The Truth about the Fairgrounds


By Dan Levin

7/10/14

The fairgrounds project, officially known as Solano360, is about to enter its sixth year. Yet it’s hardly talked about anymore. Given that the County Board of Supervisors has spent about $5 million on the project, the public deserves to know what’s going on.

For a brief time, before last November’s election, the fairgrounds was back in the news. Unfortunately it was used for pro- and anti-development arguments. That was a mistake. There is no one, as far as I can tell, who is against putting the fairgrounds to better use. The real issue, or what should be discussed, is financial responsibility and good governance. Here’s why.

After City and County officials approved the redevelopment project, evidence came to light that the underlying Fiscal Analysis was “tweaked” by the County’s Consultant. This adversely affects Vallejo to the tune of $17 million. The loss is potentially so great that it leads to an awkward question: are we possibly better off with a stalled project?

I’ll explain below how the Analysis got tweaked—and how we know—but let me begin with the implications for Vallejo.

Numbers Game

On the revenue side, it’s clear the City was way too generous when it agreed to reimburse the County nearly $40 million. Some people argue this reimbursement only matters if the project makes money, but that’s faulty. Vallejo has limited revenue-generating capacity, and it’s heart-breaking to think that we gave away perhaps a third too much on a prime development project.

The real harm, though, is on the cost side. Vallejoans will feel that pain no matter how successful the project. The reason is that the cost of public safety is largely fixed, even if revenue falls short. Our police and fire departments can attest to the high cost of servicing a transit center and park, which are proposed, in addition to taking over sheriff’s duties for county-owned land. It is likely that public safety is badly underfunded because of a change made to the Fiscal Analysis.

What is that change? Surprisingly, it’s a single number, but hugely important. Goodwin Consulting Group (GCG), which did the Analysis, deviated from its own standard practice and changed a multiplier, basically the cost of an employee, from 50% to 30%. That one change was enough to diminish costs by $17 million and inflate Vallejo’s perceived gain by $12 million!

I discovered the change a few days before City Council’s go-ahead vote on the project, and I wrote a letter to City and County officials explaining the importance of it. My letter was met with a strenuous rebuttal by GCG’s Dave Freudenberger. His main point was that, yes, GCG deviated from standard practice, but it was to make the Analysis more conservative. I was certain his statement was wrong because costs were almost entirely based on employees, not residents. Sadly, there was no time to argue the math and our City Council’s vote followed the assurances of Mr. Freudenberger.

An Independent Review

Mr. Freudenberger did not, however, have the final word. Some Vallejo residents, including myself, who felt the City Council’s vote ignored critical information, pooled our resources and hired an economic firm to compare Freudenberger’s letter to the Fiscal Analysis. We hired one of the top firms in the state, David Taussig & Associates (DTA), because we wanted to be absolutely sure our math was right.

DTA’s response is sobering. A link is below. The firm agreed that Freudenberger got it backwards: the change made the study far less conservative. “In fact, the result is significantly worse for the City. If the 0.50 factor had been used, it would have shown increased costs of approximately $17 million.’’ (Emphasis in DTA’s memo.)

Moreover DTA concluded, after revenue sharing, “the City will not break even until 2046’’ and will “run an annual net loss well into the Project’s third decade. Ultimately, the fiscal impacts, financial implications, and net present values of this Project are, as currently represented, in need of an extensive re-evaluation.’’

Please don’t miss the important point. DTA did not do a new fiscal analysis, and there was nothing speculative about its work. We hired the firm only to check the math. DTA took GCG’s spreadsheets, left alone all of the baseline figures and formulas, replaced 30% with 50%, and recorded the results. This is known as a sensitivity test, and it’s rather difficult to make a mistake, because the multiplier shows up only twice in the Fiscal Analysis.

Also, this issue is not about the merits of the project; it is about Vallejo’s interests. DTA looked only at Freudenberger’s public statement that a key multiplier was changed to make the study more conservative. DTA found the truth is completely the opposite. By changing the multiplier, GCG produced a study with much lower costs and greatly inflated value. It’s no wonder Vallejo officials were willing to give up so much future revenue, up to 97%.

