December 2007
By Wayne Dernetz
Concerns are growing about Del Mar's downtown Central Commercial ("CC") zone. City leaders worry that new offices are replacing retail businesses within the zone and eroding the City's sales tax base. In an effort to stem the loss of retail businesses, the City Council recently imposed a moratorium on new offices along Camino Del Mar while planners study a proposed horizontal zoning ordinance.
The 12-acre CC zone (not including the Plaza or L'Auberge) is divided into 63 small parcels (not counting publicly owned parcels). Two parcels remain undeveloped. The CC zone constitutes three percent of all property in Del Mar, yet contributes just 1.7 percent ($54,654) of Del Mar's total property tax revenues ($3.24 million). In the past 20 years, no significant new development or improvement has occurred within the CC zone.
Typically, California cities rely on commercial property to generate sales taxes, an important source of general revenues. But this year, Del Mar expects its closely watched sales-tax revenues (totaling $1.24 million) to fall 1.4 percent below the previous year. Sales taxes represent only the City's third largest source of general revenue, accounting for 11.7 percent of the total, little more than half the State average.
How much does the CC zone contribute to our sales tax revenues? Obtaining a precise answer is difficult because State laws prohibit disclosure of individual business sales-tax information. But a reasonable estimate can be made from available data.
According to a recent estimate, the total floor area currently within the CC zone is 233,823 square feet. Standard retail business guidelines set annual gross retail sales of $300 per square foot of net retail display area as a standard. Assuming a typical net display area represents 80 percent of the retail space (excluding storage and utility areas), a reasonable estimate for the maximum annual gross sales that could be generated within the CC zone (if all current floor area were devoted to retail business) is $56.1 million. On that amount, the maximum potential sales tax that could be generated for the City is $561,000.
According to official City documents, Del Mar receives no more than 17 percent of its $1.24 million in annual sales-tax revenues from the CC zone. Therefore, the amount of sales-tax revenue currently attributable to the CC zone is $210,970, i.e. less than 38% of the maximum potential revenues. If Del Mar were able to maximize retail business use in the CC zone, its potential sales tax revenues could rise by about $350,000, increasing general revenues by 3.3 percent.
Two conclusions may be drawn from these estimates:
(1) The City would experience a significant, but not catastrophic effect from further erosion of sales-tax revenues within the CC zone because sales taxes generated within the CC zone represent, at most, just two percent of general revenues.
(2) Encouraging new retail businesses to open in the CC zone could increase annual sales tax revenues by as much as $350,000, without any additional floor area, raising current general revenues by 3.3 percent.
The sales-tax-generating potential of the downtown CC zone is an important, but not the only measure of its value to the community. Del Mar's Community Plan calls for a downtown that is "economically viable, pedestrian oriented and [an] attractive area that serves the needs of both residents and visitors and is well integrated into the residential fabric of the community." Ultimately, the extent to which the CC zone satisfies this Community Plan goal must be determined by Del Mar residents.
But a downtown area contributing disproportionately low property taxes and generating sales taxes as much as 62 percent below its potential can only be described as a significant underperformer and an economic drag on the community. The next segment in this series will explore ways to improve the downtown CC zone economic contribution without sacrificing the village charm and character.
Generally, office uses provide services that are exempt from California's retail sales tax.
Property-tax revenues constitute the largest single source (30.6 percent) of the City's general revenues.
The proposed Garden Del Mar project on the former gas station site is within the CC zone. Owners are seeking approval for the project from the City Council and Del Mar voters in 2008.
With an aggregate land area of 496,500 square feet, the aggregate floor area ratio (FAR) is 47 percent. Current zoning permits an FAR on individual properties within the CC zone of 45 percent.
The larger portion of sales tax revenues to the City are attributed to the Fairgrounds (40 percent), Del Mar Plaza (24 percent) and Hotel properties (19 percent).
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