Item 27 - Appeal Application Nos. 2020-03 and 2020-04 - Central Pointe Mixed-Use Development

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Sales Tax Estimates for indirect Sales Tax rely on several assumptions regarding household/employee spending habits and the City's capture of this spending. The Report estimates a City capture rate of 60 percent of taxable spending for new households. Capture rates in comparable studies from AECOM (2018), Economic and Planning Systems (2016) and Keyser Marston Associates (2018) show a range from 25 percent to 50 percent with greater capture rates for developments near the commercial center of larger cities. Precedents from other studies suggest that the 60 percent capture rate for new households may be high considering the Project's central in Orange County with numerous shopping centers in neighboring jurisdictions. A more conservative and defensible capture rate would be between 30 percent and 40 percent. The estimate of taxable sales for households is within the range of several data sources. The Bureau of Labor Services Consumption Survey for the Los Angles Metro Area estimates taxable sales of approximately $22,000 per household in the region, while ESRI estimates approximately $18,000 for the City. Because of the small average size of the households projected to occupy the principally 1-BR and 2-BR dwelling units, the Report's approximate annual household spending of $17,800 is a reasonable estimate. For the business -derived sales tax, the Report assumes a rate of $250 per square foot of retail space to estimate total sales. According to an eMarketer survey of retail locations in Southern California, sales per square foot averaged $436 in 2018 with a median of $322. Consequently, assuming a higher sales tax rate may be defensible. The Report shows inconsistency in the sales tax estimates as indicated in Table 2 and Tables 6 and 7 of the Report. Table 2 in the Report, which shows a cashflow analysis representing the 25-year net new recurring fiscal impact projections of all estimated revenue streams and expenditures, lists the base rate sales tax at buildout at $90,244 and the Measure X sales tax at $135,366. These figures are consistent with the concluding text on page 42 of the Report that summarizes the fiscal impacts of sales tax. However, Tables 6 and 7 in the Report and the accompanying text show a combined $103,700 for base rate sales tax at buildout and $155,550 for Measure X sales tax at buildout. These measures are approximately 15 percent higher than the measures shown in the cashflow analysis in Table 2 of Report on which the net fiscal revenue calculations are based. In a final version of the Report, TCG should explain this discrepancy if intended or correct it if an error. In order to test the impacts of observations above about different input assumptions for calculating fiscal revenues and fiscal expenditures, AECOM prepared an alternate estimate that assumes $350/square foot in retail sales and a capture rate of 40 percent. In addition, to explore whether the data discrepancy discussed above might also have a meaningful impact, AECOM prepared an alternate version of the Report's estimate: as shown in Table 4 below, "Report" represents TCG's base estimate, which uses the cashflow shown in the Report's Table 2. The "Report Alternative" estimate is based on the sales tax measures shown in the Report's Tables 6 and 7. The results of these alternate calculations show the Report's original estimate to be the lowest and most conservative, with a net present sales tax value (NPV at 4% discount rate) of approximately $3.6 million. The AECOM alternative, with a higher sales yield per square foot but lower capture rate, is higher at approximately $4.1 million. Finally, the Report Alternative is highest at approximately $4.3 million. From this, it may be concluded that the Report's original finding is defensible but that higher Project fiscal revenues may be achievable. Table 4: Adjusted Fiscal Revenue Estimate for Sales Tax Fiscal Impact of Sales Tax Assumptions 25-Year Recurring Sales Tax (NPV at 4% Sales Tax Base Rate' Sales Tax Measure X' Total Sales Tax' Discount Report2 $90,244 $135,366 $225,610 $3,640,360 Report Alternative $103,700 $155,550 $259,250 $4,298,055 AECOM $99,584 $149,376 $248,960 $4,127,459 (1) Annual revenues at first year of buildout of the Project (2) Cash Flow Analysis from Table 2 in the Report (3) Derived from Tables 6 and 7, based on the methodology described in the Report (4) Assumes 40% capture rate for Project residents and $350 per square foot for Project retail space Souce: TCG, RSG, AECOM