(gentle music) - COVID changed where many people work.

Consequently, across the country, downtowns are having to reimagine themselves.

Today we are joined by two key figures at the forefront of downtown Sacramento's revitalization efforts, local developer Kipp Blewett, and Downtown Sacramento Partnership CEO, Michael Ault.

Michael, how would you describe the challenge that downtown Sacramento faces today?

- You know, Scott, I think it's a pivotal moment for us.

You know, downtowns across the US are really evaluating what their futures are gonna be.

I mean, many urban cores, and especially downtown Sacramento and capital cities don't have near the workforce that they used to have.

COVID changed what downtown is and remote work, but I think it's also an opportunity for us.

When you think about a downtown setting, they really define a region.

And I think the success of our downtown Sacramento is really pivotal for us when we talk about what the future's going to be and how we're going to think about what's next.

Relying simply on office workers probably was an over reliance that we had over the years.

And so now for us, we're looking at things like activations, programming, destination amenities that really bring people to downtown for different reasons.

Also, one of the key things that we're seeing is people wanna live here.

And so is this an opportunity for us to really embrace urban living, to talk about bringing traffic and foot traffic on evenings and weekends.

So things will be different, but it's also an incredible opportunity to remake the urban core.

- Kipp, I've heard that this moment right now, is if we as a community don't nail it right, could be hugely significant in the trajectory of our city.

How do you view?

- Well, we've taken a pause here.

We're entering a strategic process to renew the downtown Sacramento partnership and that causes us to take a look at our assets and some of our liabilities as we look at a new 10 year period, what are the challenges that are out there?

And obviously there are those that are plaguing all the urban cores.

And as Michael mentioned, we definitely have some good things going on.

But there is one thing that we've come across, which is a real permanent and profound change.

You mentioned it, it's how people are working.

And with the state pulling back to one to two days a week, we have a really permanent and profound change.

And we looked around and said, you know, this is really similar to the base closing moment that we had a couple of decades here in this community, and we're really looking at formulating a response to that right now.

- Just for the record, that base closure moment was one where we had three military bases within this region, lost them all at roughly the same time, and permanently changed the trajectory in terms of how the region functioned, some for good, some for bad.

I guess when you say that this is our base closure moment for this region, tell us the implications of getting this wrong, Kipp.

- Well, we used to have one really strong asset and that was, we were a government employment center.

With the state workers deciding, as a policy change, to stay home, we've now lost 30,000 workers per day.

Just let that sink in for a moment.

30,000, - 30,000.

- 30,000 workers per day that used to come downtown are no longer coming down to go to the sandwich shops, to go get their hair cut.

It is really a profound change in the landscape of what is downtown.

- And Michael, when you hear Kipp say that, you have been the CEO of the partnership now for a couple of decades, we had so much momentum going into the pandemic and finally things looked like they were moving toward what had been envisioned, frankly, when you first started in this role.

How has that momentum shifted and give us some of the root causes that are connected to this change in employment and the loss of that 30,000?

- Sure.

You know, when we talk about the heart and soul of downtown, you know, we've got 10 million square feet of class a office space here.

You know, this has been the destination for workforce.

You know, pre-COVID, in 2019, we were close to a hundred thousand employees downtown.

So when you look at the reality of work from home and what that means to supporting small business, retail, coffee shops, it's had a profound effect on small business to survive when you take out a key portion of that workforce.

But we can't simply sit back and wait for employees to come back.

We've got to really redefine what downtown is going to be.

Why do people want to come downtown?

What is working for us?

We know people are absolutely invested in good food and dining, in entertainment.

How do we sell a different story of what downtown is?

And I think we are seeing people coming to downtown in a much different way.

And just because employees aren't here, it mean we can't be successful.

And so we are.

- Michael, Michael, I gotta cut you off for a sec because you know, what you're saying makes a lot of sense in looking toward the future, but it implies something that I'd like to get really concrete on.

So is it your position and yours as well, Kipp, that these employees are never coming back.

That Newsom's Administration and the changes that they've made are cast in stone.

And so what we've got today is all we're ever gonna have.

- I think, and I'll let Kip dive in here in just a second.

I think that there's some absolute permanency to this work from home.

And it's not just the state of California.

I mean, state of California is definitely the largest employer when we talk about downtown Sacramento.

But I think that there is gonna always be some level of hybrid that has been learned.

And so yes, I do believe that we will see some level of increase as the years go by with in office work, but I think you're gonna always see some level of flexibility as we move forward and we're gonna have to adapt to that.

