HomeMy WebLinkAbout; Coastal Zone Agricultural Studies (1980); Program Report; 1980-11-20ENKANCEMENT OF
COASTAL AGRICULTURE
DRAFT REPORT 11-20-80
A Report
Prepared for
The California
the California
BY
Angus McDonald
Coastal Commission
Coastal Conservancy
& Associates, Inc.
Berkeley, California
November 19 8 0
and
.
79-684
.-
DRAFT REPORT
12/12/80
TABLE OF CONTENTS
I. INTRODUCTION AND CONCLUSIONS
A. 'Introduction
B. Conclusions
11. MIXED USE CASE STUDIES
A. The Mendocino Pilot Study
. 1, Summary of the Mendocino Pilot Study
2. Descrintion of the Pilot Study Site
3. Market Assessment of Supplemental Uses
4. Agricultural Uses
5. Farm Unit Analysis
B. San Diego County -- Carlsbad
1, Study Area Descrintion
2. Market Assessment of Supplemental Uses
3. Agricultural Uses
4. Farm Unit Analysis
5. Mixed Use Programs
111. MIXED USE GUIDELINES
A. Introduction to the Mi-ed Use Guidelines
B. Application of Mixed Use Policy in the Local
Coastal Programs
1. Model Policy for Mi-ed Use Imblementation
1-1 1-1
1-2
11-1
11-1
11-1
11-5
11-17
11-50
11-64
11-90
11-97
11-100
11-128
11-132
11-146 (a)
111-1
111-1
III-4
111-5
i
" . . - -. . . . ._ "" .. - . " . . . ..
DRAFT REPORT
12/12/80
TABLE OF CONTENTS (continued)
2. Guidelines for the Farm Unit Analysis
3. General Considerations for Application
of Mi-ed Uses
4. Specific Project Application of the Farm
Unit Analysis
5. Tax Considerations for the Farm and Mi-ed Use Operations .
111-13
111-35
111-48
111-52
IV. CONSERVANCY ACTION PROGRAM
ic A.
8.
C.
D.
Introduction
Background and the Recommended Action Program
1. Summary of Present Powers and Resources
2. Summary of the Conservancy's Agricultural
Program
The Conservancy's Role in Imnlementing Mixed
Use Programs
1. General Considerations
2. Conservancy Action Stens Toward Implementing Case Study Projects
California Coastal Conservancy Agricultural
Program Recommendations
1.
2.
3.
4.
Resource Allocation
Recommendations on Project Screening and
Evaluation
Pilot Project Develonment
Recommended Legislative Changes
IV-1
IV- 1
IV-4
IV- 5
IV-9
IV-11
IV-11
- -
IV-14
IV-20
IV-21
-1v-22. -
IV-4 0
IV-42
f-! " e.
. -" ii
Figures 11-1
Table 11-3
Figure 11-2
Table 11-4
Table 11-5
Table 11-6
Table 11-7
Table 11-8
Table 11-9
Table 11-10
Figure 11-11
Figure 11-12
Figure 11-13
Table 11-14 .
Table 11-15
DRAFT REPORT
12/12/80
LIST OF TABLES AND FIGURES
The Galletti Ranch 11-5 (a)
Time and Distance to Major POnUlation Centers 11-20
Coastal Market Areas 11-21
Coastal Highway Visitor Volumes, Marin County to Westport, Mendocino County, 1978 11-22
Residential Lot Supply and Recent Growth
Rates - 11-25
Inventory of Overnight Accommodations, 1979, Mendocino and Sonoma County Coast 11-36
Projected Demand for Overnight Accommodations, 1985 11-38
Demand for Eating and Drinking Places 11-43
Milk Production Trends - Mendocino
County 11-52
Milk Marketing Cycle for Mendocino
County 11-59
Economic Analysis of Farm Unit, Form 1:
Operating Cost and Revenue Summary
DescriDtion of the Operating Unit 11-71
Investment Cost Summary, Form 2 11-73
Economic Analysis of a Farm Unit, Form 3 11-78
Estimated Costs and Income for an On
Dairy Cheese Plant Handling 3000 lbs. Milk Daily 11-85
Estimated Costs and Income for a
Guest Ranch 11-89
"
iii
DRAFT REPORT
12/12/80
LIST OF TABLES AND FIGURES (continued)
Figure 11-16 Regional Location
Figure 11-17 Carlsbad Area and Case Study Sties
Table 11-18 Estimated Room Nights - Carlsbad
Table 11-19 Visitor Attendance
Table 11-20 Visitor Expenditures - San Diego County
Table 11-21
Table 11-22
Table 11-23
Table 11-24
Table 11-25
Table 11-26
Table 11-27
Figure 11-28
Figure 11-29
Figure 11-30
Figure 11-31
Figure 11-32
Table 11-33
Figure 11-34
Residential Units Within Study Area
Estimated Industrial Land - Carlsbad
Available Industrial Land - Carlsbad
Manufacturing Employment
Estimated Office Space Construction
Residential Building Permits
'Planned Residential Projects - Carlsbad
Economic Analysis of Farm Unit, Form 1
Investment Cost Summary of Farm Unit,
Form 2
Economic Analysis of Farm Unit, Form 3
Commercial DeVelODment as a Supplemental Use
Comparison of Estimated Value, Existing Parcel vs. the Mi-ed Use Pronosal for
Commercial Use
Planned Residential Community as a Supplemental Use
Comparison of Estimated Value, Existing Parcel vs. the Mi-ed Use ProDosal for a Planned Community DeveloDment
11-92
11-93
11-105
11-107
11-109
11-115
11-117 -
11-118 (a)
11-119
11-120
11-124
11-126
11-137
11-138
11-141
11-155
11-156
11-160
11-161
iv
DRAFT REPORT
12/12/80
LIST OF TABLES AND FIGURES (continued)
Figure 111-2
Figure 111-3
Table 111-4
Figure 111-5
Figure 111-6
Figure 111-7
Table IV-1
Table IV-2 , ._
Economic Analysis of Farm Unit, Form 1
Economic Analysis of a Farm Unit, Form 2 and Column Descriptions of Investment Cost Summary
Calculation of Minimum Size of Farm Units
Economic Analysis of a Farm Unit, Form 3, and Data Sources
Illustration of Tax Impact Analysis of a Farm Unit Oheration
Illustration of Tax Impact of a Farm Unit Operation -- Hypothetical Example
Conservancy Costs - Cash, Accrued and Projected as of December, 1979
Conservancy Agricultural Project List,
111-17
111-19
111-30
111-32
111-59 - e
111-60 (a)
W
Iv-a
IV-10
i
V
DRAFT REPORT
12/12/80
.- 1
I. INTRODUCTION AND CONCLUSIONS
A. Introduction
This study presents a method for determining the
economic feasibility of agriculture and suggests a way to
enhance agriculture through mixed uses. Mixed uses, in the
context of this report,means the combination of supplemental,
non-agricultural uses to existing, ongoing agricultural oner-
ations, where continued or renewed operations are no longer
feasible. Non-agricultural supplemental uses must be com-
patible with these continued agricultural operations, enhance
their economic viability, and support long-term nroductivity.
The California Coastal Commission and the California Coastal
Conservancy have iointly sponsored this effort. The Cal-
ifornia Coastal .Commission, in working with local coastal
governments on the Local Coastal Program process,'is con-
sidering regulatory approaches to permitting alternative uses
on agricultural lands. The Coastal Conservancy is invest-
igating what role it might play in this alternative use program
as an agency with land acquisition and disposal responsi-
bilities. The study will be used by the Conservancy and
Commission to help themdetermine both the overall feasibility
.
and impacts of a mixed use program, and rrossible actions the
agencies could take in supnort of the imnlementation of
t
specific nrojects if they are found to be warranted.
1-1
DRAFT REPORT
12/12/80
The study is composed of three major components which comprise
the original objectives of the project:
0 Two mixed use case studies, one on a large non-prime land
ranch in Mendocino County, and the other in South Carls-
bad, a highly productive agricultural area in Northern
San Diego County.
0 Mixed use guidelines which provide a methodology for
determining the economic feasibility of agriculture in
combination with other uses.
0 An action program directed at the Conservancy regarding
how their unique powers can best be utilized to promote
the mixed use concept.
B. Conclusions
During preparation of this report, several major
issues were raised regarding the applicability of mixed uses
within the coastal zone. Broader issues were also raised
regarding agricultural viability in general and the present
legislation regarding agriculture in both the Coastal Act and
the Conservancy's enabling legislation. The following con-
clusions summarize these issues and proivdethe basic findings
and recommendations of the report.
1-2
DRAFT REPORT
12/12/80
1. A Mixed Use Program Can Be an Effective Plan-
ning Tool for Supporting Agriculture within
the Coastal Zone.
A mixed use program requires the cooperative
efforts of the Coastal Commission, the Coastal Conservancy
and local governments. The Coastal Commission should develop
the policy framework in which mixed uses can be developed.
The Coastal Conservancy should serve the role of technical
support, land banking, and in some cases, direct financial
involvement. Local governments, who must ultimately imple-
ment their local coastal plans, should include amended local
zoning ordinances and plans to nermit mixed uses where
appropriate.
Mixed uses were shown to fall into two general categories:
In rural reas, beyond the urban fringe, the emphasis of
mixed use projects should be upon economic development.
Supplemental uses should enhance local agriculture by
providing activities or businesses which support ongoing
production. Examples include direct marketing outlets,
on-farm processing, and local energy production (wind-
mills, biogas, etc.).
Within urban fringe areas, the emnhases should be upon
1-3
f
DRAFT REPORT
12/12/80
securing agricultural land in the context of creating
stable urban boundaries and reducing potential conflicts
between urban and agricultural uses. This objective may
be accomplished in either of two methods. The first
would restrict develonment potential on agricultural
parcels and concentrate the development in other, more
urban or urbanizing parcels. This method would require
a transfer of develonment rights system, The second
method involves the concentration of develonment on
non-agricultural or less agriculturally productive por-
tions of a single narcel (or group of coonerating Dar-
cels). This method would conditionally permit com-
patible urban development on a portion of the parcel or
parcels in trade for a deed restriction on the remaining
agricultural land. The mixed uses should be consistent
with the model policy provided in Chapter I11 of this
report.
The principal goal of mi-ed uses is to enhance agri-
cultural viability of the ma-imum amount of nroductive
land and to imnrove local coastal agricultural econ-
omies ,
DRAFT REPORT
12/12/80
2. Existinq Statutes Mask the Fact that the Con-
cept of Mixed Uses is Equally Applicable to
the Programs of the Commission nd the Con-
servancy.
The Coastal Conservancy's enabling legisla-
tion (California Public Resources Code, Section 31000 -
31405), as a matter of policy, states that the Conservancy
"... shall give the highest priority to urban fringe
areas where the impact of urbanization on agricultural
lands is greatest,"
*
and further requires that
"(a) The lands are snecifically identified in a certi-
fied local coastal plan, or program, as agricul-
tural lands;
(b) There is no other reasonable means, including the
police power, of assuring continuous use of such
lands for agricultural pruposes."
On the other hand, the Coastal Act of 1976 (California Public
Resources Code, Sections 30000 - 30900) nolicies r.egarding
agriculture (Section 30241, 30242, and 30243) have been
1-5
DRAFT REPORT
12/12/80
interpreted by the Commission to generally exclude any de-
velopment on prime agricultural lands. Because urban fringe
areas frequently contain prime soils, protected by the
Coastal Act, Conservancy action in such situations may be
viewed as unnecessary or low priority. At the same time, the
Conservancy’s priority on urban fringe areas may inhibit it
from supporting mixed uses projects in rural areas that are
supported by Commission Dolicy. The anparent conflict re-
sults in a situation where a cooperative mixed use nrogram
cannot effectively be develoned. This is ironic, since both
agencies are mandated to work together towards an effective
coastal land use management nrogram.
