Category: City Finances

  • The CA exodus is real, so why do we need SB 10?

    There are plenty of people who foolishly believe we can build our way out of the so-called "housing crisis".  Dense development hasn't caused lower housing costs anywhere in the world–in fact, many of the densest locations are also the costliest.  And when the other quality of life components and job prospects are as good as the Bay Area, one would have to be extra foolish to try to out-build the demand and further diminish the quality of life.  But Sacramento has foisted SB 9 and SB 10 on us anyway.  Most of them couldn't get through Econ 101, but that is where we are at.

    The Burlingame City Council will discuss what to do about SB 10 tomorrow night.  The Staff Report is super thin on SB 10:

    SB 10. California Senate Bill (SB) 10 allows (but does not require) local agencies to adopt an ordinance to allow up to 10 dwelling units on any parcel if the parcel is within a transit-rich area or urban infill site. (Ed:  pretty much all of B'game).

    The General Plan Update has already provided a range of multiunit residential and mixed use land use districts with a wide range of residential densities, and the Zoning Ordinance Update underway will provide refined development standards for the corresponding zoning districts.

    Staff requests direction from the City Council on whether to pursue zoning allowed by SB 10.  Whereas SB 9-compliant zoning is required, municipalities may choose to adopt (or not adopt) SB 10-compliant zoning.

    And the report claims that neither SB 9 or SB 10 will have any fiscal impact!  It might be time to double-check the thinking on that since residential property taxes never cover the cost of providing city services–never mind the costs to the school district that is pretty much out of real estate.

    But let's look a little deeper courtesy of last Sunday's Mercury News piece with the sub-head "In an area noted for its booming economy, stunning weather and natural beauty, a majority feel their quality of life is in decline".  The Silicon Valley Leadership Group and the Bay Area News Group commissioned a survey by Embold Research to dig into this and it's not pretty.

    In a foreboding breakthrough, for the first time since the poll began posing the question in 2018 a solid majority — 56% — said they expect to leave the Bay Area in the next few years…a similar majority said the region is headed in the wrong direction.  In the survey of 1,610 registered voters, 71% said the Bay Area's quality of life has declined in the last five years.

    Two problems topped the list of increased concern being "serious or very serious"?  Drought (+41%) and Water Supply (+32%).  I'm glad to know I'm not alone on this.  The cost of housing was still the highest overall at 92% but only up 6%.  What if even half of the half of people that are considering leaving do so?  Even if it is only 10% that would be significant.   B'game has a huge amount of new housing already approved, in design and "in-the-dirt".  Maybe we should see how that all plays out?  I hope the council's direction to staff on SB 10 is a brisk, clear "forgetaboutit" so they can get back to ensuring our public safety, water supply, small business vitality, economic health and quality of life.

  • Sewer Rates: Running Uphill

    There are very few city services as important to keep functioning as our sewer system.  The city has just sent out the proposed new rates that will cover about $22 million of improvements at the Treatment Facility and $12 million of improvements to pipes and pumps.  The proposed rates are stratified by type of user and "based on a 3-year average of water use from bills between January – April."   The theory being that what-comes-in-must-go-out except for irrigation and that is minimized in the winter months.  The Single Family Residences & Duplexes rates per 1,000 gallons of water used are:

    Current Rate                    2022 Proposed                    2023 Proposed                2024 Proposed

    $12.25                                $13.58                                $14.91                            $16.25

    Thus the increases off of today's baseline are:

                                                10.9%                                21.7%                              32.7% 

    The city notice uses an example of a typical single-family home using 8,200 gallons every two months (that's the billing cycle).  Doing the math, that means an increase of $196.80 per year by 2024.  That is an average–your mileage may vary, but it appears to be a fait accompli since the means of protesting it are by writing to the city and seeing if "a majority of parcels" do the same.  Not gonna happen.  I'll bet a majority of the property owners didn't even open the mailer.  Keep all of this in mind as you do the laundry, shower and do whatever between January and April.

    Sewer rates

     

  • Park it, Mack

    The first phase of the new downtown parking structure is open for biz about 11 months after we discussed it here.  The ground floor has been offering free, try-before-you-buy parking for a couple of weeks, but that is now over.  It should relieve a little of the pressure from parklets and construction, especially at the old post office where today is groundbreaking day.  Here's the view of the ground floor–full– except for the EV spots which were……empty.  I think they will be more successful than the spots near Broadway which shouldn't be hard to accomplish.

