Post on 15-Sep-2019
transcript
California Community Economic
Development Association
LARRY J. KOSMONT, CREPresident & CEO, Kosmont Companies
www.kosmont.com
1. The State of the State
The Box Office Numbers are In
2. Economic Development 2.0
Hope for a Profitable Sequel
3. What’s Hot! What’s Not!
Blockbusters and Duds
4. Kosmont Looks Forward
The Future Is Here
Synopsis
2
Trump Days of Summer
Less regulation for Small Business
• Executive order (not legislation) to roll back compliance burdens, less filings/paperwork
• No relief from tax reduction on horizon, corporate rate to remain highest in world (35%)
Reductions in Clean Power and Water Rules
• Elimination of rules helpful to coal industry & other energy providers outside California
• CA likely to extend Cap & trade & continue mandates for reduced tailpipe emissions
Overall, tale of two Political approaches to taxes & regulations with
California having upper hand on businesses having to stay in State
Threat of federal funding losses due to sanctuary politics will likely
be the biggest impact in the California vs. U.S. policy showdown
3
JOB GAIN STILL LEADS THE NATION
Certain job markets on fire (SF, Bay Area)
LA County job gains mostly minimum wage
BUT NOT WITHOUT COSTS AND STRUGGLE
Poverty rate rising (~1 in 5 living in poverty)
Pensions, Retiree Health & Welfare costs mounting (~$191 billion)
Education levels lapsing with skills gap increasing
High Taxes going higher (Jan. 2018, gas tax up by $.12/gallon, registration fees up)
Aging Infrastructure is breaking down
Housing prices escalate but affordability gap impact workers
Stance on “Sanctuary Cities” threatens critical Federal funding
California’s Mixed Bag :
Short Term Gains vs. Structural Weakness
5
Can’t Stay in La La Land Forever
Brown’s revised State budget improved but anticipates harder times:
“In two more years, in June, if we’re not in a recession, it will be a
historic first since World War Two.”
6
• Potential federal initiatives to defund healthcare and eliminate state tax
deduction threatens State budget health; CDBG also threatened
• State economy expanding for 8th year; Brown says recession is inevitable
Source: CA Revised May 2017-18 Budget; Sacramento Bee
State Budget balanced but too dependent on unstable $$ sources
• Top 1% earners provide ~50% of total income tax receipts
• Sales tax prone to dramatic shifts in customer spending
• Property Tax, the most stable source, is distant third
Cities must decide: Raise More Taxes or Induce Private Investment?
50 Shades of Ways to Lose Green in California
Sources: California Legislative Analyst; CA Department of Finance 7
427 Tax & Bond Measures
Statewide - November 2016
• local revenue & tax ballot measures
increasing
• More passed than ever before
• 39 to tax cannabis
California High On Taxes & Taxes on High
Local Measures due to:
• Local gov. regulatory response to statewide initiatives (marijuana)
• Online sales & tech activity requires new legislation (retail transactions)
• Expiring local sales tax & parcel tax measures
8
Statewide PROP 55 Passed – Extends Income Tax, for 12 more years
Sales Tax increase from 2012’s Prop 90 is over
Two Challenges: Housing Affordability and Affordable Housing:
Unaffordable Housing: threat to job creation, companies challenged to attract
workers that can’t afford homes
Population growing: not enough units to meet demand
Affordable housing hurt: Housing Tax Credits priced lower due to expected tax cuts
Red Tape: front-end housing project approval times longer
Prevailing Wage?: proposed on residential projects may push per unit costs higher
Housing Shortage Limits Economic Growth
9
To Build or Not to Build Hamlets?
VOTERS/LEGISLATURE TORE DOWN WALLS TO BUILDING
Measure S rejected by 70% of votes cast
Measure M passed - $120 Billion over 40 years to expand LA’s Rail Network
Measures H and HHH passed, putting dollars down to relieve homelessness
…AND THEN, “ELECTED” BARRIERS TO DEVELOPMENT
Measure JJJ passed in Nov – projects of 10+ units seeking zone changes exposed to
higher costs by requiring 11-25% affordable housing plus prevailing wage
Measure C passed- Redondo Beach voters placed limits on waterfront development
…AND NOW, LEGISLATORS PROPOSINGS NEW COSTS ON DEVELOPMENT
LA Linkage Fee on development to pay into Affordable Housing Trust Fund – raising cost
of real estate in an attempt to make it more affordable ???