This nroblem is related to the definition of prime agri-
cultural land in the Coastal Act. The definition in the act
adopts the language of the Land Conservation Act of 1965
(Williamson act) :
(c) “Prime agricultural land” means any of the follow-
ing :
(1) All land which qualifies for rating as Class I or
Class I1 in the Soil Conservation Service land use
canability classifications.
(2) Land.which qualifies for rating 80 through 100 in
the Storie Index Rating.
(3) Land which supports livestock used for the pro-
1-6
DRAFT REPORT
12/12/80
duction of food and fiber and which has an annual
carrying canacity equivalent to at least one animal
unit per acre as defined by the United States
Department of Agriculture.
(4) Land planted with fruit- or nut-bearing trees,
vines, bushes or crops which have a nonbearing
period of less than five years and which will
normally return during the commercial bearing per-
iod on an annual basis from the production of
unnrocessed agricultural plant production not less
than two hundred dollars ($200) per acres.
(5) Land which has returned from the production of
unprocessed agricultural nlant nroducts an annual
gross value of not less than two hundred dollars
($200)' per acre for three of the nrevious five
years .
This definition has two main problems. First, $200 does not
buy what it did in 1965. More seriously, much highly
producing land is within soil Class I11 and IV (this is
Darticularly true within the coastal zone). This land is not
considered nrime unless it has been .in production "for three
of the previous five years". A simnle decision by a landowner
not to plant a crop can remove the prime classification.
1-6 (a)
The goal of the coastal agricultural preservation program
should be to secure as much agricultural land as nossible for
long-term agricultural use, regardless of its prime versus
non-prime distinction. This process should involve land use
regulation, selected purchase and innovative proposals, such
as mixed uses, combined in the most effective manner.
3. The Role of the State Coastal Commission in
Implementinq a Mixed Use Program is Primarily
of a Policy Nature.
The Coastal Commission should support the
mixed use concept. A mixed use policy should be encouraged
as a component to each local coastal program where mixed uses
may be useful. The Commission should pursue an improved
defintion of agr,icultural land, which would allow more gen-
t
1-6 (b)
DRAFT REPORT 11/20/80
era1 application of mixed use proposals. Finally, the com-
mission should cooperate with the Coastal Consevancy in
developing its mixed use program, its agricultural preser-
vation program, generally, and specific mixed use projects.
This may involve cooperation in identifying target sites and
other technical assistance.
4. The Role of the Coastal Conservancy in Imple-
menting a Mixed Use Program Includes Both
Technical and Financial Involvement.
A successful mixed use program would open a
new dimension to the present Conservancy agricultural pre-
servation program, which has, in the past, relied primarily
upon purchase sell-back schemes. In mixed use projects, the
Conservancy would, in most cases, be the repository for
dedicated development rights. The Conservancy could also
provide technical support to local governments interested in
mixed use projects. The Conservancy itself may wish to
develop mixed use projects, a means of maximizing return on
invested capital.
5. The Mixed use Concept Has Immediate Applica-
bility to the Local Coastal Program.
Chapter I11 of this report, Mixed Use Guide-
lines,'contains a model policy, which, after some specifica-
I- 7
DRAFT REPORT 11/20/80
tion by local agencies, can be included in local coastal
plans, The policy represents a performance standard/condi-
tional use approach to regulating mixed use projects. Chap-
ter I11 also includes a methodology, whereby the economics of
specific farm units can be evaluated, This methodology can
help local governments establish farm unit parcel size re-
quirements consistent with local agricultural operations.
I- 8
DRAFT REPORT 11/20/80
11. MIXED USE CASE STUDIES
The basis of the present study is two mixed use pilot
studies, one in Mendocino County and the other in San Diego
County. The pilot studies represent application of mixed use
programstoactualparcelsof land. The pilot studies contain
mar'ket analyses and financial feasibility analyses. The two
pilot studies represent contrasting areas of the coastal
zone. Mendocino County pilot study focuses upon a large
coastal ranch in an isolated portion of the south coast of
Mendocino County. It is representative of large portions of
California's coast which are rural and not directly subjected
to urban pressures. The existing agricultural and timber
resource base and visitors are the principal components of
the local economy. . The San Diego pilot study, on the
contrary, is located mostly with the city of Carlsbad, an
urbanizing community in northern San Diego County. .The
agricultural land use in Carlsbad is subject to pressure for
conversion to urban uses .including residential and com-
mercial uses. The San Diego pilot study area is typical of
highly productive coastal agricultural areas which are sub-
ject to urban pressure and conflicts.
A. The Mendocino Pilot Study
1. Summary of the Mendocino Pilot Study
The Mendocino Pilot Study is based on the
~ .
c
DRAFT REPORT 11/20/80
physical characteristics of one typical holding in the area-
-the Galletti Ranch. The Pilot Study is not based on any other
characteristic of the Galletti Ranch or its owners and
operators. The Pilot Study does not, nor is it intended to,
reflect the intentions or the financial circumstances of the
owners and operators. The GallettiRanch.dairy contains land
forms, resources,, biotic habitats, and environmental con-
straints and opportunities which are representative of much
of the Mendocino coastline.
The market analysis for the Pilot Study evaluated both
agricultural and non-agricultural uses. Demand for non-
agricultural uses was evaluated for residential development,
overnight accommodations, restaurants and visitor oriented
retail. Although a residential supplemental use could work
at the Pilot Study, demand for such a project might be low
given the existing supply of building sites in the area. The
relatively low per acre price for large land units such as the
Pilot Study make it attractive to long term investment.
The south coast of Mendocino is the least traveled portion of
the Mendocino coast. However, a general rise in visitor
demand along the Mendocino coast.is projected. The current
trend for meeting this demand is new or enlarged public and
private campgrounds or small inns near or within existing
I1 - 2
.
DRAFT REPORT 11/20/80
communities. The best market overnight development for a
location such as the Pilot Study would be a guest ranch. A
guest ranch would be relatively self-contained and utilize
the abundant natural amenities of the Pilot Study.
Eating and/or drinking establishments were indicated as a
poor prospect for isolated areas such as the Pilot Study. New
demand for such commercial use is likely to locate in existing
communities and visitor facilities. .
Visitor oriented retail is also a rather poor prospect, for
similar reasons to eating and drinking establishments. The
principal problem is the low existing and projected traffic
volumes along Highway 1. A notable exception to this general
conclusion is the possibility for a cheese plant associated
with the dairy. A well marketed cheese factory with a small
retail outlet and visitor facilities could attract visitors
and help support the investment required for producing
cheese.
The market for milk and beef is presently strong. Milk prices
are supported by government programs which give a price
advantage to North Bay dairies. The current market for milk
is the entire North Bay since raw milk is shipped to Sonoma
County for processing. Reestablishment of local processing
DRAFT REPORT 11/20/80
would substantially reduce costs and provide milk products
directly to local Mendocino County markets.
In balance, the coastal dairies in Mendocino County are in a
healthy, competitive position for the foreseeable future. A
key problem is transferring the dairies to the next gen-
eration. If family members do not want to continue the
operation, new owners must be sought. -The competitive
advantage in the long term could be greatly enhanced for the
coastal dairies, if local processing could be developed.
The farm unit analysis indicates that the current agri-
cultural use of the Pilot Study, a dairy-beef operation
augmented by timber sales, is an economically viable oper-
ation. The primary reason for this is the current mix of
income sources and the low cost basis the current owner
enjoys. A new owner would have a more difficult time,
depending upon the capital investment made and financial
status of the investor.
The two supplemental uses which appear most compatible with
the dairy-beef operation are a cheese processing facility and
a guest ranch. Although a market appears to exist for these
uses, the net profits from their operation appears to be
I1 - 4
. ." " "_ .. _" " -__ ""
_II.. . . " """
A. A.
DRAFT REPORT 11/20/80
rather limited, at least initially. The complexity of
managing the current ranch, which is presently a "mixed use"
operation, would also make additional functions less attrac-
tive.
2. Description of the Pilot Study Site
The Pilot Study site is located along the
Mendocino County Coast, approximately five (5) miles south of
the community of Elk on State Highway 1. Its location is
shown in Figure 11-2. The ranch is 2,100 acres in size,
divided between cogstal terrace and forested uplands. The
ranch is currently operated as a combined dairy, beef cattle,
and timber operation. Figure XI-1 is a map of the Pilot Study
site.
The dairy is one of three dairies on the Mendocino Coast. It
currently milks 150 cows and sells its raw milk to the
Petaluma Cooperative Creamery. Production of the dairy is
estimated to be 24,000 CWT of milk per year. Forage for the
dairy is produced on the ranch, including both 150 acres of
oat-vetch hay (which is green-chopped for silage), and 150
acres of dryland pasture.
The beef cattle operation includes around 50 heifers and 100
to 150 steer calves produced by the dairy cows. The beef is
I1 - 5
- FIGURE 11-1 THE PILOT STUDY PROPERTY ,
.: /i ""-7" -
DRAFT REPORT
DRAFT REPORT 11/ 20/ 80
also fed on the ranch's forage production and graze in the
uplands. Each year, the yearling calves are marketed.
The timber operation is a sustained yield operation which
harvests a total of 1,200 acres. The merchantable timber
includes 60% Douglas fir and 40% redwood. The understory is
primarily tanbark oak. On a sustainedyield basis, 1,000,000
to 2,000,000 board feet of stumpage can be harvested each
year. The timber is sold as stumpage to local mills,
a. Land Form, Habitats and Resources
The Pilot Study site transects the geo-
morphic unit which commonly runs parallel to the Mendocino
coastline consisting of seacli-ffs, a broad terrace, and the
first ridge of the coast range. Many ofthewildlife habitats
common to the coast of Mendocino County are located on the
Ranch. Resources include fisheries along the coast and
streams, agricultural potential on the coastal terrace and
timber in the uplands.
The Pilot Study land is located'primarily upon the first ridge
of the coastal uplands, A relatively narrow strip extends to
the coastline. The ridge is very steep sided with slopes
mostly above 30%. The coastal terrace has an average cross
I1 - 6
"
"
DRAFT REPORT 11/20/80
scope of approximately 9%. The seacliff is virtually all a
sheer cliff with an average cross slope of 100%.
The coastal geomorphic unit includes the Littoral Zone, the
rocky intertidal area at the base of the seacliff, the
seacliff itself, the coastal terrace prairie, the coastal
uplands, and the Riparian Zone along a coastal stream.
.
The wildlife habitats include the rocky intertidal area, the
coastal prairie grassland, chapparal woodland, and the Rip-
arian areas along streams. The intertidal area of the Pilot
Study is occupied by the species common to the Mendocino
coastline, rockfish, cabazoni, lingcod, crabs, abalone, and
other marine invertebrates. Because access to this portion
of coast is difficult, this marine life is abundant. The
seacliff is a sheer, rocky wall that rises 200 feet directly
out of the sea. The cliffs provide r-oosting and rookery areas
for seabirds. The coastal prairie has been subjected to
substantial human modification. Native'grasses and grazing
animals have been mostly replaced by annual grasses, culti-
vated crops; roads- and buildings, windrows, and livestock.
