared by KMA.

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APPENDIX

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Appendix 1: Summary Net Fiscal Impact Walnut Creek, NDSP, Fiscal Impact Analysis

Revenues1 Property Tax $758,000 Property Transfer Tax $55,000 Property Tax In-lieu of VLF $301,000 Sales Tax $409,000 Transit Occupancy Tax $920,000 Business License Revenues $174,000 Franchise Fees $129,000 Licenses, Permits and Fees $110,000

Total Revenues $2,856,000

Expenditures2 Police Department $853,000 Public Works Department $390,000 Arts and Recreation Department $135,000 General Government $195,000 Administrative Services $191,000 Community and Economic Development $15,000

Total Expenditures $1,779,000

Net Fiscal Surplus/Deficit $1,077,000

1. See Appendix 5-12 for individual tax calculations and assumptions 2. See Appendix 13-18 for individual expenditure calculations and assumptions

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2017 Population1 68,333 Employment1 49,598 Service Population2 93,132

Average Household Income1 $132,179 Average Household Size1 2.09

1. Source: ESRI Business Analyst 2. Service Population calculated as resident population plus half of employment population

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Existing Upon Net Condition Buildout Difference Residential (Dwelling Units) 944 1,843 899 Retail (SF) 412,021 472,730 60,709 Office (SF) 2,841,452 3,659,440 817,988 Industrial (SF) 0 16,000 16,000 Hotel (Rooms) 160 360 200 Auto Sales/Service (SF) 423,094 386,007 (37,087)

Source: City of Walnut Creek, Raimi + Associates, Fehr & Peers, and LSA Associates, Inc., 2018

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Existing Upon Net Condition Buildout Difference Resident Population1 1,595 3,115 1,519

Employment Retail2 824 945 121 Office3 11,366 14,638 3,272 Industrial4 0 35 35 Hotel5 144 324 180 Auto Sales/Service7 705 643 (62) 13,039 16,585 3,546

Service Population8 8,115 11,407 3,292 Source: Raimi + Associates, 2017, North Downtown Growth Projection Assumptions Memo, December 7. 1. These projections were calculated using an assumed average household size of 1.69 persons 2. Retail average employee density assumed at 500 SF/employee 3. Office average employee density assumed at 250 SF/employee 4. Industrial average employee density assumed at 463 SF/employee 5. Hotel employee density assumed at 0.9 employee/room 7. Auto sales/service average employee density assumed at 600 SF/employee 8. Service Population calculated as resident population plus half of employment population

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Net New New Assessed Value Total New # of units/SF Per Unit/SF Assessed Value Residential Multifamily for sale (Units)1 593 $656,000 $388,849,000 Multifamily for rent (Units)2 306 $408,000 $124,947,000

Retail (SF)3 60,709 $190 $11,535,000 Office (SF)3 817,988 $300 $245,396,000 Industrial (SF)3 16,000 $180 $2,880,000 Hotel (Rooms)3,4 200 $193,200 $38,640,000 Auto Sales/Service (SF)3 (37,087) $180 ($6,676,000)

Net New Assessed Value $805,571,000

Tax Rate Area 09000 Walnut Creek General Fund's portion of 1% Ad Valorem Property Tax in TRA 009-000 0.094071

Projected Annual New Property Tax Revenues $758,000

Note: Figures rounded to closest 1000s 1. Based on the sale price of $750,000 per unit. See Page 8, of the report 'Fiscal Impact Analysis, West Downtown Specific Plan, Preferred Alternative, City of Walnut Creek' for details on methodology. 2. Based on value of improvements plus land appreciation above current values. 3. Based on current valutions for Walnut Creek as presented by Marshal & Swift Valution reports, Core Logic. Values do not include land values. 4. Based on 690 gross sq. ft. per room.

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Projected Net New Assessed Value1 $805,571,000

Transfer Tax Rate per $1,000 of Assessed Value2 $0.55 Holding Period for Properties3 7 Years

Projected Annual New Property Transfer Tax Revenues $55,000

Note: Figures rounded to closest 1000s 1. See Appendix 5 2. Source: http://www.californiacityfinance.com/PropTransfTaxRates.pdf, accessed 04/09/2018 3. As per report 'Fiscal Impact Analysis, West Downtown Specific Plan, Preferred Alternative, City of Walnut Creek,’ June 2014, by BAE

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2004-05 Vehicle License Fee Adjusted Amount1,2 $3,750,473 2004-05 Assessed Valuation1,2 $10,022,264,460 VLF per $1,000 in AV Growth $0.37

Projected Net New Assessed Value3 $805,571,000

Projected Annual New Property Tax In-Lieu of VLF Revenues $301,000

Note: Figures rounded to closest 1000s 1. As per SB 1096, growth of property tax in lieu of VLF is proportional to growth in AV since 2004/05. 2. VLF distribution in 2004/05 per the California State Controller's Office 3. See Appendix 5

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Sales Tax from Resident Spending Average Household Income1 $132,179 Percentage of Income Spent on Taxable Retail Sales per Household2 29.3%

Income Spent on Taxable Retail Sales per Household $38,728

Walnut Creek Capture Rate3 65%

Income Spent on Taxable Retail Sales in Walnut Creek per Household $25,173 Net New Households in the Plan Area4 899

New Taxable Resident Retail Sales $22,631,000

Sales Tax from Employee Spending Weekly Employee Retail Spending5 $38 Weeks at Work per Year3 50

Average Annual Retail Spending per Employee $1,875

Walnut Creek Capture Rate3 80%

Income Spent on Taxable Retail Sales in Walnut Creek per Employee $1,500 Net New Office Employees in the Plan Area6 3,272

New Taxable Employee Expenditure Retail Sales $4,908,000

Sales Tax from Business to Business Sales Annual Taxable Business-Business Sales per Office Employee7 $4,400 Net New Office Employees in the Plan Area6 3,272

New Taxable Business to Business Sales $14,397,000

Net New taxable Sales $41,936,000 City's share of 1% Sales Tax8 97.50%

Projected Annual New Sales Tax Revenues $409,000

Note: Figures rounded to closest 1000s. 1. Source: ESRI Business Analyst 2. Based on the average percentange of income spent on Retail and Food services for Nine County Bay Area residents; Source: CA Board of Equalization (2015) 3. KMA assumption 4. See Appendix 3. 5. Based on average daily employee taxable sales expenditures of $7.50 as presented in ICSC report. 6. See Appendix 4 7. Source: City of Walnut Creek, as presented in the report Fiscal Impact Analysis, West Downtown Specific Plan, Preferred Alternative, City of Walnut Creek, June 2014; Figure increased to 2017 dollars using CPI 8. Walnut Creek recieves 97.5% of the 1% taxable sales eligible to local jurisdictions.

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Average Daily Room Rate1 $180 Hotel Occupancy Rate2 70%

New Hotel Rooms3 200 Annual Hotel Room Nights 73,000

Total Hotel Revenue $9,198,000 Contra Costa TOT Rate 10%

Projected Annual New Transient Occupancy Tax Revenues $920,000

Note: Figures rounded to closest 1000s 1. Based on a survey of rates from www.hotels.com; adjusted to reflect a premium for new construction 2. As per report 'Fiscal Impact Analysis, West Downtown Specific Plan, Preferred Alternative, City of Walnut Creek,’ June 2014, by BAE 3. See Appendix 3

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 10: Business License Fee Revenue Projection Walnut Creek, NDSP, Fiscal Impact Analysis

Total Business License Fee 20171 $2,429,669 2017 City Employment2 49,598

Business License Fee per Employee $49

Net New Employees in the Plan Area3 3,546

Projected Annual New Business License Fee Revenues $174,000

Note: Figures rounded to closest 1000s 1. Source: Comprehensive Annual Financial Report, June 30, 2017, City of Walnut Creek 2. Source: ESRI Business Analyst 3. See Appendix 4

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 11: Franchise Fee Revenue Projection Walnut Creek, NDSP, Fiscal Impact Analysis

Total Franchise Fee 20171 $3,648,456 2017 Service Population2 93,132

Franchise Fee per Service Population $39

Net New Service Population in the Plan Area3 3,292

Projected Annual New Franchise Fee Revenues $129,000

Note: Figures rounded to closest 1000s 1. Source: Comprehensive Annual Financial Report, June 30, 2017, City of Walnut Creek 2. See Appendix 2 3. See Appendix 4

