May 23, 2008

Commentary:

A Response to the “Implications” of Proposition E by EPS - Walter Kieser

By Peter J. Watry Jr.

In July 2007, Walter Kieser presented a report to the Council entitled “Final Report: Chula Vista Independent Financial Review,” dated June 2007. Both in his written report and in his verbal report to the Council on July 10, he states the need for “priority-setting” and the need to “prioritize” expenditures. It can be seen (via video streaming) that in his verbal report he was even much more emphatic on the need to “prioritize” than he was in his written report. Now nothing could be further from the truth. With respect to the budgeting process, his paper would have received an “F” in any first-year economics class. In making decisions, one is always faced with a certain “benefit” (or they would not be thinking of doing it) and a certain “cost.” (The “cost” may be a money cost or it may be an “opportunity cost” of what alternative the resources could have been used for.) What counts for budget-making is NOT the “priority,” but rather the incremental “benefit-per-dollar-of-cost” of one alternative versus another. Automobile manufacturers use robots instead of people now to assemble cars – but not because of some “priority” or because robots cost more than men, but because robots produce more output-per-dollar than men do.

The point here is that in his June 2007 report to the Council Mr. Kieser demonstrated an obvious lack of knowledge when it comes to the logic of the allocation of scarce resources, i.e., a budgeting process.

Suspicions and expectations PRIOR to reading his May 2008 report

As stated above, I became alarmed when I found out Mr. Kieser was to analyze Prop E. First of all, there is only one real issue: Who should make decisions about changing the General Plan with respect to the narrow issue of certain building heights in certain parts of the city – the City Council or the electorate? There are obviously legitimate arguments on both sides. The argument is basically one of political philosophy – ‘representative democracy’ versus ‘pure democracy.’

My suspicion was that Mr. Kieser was going to write an analysis defending the “No on E” literature. My suspicion turned out to be correct.

My analysis of his paper is as follows:

There are two errors that show up repeatedly in Mr. Kieser’s paper:

(1) He states that “The economic potential of a property is largely determined by its ‘highest and best use’ in the marketplace and the ability to achieve this use, given use restrictions and also existing site conditions.” And he then proceeds to compare the effects of Prop E, which basically freezes the General Plan, to what it would be if we had no limits. As he states in his Work Program, “the analysis will be presented as a ‘worst case analysis’ assuming that all development projects likely to be subject to the Initiative are simply not developed” Wow! What he is assuming is that the General Plan that was adopted cannot be developed – that it would take unlimited development to work. Here is the quote from Mr. Kieser’s “Work Program:”

The analysis will be presented as a “worst case analysis” assuming that all development projects likely to be subject to the Land Use Initiative are simply not developed. In reality, the reasons for the failure to develop the projects could range from the City rejecting the projects to the projects never being proposed because of market conditions or other factors. (Bold type mine.)

(2) Nowhere does he speak of ‘community character’ or ‘quality of life’ issues. The 2005 General Plan Update was the result of at least two years of dozens of public hearings, thousands of opinions expressed, many alternatives explored and discussed, and finally committee, commission and Council decisions. The 2005 General Plan represents the collective decisions of what Chula Vista residents want their future city to look like. It seems obvious to me that the citizenry of Chula Vista are ready for “mid-rise” development in their city, but not very much “high-rise.” That is a community decision and Mr. Kieser’s analysis as to what it could have been otherwise is totally irrelevant.

Both his Executive Summary and his conclusions list six points, so I shall use those for my outline.

1. Proposition E would reduce development capacity of key parcels in the V-3 district.

I agree.

2. The existing building-height regulations reflected in the Urban Core Specific Plan V-2 district are too restrictive to incentivize desired redevelopment of Third Avenue.