Chapparal, a mixture of low growing shrubs and trees, occu-
pies the steepzTRatward slopes of the uplands. The chapparal
provides food and cover for numerous birds and small mammals.
Near the crest of the first ridge, the chapparal merges with
I
-" - "&
I
I1 - 7
_-
DRAFT REPORT 11/20/80
coastalwoodland, which is mostly comprised of second growth
Douglas fir trees and redwoods. The woodland understory,
which is very dense in the recently logged areas, is primarily
tanbark oak and low growing shrubs.
The woodland covered ridge descends into a canyon where Elk
Creek flows. The creek is bounded by riparian vegetation
common to coastal streams; red alder, willow, and other
phreatophytes. The stream itself is occupied by trout,
anadromous fish (steelhead and salmon), and provides water
for the many mammals which occupy the woodland.
b. Environmental Constraints
The land forms, habitats and resources
combine in nature to define environmental amenities and
constraints. Natural factors create opportunities, as well
as constrained human use. Natural factors create opportun-
I
ities when a resource can be extracted or utilized. Natural
factors constrain development either because of a need to
protect or manage a resource or because they create hazardous
conditions.
The environmental constraints of the Pilot Study site are
similar to many areas along the coast of Northern California.
Although several potentially serious constraints exist, most
11 - 8
\
DRAFT REPORT 11/20/80
/&an be mitigated by responsive project siting, size, en-
gineering, and design.
(1) Seismicity
The Pilot Study is located six miles
north of Alder Creek, the land terminal of the San Andreas
Fault Zone, which extends north, undersea, toCapeMendocino.
During the 1906 earthquake, the horizontal offset recorded
near Alder Creek was 16 feet. The fault is capable, at any
time, of producing another earthquake of the intensity pro-
duced in 1906. The results of such a quake include seismic
shaking, liquefaction, landsliding, and tsunamis. The land-
form and geology of the Pilot Study site indicate that seismic
shaking and landslides could be expected on the ranch if a
severe earthquake occurred. This hazard can be mitigated by
avoiding construction on steep slope areas and ensuring that
buildings are engineered to withstand expected earthquake
intensity.
(2) Landsliding and Erosion
Landslides are a common occurrence
in the north coast of Cblifornia, due to an abundance of loose
or weekly consolidated rock, steep slopes, high rainfall, and
continual geologic movement, including earthquakes, creep
and general uplift of the coastal range.
I1 - 9
DRAFT REPORT 11/20/80
The steep seacliffs and slopes of the upland on the Pilot
Study site are susceptible to landslides and should not be
used as construction sites. Erosion is often associated with
land-slides but specifically relates to the movement of soil
or rock by wind or water action. Erosion is a natural
process, which has largely defined the existing landform.
However, poor land use practices such as overgrazing, impro-
perly constructed roads, or poor logging practices can sev-
erely accelerate natural erosion and cause damage to the soil
resource.
The Pilot Study includes soils which are fairly resistant to
erosion: for example, the coastal terrace soils, and those
which are highly erodable, such as those steeply sloping
upland forest soils. Proper management can avoid a serious
erosion problem.
(3) Fire Hazard
The moist condition of the coastal
grassland and forest preclude fire danger much of the year.
However, during late summer and fall, when the grasslands and
forests dry out, fire hazard can be very high. The high fuel
content of the upland forests, especially the logged areas
where dense hardwood growth has replaced the Climax Conifer
Forest, will inevitably burn. Any development should have
I1 - 10
DRAFT REPORT 11/20/80
adequate clearing, good fire equipment access and a fire
protection water storage.
(4) Water Supply and Disposal
The coastal terraces and upland ar-
eas are underlayed by bedrock associated with the Franciscan
formation, a melange of various rock types of marine origin,
Jurassic to cretaceous in age (190 to 65 million years); the
Franciscan formation is characteristically a very poor aqui-
fer (ground water reservoir). Water supplies along the
coastal terraces are mostly from springs and surface runoff.
Intensive residential development on the Pilot Study site, or
an expanded irrigation operation, would be limited by limited
existing water supplies. Test wells have been very pook
producers. One a-lternative supply which would be developed
is a small summer dam on Elk Creek. Although expensive (it
would require a 1,000 foot lift of the water), a water supply
would be created which wouldgreatly increase irrigatedland. #
Disposal of domestic wastewater in most rural areas along the
coast requires a septic tank system. Soils vary greatly in
their suitability for septic systems. Verydeepporous soils
are typically good for septage disposal, while shallow, clay
soils perform poorly. Soils on the Pilot Study site include
bottomland soils on the coastal terrace and forest soils.
I1 - 11
DRAFT REPORT 11/20/80
Soil surv,y li exists for the bottomland soils in Mendocino
County but good soils data is lacking for the forestlands.
The bottomland soils on the Pilot Study site are primarily
Noyo clay loams and kneeland clay loams, moderately fertile,
shallow soils. These soils are rated as severely limited for
septage disposal. While septic system constraints exist, the
problem can usually be solved by various engineering tech-
niques. Depending upon the severity of the soil limitation
and the intensity of development, the cost of engineering can
be very high.
c. Land Use Policy
Coastal dairies are subject to the land
use regulations of Mendocino County and the California Coas-
tal Commission. The Pilot Study is divided into two Mendocino
County zoning districts, an agricultural preserve zone (A-
C) , and a timber preserve zone (TPZ) . Both of these districts
were the result of state legislation.
The agricultural preserve zone is a requirement of the
Williamson Act (the California Land Conservation Act of
1965) , which was intended to preserve agricultural lands
throughout the state by allowing landowners to enter con-
tracts with the county. Under the contract, the county
.
I1 - 12
- "" . _" " - "" ""_ . "" - .. ." "__ _" .". . - . "
DRAFT REPORT 11/20/80
receives a continuing, 10-year commitment for agricultural
use of the parcel and the landowner receives a lower tax bill.
The lower tax bill occurs because the land is valued at an
agricultural use value, rather than fair market value.
The timber preserve zone was the creation of the Forest Reform
Act of 1976, which changed the manner in which timber and
timberland could be taxed by counties. The purpose of the
legislationwas toencourage better forest management. Under
the law, a county can add a timber preserve zone to its zoning
ordinance. Land which has timber resources and is used for
growing and harvesting timber can be included in the TPZ.
Similar to the Williamson Act, the county receives a con-
tinuing 10-year commitment from the participating landowner
to remain in timber production. The landowner receives a
lower tax bill, based upon the permitted uses but the standing
timber is not taxed until it is harvested.
The portion of the Pilot Study used for the dairy operation,
about 700 acres, is with the agricultural preserve zone. The
remaining 1,200 acres are within the TPZ.
The timber preserve zone requires a minimum parcel size of 160
acres. Permitted land uses include: timber production,
watershed management, wilderness recreation, agriculture,
I1 - 13
DPAFT REPORT 11/20/80
and one single family dwelling unit per parcel. Uses re-
quiring a use permit include: oil, gas, or geothermal wall
drilling, mining, airstrips, shooting ranges, additional
single family dwellings, additional buildings for non-resi-
dential purposes, campgrounds.
The agricultural preserve zone requires a minimum parcel size
of 160 acres. Permitted uses include agricultural uses, Sale
of food products, agricultural services, one single family
residence per parcel, open space recreation. Uses requiring
a use permit include: mining , shooting ranges, airports,
golf courses, agricultural processing, aquaculture, and ad-
ditional buildings for non-residential purposes, Camp-
grounds.
It appears that the proposed supplemental uses might require
a Mendocino County use permit application, as well as ap-
proval by the California Coastal Commission.
The actual procedure for approval of future supplemental use
proposals will depend upon the local coastal plan and other
policies which may be adopted by the California Coastal
Commission as a part of the present study.
The Mendocino Coast is within the Northcoast Regional Com-
mission which includes Del Norte, Humbolt and Mendocino
I1 - 14
t
DRAFT REPORT 11/20/80
Counties. Approximately 90% of the Pilot Study lies within
the coastal zone. The coastal zone is a geographic area
running inland from the shoreline along the entire coast of
California. The width of the zone varies but is often defined
by the first major rise. The coastal zone was created by the
people of California when, in 1972, the coastal initiative
(Proposition 20) was approved, Proposition 20 established
regional coastal commissions which were to administer land
use controls in the coastal zone and also prepare a coastal
plan. The coastal plan was completed in 1975. It led to the
passage of the Coastal Act of 1976 by the State Legislature.
The Coastal Act of 1976 in turn provided for the return of
land use authority within the coastal zone to the coastal
cities and counties, Each city and county with jurisdiction
in the coastal zone is currently preparing local coastal
programs (LCP). These local coastal programs will meet the
policies of the Coastal Act and eventually be integrated with
the local agencies' general plans.. Until the LCP's are
completed, the regional commissions retain land use con-
trols. The regional commissions will be phased out when the
LCP's are complete.
The administration of Proposition 20 and the subsequent
Coastal Act over the past eight years has resulted in a
reduction of building and land speculation activity within
I1 - 15
DRAFT REPORT 11/20/80
the coastal zone. Although building has been permitted, the
pre-Proposition 20 level of subdivision activity was greatly
curtailed. Most construction has occurred on lots or pro-
jects created or approved prior to 1972. While the regional
commissions do not impose zoning controls, in addition to
those of the local agency, virtually any building activity
requires a permit issued by the commission. Permits are
issued, conditioned or refused based upon the policies of
Proposition 20, the Coastal Act of 1976, and the findings of
the regional commissions.
The local coastal program for Mendocino County has not been
adopted by the county at this time. It is nearing completion
and can be expected to be adopted in 1981. The LCP has
provided a series of "sketch plans" which detail the alter-
natives for future land use in the coastal zone. These plans
will be the basis for the county's adopted LCP. No specific
policies regarding supplemental uses have been developed by
the LCP at this time. It is expected that supplemental uses
which can be shown to enhance agriculture without creating
conflicts will be permitted.
In addition to the LCP, Mendocino County is also engaged in
preparing a revised general plan. Since this process is
occurring at the same time as the LCP, it is expected that the
two plans will conform to one another.
I1 - 16
DRAFT REPORT 11/20/80
3. Market Assessment of Supplemental Uses
The market assessment for the Mendocino coast
was intended to estimate the size and characteristics of the
market for the individual land uses that may be combined with
existing agricultural operations. The uses th.at were ident-
if ied included:
, .
Residential development . Overnight accommodations . Restaurants
Visitor oriented retail.
(including camping)
The market area with which the Mendocino coastal project
would compete. includes the California coast from Tamales Bay
in Marin County to Rockport in Mendocino County. This area
was
e
e
e
divided into geographic subareas as follows:
Marin County
Sonoma County - North Coast
- South Coast
Mendocino County - North Coast - Fort Br agg
- Mendocino
- South Coast
I1 - 17
DRAFT 11/20
Figure 11-2 is a map which shows the boundaries within the
market area.
/ REPORT 80
A key variable in the market assessment is automobile traffic
volume on Highway 1. There is a strong correlation between
traffic volume and the market potential for various com-
mercial purposes. The San Francisco Bay Area and, to some
extent, the urban areas in the Sacramento Valley are the
principal sources of demand for commercial uses along the
Mendocino coast, (R-lB)* Table 11-2 shows distance and
travel times from San Francisco to the coastal market sub-
areas.
Traffic volume on Highway 1 along the north coast of Cal-
ifornia increased. by over 10 percent average compound growth
throughout the 1970's.. (R-4B) The only year which showed a
decline was 1974, the year of the first gas shortage. Along
the Mendocino coast, the rate of growth appears to be leveling
off. In fact, between 1977 and 1978, there was nearly a 20
percent decline in traffic in the south coast portion of
Mendocino County. Traffic volumes in Marin and Sonoma
Counties continued to increase.
