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Analyzing City Offices in Downtown Novato

Will a new administration building in Old Town reduce annual expenses and put Novato in position for long-term financial sustainability?

Last week the Novato City Council moved forward with a plan to build new city offices downtown for 60 city employees.  The 21,000 square foot building will sit on an existing lot on Machin Avenue.  The  offices would bring city employees back to the downtown area adjacent to the police department and the newly renovated city hall.  The project would also strengthen the community presence in the downtown area.  However, considering the city’s long term structural deficit, it this a good fiscal decision?

The offices are estimated to cost $12 million to $16 million and will be paid for through bond proceeds of up to $17 million.  So the $17 million question is whether or not building downtown offices puts Novato back on the patch of financial sustainability.  Currently the city estimates a $3.5 million budget deficit in 2015/2016 (after the Measure F funds sunset).  If today we have $17 million in capital, how can it best be invested to mitigate the shortfall 5 years out?  Yes, city offices will allow us to reduce rent expenses of $706,000 a year. 

To complete our quick math, let’s say the downtown offices come in at $15 million.  A savings of $706,000 represents a 4.7% annual return on the investment.  Unfortunately, the return would probably be even less.  The city recently reduced their space at 75 Rowland way by 2,800 square feet which lowers their lease by $67,000 a year.  Now the $706,000 savings is reduced to $639,000 for a 4.3% return.  Furthermore, the annual city expenses for the downtown site were estimated at $165,000-$210,000 per year.  After subtracting that out (let’s say $185,000), the annual savings from owning versus renting is only $454,000 per year for a return of 3%.

If Novato wasn’t forecasting a $3.5 million deficit 5 years from now then we could certainly settle for a 3% return on a $15 million investment, but looking long term is it something we can afford?  Sure, city offices could be a nice addition to downtown, but would they be a smart addition?  Your thoughts?

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Gail Wilhelm May 26, 2011 at 08:47 AM
How can I? Three reasons. One, I have an MBA and actually understand financial issues. Two, as a former Novato City Council member I am very familiar with city budgets and have read all the pertinent documents. Three, for 40 years every city general plan has called for city offices to be built on the property it currently owns downtown. Finally, Henry, you don' make a credible nor persuasive commentator on this issue due to your self interest in having the City of Novato abandon the site and provide parking for buinesses like yours on Grant Ave. at public expense. You come off as self serving and exceecdingly greedy. Sincerely yours, Gail Wilhelm
henry May 26, 2011 at 03:39 PM
Hi Gail, First, thanks for thinking of me and my post at 1:47am. Now that you have informed us all that your MBA is a pre-requisite for being able to "actually understand financial issues", perhaps you will take a moment to answer the question my post alluded to. This one: How can you justify spending $18 mil "at public expense" (your phrase) when housing the very same offices in new build that will, "at public expense", cost taxpayers a fraction of that cost? Gail, I won't comment on the blatant hypocrisy of your final paragraph. The one where you imply that I, as a downtown business owner, cannot effectively & honestly weigh in on a topic that effects me as a citizen & relates to the financial health of my town. Should we hold you to this same standard? As a former city council member should you recuse yourself from this discussion? If not, it seems that "you come off as self serving & exceedingly greedy". No? Gail, I have no issue with city offices being downtown. More business excites me. I like city employees coming in to our businesses. What I AM against is spending $10 million+ more than is necessary. I am also against permanently removing the only source of parking downtown that can be expanded upon a to accomdate the increased traffic we are sure to get when the theatre opens, when 999 Grant is completed & to accomodate the city plans to reviatlize downtown. These are my concerns. Thank you!
Matt McCarron July 06, 2011 at 06:50 PM
With the new affordable housing site proposed at the police station, we will need parking even more downtown. The parking structure was in the original downtown plan that Ned Lagin's planning commission scoped out. Downtown, needs more parking so it can continue to contribute and have a chance to grow the City's tax base. Having the city offices will not materially add to the sales on Grant street, but parking will. We have the community meeting location function there, but the behind the scenes paper pushing can and should be done somewhere for a lower price tag. For $17 million you can do both projects.
henry July 11, 2011 at 07:57 PM
Matt, Thank you for your enlightened comments. It's amazing that so many here in Novato are unaware that the city is planning on spending $9 million (plus!) more than is necessary to build city offices downtown. I truly believe if citizens were aware of this and the fact that they are negating the ONLY city owned source of additional future parking downtown they would stand up en masse against this horribly ill advised and financially derelict project.
Edwin Drake July 12, 2011 at 02:43 AM
Can someone tell me: If the city were able to sell the Machin property, what would it be worth, both in this down economy and maybe a more "normal" economy? Guesstimates? Best Estimates?

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