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 12: Licenses, Permits and Fees Projection Walnut Creek, NDSP, Fiscal Impact Analysis

Total Licenses, Permits and Fees 20171 $3,118,723 2017 Service Population2 93,132

Licenses, Permits and Fees per Service Population $33

Net New Service Population in the Plan Area3 3,292

Projected Annual New Licenses, Permits and Fees $110,000

Note: Figures rounded to closest 1000s 1. Source: Comprehensive Annual Financial Report, June 30, 2017, City of Walnut Creek 2. See Appendix 2 3. See Appendix 4

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 13: Police Department Cost Projections Walnut Creek, NDSP, Fiscal Impact Analysis

FY 2017-18 Police Department Expenditures1 $26,532,491 Police Department Revenues1 $2,402,656

Police Department Net Expenditures $24,129,835 2017 Service Population2 93,132

Police Department Net Expenditure per Service Population $259

Net New Service Population in the Plan Area3 3,292

Projected Annual New Police Department Costs $853,000

Note: Figures rounded to closest 1000s 1. Adopted General Fund Budget Summary, FY 2017-18 2. See Appendix 2 3. See Appendix 4

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 14: Public Works Department Cost Projections Walnut Creek, NDSP, Fiscal Impact Analysis

FY 2017-18 Public Works Department Expenditures1 $21,358,236 Public Works Department Revenues1 $10,323,646

Public Works Department Net Expenditures $11,034,590 2017 Service Population2 93,132

Public Works Department Net Expenditure per Service Population $118

Net New Service Population in the Plan Area3 3,292

Projected Annual New Public Works Department Costs $390,000

Note: Figures rounded to closest 1000s 1. Adopted General Fund Budget Summary, FY 2017-18 2. See Appendix 2 3. See Appendix 4

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 15: Arts and Recreation Department Cost Projections Walnut Creek, NDSP, Fiscal Impact Analysis

FY 2017-18 Arts and Recreation Department Expenditures1 $17,170,186 Arts and Recreation Department Revenues1 $11,112,412

Arts and Recreation Department Net Expenditures $6,057,774 2017 Population2 68,333

Arts and Recreation Department Net Expenditure per Service Population $89

Net New Resident Population in the Plan Area3 1,519

Projected Annual New Arts and Recreation Department Costs $135,000

Note: Figures rounded to closest 1000s 1. Adopted General Fund Budget Summary, FY 2017-18 2. See Appendix 2 3. See Appendix 4

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 16: General Government Cost Projections Walnut Creek, NDSP, Fiscal Impact Analysis

FY 2017-18 General Government Expenditures1 $5,787,413 General Government Revenues1 $283,915

General Government Net Expenditures $5,503,498 2017 Service Population2 93,132

General Government Net Expenditure per Service Population $59

Net New Service Population in the Plan Area3 3,292

Projected Annual New General Government Costs $195,000

Note: Figures rounded to closest 1000s 1. Adopted General Fund Budget Summary, FY 2017-18 2. See Appendix 2 3. See Appendix 4

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 17: Administrative Services Cost Projections Walnut Creek, NDSP, Fiscal Impact Analysis

FY 2017-18 Administrative Services Expenditures1,2 $6,302,739 Administrative Services Revenues1,2 $897,373

Administrative Services Net Expenditures $5,405,366 2017 Service Population3 93,132

Administrative Services Net Expenditure per Service Population $58

Net New Service Population in the Plan Area4 3,292

Projected Annual New Administrative Services Costs $191,000

Note: Figures rounded to closest 1000s 1. Adopted General Fund Budget Summary, FY 2017-18 2. Including Human Resources 3. See Appendix 2 4. See Appendix 4

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 18: Community and Economic Development Cost Projections Walnut Creek, NDSP, Fiscal Impact Analysis

FY 2017-18 Community and Economic Development Expenditures1 $7,479,119 Community and Economic Development Revenues1 $7,054,954

Community and Economic Development Net Expenditures $424,165 2017 Service Population2 93,132

Community and Economic Development Net Expenditure per Service Population $5

Net New Service Population in the Plan Area3 3,292

Projected Annual New Community and Economic Development Costs $15,000

Note: Figures rounded to closest 1000s 1. Adopted General Fund Budget Summary, FY 2017-18 2. See Appendix 2 3. See Appendix 4

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 19: Development Impact Fees by Land Use Walnut Creek, NDSP, Fiscal Impact Analysis

Commercial Multifamily Residential Impact Fees1 Development Development Traffic Impact Fees2 Multifamily $1,589.00 per Dwelling Unit Retail $5.68 per Sq. Ft. Office/Industrial $4.53 per Sq. Ft. Hotel $1,715 per Room Public Arts Requirement3 1.00% construction cost 1.00% construction cost Commercial Linkage Fees2 $5.00 per Sq. Ft. Inclusionary Housing Fees2 $15.00 per Sq. Ft. of Living Area Parkland Dedication Acreage/Fee2 $4,000.00 per Bedroom

Land Use New Sq. Ft # Units # Rooms Impact Fees Fee per Unit/SF Multifamily Residential4 899,000 899 1798 $26,510,000 $29,488 per Unit Retail 60,709 $764,000 $12.58 per Sq. Ft. Office 817,988 $10,249,000 $12.53 per Sq. Ft. Industrial 16,000 $181,000 $11.31 per Sq. Ft. Hotel5 138,000 200 $1,419,000 $7,095 per Room

Total Impact Fees $39,125,000

Note: Figures rounded to closest 5,000s 1. Property Development Tax is not included in the analysis as any parcel that has an existing building on it is exempt from this fee; and as most potential development sites are occupied, this fee would not be applicable. 2. As per City of Walnut Creek, Development Review Services, Permit and Developer Fee Summary, June 2014 3. As per City of Walnut Creek, Municipal Code, Section 10-10.104. 4. Based on 1,000 sq. ft of gross area per residential unit containing 2 bedrooms. 5. Based on 690 gross sq. ft. per room.

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 Appendix 20: Development Impact Fees by Fee Type Walnut Creek, NDSP, Fiscal Impact Analysis

Impact Fees Type1 $ Fees % Total Inclusionary Housing Fees $13,485,000 34% Public Arts Requirement $7,390,000 19% Parkland Dedication Acreage/Fee $7,192,000 18% Traffic Impact Fees $5,895,000 15% Commercial Linkage Fees $5,163,000 13%

Total Impact Fees $39,125,000 100%

Note: Figures rounded to closest 5,000s 1. See Appendix 19 for details

Keyser Marston Associates, Inc. \\SF-FS2\wp\18\18600\001\Walnut Creek Fiscal Impact 2018 06 15; 6/18/2018 APPENDIX 21 bae urban economics

Fiscal Impact Analysis

West Downtown Specific Plan Preferred Alternative

City of Walnut Creek

Final - June 2014

San Francisco Sacramento Los Angeles Washington DC New York City 1285 66th Street 803 2nd Street 448 S Hill Street 1436 U Street NW 121 West 27th Street Second Floor Suite A Suite 301 Suite 403 Suite 705 Emeryville, CA 94608 Davis, CA 95616 Los Angeles, CA 90013 Washington, DC 20009 New York, NY 10001 510.547.9380 530.750.2195 213.471.2666 202.588.8945 212.683.4486

www.bae1.com bae urban economics

June 30, 2014

Mr. Bruce Brubaker, Associate Principal PlaceWorks 1625 Shattuck Avenue, Suite 300 Berkeley, California 94709

Dear Bruce:

Enclosed is the final fiscal impact analysis report for the Walnut Creek West Downtown Specific Plan preferred alternative that addresses the comments provided by the City on the earlier draft analysis. As explained in the report, at build-out the preferred alternative would contribute approximately $688,500 per year in new revenues to the City’s General Fund, along with one-time development impact fee payments of $68 million.

A complete description of the methodology and assumptions, and calculations for each item of revenue and expense is set forth in the report.