* Numbers refer to the numbered references at the end
of this report.
I1 - 18
t
DRAFT REPORT 11/20/80
The portion of the traffic volume which is associated with
visitors is important, because most ofthe "enhancement" uses
cater to visitors. Table 11-3 shows current traffic volumes
in the market area and the portion of traffic attributed to
visitors. These visitor numbers are the basis for the demand
estimates for the various enhancement uses. (R-3B, R-5B)
DRAFT REPORT
11-.20-80
Table 11 - 3
TIME AND DISTANCE TO MAJOR POPULATION CENTERS
Coastal Subarea
mNDOcIN0 COUNTY
south Coast
Mendocino
Fort Br aqg
North Coast
SONOMA COUNTY
south coast
. North Coast
From San Francisco
Distance (Miles) Travel Time
131 - 165
180
190
208
43
123
~~~~~~ ~~ ~~
Source: Bechtcl Transportation Survey (R-6B)
I1 - 20
3 hrs to
3 hrs 40 min
4 hrs
4 hrs 20 min
3 hrs 45 min
1 hr 10 min
2 hrs 45 min
Figure I I - 2
COASTAL "ARKE? AREAS
DRAFT REPORT
11-20-80
Table I1 - 4
COASTAL HIGHWAY VISITOR VOLUMES
MARIN COUNTY TO WESTPORT, MENpocI~ COUNm, 1978
DRAFT REPORT
11-20-80
Total Travel Visitor Travel
Estimated Estimated
Daily Daily Visitors Visitors
Peak Month Average
ADT ADT
Visitors as
Percent of21
Total Travel
Peak Annual Month ADT(l) " Coastal Subarea
MARIN COUNTY
Pe taluma-
Vally Ford Rd.
(South)
Point Reyes-
Pctaluma Rd.
(North )
SONOMA COUNTY
Highway 1 at
Bodega Bay
(North & South)
Highway 1 at
Jenner (North & South)
Highway 1 at
Fort Ross
(North & South)
mmccnuo COUNTY
Highway 1 at Gualala (North & South)
1,550 990 65%
65%
1,000 640
2,850 1,800 1,850 1,170
2,040 1,290
1,900 1 , 200
1,650 1,050
50%
50%
70%
3,800 2,400
2,350 1,500
4,150 2,800 50%
80%
2,080 1,400
1,720 1,160
Highway 1 at Elk (North & South) 2,150 1,450
Lansing St.,
Mendoc in0
(Nor th ) 6,800 4,500
Cypress St., Ft. Btagg
(South) 24,500 20,000
Highway 20,
Ft. Bragg (North ) 21,800 17,300
Highway 1 at
Westport
(North ) 2,750 1,750
50%
30%
3,400 2,250
7,350 6,000
40%
80%
8,700 7,120
f , 2,200 1,400
(R") Source: California Department of Transportation
(1) Annual average daily traffic (one-way)
(2) McDonald & Associates estimates
DRAFT REPORT
11-20-80
a. Residential Development
Residential development is a common use
of coastal land. The scenic and recreational value of the
setting make it a desirable location in which to live. While
Mendocino has an abundance of coastal land where residential
development could possibly locate, it is far from major
employment centers and, therefore, impractical for major
primary residential development. Recent residential de-
velopment along the coast of Northern California has largely
been for second homes and retirement homes for the affluent.
The analysis of demand for coastal second homes is difficult
for several reasons.
Demand is unrelated to the economic characteristics of
the local community. It is related to the -economic . .'
characteristics of the entire market area within a rea-
- %- - -
sonable travel distance;
.. - . *"" - __ . Demand depends on the real estate cycle and competes with
other investment opportunities: ;
I
.
Demand has been declining because of high interest rates
and high gas-o'line prices. The long-term- trends for ." " - - -
interest ram and fuel costs are unfavorable and their I
. ""-
a I1 - 25
DRAFT REPORT
11-20-80
impacts on demand for second homes are unknown.
In spite of these problems, the market can be assessed by
making certain assumptions and looking at historical de-
mand-supply relationships.
When the Coastal Act was passed in 1972, development along the
coast was at an all time high. In fact, it was Californians'
perception that a unique and precious public resource was
systematically being eliminated that led to the passage of
Proposition 20. By 1972, many coastal residential lots in
Mendocino County had already been created. While building
activity, especially subdivisions, was slowed by the Coastal
Commission, building did continue. Residential lots and
historical average absorption rates for these lots along the
Mendocino County coast are shown in Table 11-5.
The demand for second homes can be measured by actuai con-
struction rates rather than by sales of lots. So long as
there is an inventory of lots to be sold and resold, and so
long as the price of lots is not increasing faster than that
of real estate in general, the demand for an investment
rather than for a structure may be considered satisfied.
Considering the existing inventory of lots and turnover
rates, lot availability is more than adequate along the coast
to meet this demand.
..
DRAFT REPORT 11/20/80
Table 11-5
RESIDENTIAL LOT SUPPLY AND RECENT GROWTH RATES
Annual Average
Units Constructed
1978-1971 Current Duration of1
Vacant With Without Existing Supply Mendocino County Residential Building Building Of Residential
Subarea Parcels Permits Permits Parcels
North Coast 204 4 10 15 years
Fort Braqg 1,143 -128 6 9 years
Mendocino 669 75 23 7 years
South Coast 1,565 ' 66 19 18 ytars
t
IDuration of supply assunes no new lot formation and no
construction on %on-residential" parcels. Actual supply
with these factors would be much greater.
Source: (R-2B, R-8,.and R-6)
I1 - 25
DRAFT =PORT
11-20-80
The relationship between vehicle trips on Highway 1 and
second homes indicates that after a certain point, the number
of visitors per second home tends to increase with the
distance from the major population centers. This rela-
tionship revives the notion of the optimum travel time for a
second home investment. This optimum time may include a
requirement that the distance be great enough to escape the
urban landscape but not so great as to make regular visits a
hardship. The latter factor may become a far more important
one as the relative cost and difficulty of travel increases.
The coast is unique in that the travel time is more reasonable
than getting to Lake Tahoe or Palm Springs. Beyond the areas
within the competitive travel time, themarketwould probably
dictate a smaller proportion of second home supply.
Irish Beach is the major second home project in Mendocino
County. At present there are about 85 houses constructed on
a total of 350 available lots. Under the Coastal Commission
jurisdiction, lot owners in the project have received
building permits for 17 homes over the last three years. This
project was started in 1967 and subdivision into the existing
350 lots was .completed in 1974. The sales rate for lots has
averaged 20 per year. The building rate has been about eight
units per year. The developer still owns 70 lots. Between
twelve and fifteen were sold out of his inventory in 1979. He
I1 - 26
There is no page 27.
DRAFT REPORT 11-20-80
has Coastal Commission approval for 70 more lots in the
existing subdivision and is working on a plan to develop an
additional 800 acre ranch to the south of Irish Beach into 500
additional home sites, with about three acres for commercial
uses. Environmental impacts, particularly traffic around a
deep gulch separating the two properties, will be major
obstacles to Coastal Commission approval. His plan, however,
includes zero lot lines, or walled houses, and generally
smaller lots, in order to retain more open space. Lot prices
range from a high of over $100,000 to a typical $25-45,000 and
a low of $18-25,000. It appears that resales have cut into
the market for the developer's inventory, which is a common
problem in second home lot sales. At present building rates,
build-out of the 265 remaining lots and 70 potential lots will
require over 40 years. (1-7B)
Sea Ranch, the largest project along the entire coast, is
located in Sonoma County, south of Gualala. The property was
purchased for subdivision in 1962, and sales commenced in
1965. About 1,750 lots were completed by the time the Coastal
Commission legislation was passed in 1972, and most of the
lots had already been sold. At present, the developer holds
80 lots, of which 65 were put on the market in February 1980.
Within six weeks, sales contracts had been signed for twelve
of these, at 10 percent down and 10 percent interest, with the
i
I1 - 28
DRAFT REPORT
11-20-80
developer carrying the remainder. The developer has per-
mission to develop 260 additional lots. (I-6B)
About 530 houses have been built at Sea Ranch. About 25 homes
a year have been built over the last four years. Prior to
that, construction had been about 40 homes per year. This
recent reduction is primarily due to Coastal Commission
regulation. Resales have ranged from a low of 32 lots per
year to a high 02 94 lots in 1977. At 70 lots per year, resales
would completely turn over the vacant lots within 17 years.
At a build-out rate of 60 lots per year, the 1,220 existing
and 260 potential lots would be developed in 25 years. Prices
for lots range from $18,000 to over $100,000, but most often
fall between $30,000 and $40,000. (I-6B)
Bodega Harbor, south of Bodega Bay, is the third major
residential project on the coast. It is located along the
south coast of Sonoma County. This property is so close to
the Bay Area that the'distinction between second homes and
primary housing becomes blurred. This project was started in
1970. At present, 625 lots have been sold at an average rate
of 62 per year, and 150 homes have been built at an average
rate of 15 per year. The developer retains 50 lots. Resales
have been running 60 per year the last several years, which
would completely turn over the inventory in about ten years.
f. f
I1 - 29
f
DRAFT REPORT 11/20/80
Prices range from $39,900 to $140,000, with good view lots
generally priced between $50,000 and $60,000. (I-4B)
The Woods is a retirement mobile home park in Little River,
just south of the town of Mendocino. There are 132 spaces,
of which 65 have been filled in five years. The owners are
doing their own building, which has limited the absorption
rate. Rents are from $150 to $160 per month. All central
utilities and one-quarter acre lots make this a very ex-
pensive project. Units are requiredtohavewoodexterior and
shake roof.
The Whiskey Shoals subdivision is located on 100 acres, three
miles south of Point Arena and about ten miles north of
Gualala. Planned for 72 lots, the subdivision was partially
completed in 1972 when the Coastal Act was passed. Sub-
sequently, the Coastal Commission would not give approval for
construction of any houses in the subdivision. The Cal-
ifornia Coastal Conservancy is negotiating to buy the lots,
replat the land into 50 condominiums, and resell the property
5
to a different developer, with the hope of recouping land and
administrative costs. The Conservancy has not completed all
of these transactions, so actual redevelopment maybe several
..
..
years away. The new developer, according to the Conservancy
Staff, plans to offer some innovative mar-
i r -
I1 - 30
.
DRAFT REPORT
11-20-80
keting programs, including timesharing on 10 to 20 percent of
the units. (I-3B)
In order to minimize risk through the various stages of t'he
real estate cycle, development sites need to offer particular
amenities or be able to tap the secondary housing market. For
example, the majority of available lots in the Fort
Bragg/Mendocino area are on timbered land west of HIghway 1.
Sea Ranch offers golf courses, pools, tennis and other
recreational facilities. Bodega Harbor is close to the San
Francisco Bay Area. Timbered land can also be found in the
Salt Point area of Sonoma County. The market in the south
coast area of Mendocino County is small compared to the number
of lots available, and requires considerable staying power,
as illustrated by the Irish Beach project.
This is not to say that there will be no demand. Someone will
always buy property in California if financing is available.
Selling off small lots from larger holdings is certainly an
alternative method of supplementing income.