- But Kipp, I wanna know, has the Newsom Administration failed this capital city in terms of its responsibility to being located here in their actions of not bringing more of their employees back to work?

- Well, work from home seems to have settled in across both the public sector and the private sector.

So we're gonna have to take that as it is.

We've commissioned a study by Dr. Sanjay Varshney and he has looked at the profound effect that it's gonna have on the Sacramento downtown economy over the next 20 years.

And the number that he's come up with is about $4.3 billion worth of economic impact.

So as city leaders, we're gonna have to address that.

We think that while it may ebb and flow with the number of employees that come back, permanently having workers at home is gonna be part of our landscape, which means we need to really rethink what does it mean to be the state capital?

What does it mean to be the capital of the fifth largest economy?

And we wanna sit with the administration and figure that out.

- Give us a perspective though as to whether or not the administration itself is living up to its responsibility and accountability of being a partner in making sure that the economic and civic fabric of the capital it resides in is going to be healthy.

In Washington DC, well, as a matter of fact, let me ask you this.

How does Sacramento compared to other capital cities or even DC, in terms of the relationship of its controlling government, which in our case it's the state government, and the local government and the local community it resides in?

- Well, let me start with that.

We know outside of Washington DC, no other urban center in the country is as impacted by work from home policies as Sacramento is.

- What's your evidence for that?

- Not only Sanjay Varshney's study, but we have looked throughout the US as far as population numbers of employees, the amount of workforce that we have downtown.

Keep in mind the workforce of the state of California in downtown Sacramento, this is where government is located.

Even in the state of California, nobody's close to the impacts of work from home and state buildings for us.

And so historically, when you really looked at downtown Sacramento, the state buildings down here never payed property tax, but they brought 70,000 employees a day down here.

So now that we're not seeing property tax, now that those employees aren't down here, we are working with the state and actually working with Senator Ashby at this point to say, listen, there's a sense of responsibility and partnership that the state has.

This is a defining moment for them to work with us to put downtown Sacramento back on track.

We have the same problem DGS has.

They've got buildings that aren't occupied and we've got buildings that don't have customers.

And so what we're saying is, how do we work with you to repurpose some of these buildings?

If they're not gonna be full of employees, let's talk about other uses.

And DGS is really proven to be very cooperative and supportive.

And I think that we've got really a framework of how we can potentially reuse these buildings to start building back some momentum and not just simply waiting.

- And Scott, you mentioned DC.

DC has pivoted in a way, pivoted toward a more destination first model.

We've commissioned a study with the ULI and that's what we've kind of come up with, is that yes, we'd like more housing, which seems to be the talk about how you convert state office buildings, but we don't really believe that that's completely sustainable to turn old buildings into new attractive housing.

We look at being a destination first, similar to the way DC focuses on their civic amenities.

The second thing DC has done is they've pivoted toward their waterfront, to the extent they're getting new private development, be it retail or residential, they're getting it along their waterfront, destination places to live.

So Michael and I have talked extensively, along with our executive committee, about how do we become a destination first, a choice for residential, a choice for travel, and the neighborhood will develop.

- Oh well, okay, as a developer, Kipp, you know, our world is seeing something where today there's nothing.

- Yes.

- And I am curious if there were three civic amenities that we could prioritize that would really move the needle and create some leverage in building toward the vision that Michael and you have just described, what would they be?

What should be top of the list?

- Well, I mean there's certainly a long list, and this is exactly the discussion we want to have with the governor, with Senator Ashby and with the state legislature.

So first of all, it would have to have a nexus with the state.

As the buildings come back onto the tax rolls, what's exciting is that there's some bonding capacity that's available.

We also then have some site control.

So you ask about what kinds of civic amenities.

The ULI study concluded that the large scale civic amenities are what's working.

Things like education, we could look to Sac State, we could look to UC Davis to create some policy centers.

Education centers around food and agriculture would be great.

I know I'm also on the board of Visit Sacramento.

We'd like to see a permanent amphitheater facility somewhere in the downtown so we can attract different kinds of outdoor events.

So there are a number of ideas that are out there.

And what's exciting is that there may be a funding stream and some land control that could bring some really special sites along Capital Mall and even extending all the way out to the waterfront and up into the rail yards to create places and destinations for people from around the region and around the state.

- Actually, that raises a question.

Michael, one of the things that recently has been talked about is decking the freeway, which was the mistake of us not doing that back when I five was first created.

What can you share with us in terms of, is that just a pipe dream or is there some momentum behind that thought?