AB199 (Chu) would mandate Prevailing Wages on private residential projects
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• Modest increase in minimum wage can boost business revenues & economy
• But Business wrangles with paying living wages & CA’s high tax costs
• Per 2016 Kosmont Rose Institute Cost of Doing Business, California cities led by
LA & SF have highest business taxes in U.S.
• And State on a mission to reduce carbon footprint; imposing cap & trade fees
• How to induce private investment in an expensive State and City?
1. Tone down taxes
2. Expand use of P3 tools & programs
3. Beef up economic development & use zoning strategically
California’s Business Dilemma
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SB32:
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Acceleration of GHG Reduction
CALIFORNIA: LEADING THE FIGHT AGAINST CLIMATE CHANGE
• Requires State to reduce greenhouse gas
emissions 40% below 1990 levels by 2030.
• Expected to affect real estate and agriculture
• How will California fund its Green Initiatives?
AN EARTH WARS STORY
Private Sector Opportunity: Cities Need Investment for Jobs & Taxes
• Retail (sales tax)
• Relocation/ Expansion(business taxes & jobs)
• Rooms (hotel tax & jobs)
• Real Estate Development(property tax)
• Residential
(workforce and affordable)
Economic Development: Priority for local cities
City
Hall
14
SB 628 (Beall) & AB 313 (Atkins)
Enhanced Infrastructure Financing Districts
SB 614 (Wolk) & AB 229 (Perez)
Special Districts, Annex Area & Former Military
Bases for Infrastructure Financing & Revitalization
AB 2 (Alejo)
Housing/Community Revitalization Authority
AB 1471 (Proposition 1; Rendon)
Financing Water Quality, Supply &
Infrastructure Improvement: Bond Issuance
AB 2660 (Aguiar)
Infrastructure Financing Act: User Fees and P3s
Local & Regional Infrastructure
New Tax Districts & Inducements
Economic Development Sustainable Policy
AB 32 (Perez)
Cap and Trade: reduced emissions
SB 375 (Steinberg)
GHG Reductions: Sustainable Comm. Strategy
SB 1168 (Pavley)
Groundwater Sustainability Plans
SB 535 (De Leon)
Greenhouse Gas Reduction Fund:
Benefits to Disadvantaged Communities
SB 350 (De Leon & Leno)
Accelerated emissions standards
Regional Sustainability
More Compliance & Mandates
State OKs Tax Increment AND Mandates Sustainability
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California’s New Project Financing Tools
Proliferation of special districts using tax increment for private projects
• Enhanced Infrastructure Financing Districts (“EIFDs”):
• Fund infrastructure and public/private transactions
• Community Revitalization & Investment Authorities (“CRIAs”):
• Fund infrastructure and affordable housing
• Tax Increment Districts have priority for state financing programs: Cap &
Trade, PACE, Greenhouse Gas Reduction Funds
• Cities, counties & special districts can pool tax increment
Types of Projects EIFDs & CRIAs Can Fund
Brownfield RemediationChildcare FacilitiesParks & Open Space
Light / High Speed Rail Civic Infrastructure
Transit Priority / RTP / SCS ProjectsAff. Housing / Mixed UseIndustrial Structures
Wastewater/Groundwater
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HOT – Urban Rail & Mass Transit
Existing Lines
M-Funded or In-Progress (26 new lines!)
Source: LA County MTA
LAXMETRO Long-
Range Plan
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70% of Voters approved Measure M to double rail network
$120 B. over 40 years expected
No expiration date
HOT – Connecting LAX…Finally
• 2020 – Metro train station platforms will open (estimated)
• 2022 – Consolidated Rental Car Facility opens
• 2023 – Intermodal Transportation Facility & People Mover opening
est. $4-6 Billion Project (LAWA + Other Public Agencies)
20
HOT – The “Purple Medal” Line
Source: LA Times
• Metro vows to finish Purple Line by 2024: if LA hosts summer
Olympics visitors could ride train between UCLA and DTLA
• International Olympic Committee to choose between L.A. and
Paris -- September 2017
• . 21
HOT – LA River Transformation
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• LA’s “backwater” becoming its
front yard
• $7 B. cost for LA’s 11 miles
• EIFD Tax District to fund
Projects?