    Parking structure gnd floor

    An eagle-eyed reader forwarded this photo of the rooftop parking and noted the absence of the concrete "wheel blocks" in front of the cable railing that appears a bit flimsy.  We've seen a few instances of drivers thinking they were in reverse when they weren't or hitting the gas instead of the brake, so the wheel blocks seem like a good idea here.

    Top Floor rail

  • Bayfront: Hotels or Life Sciences…just not housing

    You could argue that the Covid pandemic is drawing to a close as we approach herd immunity and with it we will see a return to business and leisure travel.  With that a return of the hotel TOT that has been one of the Golden Geese keeping B'game flush would be in the cards.  Or not.  Maybe Zoom and work at home will take a serious dent out of travel.  For now though at least one erstwhile hotel developer on the Bayfront wants the freedom to build differently to attract life sciences tenants.  As this piece in the DJ notes, the Planning Commission is somewhat amenable as are some city councilors.

    With the pandemic interrupting the travel and hospitality industries, Burlingame officials are considering introducing the life sciences industry into an area historically preserved for hotels and light industry.  But they balanced those perspectives against an expectation that developers proposing life science buildings would be obligated to supplement their plans with an attractive package of community benefits.

    Under the proposal, buildings reserved for tenants in the life sciences industries could be allowed to build a floor-area ratio up to 3.0 — a significant spike from the current standard of 0.75 floor-area ratio for every building in the area other than hotels.

    And while support for the vision was broad during a challenging time in the travel and hospitality industry, officials also made clear they continued to prefer development of hotels along the Bayshore.

    Noting that hotel tax has been one of the city’s primary sources of income when the economy was thriving, Councilman Michael Brownrigg said he favored preserving incentives for future hotel construction.

    TOT has traditionally been about 38% of total city revenues in normal times as noted here back in 2016.  Nobody is suggesting tearing down existing hotels to change the usage, meaning that revenue stream should rebound, but may not reach the percentages of the past.  But the most interesting aspect of the proposal didn't make it into the DJ article.  I have it on good authority that life sciences companies need…..wait for it…..natural gas for their labs.  One source at Genentech called it a "deal killer".  Can the green councilors put aside their one-year old ban and grant a variance?   If one gets it, then the next one is entitled as well.  And if a company can get a variance for a big installation, will you be able to get one for a small installation?

  • Burlingame Wins Lawsuit Settlement Against SFO

    A very quiet lawsuit filed by B'game against SFO and its owner, the City of SF, for causing the ground to sink in North B'game and along the Bayfront has been settled in B'game's favor.  Back in February, the SF Chronicle reported

    The entire Bay Area is plunging downward under the weight of its own sprawl. And that’s a concern as sea levels rise and cities try to figure out how they’ll stay above water in the coming decades. 

    Tom Parsons, a geophysicist with the U.S. Geological Survey, documented the problem recently. He calculated the weight of every building in the Bay Area and found the total to be so great, about 3.5 trillion pounds or the equivalent of more than 7 million Boeing 747s, that it’s pushing the Earth’s surface down. His research shows the region has sunk as much as 3.1 inches, on average, as a result of a century’s worth of development.

    “We’ve got all that fill on the bay that’s susceptible to being compressed, and we’re building on it, and we’re seeing some of the impacts of leaning buildings and subsidence,” Parsons told The Chronicle.

    But the key fact that led to the quiet legal action is

    Parsons did his research by tapping databases of Bay Area building sizes and figuring out the weight of the structures and their contents. As might be expected, weights were greatest in the downtown areas of San Francisco, Oakland and San Jose. Of nearly 1 million buildings evaluated, the heaviest was San Francisco International Airport.

    The weight calculation did not consider roads, bridges and other infrastructure, so the total is assumed to be a significant underestimate.

    The City has been worried about the impact of sea level rise on our Bayfront (noted here) and has expended substantial resources coming up with plans.  All of the additional building at SFO (the international terminal, the hotel and the new tower) is believed to have exacerbated the sinking–and made sea level rise more of a risk.  The settlement amount rumored to be in the neighborhood of $3.5 million will go towards reimbursing these expenses and further mitigation near our cash cow hotels.  Great work by the city staff getting SF to pay up!  Here is the map of building "subsidence".

     

    SF Chron Building sink
     

  • The Economics of EVs and B’game

    Dan Neil is the automotive columnist for the Wall Street Journal and one of the funniest writers around.  He also has one of the best jobs on the planet as one after another car manufacturer delivers cool test cars to his house and lets him "drive them like he stole them" for a week.  He makes a compelling case that the two main knocks on electric vehicles (EVs)–their cost and range– will diminish rapidly over time.  He writes

    When commercial batteries attain specific energy levels on the order of 500 watt-hours/kg, and when pack-level costs level off around $50/kWh—within a decade—mass-market EVs will be capable of 700+ miles between charges and cost less to build than gas-powered equivalents. With that kind of energy onboard you could make cars fly—and houses and restaurants. Gas-electric technology will become as irrelevant as quadraphonic sound.