Very truly yours,

Ron Golem, MCP Sherry Rudnak, MA Principal Vice President

www.bae1.com

Executive Summary

To assist with the evaluation of land use alternatives for the West Downtown Specific Plan, BAE prepared a fiscal impact model to estimate the net impact to the City of Walnut Creek’s General Fund from buildout of the preferred Specific Plan land use alternative, as well as the impact fees that Walnut Creek would collect from new development. This report presents the findings from the fiscal impact and impact fee analyses for the preferred alternative.

Fiscal Impact Analysis Findings

Fiscal impact analysis is a tool to project the long-range cost and revenue implications of new development that would be permitted under the preferred development program, so that the City can understand the implications of a given land use program for the City’s long-term fiscal health. Because of the long-term nature of the fiscal projections, and due to the fact that there is potential for changes in many of the cost and revenue projection variables embedded in the fiscal model that cannot be foreseen at this time, the results of the fiscal impact analysis should be interpreted with care.

The recommended approach to interpret fiscal impact results be is as a high level order of magnitude indication of the general trend in fiscal conditions that could be expected under the preferred development program. More emphasis should be placed on the general relationship between project cost and revenue increases, than on specific projected dollar amounts. Used in this way, the results of the fiscal impact analysis, along with the results of other types of alternatives analysis (e.g., traffic, environmental, etc.), can be a useful tool to select and refine the preferred Specific Plan land use alternative.

Table ES-1, below, summarizes the net annual fiscal impact to the City’s General Fund at full build-out for the preferred development program. As shown in the table, the fiscal impact model projects that there would be a significant net benefit to the City’s General Fund of approximately $688,500 per year. This represents a positive impact equal to 28 percent more than the new costs associated with providing municipal services to new development.

Table ES-1: Net Fiscal Impact Summary

Preferred City of Walnut Creek General Fund Alternative Revenues $3,120,834 Costs ($2,432,331)

Net Fiscal Surplus/(Deficit) $688,503

Source: BAE, 2014.

The primary revenue generators, in order, are new property tax revenues from development and increased land value from upzoning; new transient occupancy taxes (TOT) from a new hotel; and new sales tax revenues (including revenues generated by new residents and new office workers, as well as new business-to-business taxable sales by firms in the office buildings).2013/14 Budget Although - General sales Fund tax and TOT revenues are$70,247,948 subject to variation based on the economicAs a percentage cycle, of totaleven General with Funda significant decrease in these0.980% two items there would still be a As a percentage of new GF costs 28.3% substantial net positive fiscal impact from the preferred alternative.

Residential Development Contribution to Net Fiscal Impact The mixed-use nature of the preferred alternative contributes to its net positive fiscal impact. Without the commercial components, the net fiscal impact would be approximately break- even, with new revenues equaling new service costs. The addition of the commercial elements in the preferred alternative is responsible for the positive net fiscal impact. To illustrate this point, the fiscal impact model was run with only residential units, yielding the following results:

Table ES-1B: Net Fiscal Impact Summary Residential Units Only

Preferred City of Walnut Creek General Fund Alternative Revenues $2,091,589 Costs ($2,079,690)

Net Fiscal Surplus/(Deficit) - Residential Only $11,899

Source: BAE, 2014.

This conclusion that infill residential development breaks even on a fiscal basis differs from older studies that the City has commissioned. The primary factors behind this change include a marked strengthening in residential real estate values, increasing property tax revenues, as well as a full accounting of all revenue sources from new residents, including increased retail spending. It should be noted, as described in the report, that service costs have been estimated on a conservative (higher) basis, so the net fiscal impact from residential is likely to be higher than what is shown above. Numerous other fiscal impact studies for infill residential development in upscale Bay Area communities have reached a similar finding that residential projects are either break-even or generate a slight positive fiscal impact.

Impact of Timing of Development Since each individual use in the mixed-use development program has a net positive fiscal impact, the City should see new revenues from development covering the associated new service costs irrespective of whatever combination of uses are being built in any particular year. However, since the single largest generator of net new fiscal impact is the new hotel, adding more than $613,000 per year in net new fiscal impact, the City will see the largest revenue benefit when this project is built.

Impact Fee Analysis Findings

In addition to generating new General Fund revenues, new development will also generate new impact fee revenues. Under the Mitigation Fee Act, all development impact fees must be calculated in a manner that is equitable. New development can only pay its fair share of improvements. Thus, the state requires a nexus between new development, its impacts to public facilities, and the resulting fees. The City of Walnut Creek collects development impact fees to pay for impacts to public facilities, including schools, transportation systems, parks, and affordable housing. It also charges a property development tax and fees for public arts.

Table ES-2, below, summarizes the potential impact fee revenues to the City at full build-out for the preferred development program. As shown in the table, the City could collect up to $68 million in impact fees. The majority of fees would come from new multifamily development, which generate approximately $25,600 per unit. Commercial uses generate between $11 and $12 per square foot, and hotels generate approximately $6,300 per room.

Table ES-2: Impact Fee Summary

Total Impact Use Fees (a) Fee per Unit Unit Multifamily $61,497,600 $25,624 per DU Retail $541,277 $12 per Sq. Ft. Office $4,881,339 $11 per Sq. Ft. Hotel $1,116,702 $6,345 per Room Total $68,036,918

Note: (a) Based on buildout of preferred development alternative.

Source: BAE, 2014.

iii

Table of Contents

INTRODUCTION ...... 1 METHODOLOGY ...... 2 Average Revenues and Costs ...... 3 Marginal Revenues and Costs ...... 4 DEVELOPMENT PROGRAM ...... 5 PROJECTED GENERAL FUND REVENUES ...... 6 Property Taxes ...... 6 Property Transfer Taxes ...... 8 Property Taxes In-Lieu of Vehicle License Fees (ILVLF) ...... 9 Sales Tax ...... 10 Transient Occupancy Taxes (TOT) ...... 12 Business Taxes ...... 13 Licenses and Permits Fees ...... 14 Franchise Fees ...... 15 Miscellaneous Fines and Revenues ...... 15 PROJECTED GENERAL FUND COSTS ...... 17 Current Net General Fund Costs for Services ...... 17 PROJECTED NET FISCAL IMPACTS ...... 24 DEVELOPMENT IMPACT FEES ...... 26

Introduction

This report presents the findings of the fiscal impact analysis of the West Downtown Specific Plan land use preferred alternative. This analysis projects the operating revenues and costs that would accrue to the City of Walnut Creek General Fund as a result of new potential development under the maximum potential development projected in the West Downtown Specific Plan. The analysis focuses on the General Fund, which receives the majority of the City’s discretionary revenues and funds critical public services, such as law enforcement, parks, and community services.

The objective of this report is to provide Specific Plan participants, including the public, the consultant team, City staff, and City policymakers with a common understanding of how the Specific Plan land use alternative would impact the City’s discretionary budget. This is critical given a desire to ensure that the City maintains a fiscally sustainable budget as the community grows.

The remainder of the report presents the preferred land use alternative, general methodologies for projecting revenues and costs, followed by detailed revenue and cost projections, and net fiscal balances for the Specific Plan preferred land use alternative.

Methodology

The major objective of any fiscal impact analysis is the determination of changes in public revenues and costs associated with new development. This study examines the potential impact that the potential new development under the Specific Plan preferred land use alternative would have on revenues and expenditures accruing to the City’s General Fund, based on the revenue and expenditure patterns reflected in the City’s Fiscal Year 2013-2014 budget.

This analysis focuses on impacts to the City’s General Fund, which represents the portion of the City’s budget that finances the ongoing provision of basic services, such as police, parks and recreation, and streets. To pay for these services, the City’s General Fund is dependent on discretionary revenue sources such as property taxes, sales taxes, business taxes, and various other local taxes, as well as other funds received from the State. Within this report, except as otherwise noted in the text, the annual ongoing fiscal impact of the land use alternatives is described in terms of constant 2013 dollars (i.e., the value of funds at the beginning of the current fiscal year).

The City conducts some activities within General Fund departments, as well as other activities that are not funded from General Fund revenues. For example, the City collects planning and building permit fees to offset the costs of providing these services. Activities that are funded from non-General Fund sources have been netted out of the analysis, since it is assumed that any increase in the cost of providing such services will be covered by an offsetting increase in the fees that are collected to provide those services (e.g. more development applications lead to an increase in planning and permitting fee revenues). This is a standard approach in fiscal impact analysis in order to focus on activities that depend upon General Fund revenues.