- Well, make no mistake, it's a big lift.

But we have worked with Congresswoman Matsui's office and through the ULI study, we had Mayor Tom Murphy, former mayor of Pittsburgh, Pennsylvania that was here, that was talking about cities that have understood the opportunity to reconnect their waterfronts.

I mean, we talk a lot about the underutilized assets that we have in Sacramento.

We've got two major rivers that we don't fully embrace.

I mean, we've got people that come to Second Street in Old Sacramento, which is, you know, feet away from the water and ask where the waterfront is.

And you know, we limit ourselves with that ability.

And so through Congresswoman Matsui, we made a federal request to start the process, to not just study, but to talk about what is called Stitching Project, to be able to stitch from Crocker Park through to the water, engage the water, look at ways that other cities are doing this.

And one of the things Mayor Murphy said is, listen, Atlanta, Dallas have done these projects.

Why are you waiting?

This is your opportunity to take back the downtown opportunity and build destination venues on that.

And so we think that process, and we're gonna hear early in the fall whether that process could move forward, but we're excited about the potential.

I also wanted to just piggyback on what Kipp said.

Could you imagine some of these buildings in and around the Capitol Mall corridor that are no longer functionally useful for the state to be campuses for, you know, the College of Economic Development or policy for a Sac State or UC Davis and having several thousand students riding light rail coming into downtown, a block away from the capitol, what that could do to the energy down here?

We think education would be a no-brainer for us.

If we could reuse some of these buildings and partner with our local universities to have these be functional active campuses, we think it could be a game changer for us.

You know, these would be students evenings and weekends that frankly would probably be more effective on a daily basis than simply employees from eight to five.

- Hmm.

Okay.

So the vision sounds great.

I always want to see the financial model.

And you know, to be honest with you gentlemen, I'm wondering how this happens.

The city of Sacramento is facing significant financial challenges, had a challenge in passing its last budget.

The state doesn't seem to have any money, just had to make some significant cuts there and had its own huge deficit issue that it had to work through.

And third, and you both mentioned this a little bit earlier, some percentage, and maybe you all have the answer of buildings in downtown Sacramento, don't even pay taxes because they're state buildings.

And so I'm just trying to figure out, the vision is great, but does there have to be a fundamental shift of somehow getting the state to kick in its fair share because it doesn't pay taxes here?

- Kipp, you wanna start there?

- Yeah, I mean, you're absolutely correct.

There is an exciting opportunity, Scott here, which as those buildings come back onto the tax rolls, because the state buildings do not pay, they don't contribute to police and fire at the city and the county and all the services that are provided downtown.

So as they come back onto the tax rolls, it creates some bonding capacity.

And then secondarily, the only place that doesn't have a tax increment overlay in the immediate proximity here is right in the downtown where we're talking about.

So we're studying that right now.

So I mean, this project could eat what it kills, for lack of a better term, where it provides as we get.

- Kipp are you talking about the restoration of like some sort of redevelopment type function or something like that, which Jerry Brown had some sort of weird obsession with and killed a couple years ago, that typically was used to revitalize and reposition areas like a downtown Sacramento?

- Yeah, there are models that are out there, some historic, some that are out there and active right now.

We're looking at evaluating all of those right now.

The most robust would be the traditional redevelopment model where we take tax increment and bond around it.

That would match the level of the $4.3 billion.

The hole we need to fill would be best filled by that type of increment and we're studying that right now.

What we're asking the state for is a seat at that table.

There's a capital area development plan that was done in 1977.

This change is gonna permanently change the landscape of downtown and we want to be a part of it.

We want to talk about bringing forward the kind of financial models that'll make this less about talk and more about reality.

- So all that being said, Michael, one of the things that neither one of you have mentioned yet is the city of Sacramento or the county of the Sacramento being at what would historically be thought of as their seat at the table.

What's their responsibility in all this and how do we as the public evaluate and hold accountable them stepping up to make sure that they're playing their adequate role?

- You know, I think you talked about it a couple of minutes ago.

I mean, public sector budgets right now, you know, are challenge to, to say the least.

And I think if we are truly going to be competitive in this next phase and be able to partner with the private sector to do these projects, we're gonna need to work with the city and county to understand new financing mechanisms, whether it be a tax increment financing district, an EIFD, expansion of existing redevelopment authorities.

We're gonna need ways to creatively partner with the private sector to do this.

And I think one of the things to keep in mind, downtown Sacramento is an economic engine for this city.

