CHALT Alternative Analysis, Obey Creek
The Town Financial Analysis Model represents an excellent start and is generally very clear in documenting major areas of cost and revenue calculations. It is apparent that a great deal of effort was expended in making the Excel spreadsheet attractive and visually easy to understand.
Town’s Obey Creek Financial Analysis Model: Observations and Alternate Assumptions:
1. There is a lot of "trust me" data provided as input with no document reference to check to make sure the data was entered correctly without typos or transpositions, e.g. property valuations, square footage.
2. There is no rationale listed as to how/why the reference properties are considered to be relevant for comparison to the proposed new developments multi-family housing, retail, hotel and office properties beyond "Reference - Economic Development Office" or "Planning Department/Developer". The selection of references are probably the single most important input to the financial analysis model because this data can alter the Total Revenue produced by the Obey Creek development by 3:1.
With best case projected revenues of $2.3 million annually vs same case costs of $1.3 million, it seems reasonable to want documentation of the rationale behind the basic input assumptions since the tax revenues could just as easily have been $800 thousand annually merely by using different comparable properties and sales generation data. What is to keep the developer from "changing his mind" after project approval and building to a lower standard, e.g. formica countertops instead of granite, etc., etc.? Or changing the size and quantity of apartments based on "market conditions"?
Additionally, it is curious why the developer is using a higher quality standard for the apartments proposed than the alternative single family homes. Apartments have a stated value of $210/sq ft, while the single family residences are proposed to be only valued at $182/sq ft. Home byres purchasing 3200 sq ft residences don't "need" granite countertops?
All in all, the "Average Square Footage Value by Use" table in the model includes such highly divergent "comparable" properties, that it appears that the developer doesn't know what he plans to build.
For this Alternate estimate, assume property values are overstated by the ratio of single family housing ($182/sq ft) compared to multi-family housing ($210/sq ft) ; thus use 182/210 x $1,570,437 = $1,361,045.
3. Transit costs are dramatically understated and need to be associated with ridership estimates from the Obey Creek Traffic Impact Analysis. Second, the annual amount for the operating cost of transit used in the model is solely based on the known inadequate amount of funding for the transit budget that the Town currently contributes -- roughly 1/4 of the total transit budget.
The remaining 3/4 of the Transit budget has historically come from state, federal and UNC funds -- all of which are being strikingly reduced by current legislative initiatives.
As already pointed out by Susana Dancy in her Oct. 1, 2014 memo to Mayor and Council, the amount allocated to transit operations cost doesn't come anywhere near the cost of handling the sizable projection of 2500 daily transit riders in the TIA. Properly analyzed, the number of busses needed to support Obey Creek would be determined based on projected peak bus ridership and acceptable time between busses. This latter parameter is the well known failure of current transit service.
It is well documented that when the time between busses exceeds 10-15 minutes, casual users will select alternate transportation, i.e. automobiles, because any time total "wait" (10 min walk to bus stop plus 10 min wait for bus) exceeds 20 minutes, mass transit fails to attract casual users. (Chapel Hill has too many routes with too much latency between busses.)
Correspondingly, there is no allocation for the capital cost of all the new busses that need to be operated to handle the 2500 daily riders with acceptable latency between busses. The only Debt Fund allocation in the model is again just the standard proportion of the tax collected from the development revenues which is supposed to be used for all other Town capital budget expenses since the Town has not historically paid for purchasing busses.
As an aside, Chapel Hill would get a far better return on investment by focusing busses only on the transit corridors between commuter parking lots and the main UNC campus and UNC Hospital complex and investing heavily in bicycle and pedestrian infrastructure so that it is truly safe to ride and walk throughout Town -- not just painting "sharrows" on the pavement.
For the Alternate estimate, use 2 x $157,217 = $314,434
4. The number of units of Affordable Housing should be associated with the number of sub-median pay jobs that will be produces as a result of the amount of retail space proposed. This is important so that Obey Creek does not make the Town's existing affordable housing situation worse as a percentage of the total housing compliment in Chapel Hill. The proposed Village Plaza Apartments already sets a bad precedent by not including any "affordable" housing units.
