Health & Fitness
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%.
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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?