In the first draft of the UCSP, the consultant (Mark Brodeur) had the building height limit as 84-feet. That would have completely changed the nature of historic Third Avenue. He was finally convinced to lower the height limit to 45 feet to PRESERVE the historic nature of Third Avenue. That is a community, quality-of-life issue decision, purposely not “highest and best use.” What Mr. Kieser ignores is that the residential area behind Third Avenue on the east side was set at 45-feet, which allows a slight increase in residential units, and more importantly the height limit on the extensive residential area on the western side behind Third Avenue is 84 feet – 7-story condos. That is what we are counting on to “save” Third Avenue, not increasing the height of Third Avenue buildings. Mr. Kieser’s statement that “it is unlikely that without the ability to approve variances allowing some buildings above 45 feet in the V-2 district... any private investment in redevelopment of existing buildings would occur” totally ignores the very significant changes in the V-3 district right behind it, and completely ignores that fact that the community has decided to try to save Third Avenue in its present historic form, not trying to tear them down and replace them.

3. Loss of development potential along Third Avenue would reduce the ability of the RDA to achieve redevelopment objectives and the City’s ability to sustain municipal services.

As with #2 above, Mr. Kieser has totally ignored the substantial changes in the V-3 district right behind Third Avenue. Chula Vista businessmen have stressed that we need “more feet on the street.” That is exactly what the 84-foot limit in the V-3 district is designed to do. I believe his analysis is fatally flawed by ignoring V-3.

4. Height restrictions may limit development of certain public or quasi-public buildings.

Expansion plans were approved for both Scripps and Sharp hospitals some time ago. The plans can be examined at the Public Services center at City Hall. Scripps has not completed their expansion plans, or, for all I know, even started them. But if memory serves me right, no structures are in the plans of either hospital would be affected by Prop E. And according to city staff, no new plans have been submitted in years. So there would appear to be some “phantom” hospitals in the “No on E” propaganda.

Relative to the University Park and Research Center, again a legal opinion has stated that since the General Plan does not mention any height limits for that area, no change in the General Plan would be required for buildings over 84 feet. Mr. Kieser’s legal opinion is different, but I am not a lawyer.

I think it is of interest to note that the height limit on Third Avenue was 100 feet for decades, until 2006. Yet no one built a 100-foot building – why not? Obviously because it would not have paid to do so. Throughout Mr. Kieser’s paper is the assumption that if you build a very tall building, business will come. For Chula Vista unsubsidized commercial buildings, I believe this is obvious foolishness.

5. Height restrictions imposed by Proposition E upon the City’s other commercial districts would limit their development potential in perpetuity.

As stated before, this is totally irrelevant. He is comparing an 84-foot limit with unlimited height buildings. The recent General Plan process demonstrated quite clearly that Chula Vistans are not ready for unlimited height buildings. This is a decision that the community has a right to make, regardless of what Mr. Kieser thinks. Prop E protects the decisions that the community made in the General Plan process – that is why it is called the General Plan Protection Initiative – duh!

6. Implementing Proposition E would require effort and expenditures by the City.

That’s true, but nobody said democracy is free. ALL government regulations require staff time to process and implement.

Final comments

Mr. Kieser frequently uses the words “permanent” and “in perpetuity,” referring to the effects of Prop E. Those sound like very long time-frames! In ten years or so the city will once again do a “General Plan update,” and by then community values may have changed. If the Council lets the community vote on the new General Plan update, I would assume that would vanquish Proposition E, yes, in perpetuity.

The Citywide (height) Provision would not significantly reduce potential yields in residential dwelling units and commercial or industrial square footage, though it would place a ceiling on development heights.

(Prop E) would not appear to be an impediment to meeting Housing Element Goals. . . . The proposed initiative would not appear to prevent housing density bonuses related to development regulations, including height. Thus, it would not appear to present an adverse effect to providing affordable housing.

Its impact on the community’s ability to attract and retain business and employment: As discussed above, the Citywide Provision of the proposed initiative would not appear to significantly reduce overall development capacity, and thereby would not prevent the City from achieving its General Plan goals of job creation and balanced land use mix.

Peter Watry is active member of Crossroads II and has a B.S. in accounting, an M.B.A., and a Ph.D. in economics.

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