City wrings out Natomas revenues before deadline

The city of Sacramento is trying to squeeze every nickel of fees and taxes out of North Natomas before the federal government shuts down new construction.

City staff has been asked to identify key revenue-generating projects north of the American River and move them quickly through the development approval pipeline to qualify for building permits by year's end.

In December, the Federal Emergency Management Agency is expected to place North Natomas in an official flood zone – resulting in a de facto building moratorium until the levees are upgraded.

"We're working on projects that are likely to beat the deadline," said city planning manager David Kwong.

The current plan by the Sacramento Area Flood Control Agency is to regain 100-year flood protection by 2010. When the improvements are halfway complete, perhaps in mid-2009, the city could apply to FEMA to lift the building restrictions.

Faced with an estimated $55 million budget deficit in the next fiscal year, largely attributed to the severe decline in the housing market, city officials say they can't afford to see revenue from North Natomas completely cut off even for a year. The area accounts for about 45 percent of the dollar value of building permits issued in the city annually.

The city collects fees for every building permit issued, as well as other charges that developers pay toward community improvements. Development also generates property and sales taxes.

"Shutting down that economic engine is pretty severe," said Scot Mende, the city's new growth manager.

With the housing sector in the doldrums, the promising candidates for speedy construction are office and retail developments.

As long as a project receives approval for a building permit by December, the developer will have six months after that to actually pull the permit and start construction, according to the city.

City officials said there are several key retail and office projects in the planning stages that could conceivably get building permits by December – and produce millions of dollars in city revenues.

Former KCRA owner Jon Kelly and his son Greg recently began construction on a 12-story office building at West El Camino Avenue and the east side of Interstate 5. Greg Kelly said they hope to pull permits for another 12-story building on I-5's west side.

Kelly said he's had strong tenant interest, despite the flood threat. "Sacramento has always been flood-prone," said Kelly, a sixth-generation Sacramentan. As for the "crisis that we're undergoing, or whatever you want to call it, this, too, shall pass."

Also waiting for approval is a 400,000-square-foot shopping center and office building complex at Del Paso Boulevard and El Centro Road, next to the new Natomas Central housing development. In an e-mail message, developer Angelo G. Tsakopoulos said he expects the project to be fully approved by December.

"We would be pushing ahead even without the FEMA deadline since I believe that this is the best remaining retail project within the North Natomas Community Plan," Tsakopoulos said.

The center, which is supported by the community, would contain one "big box" tenant and other stores, plus a cluster of medical offices, Kwong said.

The new center "will probably net a million dollars a year in sales taxes to the city," said David Spaur, city economic development director.

In the Gateway Corporate Center off Truxel Road, developer Opus West is planning to pull permits for a three-story office building before December.

Despite the housing slowdown, "our job growth is still positive, and our unemployment is low," said Tom Schaal, vice president of real estate in the Sacramento office of Opus West.

"We have good leasing activity in our existing building," he said.

He said his company would pay about $2 million in city fees to erect the office building.

Former U.S. Rep. Doug Ose said his family is pushing ahead with a request to change the North Natomas Community Plan designation for its 70 acres of freeway frontage near the junction of I-5 and Highway 99 to develop a regional shopping center.

"Even in today's market, the major (retailers) are still on the hunt for locations in Sacramento with freeway frontage," Ose said.

"We obviously do not want to sit and wait for five, 10 or 20 years," he said.

But his project appears to be a long shot for beating the deadline. Residents of Westlake neighborhoods oppose it, and the city planning staff has recommended against it, Kwong said.

The council has taken a more nuanced approach to allowing more homes in a floodplain that the U.S. Army Corps of Engineers says lacks protection against a 30-year storm. Last month, the council voted to move forward with annexing 577 acres just outside the city for the Greenbriar development, which will eventually include 3,500 residences.

But it also stipulated that no construction of buildings would be allowed there until FEMA recertifies the levees as providing protection from a 100-year flood.

According to the city, there are 8,200 housing units approved for Natomas that have not yet received building permits.

"You can still pull building permits today and build; the question is whether that makes sense," said Greg Paquin, a Folsom consultant who tracks the housing industry.

Some builders in Natomas have shut down completely, but others are moving ahead, albeit slowly. "Really, the home-building community has taken one of two tracks; they've either closed up and decided to wait out the FEMA issue, or decided to try to get in front of it," said John Griffin, president of Roseville-based New American Communities.

Griffin's company received city approval in 2005 for a subdivision of 489 homes just south of Highway 80 near Truxel Road. He said he expects to pull permits for 100 to 150 of the houses before building restrictions kick in.

"We believe we can pull enough (permits) that we can effectively build at a slow pace through the period where you can't pull permits," Griffin said.

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• Call The Bee's Mary Lynne Vellinga, (916) 321-1094.