If you have any doubt about who’s right, here is more background. As mentioned before, DTA is a highly-respected firm, known for getting the economics of a project right. And GCG? Its record is less stellar. There are examples right here in Vallejo: Hiddenbrooke and Mare Island. GCG did the financial projections for both, and we know they were far too rosy. The tax districts are notoriously underfunded and there are indications business is being hurt. (Warning: GCG has proposed a similar tax district for the Fairgrounds.)

Another historical fact looms large. While trying to understand the employee multiplier, I looked at all of GCG’s other fiscal impact analyses: 13 different studies done over a decade. The pattern was clear. In 12 of those studies, GCG used a multiplier of 50%. In only one did it use 30%: for Vallejo. The logical problem that results is impossible to explain away. If the 30% is truly more conservative, then 12 other municipalities would be most unhappy to hear that GCG used a more aggressive number for them.

How to Right this Wrong

So the question before Vallejo is not whether someone is pro- or anti-development, but instead, how to right this wrong. It is totally within the power of City Staff and Council to revisit the revenue-sharing agreement. That agreement was based on information provided by the County which was both misleading and costly. For fiscal hawks, the dollar amounts are right up there with employee contracts—and just as relevant to municipal services. I wonder if new council members, some of whom were supported by County Supervisors, have the strength to fight for our city.

Speaking of County Supervisors, the questions for them are more serious. First, how can a $100 million project proceed from a flawed study? The County has spent lavishly on consultants. Taxpayers deserve accurate information. So does the master developer and any future bond underwriter or investor. The situation that now exists poses market and entitlement risks, in part because the Fiscal Analysis was tightly coupled with CEQA. (Liabilities could spill over to the City if services end up being underfunded. At the very least, Vallejo faces opportunity costs and some amount of embarrassment, as City officials signed on to a 50-year deal with no independent review.)

Who Changed the Multiplier

Then there’s the elephant-in-the-room question: are we talking about a math mistake or something more nefarious? GCG surely started with a 50% multiplier, based on its other work; and Freundenberger implied as much in his letter to City Council. When did the multiplier change, and who reviewed the before- and after-spreadsheets? Did Supervisor Spering, who heads the Solano360 Committee, or Project Manager Tom Sinclair, instruct GCG to change the multiplier to “make the study more conservative”, or did GCG do that on its own?

I don’t pretend to know what happened behind the scenes, but there are troubling signs. One is above, that GCG never used the 30% multiplier in another fiscal impact analysis. Also, GCG’s use of that number doesn’t match its own explanation, which is convoluted and actually yields a number a little over 31%. (See supporting documents.) That difference may seem trite, but the rounding down cost Vallejo about $1 million.

There’s an easy way to answer the above questions: look at the drafts that came before GCG’s final Fiscal Impact Analysis. Either the math mistake will show up or the numbers won’t match Freudenberger’s letter. The County or it Consultants may argue that earlier drafts don’t exist, that they’re confidential and protected, or the numbers match up just fine. But I’m not sure they’re in a position to say, “take our word for it”.

Vallejo Deserves Better

Responsible governance demands that a bright light be shone on the fairgrounds, that earlier versions of the Fiscal Impact Analysis be made public, and that City Council take appropriate action. Here “pro” and “anti” labels apply only to accountability and the truth. Vallejo’s reputation, finances, and capacity for economic development depend on it.

Supporting documents: http://bit.ly/1f55Arn

 



'The Truth about the Fairgrounds' have 12 comments

  1. July 10, 2014 @ 9:55 pm Bong Hit

    Great work Dan, thank you. The public safety costs should have a multiplier above the “norm”. Country Club Crest will, most likely, will drive crime above the normal levels for the greater bay area. Solano county folks have used Vallejo as a whipping boy for decades. It seems nothing has changed.