The policy choices available to local government for re-
sidential development along the coast vary from a standard,
minimum lot size regulation, such as 40 acres, to no sub-
divisions, except clustered, small lots limited to the for-
i
I1 - 31
DRAFT REPORT 11/20/80
ested upland areas accompanied b suitable dedications or
deed restrictions on other The former choice would
limit marketability and the price per acre would be low to the
present owner. It would probably also remove more land from
agricultural uses in the long run. It would also increase
service costs to the County. The second alternative seems
more consistent with the goals for the Coast. It accommodates
the greatest number of people on the smallest acreage and has
the least visual impact.
If located near existing urban areas or near the various
access points on Highway 1, cluster development would reduce
County service costs aswellastriplengths, limit the number
of through trips along Highway 1 and distribute traffic along
the coast rather than being concentrated in certain heavily
used areas.
Development costs would be a factor that would influence the
return to the property owner. Standard streets from Highway
1 to upland lots would probably not be economically viable,
and would, in any case, be visually unacceptable. Utility
systems would depend on the size and number of lots. Small
lots would require central well and treatment facilities, so
that a project would probably become economically'unfeasible
above a minimum number of lots. The coast could likely
accommodate
I1 - 32
DRAFT REPORT
11-20-80
a number of these small 15-20 lot subdivisions if located
correctly with proper consideration of views, agriculture,
and County services.
Lots of this type on the South Coast of Mendocino County are
currently priced between $15,000 and $25,000, according to
local listings. The low price and slow sales rates of this
kind of project would also require some kind of phasing in
providing the infrastructure such as the roads and utilities
in accordance with the number of lots sold -- so that the
property owner would not incur a negative cash flow. The
dangers of such a program are that the County may have a
difficult time 'limiting such subdivisions if some are per-
mitted, and could incur serious public service problems, as
well as creating conflicts with existing agricultural and
timber operat'ions, even though the individual projects were
well planned.
The Mendocino Local Coastal Program report, "Existing and
Potential Development" (R-6), mentions the retirement home
segment of the second home market. It reports a growing
number of persons 65 and older who are retiring to less
expensive areas in order to stretch their capital and fixed
incomes. The choice of location for this age group seems to
be a quiet location within a short distance of Fort Bragg
11 - 33
DRAFT REPORT
11-20-80
where shopping and medical facilities are available. The
developer of Irish Beach has this group in mind for his
clustered houses, but without some additional local ser-
vices, the Irish Beach buyers will probably continue to be
middle-aged.
Because of high costs of purchasing and maintaining second
homes, there appears to be a trend towards visitors using
overnight accommodations. The distance to major employment
centers, and the lack of urban amenities tend to support this
trend.
b. Overnight Accommodations
The coast of Northern California is a
popular recreation area. Weekend and vacation trips are
common. Visitors are drawn by the coastal landscape, des-
tination resorts, fishing and diving, and other recreational
opportunities.
Overnight accommodations along the Mendocino coast presently
include hotels, motels, and public and private campgrounds.
The current inventory of these accommodations is shown in
Table IS-6. It should be noted that occupancy rates are
annual averages. Substantial variation exists between week-
end and week day occupancy rates. An annual cycle also exists
I1 - 34
DRAFT REPORT
11-20-80
which shows delayed demand during winter months.
Future demand for overnight accommodations may be projected
by using projected peak month average daily traffic counts.
A relationship exists between the currently available over-
night accommodations and visitors. This ratio can be applied
to projected visitor growth to yield demand for new ac-
commodations. Table 11-7 shows the demand for new overnight
accommodations by 1985.
Table 11-7 shows that if traffic continues to grow at the
historical trend rate, and if visitors' current use patterns
continue, an additional 17,130 overnight stops could be
expected along Hendocino's south coast by 1985. This number
could be accommodated in existing hotels, if they occurred
during non-peak periods. Since this is unlikely, and since
many of the accommodations (hotels and motels) are sub-
standard, the additional overnight stays will probably re-
quire new facilities. If all the stays were at hotels and
motels, with a year-round occupancy of 50 percent;about 90
new rooms could be justified. In campgrounds with average
annual occupancy of 35 percent, about 130 spaces could be
justified.
The choice of points where traffic is measured can change the
I1 - 35
I' k
Coastal Subarea
MENDOCIN0 COUNTY
Table 11-6
INVENTORY OF OVERNIGHT ACCOMMODATIONS, 1979
MENDOCIN0 AND SONOMA COUNTY COAST
Campsites
Hotels and Motels Pu bl ic Private Total Total
Occupancy Occupancy Occupancy Number of Overnight
pant i ty - Rate Quantity Rate Quanti ty - Rate Acconunoda t ions Stays
North Coast 12 60% 0 " 300 15%
Fort Bragg 569 60% 143 47% 441 30%
Mendoc i no
South Coast
SONOMA COUNTY
2 27 50% 104 51% 122 46%
169 40% 47 24% 295 3 2%
North Coast 19 1 65% 49 79% 97 34%
South Coast 77 65% 305 4 1% 0 "
Source: McDonald 6 Associates, based upon survey of existing facilities. (R-11B)
312 31 , 600
337 71,000
382 1 63,000
DRAFT REPORT 11-2 0-8 0
results of this analysis. For instance, just north of the
Westport traffic trend line used for the north coast section
are located two very large open campgrounds which have few
faiilities. It seems likely that most travelers are going
through Westport specifically to reach these overflow accom-
modations, which would therefore be the source of additional
traffic flow through Westport.
It should be noted khat the highest overnight stay factor
compared to peak month tourist ADT is in northern Sonoma
County. One might reason that northern Sonoma County is the
farthest point that many people intend to travel to spend the
weekend. Those visitors that stay in more northerly lo-
cations are less destination oriented, probably driving the
coast road, and therefore stopping either when they find an
appealing spot or at the appropriate hour.
The number of overnight stays by the type of accommodation --
hotel, motel, private and public camps -- varies greatly from
area to area. Generally, more overnight camp stays are in
more rural areas, and more hotel stays are in more urban
locations.- - However, the greatest absolute number of stays
for both hotels and motels and public and private campgrounds
is in Fort Bragg, the most developed area, which also carries
the highest level of visitor traffic. Private and public
I1 - 37
DRAFT REPORT 11-20-80
Table I1 - 7
PROJECTED DEMAND FOR OVERNIGHT ACCOMMODATIONS, 1985
Aver age Projected
Monthly Total Visitor Annual Annual Demand
(Visitor) Stays Overnight In ADT (Overnight
ADT Overnight Trips Per Increase 1985
Coastal Subarea Component) (Annual) Stay 1978-1979 Stays)
North Coast 31,600 16 12% 24 , 090
Fort Bragg
Mendocino
South Coast
1 r 400
6,000
2,250
1 400
195,000 11 7% 78 500
80 000 10 3% 12,740
62,000 8 5% 17,130
SONOMA COUNTY
North Coast 1,050 71,000 5 5% 19,620
South coast 2,250 63 000 13 4% 13,650
Source: California Department of Trdnsportation (R-LB) and
McDonald & Associates
I1 - 38
,. .. ~ .. ,~. . .. ." . I . . . "_ "_ " ." ". . . .- " .
" -
DRAFT REPORT
11-20-80
campgrounds seem largely interchangeable, except that public
camps are running consistently higher occupancy levels re-
cently -- nearly 50% above private campgrounds -- probably
because of the difference in price.
I
Hotels and Motels. There are some relatively new hotel and
motel developments along thecoast. Proprietors of converted
farmhouses and bed and breakfast places seem pleased with
their winter weekend and summer trade. This development has
been most prevalent in the Mendocino portion of the coast,
which seems suitable for this kind of development. It has a
kind of Camel ambiance, with craggy coast, trees, and nearby
Mendocino Village. These small inns are often not econ-
omically self-sufficient and supplement the owner's other
income. One of the prerequisites for a small inn is the
existance of an attractive structure in pleasant surround-
ings that can be converted at reasonable cost.
-. Other hotels along the Mendocino coast and in northern Sonoma
County function as full resorts, offering recreation, lodg-
ing, and complete dining facilities.
Along the south coast of Mendocino County there are several
scattered American plan hotels: two in Elk, Whale Watch (four
condos) in Anchor Bay: St. Off's south of Anchor Bay: and the
I1 - 39
/- ,
-..
DRAFT REPORT
11-20-80
Old Milano in Gualala. The best maintained and most pro-
fessional appears to be the Harbor House in Elk. It offers
immediate access to the beach, a very pleasant structure,
rooms with sun decks and fireplaces, and the American plan.
Except for being very close to the water, the views are no
more extraordinary than in many locations on the coast. A
major factor is the existence of a lovely structure which was
converted into an appealing overnight facility.
There are no guest ranches anywhere along the south coast of
Mendocino County. Highland Ranch in Philo accommodates up to
30 people and is generally half full on winter weekends and
about 90 percent full for three months during the summer.
Rates are about $30 per day per adult, with discounts for
children. Winter 'rates are lower. The ranch offers cabins,----- -
riding, two ponds, a tennis court, and all meals.
z
Campgrounds. There are no campgrounds between Manchester
Beach and Albion. Most campgrounds have a fairly low occu-
pancy of around'30 percent, except the few that cater specif-
ically to fishermen, such as those in Albion and Anchor Bay.
Most private campgrounds, with the exceptionofthose serving
fishermen, claim they suffered during 1979 from the gas
crunch. Rates in private campgrounds with trailer utility
hook-ups are $7 to $8 per night.
I1 - 40
DRAFT REPORT
11-20-80
Public campgrounds experienced no reduction of patrons dur-
ing 1979. All of the Mendocino parks except Manchester had
increased numbers of campers during 1978-79 as compared to
1977-78. Total figures for the calendar year 1979 were a bit
behind 1978-79, however. The Russian Gulch, Van Dame and
MacKerriccher Parks had turn aways during calendar 1979 of
about 14,000 vehicles. It is likely that this overflow was
largely accommodated farther north, at Westport. Day vis-
itors were also up significantly at these three campgrounds
during 1979, for both the fiscal and calendar year.
Manchester Beach Park in Mendocino County and the coastal
parks operated by Sonoma County experienced a significant
decline in attendance in 1979, in both the day visitor and
camper categories. However, the state parks in Sonoma County
turned away vehicles. The reduction of visitors at the county
operated parks may be attributed to overcrowding during past
seasons and higher utilization of other, less crowded areas.
The reduction of visitors to Manchester Beach, on the other
hand, appears -to be rather a function of the reduction in
traffic levels along the south coast of Mendocino County that
occurred in 1979.
To summarize, at present the south coast of Mendocino County
is one of the least traveled areas, so that additional private
I1 - 41
DRAFT REPORT
11-20-80
campin iwithout fishing or some other unique attraction would
probably not be viable. However, some additional demand for
bl
overnight accommodations is likely. A public campground,
with its stronger public recognition, would probably take
some of the overflow from the Mendocino and Fort Bragg areas,
if it were located between Navarro River and Eik. Farther
south, between Elk and Sea Ranch, an additional public
campground would probably not be practical. A guest ranch,
on the other hand, with sufficient acreagae and attractive
existing structures, which offered a number of recreational
opportunities and complete food service, couid be expected to
achieve adequate occupancy levels. A guest ranch with such
attractions could locate in a relatively isolated place such
as the pilot study ranch.
c. Eatinq and Drinkinq
Presently, eating and drinking places
along the coast are located in urban areas, in small com-
munities, or inassociation withdestination resortsor other
._ -. . - -.
lodging. Table 11-8 shows a brief analysis of demand for
restaurant space based on eating and drinking sales .. in .