    Sounds good, but what about the dealers?  A WSJ article notes

    As auto executives and investors buzz about the coming of age of the electric car, many dealers say they are struggling to square that enthusiasm with the reality today on new-car sales lots, where last year battery-powered vehicles made up fewer than 2% of U.S. auto sales.  Most consumers who come to showrooms aren’t shopping for electric cars, and with gasoline prices relatively low, even hybrid models can be a tough sell, dealers and industry analysts say.

    Tesla Inc.’s influence on the electric-car market has created a new standard for car shoppers, offering an online transaction and a simplified lineup with no price negotiation. Other electric-vehicle startups, like Rivian Automotive and Lucid Motors, say they’ll likewise sell directly to consumers and bypass traditional dealerships.  Some car companies are now following their lead, initially stocking dealership lots with few if any electric models and allowing customers to order more directly from the manufacturer.

    Adding to the dealer uncertainty

    Electric vehicles typically have fewer mechanical parts and don’t require the same type of service that gas engine cars need, such as oil changes. That work right now is a big profit center for dealerships.

    Why do I care here at the Voice?  Auto Row has been a signature feature of Burlingame since, well, there have been dealerships.  My 1939 directory lists 27 Auto Agencies – New and Used including Nash, LaSalle, Packard, De Soto, Hudson and Terraplane dealers.  Autos and Transportation is our number one sales tax revenue source at $1.2M in 2Q19.  That dropped to $800K in 2Q20 as Covid took effect.  It's one thing to dedicate eight off-Broadway parking spaces to EVs that seldom show up for a charge.  It's another thing to see a major revenue source get whacked.  We have a Tesla showroom in town, but I'm not sure if they "make the sale" in B'game or on-line.  This is a very long term trend, but one that bears watching just like the hoped-for recovery in hotel occupancy and ToT. 

  • A Chat With the New Mayor

    I had a chance to sit down with our new mayor for 2021, Ann O'Brien (Keighran) to discuss her priorities for the year.  In a normal year, City Hall would fill with people on the evening when the mayorship and vice-mayorship rotate, everyone would hear from the outgoing and incoming mayors and adjourn for cake and champagne in the lobby; where the politically active in B'game would catch-up.  I felt bad that Ann Zoomed it instead of having the live event and the cable TV broadcast, hence the socially-distanced, outdoor chat.  That's just me–she noted that this is her fourth time as mayor, so her excitement would have been muted regardless.

    O'Brien's long tenure on the council, preceded by her long tenure on the Planning Commission, and buttressed by her day job as a staffer for a County supervisor shows in her grasp of a wide range of issues.  Whether it be city finances, local business conditions, edicts coming down from Sacramento, or her main priority this year– what's happening on our own backyard — she's fluent and sensible in my opinion.  It can be enticing for any local politician to grapple with state or national issues, but when push comes to shove the job is about the local community.  Issues like our very own minimum wage, banning natural gas in new construction, or forcing rent control take a back seat to relief for our business owners, our hospitality sector and helping residents back to work.

    On the bright side, the council has recently approved funding of $500K for small business grants, purchased the parklet barriers, leveled the playing field for our hotels by implementing a TOT for short-term rentals and developed CARES debit cards to help businesses and low-income families.  These all need continuing care, feeding and tweaking.  Village Burlingame, the downtown parking garage, Top Golf and other Bayfront improvements like a park on state land speak to a stronger B'game economy.

    On the not so bright side, the housing edict from Sacramento to create a free-for-all on Accessory Dwelling Units leaves the council with little room to moderate the effects–mainly parking and backyard privacy.  Anyone who served as a Planning Commissioner would know what the effect on street parking will be from an onslaught of ADUs–and it's not like street parking has been great in town to date.  I'll bet there are very few former planning commissioners in the Assembly or State Senate.

    Similarly, the current state election laws give a lot of cover for a single private attorney to force cities to go to district elections.  I think it's misguided, counter to good government and probably detrimental to the people it is supposed to help, but that's just me.  As the census data comes available, this council will have to determine district boundaries and a new election process.  There are about 20 applicants for the city attorney position and the new hire will definitely be busy with this change.

    Kudos to Ann on her fourth turn holding the rudder to the city government.  Here's hoping it is a productive year focused squarely on local issues. 

