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County will lose jobs, money if Navy project is delayed, new report finds

More than 20 years worth of efforts to convert Navy property along San Diego's waterfront into an upscale mixed-use redevelopment project could hit yet another snag next week, depending on a vote by the California Coastal Commission. But a new economic report released Friday says further delays to the project could cost the city needed revenue and jobs.

The Navy Broadway Redevelopment Project aims to convert 12 acres of Navy property on the North Embarcadero into an office, hotel and retail complex, along with a museum, park and new Navy administration building. But the proposed project must first overcome two lawsuits and a California Coastal Commission vote Wednesday that could effectively wipe out the plan and force its developer, Dealy Development Inc., to come up with a new proposal.

Because of these obstacles standing in the project's way, the San Diego Military Advisory Council, or SDMAC, paid the Fermanian Business and Economic Institute at Point Loma Nazarene University for a study on the project's economic impact. The report found that if the project proceeds, by 2022 it would be adding $354 million a year in wages paid to San Diego County residents and $843 million a year to the county's total sales of goods and services. By 2022, the project would also be creating 7,362 jobs a year.

"For several years, SDMAC has supported the Navy Broadway Complex Redevelopment Project due to the significant benefits this redevelopment would bring to the citizens of the San Diego region and to the U.S. Navy," said John Pettitt, SDMAC's president. "In these difficult economic times of a lingering recession and high unemployment, this report demonstrates the substantial benefit the project will bring to San Diego in terms of jobs, earnings, total output and tax revenue.”

But Ian Trowbridge, the co-chair of the Navy Broadway Complex Coalition, which opposes the project and is currently in litigation with the Navy in an attempt to stop it, said the report's results should not be trusted.

"When a report is released by a booster group to the Navy and is paid for by that booster group, you have to question the independence of that report," said Trowbridge, who is also a retired biology professor from the Salk Institute. "I'm an academic and I know academics in this day and age. If they're paid, just like with expert witnesses in a trial, they will say whatever the person who paid them told them to say."

Lynn Reaser, the chief economist at the Fermanian Business and Economic Institute who led the effort to draft the report, said her findings demonstrated San Diego's need for the project to move forward.

To conduct their economic impact predictions, Reaser and her colleagues attempted to subtract out economic activity that would have happened in other places in the county. For example, the report says while the project's developers hope it will attract firms from Silicon Valley and other regions, in addition to drawing startups or firms looking to expand, it might also steal away companies from other office spaces in the county.

To correct for this, the report said it assumes only 65 percent of the expected employees occupying the project’s space represent new economic activity.

Likewise, the report assumes 85 percent of sales from the complex's restaurants and stores will be outside money from tourists or new money that otherwise would not have been spent, while 15 percent of its sales would be diverted from other county retail locations.

Reaser also said the report assumes when construction on the first phase of the project is complete in mid-2015, the country's economy will be recovered, so her calculations' reliance on tourism and retail dollars is justified.

"Most economists believe the economy will be close to full employment at that point and the unemployment rate will be below 6 percent," she said. "Of course, further economic cycles could happen in the next 15 years, but those are impossible to predict."

The project is expected to be fully operational by 2022 and is estimated to cost about $1.2 billion in private funding, all of which has not yet been raised.

Plans for the complex are lofty. They include an 18-story office building for the Navy; three luxury hotels -- four or five stars -- the biggest of which will have two 30-story towers, 1,058 rooms and more than 200,000 square feet of meeting space, ballrooms and spas; and upscale restaurants and stores focusing on "the upper-income workers in the office’s complex and guests in its luxury hotels," according to the economic report.

"The types of jobs targeted for the project’s office space should be generally high paying," the report says. "The proximity of a number of luxury condominiums will provide close-in housing, minimizing commuting times. Younger workers appear to now be especially attracted to working and living in a downturn, urban setting."
The economic impact of the project will come from workers hired during its construction, along with office, hotel and retail workers when the project is complete, according to the report. There will also be "supply chain effects," meaning stimulation for local businesses selling goods and services during construction, and "consumption effects," meaning spending by new workers. "At its peak level of operations reached starting in 2022, large numbers of positions will appear for people working in restaurants, hotels and retailing as well as in accounting, investment, engineering, IT and management firms," the report states.

About 16 percent of those jobs would be in restauarnts and 12 percent in hotels, while between 2 and 3 percent would be in IT and computer systems.

Although no property taxes can be charged on the federal land that will host the Navy building, the report predicts other tax revenues will begin to appear by 2015.

By 2022, Reaser said the project will bring in $10 million a year in sales tax from restaurants and other retail stores, $8.5 million from the hotel's Transient Occupancy Tax and Tourism Marketing District tax and $10 million a year in property taxes from land improvements.

She compared the $28.5 million in taxes to San Diego Mayor Jerry Sanders's budget for the next fiscal year, which proposed a $9.6 million increase from the previous year's budget, "So this project would definitely help out in terms of these financial issues," she said.

However, property tax revenue would go to San Diego County and sales tax revenue would go to the state, not the city. Reaser said state taxes would be "allocated back to city government."

Whatever governmental agency they go to, none of these revenues will be seen if the project does not move forward.

Last week, staff from the California Coastal Commission released a report saying because the project had been approved 20 years ago, it needs to be re-reviewed.

Two lawsuits, one from Trowbridge's coalition against the project and the other from the California Coastal Commission, also must be settled before the project can move forward.

Trowbridge said the project's prime location means that even if the current plans are not approved, there can still be some type of development there.

"It's an incredibly important piece of coastal property and regardless of what way it's developed, it would have an economic impact," he said. "So the current plans shouldn't be compared to zero."

Trowbridge added that he thought the economic impact study was little more than a scare tactic.

"This report is irrelevant and has nothing to do with the California coastline," he said. "It's an attempt to inflame the public, who are obviously worried about jobs and the financial state of the city."

But Pettitt, president of SDMAC, said the study "quantifies the number of jobs created and the economic impact in dollars," and expressed frustration about the obstacles blocking its progress.

"We have a project right here in our backyard that is shovel ready," he said.

Ruben Barrales, the president and CEO of the San Diego Regional Chamber of Commerce, echoed Pettitt's frustration.

"In any other region, they would be holding a parade to thank the organizers for bringing jobs and tax revenue to San Diego," he said. "We hope the (California Coastal Commission) will understand this is something positive for San Diego, its economy and its environment."

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