California adjusted for personal income and population in the
four sectors of the Mendocino Coast. At $100 annual sales per
t
square foot .CR-9B), the permanent population would support.
3
nearly 26,000 square feet of space in and around Fort Bragg..
11 - 42
I'
0
Table 11-8
DEMAND FOR EATING AND DRINKING PLACES
:I I 'i i !
Average visi tor Current Current
Monthly AD" Eating and Floorspace Demand Floorspace Demand Total
Component Expenditures Per Square Foot Population Demand
visitor Drinking At $100 Sales From Permanent Floorspace
Coastal Subarea
MENDOCIN0 COUNTY
Nor th Coast 1,400 $ 420,000
Mendoc i no 2,250 675,000
South Coast 1,400 420,000
Source: McDonald & Associates. (R-1B)
4,200
6,750
4,200
2,300
9,200
10,250
6,500
15,950
14,450
. . ___ ". .. "._I "- . _II_ ~. "_ ". "_ ..... "" . -_
4
DRAFT REPORT 11-20-80
Sales in the City of Fort Bragg, which contains more than half
the restaurant square footage on the Mendocino Cost, totalled
about $3,200,000 during a recent four quarter period.
(R-7B) , (R-1OB) , (R-1B) . Assuming $5,000,000 total visitor
associated annual sales for the Fort Bragg area, tourist
expenditures would average about $300 per peak month visitor.
,e.- \- :
Present demand indicates that any restaurant space added on
the Mendocino coast should probably be located in the area of
Mendocino, rather than further south. Demand north of Fort
Bragg is probably exaggerated, because about 400 of visitor
peak month ADT in that area appears to be overflow from Fort
Bragg. This adjustment would reduce supportable square
footage on the north coast to about 7,500 square feet. If
some of the camping overflow in that area were diverted south
of the Navarro River toward Elk, additional space would
probably be justified there. Also, increased traffic into
Gualala from Sea Ranch should generate demand for additional
space in Gualala, which is already seeing some effect from
permanent and part-time residents of Sea Ranch. There are
'three commercial buildings under construction in the com-
munity that appear to be intended for retail or office .us.e..
Assuming a five percent increase in visitor peak month ADT
over the next five years, the south coast of Mendocino County
11 - 44
.. . ~.
/- t I
DRAFT REPORT
11-20-80
could support ly an additional 1500 square feet of Space,
probably in larger communities or in association with lodg-
ing.
Q
A restaurant is a very difficult business to operate only for
supplemental income in any location. It requires long hours,
administrative skill, marketing, and an attractive setting.
It also requires visitor traffic. The south coast of Mendo-
cino County presently has about as much restaurant space as
the vicinity of the town of Mendocino, and about the same
permanent population spread over a much longer coastline.
The south coast also has far less visitor traffic than
Mendocino. The only restaurant space that could possibly be
recommended anywhere along the south coast in the near future
would be in association with new lodging or, to a lesser
extent, new camping spaces.
d. Visitor Oriented Retail
Visitor oriented retail is an important
source of employment and tax base in the communities along the
MendQcino coast. A number of factors limit the potential for
-new visitor oriented retail, especially beyond the bound-
aries of the established communities. These factors include:
-. The relatively low number of hotel and motel stays;
- Low traffic volumes:
-- .
z
I
I1 - 45
. . . . .- .
"
\ \.
DRAFT REPORT 11-20-80
Size and disposable income of the permanent population;
Destination of visitors and purpose of visits (which may
not include large retail expenditures).
If visitor oriented retail succeeds anywhere on the coast, it
is likely to be in the communities of Mendocino and Fort
Bragg, and in Gualala, which serves Sea Ranch.
These are the locations where the size of the population, the
income level, and/or the number of visitors could justify
additional tourist retail space,
Variations on general visitor oriented retail whose poten-
tial may not be so limited include cheese factories, redwood
burl and carving sales, native pldnt nurseries, environ-
mental demonstrations, fish farms, or horse breeding and
riding stables. The following paragraphs discuss these uses
along the coast,
The only cheese factory in the three county area that does
substantial retail business is located just outside of No-
vato, on Point Reyes Road. It offers picnicking and sale -of - -
other foods in a deli atmosphere, as well as the lead product. .
The retail store and the factory are located to serve the
population of Marin County as well as visitors traveling-to
the coast. The factory also markets its cheese throughout
"
" .
DRAFT REPORT 11-20-80
California. The fact that the pilot study site is a dairy
suggests this type of use. However, the very large capital
/
investment -- and the factors limiting general retail sales
discussed above -- favor a site within an existing community.
An outlet for redwood burls would only seem appropriate for
an outlying location if redwood products were available from
an adjacent lumbering operation.
There are 140 acres of nurseries in Fort Bragg. (R-2B)
Mendocino has one nursery on fifteen acres. A number of the
Fort Bragg nurseries are located along Highway 1 or Highway
20 and are signed to appeal to visitors. They specialize in
rhododendrons or fuschias, which do well in the cool moist
climate along the coast. One nursery owner indicated that 75
percent of local nursery business was from visitors. The
nurseries intend to increase the visitor part of sales by
improving signing and methods of showing prize plants. The
Mendocino Coast Botanical Gardens, with 47 acres, is the
largest example of this use as a tourist attraction. The
gardens had 16,000 visitors during 1979, of which 95 percent
were tourists; (They also hold a concert deries which
attracted -4,500 people in 1979, of which 35 percent were
tourists. 1
11 - 47
i
DRAFT REPORT 11-20-80
Growth of the nursery market would undoubtedly be captured by
the existing operators who have made the necessary capital
investments and are located in well known, highly traveled
areas.
There are two facilities in Fort Bragg which can be called
environmental demonstrations. One is the Georgia Pacific
seedling nursery, which has a small museum and offers guided
tours during the summer. (I-11B) The guest book logged a
total of 2700 groups that came to the museum and 1500 groups
which took the tours from April 1979 to March 1980. There is
no charge. The other environmental demonstration is the Jug
Handle Creek Environmental Staircase Preserve. It is oper-
ated by a private non-prof it corporation and use of the
preserve is free.
There. is a trout farm at Fort Bragg wh.ich supplies fingerlings
to local stock lakes and lab fish for environmental testing.
(I-9B) They once had public fishing from their twelve acres
of ponds and also supplied fresh and frozen trout for re-st-
aurants. . The stocking and lab fish business proved suf-
ficient to drop both restaurant supply and public fishing.
Their main reason for dropping these activities was not lack
.. o.f demand but rather the amount. of management required. -
Public fishing required taking care of children, baiting i K"
5
I1 - 48
DRAFT REPORT
11-20-80
lines, and dealing with the demand for large fish. The owners
felt they couldn't charge more than a dollar per fish, since
the public considers fishing an inexpensive form of re-
creation, regardless of the price of fish in the market.
Supplying restaurants meant picking fish for uniform size and
sometimes cleaning or filleting them. The owners mentioned
that the Bodega Bay Trout Farm had closed last year because
of declining use.
Presently, the only horse breeding or riding stables along
the coast are associated with the Sea Ranch development. The
potential for new stables appears limited to large devel-
opments like Sea Ranch or to other large destination resorts
that provide this facility as a part of visitor trade. The
most practical visitor oriented retail use along the coast
and beyond the existing community boundaries may be a des-
tination resort which combines several of the market attrac-
tions analyzed. For example, a guest ranch could be developed
which features horseback riding, trout fishing, nature tours
or environmental demonstrations, as well as providing food
and lodging. The best site for such a development would be .
a location where the various resources required for the .
*
various uses could be developed or enhanced.
I1 - 49
DRAFT REPORT 11/20/80
4. Aqricultural Uses
In addition to the non-agriculture supple-
mental uses, the Pilot Study's potential for continued agri-
cultural uses was also evaluated. The physical characteris-
tics of the Pilot Study, previously described, are very
suitable for the existing dairy/beef operation. The future
of dairy operations depends largely upon how well remote
dairies, such as the Pilot Study, compete with closer in or
larger dairy operations in Sonoma County, or the San Joaquin
Valley.
The following paragraphs describe the milk production indus-
try in Mendocino County, and the potential of local milk
processing.
a. History of Milk Production in Mendocino
County
At the turn of the century, dairying was
a principal agricultural land use in Mendocino County. Dairy
products exported by boat to San Francisco were an important
source of income for family-owned dairies. Fluid milk was.
sold locally to the timber, fishing, and farming communi-ti-es,
which were the centers of the coastal economy. During the
twenties and thirties, there were hundreds of dairies in
"
.Mendocin0 County, typically composed of 20 or 30 cows -each-.- .~ .
I1 - 50
DRAFT REPORT 11-20-80
Today there are only four dairies in the county, and 95% of
the milk produced is hauled out of the County for processing.
Three of the four remaining dairies in this county are
traditional, family operations, located in the Point Arena
Area, which have expanded, modernized, mechanized, and func-
tion with the use of hired labor. They are:
Owner/Operator Location
Size
(Milking Cows)
Galletti Dairy South of Elk 150 . Biaggi Dairy Manchester 200
Stornetta Dairy Point Arena 250
The fourth dairy, Ridgewood Ranch, is located on the old
Howard thoroughbred racing farm (between Ukiah and Willits,
just off U.S. 1011, acquired in 1962 by the Church of the
GoldenRule. Thisoperationconsists of 38 cows, and includes
bottling and distribution of raw milk. It is not included in
county or state figures on dairy production. Table 11-9 shows
milk production in Mendocino County over a 20-year period.
A major decline in dairy production is shown between 1960 and
1970. This decline was due, primarily, to closing of numerous
small dairies, and relocation of larger operations to other
production areas. During the 1970's, production rose
"
I1 - 51
DRAFT REPORT
11-20-80
Table 11-9
Milk Production Trends - Mendocino County
In CWT
1961
1971
197 2
1973
1974
1975
1976
1977
1978
Source: Agricultural Report,
Class A
788,000
114 000
113,000
96 000
115,000
135 I 000
145 , 000
104 , 000
108, ooo
County of
Class B
115 I 000
17
17
9
13
6
18
*
I
I
I
I
?
18,200
Mendoc ino
300
600
300
700
900
500
I1 - 52
" .
f-
DRAFT REPORT 11/20/80
slightly and, during the past two years, declined. Until
1978, Class A milk from the Pilot Study was processed by a
small local processor in Fort Bragg. They went out of
business, and the Pilot Study dairy joined the other two
dairies in shipping their raw milk to the Petaluma Coopera-
tive in Sonoma County.
Cheesemaking was carried on extensively in coastal dairying
areas from the time of early settlement until 1954. Jack and
cheddar were the principal types. Until the longshoremen's
strike of 1935, and the opening of the Golden Gate Bridge a
year later, transportation to San Francisco was mainly by
boat. Since then, trucks have hecome the dominant form of
transportation. In Point Arena, cheese was made at the south
edge of town by Western Dairies until 1948, and there was a
larger plant at Manchester purchased by the Petaluma Co-op in
1954, which subsequently closed. There has been no local
commercial cheesemaking since that time.
b. Government Regulation
A major factor influencing dairies in
Mendocino County, as well as the rest of the United States is
government regulation. Following the Depression Era's milk
f
I1 - 53
DWT REPORT
11-20-80
The amount of milk allowed to be sold to wholesalers is
adjusted according to demand. Prices are set to cover the
cost of production plus a reasonable profit. In California,
the price of milk is regulated at the retail level under the
Gonzales Milk Control Act of 1969.
Milk within the state is sold to processors according to a
price formula which is constantly updated. Each producer
holds a contract for providing a certain amount of milk.
