Foresight or poor planning?
Economic, financial projections for Santolina proposal are suspect
Opponents of the proposed 13,851-acre Santolina planned community west of Albuquerque have advanced a few weak arguments and one really good one over the past several months of County Planning Commission deliberations.
Santolina is a portion of the old Atrisco Land Grant in Bernalillo County. The developer, Western Albuquerque Land Holdings LLC, has asked for county approval to build over the next 50 years a community of parks, businesses and homes for up to 90,000 people. County planning authorities have approved the plan, which also is subject to County Commission approval. The commission has scheduled hearings for March 26.
The land grant acreage was sold to another developer,
SunCal, in 2006. SunCal planned to build a 54,000acre community but in 2009 defaulted on a $212 million loan extended by Barclays Capital Real Estate Inc., now owned by a publicly traded Atlanta-based company, Ocwen Financial Corp. Barclays foreclosed on the property and, through Western Albuquerque Land Holdings, known as WALH, took control of the land.
The questions of whether Artisco lands should have been sold, whether the sale was handled properly or honestly, and whether SunCal was a good developer aren’t especially relevant to Santolina, though these are arguments that have been made in opposition.
The involvement of Barclays Capital is also seen by some opponents to taint Santolina, though it’s hard to see why. Barclays Capital is a real estate lender. The company, which was sold to Ocwen in 2010 by a British bank, found itself owning thousands of desert acres because it made an illadvised loan shortly before real estate markets around the planet collapsed, setting off a chain reaction that almost destroyed the global finance system. The bank that once owned Barclays Capital is no more good or evil than any other.
Lenders don’t especially like owning property obtained in foreclosure. Investors and regulators see such property as a drain on the balance sheet. The more assets tied up in distressed property, the less money there is to make new loans that might generate some cash flow. Clearly, this land isn’t especially marketable in its current state, or Barclays would have sold it off. Barclays is stuck with the property and so is doing what it can to make the best of a bad loan.
Whether water is available for Santolina or any other urban use is always problematic in New Mexico. The local water authority says there is adequate supply for 90,000 people who may or may not settle in Santolina. I am told by water experts that the authority knows what water is and will be available. If it doesn’t, we have far bigger problems than Santolina.
Those are some of the weak arguments. A good argument is that the developer’s economic and financial projections are suspect.
WALH promises that the development will make a meaningful contribution to the local economy. To help it make that contribution, WALH expects the same sort of public incentives as other economic development projects receive.
A proposed development agreement between WALH and the county says “the parties understand” that tax increment development districts and property improvement districts “will be required to complete the construction and development of the project.” The draft agreement says the county will consider providing economic development tools, such as industrial revenue bonds.
A TIDD issues bonds to finance public infrastructure in the district that are secured by gross receipts taxes generated within the district. A PID imposes special levies on property owners that can be used to pay debt service on bonds.
WALH used a popular and reputable computerized economic forecasting tool to predict Santolina would create 75,000 jobs. The model shows that, in return for the county’s recurring spending of $28.9 million on services (public safety, trash collection and the like), recurring collections of property taxes, gross receipts taxes, and other taxes and fees would put $51 million into county coffers.
Economic forecasts are as good as the assumptions that go into them. Kelly O’Donnell, who is a former New Mexico Cabinet secretary and a capable economist, was hired by the McCune Foundation to sanity-check WALH’s estimates. She used the same forecasting tool with what she believes are more realistic assumptions and got very different answers. O’Donnell predicted Santolina would create 23,100 jobs. County recurring spending on services would be cut to $9.3 million. The development’s recurring payment to the county would be $22.7 million.
O’Donnell says the Mid-Region Council of Governments and the University of New Mexico Bureau of Business and Economic Research “project the creation of only 7,700 new jobs in the area encompassing Santolina by 2035.”
WALH assumed two jobs will be created for each household in Santolina. O’Donnell says that, historically, households in the area create 0.6 jobs each. WALH assumed all Santolina residents would migrate from outside the county. Experience shows that isn’t likely to happen. WALH assumed “high rates of population growth and job creation in western Bernalillo County” when, according to O’Donnell, the local economy likely faces “further population declines and continued anemic economic growth.”