The cost and revenue projections are tied to the point in time when the land use alternative would be fully built out, for-sale units sold out, rental spaces fully leased, and income- generating properties would have achieved stabilized operations. It is important to note that there may be shifts in expenditures and revenues before the City reaches buildout, due to the service demands of ongoing development. For example, Community Development Services functions could require increases in staffing to handle development review and inspections during the buildout period, which could decline once the Specific Plan area reaches buildout. It is important to note that the cost projections reflect net General Fund expenditure increases. Actual total departmental budgets may increase more substantially than indicated, due to increased expenditures which are offset by new program revenues. For example, staffing increases for arts and recreation programs that are funded by user fees would not be reflected in the cost projections, nor would the off-setting user fees be reflected in revenue projections. Thus, the expenditure projections should not be interpreted as actual departmental budget forecasts or indicative of overall staffing levels to support services.

In addition, it should be noted that the fiscal impact analysis is structured to project the net impacts of new development only. The analysis does not project changes in costs or revenues over time associated strictly with provision of services to the City’s existing base of development due to policy changes, changes in service standards, or other external factor

unrelated to new development. For example, to the extent that pension costs for employees who currently serve existing residents and businesses increase, due to changes in the City’s required contributions to the CalPERS retirement system, it will not be reflected in the fiscal analysis.

Average Revenues and Costs

In many cases, discretionary revenues, as well as the cost of providing municipal services, increase proportionately with the number of residents and/or employees. As an example, when the resident and daytime populations increase, there is a need to hire additional public safety and other government employees. Likewise, when there are more local residents and employees, the City will collect more traffic fines and franchise fees. In these cases, costs and revenues are projected on an average cost or “service population” basis.

Service Population Accepted practice in fiscal impact analysis is to define the service population as 100 percent of residents residing within a jurisdiction plus 50 percent of employees. Calculating service population in this manner is intended to reflect the fact that local employment contributes to a jurisdiction’s daytime population, thereby increasing demands for governmental services. Nonetheless residential population is generally considered to generate a larger share of demand for services; thus the discount factor for employees relative to residents when calculating service population. Table 1 shows the City of Walnut Creek’s 2013 service population.

As noted in the report, certain General Fund expenditures do not increase in direct proportion to the growth in service population. For example, City Council, City Manager, and IT expenses are typically fixed expenses until there is a very substantial growth in service population, i.e. much more than is envisioned in the Specific Plan. As noted in the report, certain administration and fixed costs that are considered fixed costs have not been increased (this differs from some other fiscal impact analyses where all General Fund costs are treated as variable).

Table 1: City of Walnut Creek Service Population, 2013

Service Population 2013 Population 65,684 Employment (a) 52,066 Service Population (b) 91,717

Notes: (a) Based on 2012 ACS workplace data. (b) Service population equals the resident population plus one-half the employment population

Sources: California State Department of Finance, 2014; ACS 2012; BAE, 2014.

Marginal Revenues and Costs

While a fiscal impact methodology based on service population is an important and useful means for estimating increased revenues and costs, in some instances other approaches are more appropriate, such as estimation of the increase in revenues or costs directly attributable to a project. For example, property tax revenues are estimated on a marginal basis using the value of new construction in conjunction with the City’s allocations of the one percent ad valorem property tax. Relevant detailed marginal revenue and cost methodologies are provided in each of the relevant sections below.

In general, however, this fiscal impact analysis does not use a marginal cost approach to estimate service costs. A marginal cost approach requires much more effort on the part of City staff to identify the specific point at which additional staff, equipment, etc. are required in order to deal with the impacts of development. Marginal analysis is more typically done for fiscal impact analyses for specific development projects, where it is easier to quantify the exact impacts (including any potential economies of scale). For a plan-level fiscal impact analysis, such as this study, it can be somewhat speculative to try and model marginal costs. Marginal cost analyses tend to produce lower estimates of new service costs because of their greater precision, therefore the choice of average cost analysis for this study should be understood as likely to overstate the new service costs associated with new development in the West Downtown Specific Plan study area. This is another example of where the fiscal analysis has been deliberately done on a conservative basis, and more detailed analysis could indicate a larger net positive fiscal impact to the City (i.e. more net fiscal new revenues).

Development Program

PlaceWorks, the City’s consultant for Specific Plan preparation, provided development projections for new uses, local floor area ratios, and local zoning and use requirements. Although this analysis assumes that development would fully build out under the Specific Plan, real estate development is subject to market conditions that can fluctuate. It is possible that depending on the length of market cycles or market shifts, developers may desire a change in the mix of allowable uses. Table 2 shows the preferred land use alternative.

Table 2: Development Program

Preferred Alternative, Land Use Net Increase Residential Dwelling Units 2,400 Retail Square Feet 46,000 Office Square Feet 445,000 Hotel Rooms 176

Long Term Vacancy Rates Residential 5% Retail 5% Office 10% Hotel 30%

New Residents (a) Total Residents 4,799

New Employment (b) Retail Workers 87 Office Workers 1,602 Hotel Workers 162 Total Workers 1,851

Service Population (c) 5,725

Notes: (a) Average number of residents per unit 2.11 (b) Based on the following employment densities or sq.ft./worker Retail 500 Office 250 Hotel, Workers per Room 1.09 (c) Service population equals the resident population plus one-half the employment population

Sources: California State Department of Finance; Planning Center DC&E; BAE, 2014.

Under the preferred development program, the Specific Plan area could see a population increase of more than 5,000 new residents and 2,000 new employees (note that this is based on an assumption of 2.11 persons per household, which is the current City-wide figure. The expected population for multifamily residential would be considerably lower than this figure). The higher figure was used to build in a conservative assumption on service costs, since the

more persons per household, the more expensive the costs of providing services to those new households). No adjustment was made for the population in unincorporated areas that use City services; if this had been done the service cost per unit would go down, and therefore the calculated cost of services for new development in the West Downtown area would be lower than shown here.

The development program would generate an increase of nearly 6,100 service population to the City of Walnut Creek. In total, this alternative includes 2,400 new housing units, 176 new hotel rooms, and 491,000 square feet of office and retail space.

Projected General Fund Revenues

The City receives General Fund revenues from a variety of sources. The largest sources include property taxes, property taxes in-lieu of vehicle license fees (ILVLF), and sales taxes. Other General Fund revenue sources include Transient Occupancy Taxes (TOT), property transfer taxes, business taxes, other licenses and permits, franchise fees, and fines, forfeitures, and penalties.

This section of the report presents the anticipated revenues resulting from development under the Specific Plan preferred land use alternative and the methodologies and assumptions by which they are derived.

Property Taxes

Property tax revenues typically represent the largest single source of discretionary revenues that the General Fund receives, making the decrease in home values and thus property taxes in the recent Great Recession very difficult for California cities. Since the passage of Proposition 13 in 1978, property owners pay an ad-valorem property tax equal to one percent of the assessed value of their properties. The assessed value is either the sale price of the property, or the prior assessed value plus the value of any new improvements, for property for which ownership has not changed. Thus, properties are reassessed when they are sold or improved, or in the case of the economic downturn, when property owners request a reassessment. Otherwise, the increase in assessed value is statutorily capped at two percent per year.

In order to project property tax revenues from new development, this analysis estimates the net new assessed value of development using current market data to apply the increase in the value of land and/or improvements to the specific Tax Rate Area (TRA) where development is planned to occur.

Assessed Values New development will increase the assessed value of each parcel on which development occurs. Thus, in order to project property tax revenues, the analysis first determines the assessed value of new development using market data for residential and commercial uses. Market data from the earlier West Downtown Specific Plan market analysis and updated data

provided the basis for estimating the assessed values of new commercial and residential development, specifically $568,750 per new for sale residential unit, $299,000 per new rental residential unit and $139 per square foot of retail office space, $200 per square foot of office space, and $228 per square foot of hotel space.

