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Council OKs market rate fee structure for outdoor dining in Downtown

By SARA HALL

City Council this week unanimously approved moving forward with a market rate fee schedule for outdoor dining programs on public property in Downtown.

Councilmembers voted 5-0 on Tuesday (May 16) to direct staff to return with the market rate approach, or a modified version of the option as it seems appropriate, for their consideration at the June 13 meeting when council adopts the budget for fiscal year 2023-24.

The vote also extended the Promenade on Forest’s coastal development permit and temporary use permit for three years (to January 2027) while staff proceeds with the preliminary design, entitlement and permitting process to convert the Promenade to a permanent pedestrian plaza. It also extended the outdoor dining and parklet program’s TUPs for an additional three-year term (to January 2027) while staff addresses the requirements for outdoor dining on private and public property to become permanent.

Mayor Bob Whalen made the motion following about an hour of discussion, primarily focused on the fee structure. It’s still a temporary timeframe, he noted, and suggested an appraisal be conducted before the second year.

“We could look at this for a one-year solution,” Whalen said.

They could include a provision for consumer price index adjustment or something similar to allow it to grow, confirmed Jeremy Frimond, assistant to the city manager.

There are also other aspects to consider, Whalen added, like the spaces are fully serviced with utilities and the overall experience and increased pedestrian traffic increases sales tax, as staff pointed out. Noting some public comments that the fee structure doesn’t take other costs into account, like additional policing, Whalen also noted that those aren’t charged to businesses elsewhere in the city.

“That would mean every business would get assessed for general costs that we have, which makes no sense,” he said. “What we’re looking at here is recovering the direct costs, which are the parking revenue loss and the maintenance costs. I think this approach does that.”

By doing nothing tonight and holding off on an updated fee structure, the current calculation would continue, which is far under market value, noted Councilmember Alex Rounaghi.

“To me, that wouldn’t be serving the fiduciary interest of the taxpayers,” he said. “We’re the landlords in this situation, so it makes sense for us to do market rate.”

There will also be some closures during the renovation, so restaurateurs are not going to be able to take advantage of that momentum, Councilmember Mark Orgill added.

“I don’t think that what staff has done is inappropriate considering that this is a temporary solution and we’re going to come back for the bigger picture,” Orgill said. “I think it’s fair.”

Also, a majority of residents enjoy the Promenade, added Mayor Pro Tem Sue Kempf. It’s OK to spend money on projects that people like, she said, comparing it to funding parks without getting any revenue back. But in the case of the Promenade, it does help the overall economy, she noted.

“It’s a good solution,” Kempf said.

Although not everyone on the dais was on board with the fee rate.

“There is a gift of public funds here that’s gone on for three years,” said Councilmember George Weiss.

The city built the Promenade, provided private spaces for the restaurants at a very low cost, and now it’s being renovated by the city.

“Meanwhile we lost a tremendous amount of revenue for Forest Avenue,” Weiss said.

Weiss ultimately agreed to the market rate structure with the one-year appraisal plan.

Council OKs market rate fee structure Promenade

Click on photo for a larger image

Photo by Mary Hurlbut

The city is working to make the Forest Avenue Promenade permanent and this week approved a fee structure for outdoor dining

Council approved the Promenade TUP and CDP, as well as the outdoor dining TUP program, in May 2020. The parklet program was approved later that year. At meetings in 2021, permits for both the Promenade and outdoor dining (including the parklets) were extended through January 2024. Council’s action this week extended the permits for the programs again, this time for three years.

“That’s going to give us time to get the entitlements for the permanent Promenade and then also to commence construction and complete the project,” said Community Development Director Marc Wiener. For the parklets, the three-year extension will “give the city time to evaluate what amendments need to be made to our zoning code, if any, to allow it. Also, to evaluate whether it can be addressed through the parking master plan.”

Currently there are 16 restaurants participating in the outdoor dining program, with seven of those businesses operating parklets on public property (not including the Promenade restaurants). Currently, there are 59 public parking spaces and 54 private parking spaces being utilized by the programs. There are approximately 3,000 parking spaces in the Downtown, about half of which are public, Wiener noted, so the outdoor dining is utilizing approximately 3% of the total supply.

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Wiener and City Manager Shohreh Dupuis recently met with the executive director of the California Coastal Commission. They discussed a number of topics, including outdoor dining, he said. The CCC is involved since parking is considered a coastal access issue, he added.

“They want to ensure there is available supply for visitors who want to visit the coast and who come through our city,” Wiener said.

In speaking with Coastal staff, they were supportive of outdoor dining and the city’s Promenade, he commented. They’ve had similar programs and are very receptive to working with Laguna Beach, he added.

“It’s important to note that they’re not expecting, necessarily, a one-to-one replacement of parking. If we can demonstrate that we’re mitigating the loss of parking through other programs, such as a parking master plan or other mitigations, that could suffice,” Wiener said. “But the bottom line is Coastal Commission is supportive of it.”