    Reply

  2. July 11, 2014 @ 8:48 am wharf rat

    Great article Dan
    The math doe’s not lie yet there is another looming issue that makes this proposed project very high risk and that is the fact that that whole area is a flood plain . Our City and County is spending tax dollars to build in a flood plain ! record rain events could put this development under water “literally” . Seems that every aspect of this boondoggle is a scam , all while wasting tax dollars and leaving a trail of un-truths .

    Reply

  3. July 11, 2014 @ 10:44 am Doug

    Not to take away from Dan’s finding’s, but your right Wharf, this property is already a Hydrological nightmare! For there to be major construction without responsibly addressing the problem(s) with storm water flow is another example of the County taking control and advantage of Vallejo. BEWARE of 360, just because it is growth, does not mean it is “Smart Growth”.

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  4. Tony

    July 11, 2014 @ 11:43 am Tony

    GREAT WORK DAN
    Sometimes it takes a lot of fortitude and determination to get to the truth.
    Getting to the “Truth” of the financial implications of the Solano360 project will take an extraordinary effort on the part of the Council members. I hope your report here will tweak their interest to the point that they ask you for a spreadsheet “What-If” demo, illustrating how easy it is to manipulate the numbers, and the serious implications of changing a single multiplier in a spreadsheet.
    .
    When I hear statements like: “Trust Me”, or “Take My Word for It”, or “We’re the Professionals”, Red flags go up all around me. I can’t help it!
    .
    Upgrading the County fairgrounds, by itself, is a great idea, and I’m happy to see some progress being made to improve the facilities. However the full project called Solano360 should have been bifurcated into two separate projects by the county planners. The proposed shopping village with a lake is a ridiculous idea, especially considering the proposed development of the Cooke property directly across the highway. There are many additional reasons to put this project on the back burner while focus is put on our true priorities: the Downtown, the Waterfront, North Mare Island, and the Solano Blvd. corridor.
    .
    Considering that most of the fairgrounds area is in the flood plane, along with the proposed permanent re-routing of the Rindler Creek flood waters, the project as envisioned will never happen. The California Water Board and a slue of environmental agencies have, for all practical purposes, emphatically condemned the project immediately following the City Council’s approval in April of 2013. The Water Board’s letter was sent in July, 2013. The Solano County authorities, nor the City Staff what the California Water Board’s letter to be discussed in public because it pokes so many holes in the project.
    But getting back to your financial revelations, let’s hope the City Council members have the intellectual curiosity it takes to get to the bottom of this situation and take appropriate action.

    Reply

  5. Vallejo Voter

    July 11, 2014 @ 2:29 pm Vallejo Voter

    Dan, thank you. Great work!!! And thank you to everyone who contributed to pay the fees for the review of the math.

    Sadly, this is a prime example of why Vallejo is, and has been for decades, in trouble. Our city managers, staff and elected officials, never question the details, or request a “second opinion” on what projected costs or revenues may be on a project. The decision makers come from the premise that Vallejo is in a hole, so anyone who wants to provide a “reaching” hand should get whatever they want, without question, or analysis of long term fiscal impact. Dan Keen is smarter than this, and I am most disappointed in him, and those sitting on the last council who have approved decisions re: 360 Solano. (Yes, this includes Gomes, Sampayan and McConnell. I may be wrong, but my recollection is that Brown was never supportive of the project. If she approved the fiscal / financial agreements, shame on her also.) Vallejo keeps making the same mistakes, but expecting different results. Sad.

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  6. Mónica

    July 11, 2014 @ 7:14 pm Mónica

    Dan, thank you for your diligence on this project. The question now becomes, “How do we bring this topic back to staff and council for review?” My first thought is a letter-writing campaign, but is there a legal action that can be taken? Solano 360 is, as I frequently said during the peak of the debate prior to the council vote, a perfectly lovely 20th Century project. The plan is not relevant to our 21st Century needs.

    Thank you once again. A vigilant citizenry is essential to a well-governed community.