Seventy percent of the milk is Class I, fluid market milk; 20%
is Class I1 for processed products, such as cream, cottage I
cheese, yogurt, etc; and 10% for Class IV, used for butter and
cheese. The greatest return is from Class I, because of its
higher price. As the milk demand increases with population
growth, 20% of new demand is allocated to new producers.
Aspiring dairymen are required to have established a milk
producing history, which they do by producing Class IV milk.
Over a period of time, a dairy is able to build a Class I
quota. An operator may sell his quota and continue to produce
milk and sell it as Class I1 or IV.
Nationally, the federal government also supportsthe price of
milk by buying the surplus. In California, the effect of the
federal purchases is to underwrite the price of grade B milk.
The federal government classifies milk by its production
I1 - 54
DRAFT REPORT
11-20-80
standards and quality. Grade A milk may be used for any
purpose. Grade B may only be used for processing. In the
Redwood marketing area, one out of 14 gallons of milk was
purchased by the federal government in January 1980. The
surplus milk is processed into butter and powdered milk,
which, in turn, is disposed of through concessionary foreign
sales (P.L. 480). Because of the strong government assist-
ance, the price differential between Class A and Class B milk
has narrowed. In fact; last year the volume of Class B milk
increased for the first time in 15 years.
Because of the large amount of regulation and price support,
the dairy industry is acknowledged as a quasi-public utility.
State and federal lobbying is very important for the indus-
try. The result has been that dairy farmers receive an
average 52% of the final consumers' dollar, compared to an
average of 37% for other agricultural commodities.
c. Market Structure for Milk
Mendocino County is within the North
Coastal Production District with Del Norte and Humboldt
Counties, but is in the Redwood marketing area, comprised of
Mendocino, Lake; Solano, Napa, Sonoma, and Marin Counties.
The Redwood marketing area has traditionally been the San
Francisco Bay Area milkshed. As the freeway system between
I1 - 55
. ". .
DRAFT REPORT
11-20-80
the Central Valley and the Bay Area developed, the Central
Valley has captured Bay Area markets at the expense of the
Redwood area. However, because of some more favorable
cost-price relationships, coastal dairies have continued to
compete. The Redwood Marketing Area accounts for three
tenths of one percent of California's Class A milk pro-
duction. The major local outlet in the Redwood area is the
California Cooperative Creamery, followed by Safeway and
Lucky Stores.
Statewide production milk has risen 6% in 1979, while per
capita consumption increased 1.3%. This is rapidly leading
to a surplus situation. In the short term this surplus can
be offset by increased government purchases and subsidies.
However, in the long term, it is generally agreed that the
current favorable price will be reduced and the milk surplus
will taper off to more nearly approximate consumer demand.
Until a few years ago, some locally produced milk was pro-
cessed in.Fort Bragg for local consumption. Management
problems forced the closing of the processing facility.
Presently,mostmilk consumed in Mendocino County is imported
from the Bay Area.
d. Market Structure for Cheese
. "
DRAFT REPORT
11-20-80
There is a two-tiered cheese market op-
erating in the United States. The first one consists of large
volume, popular cheese, which are nearly universally con-
sumed, and handled as standardized commodities. These in-
clude cheddar, colby, jack, swiss, muenster, cream, blue,
mozzarella and Teleme. The smaller volume, imported or
foreign style domestic, and specialty cheeses, represents
the second tier of the cheese market -- specialty and gourmet
cheeses. Only 5% of cheese consumed in the United States is
imported, of which most are specialty varieties. These are
such cheeses as Gouda, Edam, Brie, Camembert, Harvarti, etc.
Both popular and specialty cheeses are increasing in per
capita use. American cheeses increased an average 1.5% per
year between 1950 and 1970; Italian types, 3%; Swiss, 2%;
Blue, 2%; and Edam and Gouda, 2%. Part of the reason cheese
consumption is rising is the result of substitutionof alower
priced protein source as Americans are forced to economize.
--~ -.-"..--Mass produced cheese shares the market alternatives to meat
products: fish, beans, lentels, tomato paste, pasta, and
those ingredients of low-cost casseroles of which American.s
---"are eating more. On the contrary, Americans are also changing
their diet -to include more fine wines and cheeses, such as
Brie and Gouda, and Port Salut, which are associated with
entertainment. The Bay Area's demand for cheese has led this -
.-
f: L..
I1 - 57
A DRAFT REPORT
11-20-80
national pattern.
In milk-producing states, such as Oregon, Idaho, and Minne-
sota, dairies or dairy cooperatives have succeeded in
cheesemaking ventures, producing specialty cheese. This
alternative is a possible strategy for the south coast of
Mendocino County.
Locally produced cheese could be marketed locally and ex-
ported as in the past. There is every reason to be optimistic
about single commodity food outlets. On-farm sales are an
important visitor attraction in Sonoma County. Studies in
direct farm cheese sales in Minnesota (R-31) indicate that
travelers will pay a premium for locally produced products.
In the Minnesota case, over a quarter of cheese production is
sold on the farm. Cheese export from the coastal area has
been the dominant market of cheese produced in the past, and
could become reestablished with proper marketing, preferably
with a specialtyproduct, such as Rouge etNoir Brie, produced
in Mar in County..
-~ .. . ."
-e. Market Opportunities
From a marketing standpoint, two oppor-
tunities exist for dairies in Mendocino County. First,
t
production - of specialty cheese for the visitor and export
I1 - 58
DRAFT REPORT
12/12/80
Table 11-10
Milk Marketing Cycle for Mendocino County
Initiating dairy -
Gross return to producer
Haul to Petaluma
California Cooperative Creamery
Standardize for butterfat 61 solids
Haul to Sonoma
Crystal-Stornetta Plant
Pasteurized and bottled
Haul to Santa Rosa
Crystal-Stornetta Warehouse
Broken into truckloads
Haul to Fort Bragg
Bolton's Dairy
Warehoused & broken into truckloads
Haul to Point Arena
Re tail Store
Displayed and sold
Cost (Cents) Per 1/2 Gallon
Cumulative
Item Cost Cost
54 . 16
2.1
1.13 57.4
1.22
10.99 69.6
1.0
9.2 79.8
2.5
11.79 94.1
2.21
Source: Richard Strong & Associates
f
35.7 1.32
I1 - 59
market and second, the processing of milk for local con-
sumption. Local processing is the historic response to
transportation proble&. Cheesemaking can substantially
increase the economic return to a remotedairy. This strategy
has been accomplished in other remote areas. For example,
Minnesota and the south coast of Oregon have successfully
launched cheese processing ventures. Cooperatives in these
areas produce cheese from locally produced milk. The cheese
is then marketed nationwide.
In Mendocino County there would also be the opportunity to
market specialty cheese to visitors. Because of high visitor
volume on Highway 1, the coastal dairies have a unique
opportunity for on-farm sales.
3
If local dairies along Mendocino's coast cooperatively pro-
cessed milk for local consumption, the additional hauling
cost, which is presumably absorbed by the dairyman, could be
converted to income.
This can be demonstrated by examining the costs associated
with the current milk marketing cycle shown in Table 11-10.
-
I1 - 60
~.
DRAFT REPORT
11-20-80
The cost of hauling represents nearly 7% of the retail cost
and more is taken in handling than is the case where milk is
consumed locally.
At issue is the need for an intensification of efforts by
local agriculture to compensate for a long-term trend in
which the industry has been increasingly centralized. Large
central processing plants and distribution centers create a
system whose transportation burden falls most heavily on
pr'oducers (and consumers) at the outer periphery of the
marketing area.
f, Competitive Advantages/Disadvantaqes of
Mendocino Dairies
Coastal dairies have some important advantages:
Temperature is lower due to summer fog which increases
milk production, The average is 600 versus 850 for the
area around Sonoma/Santa Rose,
- -.
Isolation from population centers and other dairies
reduces problems from disease.
I1 - 61
DRAFT REPORT
11-20-80
The critical green feed period in the spring is extended
near the coast, further reducing feed costs below the
average for the area.
Coastal dairies were formed at a time of reduced land
costs, have greater pasture resources for incidental
income, raising replacements, and producing hay silage
and green chop.
Coastal dairies often have access to fertile terraces,
stream bottoms, and irrigation water.
Labor costs are approximately 17% below those of the
interior because of the general absence of unions.
Isolation is the major problem. Everything costs more
to haul to the coast and to ship out. Services are hard
to come by and more expensive due to the distance. .
During the tourist season congestion increases trans-
portation problems.
I1 - 62
DRAFT REPORT
11-20-80
The attractive coastal environment simulates demand for
non-agricultural land uses including second home devel-
opment and visitor serving uses.
Farm ownership splits over several generations have
resulted in management problems. This, and the lack of
interest among the younger generation, threatens dairies
on the Coast of Mendocino.
The same conditions that led to the oepration of cheese
manufacturing in Point Arena and Manchester in the late 19th
century still pertain. With a doubling, or tripling of
transportation costs in the next decade, conditions will
trend back to times when local food production was more
important. Local cheesemaking has all the local advantages
of local milk production and processing plus:
Higher fat content of locally produced milk would pro-
duce excellent cheese.
More secure market via cheese, versus dependence on a
-larger,.remote marketing program dependent upon govern-
ment programs.
Potential labor availability for manufacturing and
I1 - 63
i
sales.
DRAFT REPORT 11/20/80
Means of avoiding high'cost of transportation for milk.
Improved local economy.
Disadvantages of cheese production, if it proves feasible,
are few, but at least initially include a weakening of the
current milk marketing relationships. A small plant on the
Pilot Study, which utilized fifty percent of the dairy's
production would have little impact. If the plant was
enlarged or !the other dairies began cheese production with
their Class I milk, the unit cost of transporting the remain-
ing milk would increase. Also, the contractual relationship
with the cooperative could be weakened.
5. Farm Unit Analysis
The farm unit analysis begins with the defin-
ition of an actual farm unit. The farm unit analysis is
dependent upon the specific characteristics of a given farm.
Generalized farm cost/income data must be fitted to the
actual capacities and characteristics of an actual farm, and
characteristics ofanowner/operator. The farm unit analysis
utilizes the Pilot Study as this farm unit. Three "financial
.
"-
I1 - 64
DRAFT REPORT 11/20/80
prototype" individuals are compared as owners of the ranch.
The purpose of the financial prototypes is to reveal a range
of financial performance, based upon the financial status Of
an owner.
The farm unit analysis consists of three main steps:
Compilation of farm unit operational cost data;
Compilation of capital investments required for the farm
unit including land, machinery, equipment and livestock:
Projection of farm unit cash flow.
Although management varia.tions may yield different gross
operating margins, it is assumed that each owner prototype
would achieve the same performance. However, the capital
investments analysis and subsequent cash flow analysis are
subject to the specific financial characteristics of each
owner prototype.
The Pilot Study area is a good case study because the ranch
is typical of many ranches along the Mendocino Coast. The
-
ranch could be operated for production of dairy products,
beef or sheep. Curr.ently, it is used as a combined dairy-beef
I1 - 65
..
DRAFT REPORT 11/20/80
opera.tion. Similar to many coastal ranches, the Pilot Study
currently enjoys an existing supplemental use, timber. Tim-
ber is especially advantageous to beef operations where
variations in beef.prices lead to a cycle of profitable and
unprofitable years. Timber can be sold during the un-
profitable beef years.