At the Nov. 10, 2021, meeting, council also approved an outdoor dining fee to commence on July 1, 2022. The current fee structure is a base rate of $1,000 plus $7 per square foot of the deck size to reach the total annual fee for each business.

This week, Frimond shared two potential options for fee structures: The first was based on the number of parking spaces multiplied by the parking revenue rate; the second was calculated using the deck size multiplied by a base market rate value of $5.

The $5 market value rate per square foot is based on research Frimond conducted with a local broker to determine a “ballpark range” and what he found when comparing the rate to programs offered by a few other nearby coastal cities.

Both options included a “maintenance fee” that’s calculated as a percentage of the day porter service contract the city awarded last year to maintain the Downtown area. The parklets are $4,500 and Promenade decks are $9,000. Combined, they cover about 45% of the $150,000 maintenance contract for the day porter service. For option one, total annual fees for businesses ranged from $8,900 to $22,200. The projected revenue for the city for fiscal year 2023-24 was $173,100. For option two (what the council ultimately approved), total annual fees for businesses ranged from $15,300 to $35,880. The projected revenue for the city for FY 23-24 is $242,940.

“If the council pursued option two in a long-term, (I would) certainly recommend an appraisal of the Downtown area to really determine street to street, location to location. Ultimately what the programming looks like…put all of that into the analysis to really determine what that square-foot value is based on appraisal,” Frimond said.

Frimond also emphasized the additional revenue the Promenade and the outdoor dining experience brings into the city.

“There is a different stream of revenue coming in other than just parking spaces on the Promenade and that’s via increased sales tax revenue from higher traffic and commerce occurring in this area because of the outdoor dining program, or in part because of the outdoor dining program,” Frimond said. “The Promenade also generated additional sales tax revenue. I think that’s common sense. We’ve increased the occupancy so we should see this trend (continue).”

He conducted a quarterly evaluation of four different sales tax revenue groups between 2018 and 2022. Frimond studied each quarter to look for trends before and after the programs were implemented. Prior to the pandemic (and the installation of the Promenade), restaurants and businesses in the Downtown and citywide were somewhat paralleling each other, he noted, but after the programs were implemented in Downtown, those restaurants and retail businesses recovered much quicker and sustained a higher rate of growth since.

The data suggests that the Promenade has helped contribute to increased revenues for restaurants and retail businesses on lower Forest Avenue, he concluded. Answering a council question, he noted that even though the restaurants actually have the outdoor dining decks and retail businesses don’t have that private space, that doesn’t mean they don’t benefit from the overall atmosphere.

“Creating that experiential dining opportunity and that experiential retail opportunity and economic development has really been touted as the way forward for retail,” Frimond said. The aim is about “creating an atmosphere and something to come to and experience.”

Although there was some concern if the sales tax would be worth the other impacts of the project.

“I don’t know that the sales tax increase really benefits us that much because of the impacts of many more visitors,” Weiss questioned.

Kempf took exception to the comment downplaying the increased sales tax.

“We had a significant bump in sales tax on that street after the first year of the pandemic, so you can tell that this works,” she said.

During public comment, Laurent Vrignaud, owner of Moulin, agreed with the benefits of the overall pedestrian experience the Promenade offers.

“You can’t put a value on the experience,” he said.

He suggested the council move forward with the first fee structure option. That would still allow the city to recoup the lost parking revenue, he noted. They are willing to pay and want to continue the program for a “very long time,” he said.

Marc Cohen, partner at 230 Forest Avenue, noted that if the city uses the market rate structure, they expect a more comprehensive plan to cover the Promenade. Restaurateurs are already incurring a number of other costs, he noted, for example, there are no heaters or utilities on the dining decks. This should all be discussed at the upcoming concept design forums, he added. They don’t mind paying, he emphasized, but other costs should be mitigated.

“We’re willing and able to pay our fair share,” Cohen said.

Although other public speakers didn’t think the market rate fee was enough.

Longtime resident John Thomas said the proposed rate is “substantially less” than the actual market rates.

“The amount being charged is not adequate and barely makes a dent in the cost the city is incurring,” he said. “How can the city give away use of public land at less than market rates?”

But the bigger issue is that the council should not take action on the fee structure at all on Tuesday, he added. The data in the staff report is insufficient, no appraiser was consulted, and the only research was a conversation with one broker and just a few neighboring cities “that may not be a very representative sample.” He also raised concern that there was no mention about recovering the initial capital cost, the increased maintenance costs, additional public safety costs, or the cost of providing parking to accommodate the increased number of diners.

“The council should not be forced to make a choice between two bad alternatives,” Thomas said. “While it is certainly appropriate for the city to charge private businesses for exclusive use of public property – as it should – all in all, it is, at a minimum, premature and not appropriate to commit to either proposed fee structure until adequate research and analysis has been completed and vetted by the staff, the council and the public.”

He urged the council to delay action on the fee structure until the council has more information.

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Sara Hall covers City Hall and is a regular contributor to Stu News Laguna.

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