• Real estate opportunities could
pay for local improvements
HOT – LA’s Throne of Games70% of Voters approved Measure M to double rail network
$860 Mil / year for 40 years expected
23
Blazin’ Up – “Joint” Ventures
Serving a Higher Purpose – Dude, it’s like, taxable, man
• Prop 64 passed – allows adults 21+ to use, possess or transport up to 1 oz
of marijuana for non-medical purposes and grow up to 6 plants at home
• BUT–You can’t buy recreational yet! CA yet to legalize non-Rx dispensaries
• Expected $1B in annual revenue per State Legislative Analyst
• LA Voters passed Measure M to regulate and tax locally
• Cautionary advice from Colorado:
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• 15% pot sales + cultivation tax
imposes overall 25%+ State rate
• Add local taxes up to 15% in 37
counties and cities
• Black market here to stay
HOT Retail Transforming: Finding the Right Mix
Residential
Entertainment/Fitness
Grocery/Restaurant
Medical/Office
Civic
Mixed-Use/Community Retail
Delivering Retail Mix based on Trip Generation is Key Opportunity
• Internet is primary driver of changes in shopping patterns
• Trip generators can sustain centers: entertainment, education, medical, events,
& specialty retailers; these are the new anchors
• Despite increases in digital market,
Brick & Mortar is in demand
• Resized “Urban” formats –going smaller
• Pop-Ups popping up everywhere
• Internet + Brick & Mortar blending…“staying
together for the kids”
# of shoppers nationwide lower last Black Friday
while online shopping was up 22%
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SCALDING – The 47% of the Future
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The 47% - Mitt Romney had the right number, but it really
represents something different…and more life-changing
Technology expected to replace 47% of existing jobs.
McKinsey Global Institute estimates even close to 60%
TECH IS CHANGING JOBS – First with Food
Robots Revolutionizing Retail and Limiting Labor
The “47%” is already on its way…
• Dining at “Eatsa” – No visible workers
• Momentum Machines – Burgers made by robots
• Amazon Go: grocery stores with no checkout (in 2017)
• Drone shipments
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Wheels next – AUTOBOTS EXPECTED TO ROLL-OUT
Self-driving cars are no longer a futuristic idea
• Estimated 10 million self-driving cars on road by 2020
• Mercedes, BMW, and Tesla already selling self driving features
• Tech companies also pioneering self-driving cars; Google, now
APPLE testing driverless cars on CA roads
• Hurdles to driverless cars are regulations, cost and fear
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Port of Los Angeles'
TraPac Terminal
mostly automated
by next year
Already Here – AT LA’S BIGGEST ECONOMIC ENGINE
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Is World Class Greatness Coming to LA?
Banc of CA Stadium
2018; under construction
~$350 Million
Rams/Chargers Stadium
2019; in progress
~$2.6 Billion
Olympics in LA?
2024
Investment = TBD
Redondo Beach Waterfront
2023? – legal challenges
~$400 Million
Downtown Development
Ongoing
~$6-8 Billion
George Lucas Museum
2021; announced
~$1 Billion, announced
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Politics, Economics or Environment – What Trumps?
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• Cities need private sector $$ to create jobs & tax revenue
• California shift to a reduced carbon footprint “green” economy continues
• Private Investment that fulfill mandates will receive tax incentives
• Housing shortage hurts State’s competitiveness- State looking to induce
• Retail formats shifting as internet changes social patterns; tenant mix adjusting,
trip generators key, bricks & clicks blending
• Tech (driverless cars, big data, robots) modifying way we live: interaction and
connectivity changing fast
• Automation requires unprecedented commitment to “continuous” education
For California to thrive thru Technological, Economical & Ecological shifts
Public & Private sectors must fully engage the Local, Social, Crowd & Cloud