Economic analysis of downtown Hermosa Beach riles community
Patrons stroll along a packed Pier Plaza. A new report attempts to determine whether businesses in the area costs more in city services than they provide in revenue.
A draft of a report ordered by Hermosa Beach on the financial impact of the city’s downtown has the makings of a classic compromise: it left almost everyone unhappy.
Citizens gathered at City Council chambers Thursday night for a presentation on the costs of providing municipal services to the area and the revenues it generates. While downtown business owners pointed out flaws in the report’s methodology, Hermosa activists argued that the report ignored additional costs.
The report and associated feedback come as Hermosa updates its general plan, which will guide city policy on development for years to come. A follow-up community meeting is scheduled for Thursday evening, and the response will be provided to the City Council in a study session on Feb. 23.
Relying on budget information from the 2014-15 fiscal year, the draft report found that downtown-area businesses produced approximately $6.8 million in revenues and were responsible for $6.5 million in municipal expenditures. Of those, “late-night establishments,” defined as those open after 11 p.m. and serving alcohol, generated about $1.3 million in municipal revenues and cost the city about $1.6 million.
But officials from Kosmont Companies, the consulting firm that prepared the report, cautioned that that data limitations meant that these numbers were only estimates and were not to be treated as definitive projections of net revenue.
“It’s a very tough analysis from that point of view,” said Wil Soholt, senior vice president at Kosmont. “We talk to departments, take the information we’ve got, and we try to give the reader as much information as we can.”
The draft report presented generalized conclusions: downtown-area businesses likely provided as much or more to city coffers than they consumed in services; and late-night establishments “likely generate direct municipal revenues generally in-line with their associated expenses.”
Stacey Armato, a candidate for City Council in the upcoming special election on March 1, said the report would be more valuable if it provided comparable cost-revenue analyses for similar cities in Southern California.
“It would be nice to know, what are the costs in Newport Beach, Huntington Beach, Solana Beach, other communities with residents there nearby in a vibrant downtown?” Armato said.
Presenting the $300,000 shortfall as “generally in-line” with costs for late-night establishments irritated some residents, who pointed out that the broader downtown area was characterized as neutral-to-positive, even though revenues exceeded costs by the same amount.
“Could we not flip it, and say that late-night is generating as much or less [than it costs]?” said resident Sheryl Main, who has spoken out about the concentration of alcohol establishments at previous city meetings. “It seems like we’re playing with words.”
Hermosa previously contracted with Kosmont for a cost-benefit analyses of last year’s oil drilling measure, which attendees at Thursday’s meeting said produced more precise conclusions. As became clear, however, some inputs in the analysis were not reliable enough to provide greater certainty.
The analysis used a wide range of city data, including sales tax receipts, parking-meter readings, and police department call logs, as well as qualitative evidence like interviews with residents. While some figures, like property taxes, were deemed to have “good” levels of reliability, others, like utility user taxes, had “low” reliability levels. Such discrepancies became more prominent when attempting to draw conclusions about the subset of late-night establishments.
“For those moderate to low reliability categories: we used anecdotal evidence,but we’re not really sure why the numbers are the way they are,” Soholt said.
Dave Lowe, owner of the former Establishment on Hermosa Avenue, produced a response to the draft report for the Hermosa Beach Hospitality Association. Lowe questioned the way the draft report chose to define “downtown” geographically.
The report uses an area bounded by the Strand, Monterey Boulevard, 8th Street and 16th Street. Previous city documents focused on the area, such as 2014’s Downtown Core Revitalization Strategy, extended only as far as 15th Street on the north, and as far as Manhattan Avenue on the east. The blocks added in Kosmont’s report were were almost entirely residential — 96 percent, according to the hospitality association report — skewing figures for calculations about downtown businesses.
Additionally, Lowe and other business owners were incredulous at the level of parking revenues attributed to late-night uses. According to the draft report, 10 percent of the total revenue the city earns from the two lots and the multilevel structure surrounding Pier Plaza, and five percent from meters in the area, came from motorists attending late-night establishments.
“That just seems way too low,” said Ron Newman, owner of Baja Sharkeez. “Those lots are always packed, and what else are people doing at those times?”
But some countered that the draft report underestimated parking costs. Jim Lissner, who previously supported a 2013 initiative to cap hours of operation for local bars, argued that the parking costs ought to include depreciation of the downtown structure.
Further ambiguity came from a third conclusion of the draft report: that the downtown area has a “synergistic mix” of land uses that collectively boosts economic activity and creates jobs. This too relied in part on patron interviews.
“The different businesses are helping each other out down there,” Soholt said. “You would not achieve the same result if you were to remove some of them.”