5. Sales tax revenue is based on the assumption of $290/sq ft of retail floor space. This value is in excess of twice that documented by the Town's Business Development manager as the average for the Town. The $290 value might possibly be justified if a large number of high-end retailers are contracted for Obey Creek, but there is no documentation at all supporting the use of this lofty value. Thus Town sales tax revenue is likely twice what should be expected.
For the Alternate estimate, use .5 x $651,979 = $325,989
6. The Building Permit cost calculation is completely unsupported. Raw numbers are added together with no reference whatsoever as to where the numbers come from, i.e. the values 1729510+197800+874535 are added together and then divided by another number to produce a ratio. This ratio is then multiplied by the sq ft total for Obey Creek with the result of a cost of $89,727 be posited as sufficient to inspect 1.5 million sq ft of new construction. As Susana Dancy previously pointed out in her Oct. 1, 2014 memo, this amount can not possibly provide adequate inspection for 1.5 million sq ft of new construction.
7. The cost of fire department coverage for Obey Creek is entirely dependent of the stated value of $953,616 being the annual cost of a "fire company". Again, no documentation of what a "company" means or whether this is the correct value. Does the cost of a "company" include maintenance and operations costs of fire trucks and associated equipment? Housing facilities for fireman? A percentage allocation for a new fire station? How many companies can one fire station house?
Another major cost appears to be unaccounted for -- namely the availability of the necessary equipment to support buildings of the height proposed for Obey Creek. It has previously been stated that a new "tall" fire truck ($1 million capital cost) and full complement of 24 x 7 trained crew (15 firemen) will be needed as soon as the Town allows any structure to be built that is over 5 stories anywhere that is not downtown or on main campus or the UNC hospital complex. This statement came directly from Chief Jones during the 2020 Comprehensive Plan proceedings. Only incremental apparatus cost (truck and equipment) to support the 1/3 of a new company is included in the Obey Creek Financial Analysis.
Likewise, there is no cost allocation for "fire inspections" and emergency service calls. These represent more than half of fire department expenses per Chief Jones.
For the Alternate estimate, use 2 x $386,613 = $773,226
8. Police cost is calculated totally based on the new residential population and completely ignores the costs associated with the proposed retail and office space. Chief Blue noted during the 2020 Comprehensive Plan activity that police calls to residences accounted for at most 40% of all calls (others being traffic, parking lot and business related with bars, restaurants and entertainment facilities being a highlight). At best, the stated costs represented in the model are only 1/3 of the police department costs that Obey Creek will likely produce.
For Alternate estimate, use 3 x $252,108 = $756,324
9. The General Government cost associated with the Obey Creek development is stated as $128,666 based on an apparently arbitrary assignment of 13% of the model computed Town Services Annual Coats. This amount seems far to small when considering that on a proportional addition to population basis, the 2.1% population increase alone would yield a General Government cost of:
$97,302,979 for the 2014-15 Town Budget x 12% General Government cost x 2.1% population increase = $265,600 or more than twice that allocated in the model for Obey Creek.
10. The Capital - Debt Service allocation is subject to the same proportional allocation methodology as a test of the amount produced by the Model methodology. Using the same 2.1% addition to the Town population, the Capital - Debt Service allocation would be:
$97,302,979 for the 2014-15 Town Budget x 7% Debt Service cost x 2.1% population increase = $143,000 or 11% more than the amount allocated in the model for Obey Creek.
11. Revising the Town's Revenue and Cost Comparison, taking into account the above 10 observations, the Alternate analysis of the Obey Creek Financial Model results produces an entirely different picture. Instead of an annual positive cash flow for the Town of $1,004,000, the Town cash flow swings negative to the tune of -$650,000.
The supporting spread sheet is a copy of the "Revenue and Cost Comparison)" sheet from the Town's Obey Creek Financial Analysis workbook.
The assumptions used in the Alternate analysis of the Obey Financials are no more exceptional than the assumptions used by the Town staff in preparing their analysis -- and in most cases are far less "imaginative".
The negative annual cash flow from Obey Creek should not be a surprise since there is such a large amount of residential housing in the current Obey Creek proposal -- totaling 54% of the 1.5 million sq ft being proposed.