Because land within the City is currently generating property tax revenues, this analysis excludes the existing land value from assessed value calculations1, however, it calculates the increase in land values from existing levels. Upon rezoning to allow greater density, land values are estimated to increase by approximately 50 percent because more development can be done on a given acre of land (i.e., the analysis calculates value capture for the General Fund that results from upzoning of properties in the Plan area). This analysis assumes that residentially zoned parcels would change hands prior to new development, triggering a reassessment of the land values, and includes the increased value in the assessed value calculations. This provides a net assessed value to that includes increases in both land and improvement values to project the incremental property tax revenues that the City could expect under the preferred land use alternative.

Tax Rate Area (TRA) The City receives a share of the one percent ad-valorem property taxes based on the applicable tax increment allocation factor within the Tax Rate Area (TRA) in which the development is located, with the remaining shares doing to schools, the County, and other property-tax receiving jurisdictions. Development in the Specific Plan would fall within the 009-000 TRA. The Contra Costa County Auditor-Controller allocates to the City of Walnut Creek 9.4 percent of the one percent ad valorem property tax.

Projected Property Tax Revenues As Table 3 shows, building out all land uses under the preferred development program would generate approximately $872,000 in new General Fund property tax revenues.

1 Approximately 25 percent of multifamily residential sale price for a $650,000 unit.

Table 3: Property Tax Revenue Projections

Land Use Types Values (a) Multifamily Residential, Value per For Sale Unit (a) $568,750 Multifamily Residential, Value per Rental Unit (b) $298,990 Retail, Value per Square Foot $139 Office, Value per Square Foot $200 Hotel, Value per Square Foot $228

Preferred New Assessed Value Alternative Residential, For Sale (a), (c) $240,353,107 Residential, Rental (b), (c) $591,223,164 Retail $6,411,480 Office $88,937,700 Hotel $27,688,320 Total New Assessed Value $926,925,451

City General Fund's Allocation of One Percent Ad Valorem (d) TRA 09000 0.09407100

Projected Net New Property Tax Revenues $871,968

Notes: (a) Allows for 50 percent appreciation of land value over current values, but excludes current land value as a percentage of sale price (25 percent) to reflect current land contribution to City General Fund. (b) Based on value of improvements plus land appreciation above current values. (c) Based on 2010 housing tenure in Specific Plan Area Housing Tenure Number Percentage Owners 187 17.6% Renters 875 82.4% Total 1,062 100.0% (d) The City receives an allocation of the one percent ad valorem property tax based on the tax rate area (TRA) in which the project is located.

Sources: Contra Costa County Auditor-Controller; BAE, 2014.

Property Transfer Taxes

When properties are sold, the City receives Property Transfer Tax revenues equal to $0.55 per $1,000 of assessed value, or $0.00055 per dollar of assessed value. Long term trends show that owners who occupy their residential units, as well as multifamily rental and commercial property owners tend to sell their units approximately every seven years. In order to project the annual property transfer taxes that would accrue to the City’s General Fund under the preferred development program, this analysis assumes that one-seventh of all properties sell each year, at which point they are reassessed to current market value pursuant to Proposition 13.

As Table 4 shows, the City could anticipate potential annual property tax transfer revenues of approximately $72,800 under the Preferred Alternative.

Table 4: Property Transfer Tax Revenue Projections

Assumptions Transfer Tax Rate per $1 of Assessed Value $0.00055 Holding Period for Development, Years 7

Preferred New Property Transfer Tax Revenues Alternative Assessed Value of Improvements $926,925,451 Total New Property Transfer Tax Revenues $72,830

Sources: City of Walnut Creek FY 2013/14 Adopted Budget; BAE, 2014.

Property Taxes In-Lieu of Vehicle License Fees (ILVLF)

Beginning in Fiscal Year 2005/06, the State ceased to provide “backfill” funds to counties and cities in the form of Motor Vehicle License Fees (VLF) as it had through Fiscal Year 2004/05. As a result of the complicated financial restructuring enacted as part of the State’s budget balancing process, counties and cities now receive revenues from the State in the form of what is known as property tax in-lieu of vehicle license fees, or ILVLF. This State-funded revenue source is tied to a city’s total assessed valuation. In Fiscal Year 2005/06, former VLF revenues were swapped for ILVLF revenues, which set the local jurisdiction’s ILVLF “base.” The base increases each year thereafter in proportion to the increase in total assessed valuation within the jurisdiction. For example, if total assessed valuation increases by five percent from one year to the next, the ILVLF base and resulting revenues would increase by five percent.

In order to calculate the incremental increase in ILVLF revenues that would result from new development under the Specific Plan alternatives, the analysis first determines the total assessed value within the City, and the City’s current ILVLF revenues. The analysis then determines the percentage by which full development under each alternative would increase the City’s assessed valuation, and applies the percentage increase to the current ILVLF revenues, generating incremental ILVLF revenues.

As Table 5 on the following page shows, under the Preferred Alternative, potential new development would generate a 7.12 percent increase the City’s total assessed value. Applying these percentages as increases to the City’s ILVLF revenues for Fiscal Year 2013/14, shows that development under the Preferred Alternative could result in new ILVLF revenues of approximately $335,100.

Table 5: Property Tax In-Lieu of VLF Revenue Projections

Assumptions 2013/14 Budget Base Citywide Assessed Value $13,022,310,237 Property Tax In Lieu of VLF Revenues $4,707,300

Preferred New ILVLF Revenues Alternative Assessed Value from New Development (a) $926,925,451 Percentage Increase from Base 7.12% New ILVLF Revenues $335,065

Note: (a) Does not include land values

Sources: Contra Costa County Auditor-Controller; City of Walnut Creek FY 2013/14 Adopted Budget; BAE, 2014.

Sales Tax

Along with property taxes, sales tax revenues are typically one of the top two General Fund revenue sources for California cities. Sales tax revenues come from three sources: residents’ taxable retail purchases, employees’ taxable retail purchases, and business-to-business transactions involving taxable goods. Cities receive the vast majority of their sales tax revenue allocations for taxable sales that occur within their own jurisdiction, but they also receive a smaller portion of their sales tax revenue allocations from sales taxes that are pooled at the County level.

Under California law, cities are eligible to receive up to one percent of all taxable sales as sales tax revenues. According to the State Board of Equalization, the City of Walnut Creek receives 97.5 percent of one percent of taxable sales in the form of sales tax revenues.

Taxable Sales In order to project sales tax revenues, it is necessary to estimate the taxable sales from new development. Taxable sales for potential development under the Specific Plan preferred land use alternative can either be calculated based on an average of taxable sales per commercial square foot, or using taxable sales estimates per resident and employee. Because not all retail sales are taxable in California2 and it is not possible to know the types of commercial uses that will locate in new development,3 this analysis uses taxable sales per resident and per employee to project new sales tax revenues associated with the Specific Plan preferred land use alternative. This means that the methodology does not account for any extent to which new retail pursuant to the Specific Plan preferred alternative attracts additional taxable retail spending from outside the City, providing a conservative approach to the analysis.

2 For example, groceries and pharmacy purchases, as well as services, are non-taxable. 3 Including whether office users will generate business-to-business sales tax revenues or the amount they could generate.

Resident-Generated Sales Tax Revenues In 2013, taxable retail sales in Contra Costa County were approximately $9,063 per resident.4 Although data is available to estimate per capita sales within Walnut Creek, this analysis uses Contra Costa County per capita estimates because City of Walnut Creek per capita retail spending estimates are very high due to the capture of substantial taxable retail spending by residents of other cities and counties (due to Walnut Creek’s role as one of the largest retail shopping destinations in the Bay Area). Thus, use of citywide estimates would overstate the potential sales tax revenues from new Walnut Creek residents. Using the County average provides a better estimate of potential sales tax that the City could generate from new residents. However, because the City has a sufficient variety of taxable retail goods available within its boundaries, the analysis assumes that the City would capture nearly all taxable retail sales expenditures from new residents and uses this per capita amount to project sales tax revenues that would accrue to the City from new residents under the Specific Plan preferred land use alternative.

Office Employment-Generated Sales Tax Revenues New office employees will generate additional sales tax revenues for the City from two sources, business-to-business taxable sales and employee spending on retail goods. In total, each office employee generates an average of $8,100 per year in additional taxable sales.

