Peebles' Financial Fantasy

You've seen the signs and TV ads that promise $17 million in new tax revenue for Pacifica. It's always been a case of "If it seems too good to be true...," but until recently it wasn't possible to analyze where that number came from and see how believable it is. Now that Peebles has finally released an economic analysis, we can see that this number is 100% fantasy.

There are so many problems with this analysis, that it is hard to know where to start.

First, the number is based on projected tax revenue in 2013, which is when the project is fully built out. So when his TV ad says that his "vision" will double the Pacifica's budget, he's flat-out lying. The City's budget in 2006 is about $24.5 million, and when inflation is considered, even his fantasy numbers will not come close to doubling the City's budget.

Second, the fantasy assumes that Peebles will be able to build his entire "vision". But that's unlikely due to the significant environmental and traffic issues caused by a project of that size.

Then there are the numbers themselves, which are like adding 1+1 and getting 42.

Most of the revenue comes from 2 sources: Hotel Tax and Property Taxes. The Hotel Tax revenue assumes that Peebles' hotel suites will rent for an average of $595/night, with 80% occupancy. That will directly compete with hotels in San Francisco and the Ritz-Carlton in Half Moon Bay, when the reality is that Pacifica's attraction as a tourist destination is based on being a lower cost alternative.

The Property Tax revenue estimate is based on the assessed value of the individual buildings. Most of that is from the 355 residential units, and assumes an average sales price of $2.3 million per unit. This includes not only single family homes (average $4.5 million) but live/work units (average $1.4 million), and apartments ("only" $945,000). So much for affordable housing!

The reason for such high prices is that the estimate assumes that housing prices will continue to grow at 11% per year, which was the average for the past 10 years. But no one thinks that the Bay Area will see that rate of appreciation. In fact, according to a San Jose Mercury News article, the median price of new homes in the Bay Area fell 12.3% in September, compared to a year ago.

Add to this the fact that Peebles' traffic claims assume that most of the people who work in the quarry will also live there, which is inconsistent with the high price of the housing. Finally, the redevelopment agreement expires in 2021, which means after about 8 years the amount of property tax revenue that Pacifica will receive will drop significantly.

It's not surprising that Peebles waited 5 months to reveal his economic analysis. With assumptions such as these, it's clear that his grand "vision" does not add up.