It is paramount to the city to continue to invest and not back away.

40% of the city's property tax come from downtown Sacramento.

43% of the city's TOT and hotel tax come from downtown Sacramento.

And so when we talk about what downtown generates, it generates opportunities for this entire city from a revenue standpoint.

So now is the time for us to really be engaging the city and county to say, listen, what are we going to do moving forward?

We can't just simply say budgets are bad, we need to wait.

What are creative ways in looking at these potential districts that could get us back to some level of competitiveness in bringing projects in?

It's expensive, it's challenging to do projects here, but we need to be creative and take bold steps.

So that's what we're pushing for.

- And Michael mentioned that the key word there is bold because the former mayor of as he, side by side, looked at this problem with us, said, "Look guys, if you are not bold here, you're just managing decline."

And the state policy change is going to have $4.3 billion worth of impact over the next 20 years.

So Scott, you said it, the state does have a responsibility here.

Their policy change has made a profound impact on one of their largest urban centers.

They've got a responsibility now to step up with us, shoulder to shoulder, and figure out how we're gonna plug the hole of 30,000 office workers now not coming downtown every day.

- So let me turn this around on you, Kipp, in the following way, 30,000 missing office workers per day in addition to the ones that are here, every single day, go back to their neighborhoods and in some ways their ambassadors to talk to their friends and family and neighbors about what's going on in downtown Sacramento.

You've talked a lot about the infrastructure and the changes that have to be made and all that.

Talk about the psychology because while we're talking about all this, Sacramento has been wrestling with just stubborn homeless problem and a perception that it is not always clean and safe despite the best efforts of the partnership and others who are really trying to advance downtown Sacramento.

What's the role of the solutions that are necessary to improve things like homelessness and safety in this conversation and changing what is somewhat of a suspicion that it's not safe to come and recreate work or anything else in downtown Sacramento?

- Well, as a board and organization, let me say that our number one priority is clean and safe.

And this is what we hear consistently from all the constituencies downtown, is to focus on the clean and safe, so that is far and away number one.

But the two issues are related because when we look up and down K Street, the JKL corridor, one of the best antidotes to homelessness is the broken windows theory, right?

We need to clean it up.

Open businesses matter.

The street problems will move away as businesses open up.

The question is, is do they have the core base of office workers that they used to have that will help us support those retail businesses along the JKL corridor, down in Old Sacramento.

- So Michael, I want to hear from you.

The people that are missing from downtown today used to be ambassadors to say, Hey, come on down, or meet me downtown, have a drink, have dinner, let's go to a show, whatever else.

How are you all also changing the perspective so people become investors once again in the future of downtown Sacramento, not just for the folks that are in downtown right now, but for the region itself.

- You know, to your point, we know perception is everything for us down here and the environment and some of the challenges that we've had are real.

And as Kipp talked about, we spend and invest a lot of our time in making sure not just to manage the environment, but through our marketing and communications and external outreach.

We've got a lot of good stories to tell.

Just because there's not an office environment down here doesn't mean we don't have incredible amenities, a robust events calendar.

We've got great restaurants, destination activities, live music, live shows, Broadway.

We're hearing from Mike Testa and his team at Visit Sacramento, leisure travel is back in an incredible way.

Our hotel occupancies are up at pre COVID numbers that we have.

So people are traveling here, they're coming here, they're supporting events, but some of the holes that exist as Kipp talked about, are real for us.

Yes, the employment numbers have caused a little bit of a challenge with ground floor retail.

Will second, third generation space move into those as employees start coming back?

They absolutely will.

But we're in a bit of a transition to figure out what are alternative uses for some of these locations.

And so there's a lot of good for us to communicate and we spend a lot of time talking about, not just from an aspiration standpoint, but reminding people of some of the things that are going on downtown and the incredible opportunities.

This is the regions downtown.

These are one of a kind experiences you can only find here.

Wherever you live in the suburbs, you come here for events, activities that you can only find in downtown and we need to continue to sell that as we continue to lean into clean and safe.

Partner with law enforcement, partner on these issues to make sure when people do come here, they've got an experience, and as you said, our ambassadors when they go back home to communicate what a good experience they had.

- And I think that we'll leave it there.

Gentlemen, thank you for coming on the show and sharing the vision with us.

We look forward to that vision becoming a reality.

- Thank you, Scott.

- Thank you.

- All right.

And that's our show.

Thanks to our guests and thanks to you for watching Studio Sacramento.

I'm Scott Syphax.

See you next time, right here on KVIE.

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