Guest Analysis - The Elk Grove Zoo: 'If you throw enough money at something, it becomes feasible'!
By D.J. Blutarsky |
One thing became clear from the press releases and the City’s rollout Thursday evening of the zoo feasibility report: The City appears eager to jump into the zoo business, or at least dip one foot in at a time.
I view this project as a three-legged bar stool–One leg is securing the land; the second leg is the capital improvement money to build; and the third leg is funding the annual operations and maintenance of the facility.
The Study estimates the total capital cost of Phase 1 to be about $174 million and an additional $140 million for Phase 2. Once completed, the annual operating costs are estimated to be about $25 million for each of the first five years and the Study assumes no public costs would be needed for operational costs..
With the land purchase deal and the feasibility study complete, the first leg of the bar stool appears secured now. But before the first round of drinks is ordered, let’s dive into some of the report details, because all that glitters is not necessarily gold.
Laying the Ground First?
According to the February 23rd City Council staff report, City leaders tipped their hands as far back as August 2021 about purchasing 100 acres for the zoo. Under the broad auspices of ‘economic development’, the negotiations did not require any further public discussion. Then on February 23rd, the City Council voted to finalize the land purchase option agreement for $9.5 million with escrow to close in 50 days.
Unless there is a City Council hearing within 50 days, the land deal is a done deal. The City Council has a dubious reputation of approving almost every project that is brought before them. So if the past 20-year voting pattern is any indication, public opposition from this point would be futile and the Elk Grove Zoo t-shirts are already being printed!
One Million Visitors A Year? Really?
The Study estimates that Phase 1 (41 acres) will attract one million visitors a year, and 1.3 million visitors with Phase 2. The projected 2022 attendance on 14 acres at Land Park is roughly 525,000 visitors per year. The one million annual visitors projection is based primarily on an assumption that the larger zoo will attract more visitors, and that the Sacramento regional draw MSA will increase from its current 23% to 43% of the population.
How will the zoo double its draw? The study merely states that “Total visitation assumes dynamic evening/events programs utilizing the compelling restaurant and event space that will overlook the new Savannah and that would be located near the main entry”.
Call me a skeptic, but the track record of the zoo so far has been somewhat constant in terms of the percentage draw from the region (23%). In order to validate the assumption of doubling the attendance, a precise marketing plan should be independently analyzed before the 43% assumption of the Study is accepted.
Not All Visitors Pay
The Study estimates current zoo gate admissions for 2022 to be $6.6 million and Year 1 to be $15.9 million. However, the Study makes an incorrect assumption that all gate admissions are paying customers. In actuality, the Sacramento Zoo admits membership holders for free.The Zoo’s 2020 Annual Report showed gate admission revenue of only $2.6 million in 2020, and $3.6 million in pre-pandemic 2019. Even if we accept that the admissions will double, the gate admission revenue should be closer to $6-7 million, not $15.9 million. Since the feasibility study is based on core assumptions, this needs to be revised before being accepted.
Where Can We Find New Members?
The Zoo’s 2020 Annual Report shows about $1.2 million in annual membership revenue. The Study projects Year 1 membership revenue of $3.8 million in Year 1. As previously mentioned, I would want to see a precise marketing plan that shows how the zoo can triple its membership revenue!
Taking Good Care of the Animals
The Study underestimates the operating cost of animal care. The Zoo’s 2020 Annual Report showed animal care cost of $3.2 million, while the Study only projects the 2022 cost at $2.0 million, and doubling in Year 1 to $4.2 million. Based on the 2020 annual report of $3.2 million, the Year 1 cost of animal care should be more in the neighborhood of $6.5 million, not $4.2 million. Further, the Study assumes operating costs, including the animal cost of care increasing about 3% a year to Year 5. Given the current inflation rate, cost projections should be reevaluated.
Raking in the Cash
The Study included an economic impact and revenue analysis of the zoo. The Study estimates the multiplier effect of the project, in other words, for every dollar spent, how much would be returned on the investment.