State of California businesses operating in an office environment registered approximately $36 billion on taxable non-retail (i.e., business-to-business) sales in office sectors.5 On average, this results in approximately $6,200 in business-to-business taxable sales per employee. The fiscal impact analysis uses this per employee expenditure factor to project sales tax revenues that would accrue to the City from new office employees under the Specific Plan preferred land use alternative.

In addition, local office employment generates taxable sales through employee retail purchases and non-retail taxable sales. According to the International Council of Shopping Centers, on average, employees can be expected to spend approximately $7.50 per day near their places of business, or $1,875 per year. This figure does not reflect the approximately 70 percent greater employee spending in office locations with ample (above average) retail offerings, a good description for Walnut Creek, in order to provide a more conservative figure.

Sales Tax Revenue Projections As Table 6 on the following page shows, multiplying taxable sales per resident and office employee by the number of new residents and office employees, and applying the City’s share of the one percent sales tax provides estimates for potential sales tax revenues. Under the Preferred Alternative, the City could anticipate approximately $522,100 in new annual sales tax revenues.

4 Based on 2012 State Board of Equalization data inflated to 2013 dollars using the CPI. 5 Based on 2012 State Board of Equalization data inflated to 2013 dollars using the Consumer Price Index. Office Sectors include the following 2-digit NAICS Code Sectors: Information, Financial Services, Professional and Business Services, and Government.

Table 6: Sales Tax Revenue Projections

Assumptions 2013 Dollars Taxable Sales, Resident Generated Taxable Retail Sales per Capita (a), (b) $9,063

Taxable Sales, Office Employee Generated Taxable Business-to-Business Sales, per Office Employee (c) $4,400 Taxable Retail Sales, per Office Employee (d) $1,875 Total Taxable Sales per Office Employee $6,275

Preferred New Sales Tax Revenues Alternative New Residents 4,799 New Taxable Retail Sales $43,495,062

New Office Employees 1,602 Total Taxable Sales, Office Employment Generated $10,052,550 SUBTOTAL: New Taxable Sales $53,547,612 City's share of one percent sales tax (e) 97.50%

Total Sales Tax Revenues $522,089

Notes: (a) Equals total taxable retail sales per Contra Costa County resident, less the amount spent by Countywide employees. (b) Based on 2012 taxable sales, increased to 2013 dollars using the CPI. (c) Figure provided by the City of Walnut Creek. By comparison, based on 2012 State of California taxable sales in office sectors, increased to 2013 dollars using the CPI, the statewide figure is $6,274 per employee. (d) Based on average daily employee taxable sales expenditures of $7.50 identified in ICSC report. (e) Walnut Creek receives 97.5 percent of the one percent of taxable sales eligible to local jurisdictions.

Sources: California State Board of Equalization, 2012; Bureau of Labor Statistics, 2014; California EDD, 2013; ICSC Employee Spending Study, 2007; BAE, 2014.

(c) Figure provided by the City of Walnut Creek. By comparison, based on 2012 State of California taxable sales in office sectors, increased to 2013 dollars using the CPI, the statewide figure is $6,274 per employee.

Transient Occupancy Taxes (TOT)

The City receives Transient Occupancy Taxes (TOT) from hotel patrons. Within Contra Costa County, all hotel guests are charged 10 percent of their room rates as TOT that goes into the Cities’ General Funds. Since the Specific Plan preferred land use alternative includes 176 hotel rooms, the City could anticipate receiving TOT revenues from new hotel development.

Currently, in Walnut Creek, the annual average daily room rate (ADR) for newer hotels is $140 per night, with an average occupancy rate of 70 percent.6 This analysis assumes that a new hotel would be a full-service property, comparable to existing Walnut Creek hotels. As Table 7 on the following page shows, multiplying the ADR and occupancy rate times of the number of

6 Based on a web survey of Walnut Creek hotel rates.

new available room nights shows that the hotel could generate approximately $6.3 million in annual revenues, which translates into $629,552 in new TOT revenues for the General Fund.

Table 7: Transient Occupancy Tax Revenue Projections

Assumptions Contra Costa TOT Rate 10% Walnut Creek Average Daily Room Rate $140 Walnut Creek Hotel Occupancy Rate 70%

Preferred New Revenues Alternative New Hotel Rooms 176 New Hotel Room Nights 64,240 Projected Hotel Revenues $6,295,520

Total Revenues $629,552

Note: (a) Based on existing hotel rates averaged over the course of 2014.

Sources: Hotels.com; Contra Costa County; BAE, 2014.

Business Taxes

The City receives business taxes from all businesses operating within its jurisdiction. Although the City charges business taxes based on the total number of employees per establishment, there is not enough information from the preferred land use alternative to project business taxes using a marginal revenue approach based on the number and size of new establishments. Thus, this analysis uses an average tax per employee to project new business taxes.

In Fiscal Year 2013/14, the City of Walnut Creek collected approximately $2.0 million in business tax revenues, which translates into approximately $38 per employee. As Table 8 shows, under the Preferred Alternative, new commercial development would support approximately 1,900 new employees and generate approximately $69,900 in new business tax revenues.

Table 8: Business Tax Revenue Projections

Assumptions 2013/14 Budget Business License Fees Business License Fees $1,534,950 Contractor Business License Fees $430,008 Total Business License Fees $1,964,958

2013 Employment 52,066 Business License Fees, per Employee $38

Preferred Projected Revenues from New Development Alternative New Employees 1,851

Net New Business Tax Revenues $69,868

Sources: City of Walnut Creek FY 2013/14 Adopted Budget; BAE, 2014.

Licenses and Permits Fees

The City receives revenues from issuing licenses and permits. As the service population increases, these revenues would be expected to increase proportionately. In order to project these additional revenues, the fiscal model calculates the existing revenues on an average per service population basis. As Table 9 shows, in Fiscal Year 2013/14, the City estimates that its General Fund will receive approximately $2.2 million in License and Permit revenues, or $24 per service population. Applying this average revenue factor to the new service population shows that under the Preferred Alternative, the City could receive $136,000 in License and Permit revenues.

Table 9: License and Permits Projections

Assumptions 2013/14 Budget License and Permits $2,178,595

Service Population, 2013 91,717 General Fund Revenues per Service Population $23.75

Preferred Projected Revenues from New Development Alternative New Residents 4,799 New Employees 1,851 New Service Population (a) 5,725 Net New Licenses and Permits Revenues $135,990

Note: (a) Service population equals the resident population plus one-half the employment population.

Sources: City of Walnut Creek FY 2013/14 Adopted Budget; BAE, 2014.

Franchise Fees

The City receives Franchise Fee revenues from utility users and cable companies. As the service population increases, demand for electricity and cable services would also increase proportionately, which would increase the providers’ gross receipts. In order to project these additional revenues, the fiscal model calculates the existing revenues on an average per service population basis. As Table 10 on the following page shows, in Fiscal Year 2013/14, the City estimates that its General Fund will receive approximately $3.6 million in Franchise Fee revenues, or $39 per service population. Applying this average revenue factor to the new service population shows that under the Preferred Alternative, the City could receive $224,200 in Franchise Fee revenues.

Table 10: Franchise Fee Revenue Projections

Assumptions 2013/14 Budget Franchise Fee Revenues (a) $3,592,055

Service Population, 2013 91,717 Franchise Fee Revenues per Service Population $39.16

Preferred Projected Revenues from New Development Alternative New Residents 4,799 New Employees 1,851 New Service Population (b) 5,725 Net New Franchise Fee Revenues $224,219

Notes: (a) Excludes Business License and TOT revenues. (b) Service population equals the resident population plus one-half the employment population.

Sources: City of Walnut Creek FY 2013/14 Adopted Budget; BAE, 2014.

Miscellaneous Fines and Revenues

According to the City’s Fiscal Year 2013/14 budget, the City collects Miscellaneous Fines and Revenues from the violation of laws or regulations in the form of parking and other vehicle related violations, as well as charges for services not accounted for elsewhere.7 As the service population increases, the portion of revenues from fines would also likely increase proportionately. In order to project these additional revenues, the fiscal model calculates the existing revenues on an average per service population basis. As Table 11 on the following page shows, in Fiscal Year 2013/14, the City estimates that its General Fund will receive approximately $4.2 million in Miscellaneous Fines and Revenues, or $45 per service population. Applying this average revenue factor to the new service population shows that under the Preferred Alternative, the City could receive $259,300 in Miscellaneous Fines and Revenues.