    Reply

  7. July 11, 2014 @ 9:33 pm Anne

    Outstanding work, Dan. I agree with Tony — I hope the City has the intellectual curiosity and ethical strength to do some simple spreadsheet analysis before Vallejo once again foots a costly bill it can ill afford. If the numbers can stand scrutiny, no problem — right? But, with a skewed approach to financial “analysis,” it’s better to know now that down the line. We still can do something before we bleed too much.

    I really have to wonder about how Solano360 used a consultant whose process was so flawed. Let’s see, do I understand right that in 12 out of 13 analyses, the consultants used the .50 multiplier — and then a couple days before the Council vote, all of of a sudden they change the multiplier to .30, for numbers that sound much more favorable for Vallejo? Sounds like a form of cooking the books to me. What’s the back story about why someone would do that, and why the City would accept it?

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    • Vallejo Voter

      July 12, 2014 @ 2:02 pm Vallejo Voter

      Why would the city accept these “changed” calculations? Because many on the council, remember Hermie? who never read a document, did not care. They want to “bring” business, “any” business to Vallejo. And anyone who questions a project or the economics of the project (or for example, with WinCo, questioning an EIR and traffic congestion and safety issue regarding the intersection and off ramp) are just labeled “anti business” or “anti City” or anti public safety. We have not always elected intelligent people to the council or people with intellectual curiosity; we have elected pre packaged, public safety PAC bought people who will vote for anything. (Think, willing to sell prime waterfront property to Callahan for $1??) I have never understood this mentality or why the majority of voters who decide to vote in the local elections keep re-electing people who cannot face the economic realities? But we have people on the council right now who don’t seem to understand that to fund dozens of public safety positions based solely on income from a tax increase that will expire in 7 years is fiscal irresponsibility, especially since they have NO idea how to bring in those revenues once the tax sunsets. (Or they have a Ouji board or a rosary and pray every night that voters in 7 years will renew the tax). I just have never understood this mentality. But yet, the City keeps repeating themselves. So with Solano 360, you expected Hannigan, Davis and Sunga and Wilson before that to actually read a project or raise questions about how the County is handling the project? Hannigan wanted the county job. SHE SHOULD BE IN THE FRONT OF THIS ISSUE, WITH DAN LEVIN AND THE GROUP WHO ARE WORKING HARD TO RAISE THE PUBLIC’S KNOWLEDGE OF THESE HORRIBLE FACTS, but she won’t do anything. She voted for it with the City, why question it now? And Davis? He has always been and is a person who wants “approval’ and is willing to accept ANY Project regardless of any long term fiscal problems or lack of sustainability of the economics. It’s sad.

      Reply

  8. July 12, 2014 @ 7:04 am wharf rat

    Perhaps there is one hard learned lesson here for many (don’t BS a math Teacher) you will only get an F.

    Reply

  9. July 12, 2014 @ 10:49 am George Guynn, Jr

    Great work and article, Dan! The response you get from the elected reminds me of my recent response from Mayor Davis that there is no waste in government after I commented that the money for repairing and fixing roads should not be spent on other projects at the last STA meeting after the pot hole report for roads. The next day, there was a news article that the federal government can’t $100 billion in missing money! That’s not waste?!!! The mayor also told my friend Rich Giddens at a Solano County Board of Sups meeting that there is no crime in Vallejo. The mayor’s memory must be bad these days as his business has been torched across the street from the county center, his motorcycle stolen, and also his vehicle stolen, both from the city parking lot! Dan, thanks so much for keeping watch on the government money and resource wasters!!!!!

    Reply

  10. Firebug

    July 15, 2014 @ 7:13 am Firebug

    Great work Mr. Levin,
    I finally had a chance to catch up and found your expose quite telling, all ringing the same tune of business at any cost with no research or care to research. Since the voters are the oversight to elected officials that run this city those that sold them the “jumper” facade should be ashamed of such poor candidates and track records.

    Reply

  11. July 18, 2014 @ 12:07 am this wontwork

    The city / county should divest interest and leave the valuation of Vallejo real-estate to the market. Who cares about the details?

    Reply


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