Playa//dp1st/mark2nd
By DANIEL TAUB
Staff Reporter
Early last week, a three-page press release landed on the desks of news outlets all over town. It came from the developer of the Playa Vista project, future home of DreamWorks SKG, and cited a study that showed the economic benefits of the controversial development.
The numbers are indeed eye-popping: the 1,087-acre Playa Vista project, according to the release, would add nearly $5.3 billion each year to the L.A. County economy and generate almost 57,000 new permanent jobs in the city of L.A. alone.
There was no accident in the release’s timing. It came out the day before the L.A. City Council was to begin considering $35 million in tax credits for Playa Vista credits approved by the council later in the week.
But what about those promised economic benefits outlined in the Ernst & Young; LLP study? Like similar studies, it all depends on how you want to read the numbers.
Of the $5.29 billion Ernst & Young cited, $2.84 billion would come in direct impacts from the Playa Vista development and $2.45 billion would come from indirect and induced impacts, such as retail sales in the area.
“It would seem to me that ($5.3 billion) is a pretty high number,” said David Dale-Johnson, director of the real estate program at USC’s Marshall School.
Robert Bridges, president of Pacific Palisades real estate consulting firm and co-author of a study on the economic impact of the downtown Staples Center arena, acknowledged that the project will have a positive economic impact, “but I don’t know, $5 billion per year? I would just have to chew on that for a bit.”
Playa Capital LLC, the developer of Playa Vista, declined to release the study beyond the press release, a two-page summary and set of five charts. Both Playa Capital and Ernst & Young said they are contractually obligated not to do so.
“It is in the contract with E & Y; that we cannot release it in whole or in part without their permission, and they are not granting permission for us to release it in whole,” said Playa Capital spokesman Coby King of the 43-page study. “I am told by E & Y; that this is their standard contract.”
But a consultant to Playa Capital said it is “hogwash” that the developer would have such a contract with Ernst & Young.
“It is the client’s work product,” the source said. “And if Playa Capital wanted that document released, it could be released. And furthermore, from the taxpayer’s point of view, how many millions do we subsidize? Then they can’t release the documents because they’re proprietary? What is it that Ernst & Young would have in that document that would be so proprietary to Ernst and Young? If it were proprietary to anyone, it would be proprietary to Playa Capital.”
Whatever the merits of releasing the report, along with the $5.3 billion calculation, the more significant question is how much of that money is already circulating in the L.A. economy and how much is being imported from other areas of the state and nation.
If, for example, a prop house that contributes $10 million a year to the local economy moves from Burbank to Playa Vista, that $10 million will be counted in the study as a positive impact of the new development. But the loss to the Burbank area would not be considered.
If a couple that spends $25,000 annually at stores and restaurants near their home in Westwood moves to Playa Vista, that $25,000 is counted as a plus for Playa Vista but the negative impact to Westwood is not accounted for.
Ernst & Young, which Playa Capital commissioned to conduct the study, did not break out new vs. old money because it wasn’t asked to do so. But economists who study the impacts of new real estate developments say that while the methodology for the study may work to the advantage of Playa Capital, it does not provide a complete analysis of the development’s actual impact on L.A.
“That is something that is an obvious question whenever a study like this is done,” said Bridges. “It is very unusual for an economist to do a report like that that talks about the demand in a particular area without talking about whether the demand is a net increase in demand, or whether it’s just a subtraction from another area,” he said.
Stephen Levy, director of the Center for Continuing Study of the California Economy, noted that in general, “It’s supposed to be net (gain or loss). The way you calculate the net benefits to the residents is to talk about net impacts net additions to whatever jobs are in the tax base The economic assessment should look at net, or overall, impacts.”
King said Ernst & Young told Playa Capital it would be difficult to project how much of Playa Vista’s economic impact would be new rather than just relocated from other parts of the county.
Johnson agreed that it’s a hard question to answer. “People have worried about this issue before, and there are approaches to getting at it, but it’s a tough process,” he said.
Was the study intended to help win approval for the tax credits?
“I think it would be fair to say that we thought it would be helpful if the council knew about Playa Vista’s economic impacts before they took a vote rather than after they took a vote,” King said.
City Councilwoman Ruth Galanter, whose district includes the Playa Vista site, and other city officials reviewed the Ernst & Young study prior to the council vote.
She acknowledged that some of the new jobs cited by Ernst & Young might have been created even in the absence of Playa Vista’s development, but that those jobs are impossible to separate out.
She added that projections are relatively unimportant as far as the city is concerned because the tax credits being given to Playa Capital are only for actual new jobs created in the city of L.A.
“Remember, the tax credits the city adopted are only for documented new jobs,” she said. “They have to document that they actually produced these jobs. We’re not going to base the tax credits on what some study said of some hypothetical (situation).”
That’s why City Councilman Joel Wachs, who led a push for the public release of contracts when the builders of Staples Center sought public funding, said he is not concerned about the report not being made public.
“I’ve learned not to base my decisions on people’s promises people’s forecasts,” he said. “If DreamWorks produces the jobs that they anticipate the kinds of jobs, the quality of jobs then they earn the credit. We don’t have to give any credits if they don’t actually produce the jobs. No jobs, no credits, period.”