7 This analysis excludes miscellaneous charges for services as a new revenue source that would increase with new development.

Table 11: Miscellaneous Fines and Revenues Projections

Assumptions 2013/14 Budget Miscellaneous Fines and Revenues (a) $4,153,295

Service Population, 2013 91,717 Miscellaneous Fines and Revenues per Service Population $45.28

Preferred Projected Revenues from New Development Alternative New Residents 4,799 New Employees 1,851 New Service Population (b) 5,725 Net New Miscellaneous Fines and Revenues $259,253

Notes: (a) Excludes capital contributions and charges for service. (b) Service population equals the resident population plus one-half the employment population.

Sources: City of Walnut Creek FY 2013/14 Adopted Budget; BAE, 2014.

Projected General Fund Costs

This fiscal impact analysis utilizes average cost multipliers derived from the City of Walnut Creek’s current budget to project increased General Fund costs for public services as a result of buildout of the Specific Plan preferred land use alternative. This is a conservative approach that tends to overstate new service costs, since it does not account for existing underutilized capacity in City services, nor does it account for potential economies of scale in providing new services, especially for more compact infill development such as in the West Downtown study area. All cost projections are for the point in time that development would reach buildout, but are expressed in terms of 2013 dollars.

The analysis uses net General Fund average service population cost factors to project the costs associated with providing increased municipal services to new development. The net General Fund cost for each function is the total expenditures for the function, less any program revenues or transfers of funds in from other sources (e.g., user fees/charges for services, state grants, reimbursements, etc.). The net General Fund cost thus provides an indicator of the City’s costs for the different services which must be funded using the revenues from the general discretionary sources projected in the Revenues section of this report.

Current Net General Fund Costs for Services

The following subsections provide brief explanations of the calculations of net General Fund variable service costs for each function. The General Fund service cost for each function, net of other function-specific revenues, provide the basis to calculate a current City cost per service population. The resulting cost figure is then used to project increased City costs associated with new development that can be expected at buildout based on the development potential identified in the Specific Plan land use alternatives.

Police Costs Police represents the largest annual expense category in the City budget. According to the City’s Fiscal Year 2013/14 budget, Department operations account for General Fund expenditures of $20.8 million or $226.81 per service population at current service levels. Although new development under the Specific Plan, Department staff indicates that new development related to the Specific Plan and other upcoming projects would require additional staffing to maintain current service levels. Assuming that service levels remain constant, and all Police costs would increase with new development, the City could anticipate increased Police costs of $1.3 million per year under the Preferred Alternative. Table 12 on the following page shows the projected Police costs under the Specific Plan preferred land use alternatives.

Table 12: Police Department Cost Projections

Assumptions 2013/14 Budget Administration $2,774,352 Communications $2,285,460 Community Policing $759,633 Investigations $2,574,422 Patrol Support Services $488,660 Patrol $11,193,099 Records $1,197,372 Traffic $1,532,175 Less: Department Revenue ($2,002,656) Net Charges to General Fund $20,802,517

Service Population, 2013 91,717 General Fund Costs per Service Population $226.81

Preferred Projected Costs from New Development Alternative New Residents 4,799 New Employees 1,851 New Service Population (a) 5,725 Net General Fund Costs $1,298,512

Note: (a) Service population equals the resident population plus one-half the employment population

Sources: California State Department of Finance, 2014; City of Walnut Creek FY 2013/14 Adopted Budget, 2014; ACS, 2012; BAE, 2014.

Public Service The City’s Public Service department provides a range of services for the City including engineering services, maintenance of parks and open space, public facilities and buildings, traffic signals, streets and drainage, vehicle and equipment, parking garages and meters, and administers the Clean Water program.8 Because the Department maintains Parks, which primarily serve residents, as well as providing engineering and other services that serve both the residential and daytime employee populations, this analysis calculates department expenditures using average costs per capita for park operations and average costs per service population for administration, engineering, and maintenance operations.

According to the City’s Fiscal Year 2013/14 budget, the City anticipates 2013/14 net General Fund expenditures of $175,100 or $2.67 per resident for park operations and $8.4 million or $91.48 per service population for administration, engineering, and maintenance operations. As Table 13 on the following page shows, applying these average cost factors to the new resident and service populations indicates that under the Preferred Alternative, the City could spend an additional $536,500 on Public Services.

8 City of Walnut Creek, Public Services Department website.

Table 13: Public Services Cost Projections

Assumptions 2013/14 Budget Administration $746,516 Engineering $2,556,392 Maintenance $7,598,664 Less: Department Revenue ($2,511,673) Net Charges to General Fund $8,389,899

Service Population, 2013 91,717 General Fund Costs per Service Population $91.48

Assumptions 2013/14 Budget Parks $4,610,862 Less: Department Revenue ($4,435,749) Net Charges to General Fund $175,113

Resident Population, 2013 (a) 65,684 General Fund Costs per Resident $2.67

Preferred Projected Costs from New Development Alternative New Residents 4,799 New Employees 1,851 New Service Population (b) 5,725 Net General Fund Costs $536,500

Notes: (a) Based on resident population to reflect that local parks primarily serve the resident population. (b) Service population equals the resident population plus one-half the employment population

Sources: California State Department of Finance, 2014; City of Walnut Creek FY 2013/14 Adopted Budget, 2014; ACS, 2012; BAE, 2014.

Administrative Services Administrative Services includes the Human Resources, Finance, and Information Technology Divisions.9 However, City Department of Finance staff indicated that Finance division functions would not be expected to change as a result of new development; thus it is excluded from this analysis. According to the City’s Fiscal Year 2013/14 budget, the City anticipates net General Fund expenditures of $3.6 million or $39.47 per service population on Administrative Services functions that would be impacted by new development. As Table 14 on the following page shows, applying this average cost factor to the new service population indicates that under the Preferred Alternative, the City could spend an additional $226,000 on Administrative Services.

9 City of Walnut Creek, Administrative Services Department website.

Table 14: Administrative Services Cost Projections

Assumptions 2013/14 Budget Administration $293,266 Human Resources / Risk Management $1,943,384 Information Technology $2,253,987 Less: Department Revenues ($870,841) Net Charges to General Fund $3,619,796

Service Population, 2013 91,717 General Fund Costs per Service Population $39.47

Preferred Projected Costs from New Development Alternative New Residents 4,799 New Employees 1,851 New Service Population (a) 5,725 Net General Fund Costs $225,951

Note: (a) Service population equals the resident population plus one-half the employment population

Sources: California State Department of Finance, 2014; City of Walnut Creek FY 2013/14 Adopted Budget, 2014; ACS, 2012; BAE, 2014.

Arts, Recreation, and Community Services According to the Department’s website, the Arts, Recreation & Community Services Department oversees Civic Arts Education, the Lesher Center for the Arts, the Bedford Gallery, Recreation Services, and the Boundary Oak Golf Course, as well as arranging for the exhibition of public art.10 Because the Divisions in this Department primarily serve the residential population, this analysis projects Department expenditures from new development using average costs per capita.

The City’s Fiscal Year 2013/14 budget anticipates that net General Fund expenditures of $3.3 million or $49.69 per capita. As Table 15 on the following page shows, applying this average cost factor to the new resident population indicates that under the Preferred Alternative, the City could spend an additional $238,500 on Arts, Recreation, and Community Services.

10 City of Walnut Creek, Arts, Recreation, and Community Services website.

Table 15: Arts, Recreation, and Community Services Cost Projections

Assumptions 2013/14 Budget Administration $641,856 Aquatics and Special Events $1,218,224 Arts Education $2,160,288 Bedford Gallery $487,812 Center REPeratory Theater Company $2,125,237 Lesher Center for the Arts $3,205,732 Municipal Special Events $118,959 Public Art $85,740 Recreation Classes $803,693 Facility Rentals $564,263 Social Services $612,390 Sports and Camps $1,169,828 Less: Department Revenues ($9,929,865) Net Charges to General Fund $3,264,157

Resident Population, 2013 (a) 65,684 General Fund Costs per Resident Population $49.69

Preferred Projected Costs from New Development Alternative New Residents 4,799 Net General Fund Costs $238,505

Note: (a) Based on resident population to reflect that local arts and recreation primarily serve the resident population.