  • Exodus – Part 2 Elon Musk Departs

    Back in July we asked "how big? and how long?" would be the exodus from the Bay Area?  We got one more view of just how big today when the Wall Street Journal reported that Elon Musk said at a WSJ CEO Summit council this week he has moved to Texas.

    Taking up residence in Texas comes with personal benefits for Mr. Musk: The state doesn’t collect state income or capital-gains tax for individuals. The auto executive qualified this year for billions of dollars in stock-option compensation as part of a pay-package agreement, making him the second-richest person in the world.

    During the spring, when Mr. Musk was sparring over coronavirus shelter-in-place orders that shut his factory near San Francisco, California Gov. Gavin Newsom told CNBC he was “not worried about Elon leaving any time soon” and the state was committed to the car maker’s success. “We may not be the cheapest place to do business but we are the best place to do business,” Mr. Newsom, a Democrat, said.

    California’s taxes underlie many of the complaints. Its personal income tax tops out at 13.3% for amounts over $1 million a year, the highest in the nation. Capital gains are taxed at a similar rate.

    In a separate piece this week, the WSJ also highlighted how mid-tier cities are gaining population at the expense of SF and NYC

    For every person who moved to the Bay Area from Austin between April and October, 2.9 people moved in the other direction, according to an analysis from LinkedIn. That is a 39% increase from a year earlier.

    Perhaps the Gavinor could make a phone call, apologize and get back Musk's tens of millions of dollars in annual California taxes.  He would also have to call the CEOs of HP Enterprise, Palantir and dozens of start-ups and sports stars.  But as the Journal noted "Many who call the Bay Area home have expressed relief at the departure of tech professionals who have been blamed for driving up the cost of living and congesting the freeways."  When I was an analyst, we called that a "going out of business strategy".  Nobody is less pleased with the over-development of the Peninsula than me, but if we are to fund the good stuff (schools, social services, infrastructure, pensions) and the bad stuff Newsom wants (high-cost rail, costly green policies, giveaways) then he might want to pick up the phone and start calling. 

  • TOT: Less Travel Means Less Taxes; 80% Less

    I was struck by the anecdotes in this SF Chronicle piece about hotel occupancy in the city.  It got me thinking about B'game finances since we are a major hotel host city as well.

    To see the sorry state of San Francisco’s once dynamic hospitality industry right now, just pay a visit to the lobby of the Hotel Nikko near Union Square — you’ll need to ring a bell to get in, and when you step into the lobby, it’s empty.

    A year ago, the lobby would have been buzzing with tourists, business travelers and conventioneers. Today, the 530-room hotel is lucky to have 30 guests. A year ago, the hotel hallways bustled with 35 to 55 housekeepers cleaning rooms. Today, there are two.  Downstairs in the hotel’s kitchen, where 100 cooks and workers once served up meals for guests and banquets, a single cook waits for room service orders.

    Back in 2014, I noted

    The Transient Occupany Tax (known as the 'TOT') is a major source of revenue for B'game given our proximity to SFO and the number of hotels we have on the Bayfront.  Our rate is 12%.  Think $18 million in 2013 per page 37 of the CAFR found here — higher than either property or sales taxes.  So I checked with the city on how it's going in Covid 2020:

    TOT returns are due the last day of the month following the month being reported on, so this information is more timely.  We have received all the returns through September.  TOT revenues were $423,310 for July, $571,218 for August, and $445,744 for September – about 20% of 2019 receipts.  Average occupancy is about a third, meaning that the less expensive hotels are faring better in terms of occupancy.

    For the 2018/19 fiscal year, TOT was about $29M out of a total budget of about $87M – one third of the total.  80% of a third is about a quarter of our total budget that will disappear this year if things continue as they are now.

  • The BRAZ Lies Down on Broadway

    It's hard to believe the BRoadway Autonomous Zone (the BRAZ) is still going on from 4pm on Saturdays to 10pm on Sunday.  The only thing more empty than the BRAZ are the EV charging stations in Lot Y on Chula VIsta.  We touched on the BRAZ and the BAAZ (Burlingame Ave Autonomous Zone) here.  The BAAZ was a victim of its success–too many people and too much scootering, skateboarding, biking at speed amongst the non-socially distancers so it closed and parklets arrived.  Like every other comparison between the Avenue and Broadway–things are different up north.  I've been near the BRAZ a dozen or more times and it's a ghost town.  There are fewer people walking in the street than the usual number of jaywalkers.  And from my conversations, it ain't good for business either and that's not good for sales taxes.  What's up with that?

    BRAZ empty2

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