I have always felt that the private sector has a much better handle on tracking their investment decisions. For example, what was the cost for McDonalds to roll out the McRib sandwich; how many were sold; and how many years were they willing to wait to recoup that cost before a profit is shown. If it fails, they dump the product, But zoos cannot be dumped!
The public sector commissions market studies/feasibility studies and then packages a financial incentive program based on those assumed economic benefits. But the flow of dollars throughout a city is nebulous and does not really let the taxpayers or city leaders accurately quantify or test the assumptions of that incentive.
This imprecise science of projected economic benefits is unfortunately widely used as the primary justifications for project approval. I have no doubt that the City leaders will put on their economist hats and portend that the numbers show that any tax dollars used to pay for the zoo will pay for itself and then some.
I listed above some inaccurate cost assumptions I believe the Study relies on, and so the corresponding benefits based on those assumptions is called into question in my mind. Unfortunately, a million here and a million there does little to dissuade city leaders from the largest intangible benefit of the zoo–civic and political bragging rights and putting Elk Grove on the map (again!).
Who Will Pay For All This?
The Study estimates it will cost about $174 million to construct Phase 1 and another $25 million each year to operate the zoo. The Study discusses the need for a combination of private funding, corporate vendor partners, and public sector support.
The Study suggests that a lead private donor would contribute $15-20 million, and others would step up and bring the private funding total to $30-40 million. Corporate vendor contributions would account for about $2-4 million per year, and guess what--assuming the Sacramento Valley high-roller piggy bank is virtually tapped out, the public sector will be on the hook for the rest!
In the land deal just approved, the City acquired an extra 40-50 acres to “play with”. The official statement is the land will be set aside for “future development opportunities”. I envision the City offering that land to retail developers who can spice up the revenue Pro-Forma for the bond underwriters!
Bottom Line: If you throw enough money at something, it becomes feasible!
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2 comments
Great Op-Ed D.J.!
This is one Elk Grove taxpayer's observation when listening to Elk Grove City Manager Jason Behrmann. Over the years in giving reports Behrmann doesn't quite believe in, the report is somewhat short, and he speeds through it, hoping everyone will buy what he isn't quite buying himself. Even the thought of any one of the Gang of Five watching, Behrmann knows he must swallow the BS and deliver!
Did Jeff Bezos and/or Elon Musk move to Elk Grove so that they can fund the $336 million dollar Bobbie Singh-Allen Zoo? Maybe 1 mil from Pappas (and the Costco money) and some of the other developers, but 50 mil in private donations! What are they smoking at city hall?
Better start "Grow Elk Grove" on the 100 acres of land as economic development.
DJ brings up some very critical points and inquiries that need to be addressed before the city spends one more dollar on this crazy boondoggle of a plan. $363M in today's costs to build the zoo. Right now inflation and construction costs are escalating at a pace unseen in over 40 years. Today's costs are irrelevant to actual costs three years from now. The city manager says he's planning on using admission and parking fees to pay for construction. How does that work? Contractors will wait until opening to get paid for their work? Good luck with that plan. Hotel fees to pay for construction costs? The nearest hotel to the proposed zoo will be the hotel associated with the casino. This hotel will be on sovereign land, untaxable by the city.
The only way this gets built is with an agreement with the City of Elk Grove, in cooperation with the City / County of Sacramento and UC Davis who can not only help fund the project but use their vet school residents to use the zoo as a learning facility to help keep costs associated with vet care for the animals at a minimum. Even then the feasibility of a zoo being successful here is tenuous at best. Many large donors such as Apple, Amazon and others will have to donate millions to get the project off the ground. Fortune 500 companies don't often invest in poorly planned capital investment schemes. I just don't see any way the city can pull this off. It's a pipe dream, just like the world class soccer and sports facility that was planned for the city. Big dreams, no money to pull it off. Don't tell your kids the zoo is coming, they'll just end up in tears like they did when they learned their soccer dreams were shattered.
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