Sources: California State Department of Finance, 2014; City of Walnut Creek FY 2013/14 Adopted Budget, 2014; ACS, 2012; BAE, 2014.

General Government General Government includes those departments that provide City administrative functions. City Department of Finance staff were interviewed to determine which divisions would need to expand as a result of new development. While the City Attorney would likely need to devote resources to a larger City organization, the City Manager’s Office would not be impacted. Per City staff, the following divisions would likely be impacted either directly by the new development, or indirectly as they serve other municipal departments: • City Attorney • Emergency Preparedness • Community Outreach • Non-Departmental • Economic Development

According to the City’s Fiscal Year 2013/14 budget, the City anticipates net General Fund expenditures of $1.7 million or $18.76 per service population on General Government functions that would be impacted by new development. As Table 16 on the following page shows, applying this average cost factor to the new resident population indicates that under the Preferred Alternative, the City could spend an additional $107,400 on General Government services.

Table 16: General Government Cost Projections

Assumptions 2013/14 Budget City Attorney $1,029,176 Community Outreach $210,819 Economic Development $338,466 Emergency Preparedness $68,762 Non Departmental $564,600 Less: Department Revenue ($490,910) Net Charges to General Fund $1,720,913

Service Population, 2013 91,717 General Fund Costs per Service Population $18.76

Preferred Projected Costs from New Development Alternative New Residents 4,799 New Employees 1,851 New Service Population (a) 5,725 Net General Fund Costs $107,421

Note: (a) Service population equals the resident population plus one-half the employment population

Sources: California State Department of Finance, 2014; City of Walnut Creek FY 2013/14 Adopted Budget, 2014; ACS, 2012; BAE, 2014.

Community Development Services The City’s Community Development Services department provides Planning, Building, and Transportation Planning services to the City of Walnut Creek. According to the City’s Fiscal Year 2013/14 budget, the City anticipates net General Fund expenditures of $407,600 or $4.44 per service population. As Table 17 on the following page shows, applying this average cost factor to the new service population indicates that under the Preferred Alternative, the City could spend an additional $25,400 on Community Development Services.

Table 17: Community Development Cost Projections

Assumptions 2013/14 Budget Administration $386,417 Building $2,130,563 Planning $1,526,922 Transportation Planning $283,072 Less: Department Revenues ($3,919,402) Net Charges to General Fund $407,572

Service Population, 2013 91,717 General Fund Costs per Service Population $4.44

Preferred Projected Costs from New Development Alternative New Residents 4,799 New Employees 1,851 New Service Population (a) 5,725 Net General Fund Costs $25,441

Note: (a) Service population equals the resident population plus one-half the employment population

Sources: California State Department of Finance, 2014; City of Walnut Creek FY 2013/14 Adopted Budget, 2014; ACS, 2012; BAE, 2014.

Projected Net Fiscal Impacts

Table 18 summarizes the fiscal impact analysis results for the Specific Plan preferred land use alternative. As shown in the table, the fiscal impact model projects that at buildout the Specific Plan would be fiscally beneficial to the City, with net increases in General Fund revenues exceeding net increases in General Fund costs by approximately $688,500 per year, which is 28 percent more than the total cost of providing services to new development ($2.4 million). This difference is significantly larger than the range of what would be expected as normal annual variation in either General Fund revenues or expenditures.

The projected fiscal benefits can be attributed to several factors including: • A very high cost recovery program for all departments in Walnut Creek; • Substantial new TOT revenues from hotel development; and • New sales tax revenues from new residents and non-retail employees.

The vast majority of projected cost increases are associated with the need to expand the City’s Police department as the City grows. Among all the General Fund budget groups analyzed, Police currently accounts for the largest share of expenditures, followed by Public Services. The nature of Police services are such that the City collects relatively little in the way of offsetting revenues; thus, Police services are most dependent upon support from the General Fund’s general purpose revenues, such as property tax, sales tax, and property tax in-lieu of vehicle license fees.

Table 18: Net Fiscal Impact

Preferred Net Revenues Alternative Property Tax $871,968 Property Transfer Taxes $72,830 ILVLF $335,065 Sales Tax $522,089 TOT $629,552 Business Taxes $69,868 Other Licenses and Permits $135,990 Franchise Fees $224,219 Miscellaneous Fines and Revenues $259,253 SUBTOTAL: Revenues $3,120,834

Preferred Net Costs Alternative Police Department $1,298,512 Public Services $536,500 Administrative Services $225,951 Arts, Recreation, and Community Services $238,505 General Government $107,421 Development Services $25,441 SUBTOTAL: Costs $2,432,331

Net Fiscal Surplus/(Deficit) $688,503

Source: BAE, 2014.

2013/14 Budget - General Fund $70,247,948 28.306% As a percentage of total General Fund 0.980%

Development Impact Fees

In addition to generating new General Fund revenues, new development will also generate new impact fee revenues. California Government Code 66000-66008 (Mitigation Fee Act) governs the collection and spending of development impact fees for any California governing entity.

According to Section 66001 of the Code, a City charging a development impact fee must • Identify the purpose of the fee; • Identify the use to which the fee is to be put; if the use is financing public facilities, the facilities shall be identified; • Determine how there is a reasonable relationship between the fee's use and the type of development project on which the fee is imposed; and • Determine how there is a reasonable relationship between the need for the public facility and the type of development project on which the fee is imposed. Under the Mitigation Fee Act, all development impact fees must be calculated in a manner that is equitable. New development can only pay its fair share of improvements. Thus, the state requires a nexus between new development, its impacts to public facilities, and the resulting fees. The City of Walnut Creek collects development impact fees to pay for impacts to public facilities, including schools, transportation systems, parks, and affordable housing. It also charges a property development tax and fees for public arts.

As Table 19 on the following page shows, applying the City of Walnut Creek’s impact fee schedule to new development under the Preferred Alternative shows that at buildout, development under the West Downtown Specific Plan would generate approximately $68.0 million in impact fees.

It should be noted that the funds shown in Table 19 are not discretionary funds. The capital improvement program for each impact fee was established at the time the required nexus study was completed; the funds shown in Table 19 will help advance the completion of the previously identified improvements.

Table 19: Walnut Creek Development Impact Fees

Commercial Development Multifamily Residential Development Impact Fee Fee per Unit Unit Fee per Unit Unit School District Fees (a) $0.51 per Sq. Ft. $3.20 per Sq. Ft. Traffic Impact Fees Multifamily $1,539.00 Dwelling Unit (DU) Retail $5.50 per Sq. Ft. Office $4.40 per Sq. Ft. Hotel $1,715.00 per Room Property Development Tax $0.06 per Sq. Ft. $112.50 per unit, first bedroom Property Development Tax $22.50 each additional bedroom Public Arts Requirement 0.5% construction cost Commercial Linkage Fees $5.00 per Sq. Ft. Inclusionary Housing Fees $15.00 per Sq Ft of living area Parkland Dedication Acreage and/or Fee $4,000.00 Bedroom

Square Fee per New Development Footage Dwelling Units Bedrooms Impact Fees Unit Unit Multifamily (b) 2,400,000 2,400 4,800 $61,497,600 $25,624 per DU Retail 46,000 $541,277 $11.77 per Sq. Ft. Office 445,000 $4,881,339 $10.97 per Sq. Ft. Hotel (c) 121,440 176 $1,116,702 $6,345 per Room Total $68,036,918

Notes: (a) School district fees include both elementary and high schools for the Walnut Creek and Acalanes Union School Districts. (b) Based on an average unit size of 1,000 gross square feet that contains two bedrooms. (c) Based on 690 gross square feet per room

Sources: City of Walnut Creek; Walnut Creek School District; BAE, 2014.

As multifamily development comprises the largest share of new development allowed under the Specific Plan, it would contribute the most impact fee revenues. In general, each multifamily unit would generate $25,600 in impact fees. Commercial uses generate between $11 and $12 per square foot, while hotel uses generate approximately $6,300 per room.