The Pilot Study is an integrated farm unit operation. Unlike
dairies in more close-in areas, such as Sonoma County or the
San Joaquin Valley, the Pilot Study tends to be more self-
-contained. For example, while the Sonoma dairies import
most of their forage, the Pilot Study is able to produce most
of its forage on-farm. Also, large dairies in San Joaquin
Valley typically purchase replacement heifers, while the
Pilot Study raises its own. These advantages are due to the
availability of good land and the mild coastal climate.
However, these advantages are offset by several disadvant-
ages, such as high transportation costs and lack of close-by
support services.
a. Description of the Farm Unit
The farm unit analysis is based upon the
existing Pilot Study. Presently, the ranch is a "mixed use"
operation which includes the following components:
11 - 66
DRAFT REPORT 11/20/80
COMPONENT QUANTITY 1,
Pasture
Irrigated 150 acres
Non-Irrigated 150 acres
Rangeland (partially timber) 1000 acres
Cultivated crops . Oatflatch Silage 130 acres
Livestock
Dairy . Beef Cattle
. Timber
150 milking cows
100 steers
50 heifers
800,000 board feet average
annual harvest from approximately
1000 acres mixed Douglas fir
/
and redwood.
The integration of these components on the Pilot Study
permits numerous economics that would be lacking from single
component operations. However, the integration of various
farm operations requires a working knowledge of each com-
ponent and ‘a continual high level of management.
The resource base of the Pilot Study area is best utilized
under this integrated framework. Other agricultural opera-
tions are possible. The ranch could operate as a cattle
. . " .. ." . "" ." "" . .. _" . ..... -" " . . . -
DRAFT REPORT 11/20/80
ranch or raise sheep. Although the terrace soilslack aprime
soil classification, row crops have been grown in the south
coast area and could be grown again. At the present time,
however, the best return on the investment in the Pilot Study
area can be realized by an operation similar to the existing
operation. This is because milk is currently a profitable
commodity. The current price/cost relationship for milk is
favorable. .
There are possibilities for even further integration at the
Pilot Study; if the milk, which is currently exported in its
raw form, was processed on site for local or visitor con-
sumption. This possibility is considered as a supplemental
use in the following mixed use program discussion.
b. Owner Prototypes
The owner prototypes for the Pilot Study
include the existing operator, a young rancher seeking an
agricultural investment, and a wealthy investor seeking a
good land investment with tax advantages. For purposes of
comparison,.. each operator is assumed to operate identical
farm units, the same acreage, same number of livestock,
similar machinery and equipment and, in general, achieve
similar operational costs. Each of the owner prototypes is
purely hypothetical. While the actual current owner serves
7
DRAFT REPORT 11/20/80
as a basis of the existing owner prototype, financial assump-
tions do not reflect the actual finances of the Pilot Study.
The purpose of the owner prototypes is simply to illustrate
the impact of a range of owner types on the economics of the
Pilot Study area.
The differences between the owner prototypes are expressed in
the mechanics of the farm unit analysis. Assumptions are made
concerning each prototype owner's investments, cost of own-
ership, tax advantages, etc.. In general, the existing owner
has a large financial advantage in that his cost basis is low,
relative to the cost required to "buy in" at the present time.
A wealthy investor can withstand low economic returns which
may accompany a new investment in I agriculture because of
various tax advantages and the fact that the agricultural
operation is not the sole source of income. The most
demanding owner prototype is the farmer, without major cap-
ital reserves, seeking an agricultural investment. This
person must finance the investment commercially. With the
present high cost of borrowing, the capital loan debt service
can cut deeply into operational profits.
c. Farm Unit Costs and Income
An estimate of farm unit costs and income
for the Pilot Study is shown on Table 11-11. It is recognized
t
DRAFT REPORT 11/20/80
that actual costs and income will vary considerably from year
to year to year. The assumptions made concerning these values
are representative of current farm operations but are not
intended to reflect the existing operation. The purpose of
the cost and income summary is to reveal the potential
economics of the Pilot Study under a variety of ownership
prototypes, and to assess the impact of supplemental uses.
The cost and income summary includes only farm commodity
income and direct operational costs. Other costs, such as
debt service, taxes, insurance, etc., are included in the
subsequent steps of the analysis. The gross operating margin
of the Ranch from dairy and cattle operations is shown to be
$119,595. This margin is considered constant, regardless of
owner prototype..
The timber opreation, which is on a sustained yield basis,
permits the harvest of 800,000 board feet of timber annually.
This timber is sold to local mills as stumpage. The assumed
unit price is $300 per thousand board feet. This results in
a total income of $240,000. It is assumed that approximately
25% of this income must be returned to the land in the form
of management, road maintenance, erosion control, clearing,
and reforestation. The gross operating margin for the timber
operation is therefore $180,000.
I1 - 70
- .. ~ ~. "- .. - ." . - ". DRAFT REPORT
Figure 11-11 12/12/80
Economic Analysis of Farm Unit, Form 1
Operational Cost and Revenue Summary
Description of the Operating Unit: Crop/Livestock: DairY/Beef
Size : 150 Cows
I
GROSS PRODUCTION INCOME
Milk @ 13,000 lbs./COw Annually
Calves, Steer @ 475 lbs.
Calves, Heifer @ 425 lbs.
e Cull COWS @ 950 lbs.
0 Cull Bulls @ 1,500 lbs.
1. TOTAL PRODUCTION INCOME
PRODUCTION COSTS
Feed ( Import ) -
Alfalfa Hay
Grain Concentrate
- Feed (Forage Produced On-Farm)
Pasture (Partially Irrigated,
Silage
Average AUM = 6)
- Pre-Harvest - Harvest
- Labor (Milker &I Full-Time Man)
General Expenses
Vererinarian h Medicine
Artificial Insemination
Dairy Supplies
Utilities
Milk Hauling
Tests, Dues, etc.
Machinery L Equipment
Operation (Not including silage
production)
2. !l'OTAL OPERATIONAL COSTS
3. GROSS OPERATION MARGIN
ani t
m. CWT. m. CWT. m.
TON
TON
ACRE
ACRE
ACRE
MAN/-
cow
COW
COW
COW
CWT MILK
COW
DOLLAFG
Price or
Cost/Uni t
$ i2.76
90.00
80.00
50.00
55.00
_____~
$120.00
150.00
50.00
85.00
55.00
15,000.00
10.00
13.00
18.00
25.00
.65
16.00
-
Quantity
19,500
100
20
30
2
~
300
450
300
130
13 0
*.
150
150
15 0
150
19,500
150
-
+
"
"
" ,
'c-
Value
or Cost
$248,820
42,750
6,800
14,250
1,650
$314,270
$ 36,000
67,500
15,000
11,050
7,150
30,000
1,500
1,950
2,700
12,675
2,400
3,750
3,000
$194,675
$119 , 595 I:
I1 - 71
DRAFT REPORT 11/20/80
d.. Investment Costs ""
Investment costs for the land, machin-
ery, equipment and livestock necessary to operate the Pilot
Study vary directly with the owner prototypes. The existing
operator has relativelylowinvestmentcosts because the land
is assumed to be owned free and clear of debt. Machinery,
equipmentand livestock are typically purchased when needed,
as they wear down and require replacement, The existing
operator might buy some new machinery or equipment each year,
but would never be required to buy a full complement in any
year as a new investor might. The new investor faces a major
capital investment. It is estimated that the purchase price
in 1980 of the land, machinery, equipment, and livestock for
the Pilot Study would equal $2,925,700, The new owner
prototypes repre'sent two extremes of the possible spectrum.
The first must finance a large portion of the capital invest-
ment. The second, who has access to substantial capital is
able to purchase the required investments with cash.
The investment cost summaries for the three owner prototypes
are shown on Table 11-12. It is assumed that each owner would
I1 - 72
Flqure 11-12
Cconomlc Analysls of a Farm Unit, Form 2
Investment Cost Summary
" Fort Hew investor, Galletti Ranch lConventlons1 ?lnar)&lg)
Investment
1. e
3. Forest
2. Arable
4. Other
5. Total
a. Tractor 75HI
1. Machinery
0. Plckup 1/2 1
9. Tractor 45HI
2. Front End
1. Plckup 4 x
Loader
13.
20.
Auger Wagon
Pump
Irrigation
Dlsc 12 It.
Float
Sprayer
Plow 118
Graln Drill
HDY 4-16
tqulpent
lrrlgatlon
shop Tools
Harvent Mcl
spr lng Toot1
"__ Total
Amua I
Btralghl
Line
-
115
150 515
1,200
200 60
456
120
133
113
66
567 261
5,000
240 6,661
11,249
on- 6
Replace.
rent
Reserve "
601
490 691
1,105
101
50
478 193
117 59
100
491
234
4,130
251 5,860 "- 15,025
2,000,000
____ *o,ooo
" a
lnteres
Rate
121
Ter
YI.. -
30
B
lei
PKlnClW!
" !9,661 - "
Y
11
1
Interest
240,000
"
0.000
13
5
lnteresl
235,241
_"
__ " 7.7oa
I4
YCi
'rlncl& ".
22.981
*lgure 11-12, contlnued
~onmlc Analysle of a Farm unlt, Form 2
Investment Cost S-ary
For: New Investor, Galletti Ranch [Convcntlonal Flnanclng) r- lnvcstment
t
26. Hllklnq Bar
2s. Egulpment
21. Feed Barn
29. MIlklng
21. Other Bldgs
30. Hausea
31. rencea
12. Corrals,
33. Bllage
Cqulp.
Getea
cqlllpellt
4. E: 7. E 1. Llvcetock
9. Mtlk Covs
0. Bulla 1.
3
2.
1.
5.
6.
1
Quantll
unl t
Invc
2
coat
(1)
(1)
(1)
200, 000
(1)
(1)
f 1)
12,500
12,500
120,000
126,000
6,000
, 92SI 700
(1) Included In purchase prlce o€ ranch.
r
Useful
L1 te
5
Annual
Stralght
Line
5,000
625
5,625
L2.171
MI 6
men t
Replace
Reserve
I, 380
8,904
524
L3.929
1
hunt
Borrowed
1.750
a8 ,200
296.950
n
Interen
Rate
15
15
-"
0 Ye
- Pr In-
1,297
13.081
57.32R
Y
" 11 1
Interes
1,313
3,230
w
b'
13
5
Interes
310
3,432
..
"
t
.lgure 11-12. mntlnued
Cconalc Analysln at a rarm Unit, ror. 2
Xnventment Cost Sumary
Cot: New Investor. Gallettl Ranch L~ll c-~
Invenhcnt n 6
Replace
mnt
Renerve
15,025
8,904
E-
- Eves
il
Percen Ellglb
100
LOO
I on
._ - "
""
Xnve
2 cost
500,000
287,200
12.500
126.060
,925,700
ecvlce ___. 8
lntcrca Rate
1 Quantity,
Unl t
2100 ncren
All
All
All
4 Omeful
Llfe
5
Annual
Stralght
Llne
17,249
5,625
i2,(7(
7
Munt
Borrowed
Term
Yrs - 0
Ye
Prlnclpa
" 12
PClnclpa
Yf
14
YC
Prlnclpc
""
- Land
nilchincry
Cqulpmnt
See Detalla on nev Investor worksheets.
.
Flgure It-12, continued
acOmnlc Analyela of a Farm Unit, Form 2
Investrnt Cost Sulrsry
rot: Cxlstlng Operatlon, Land Fully Omad
Investment
Llvestock
Rll
All
All
Inve - 1
Unit
cost Quantity/
2
2100 Acres 500,000
200,000
zoo ,000
900,000
I
Uacful
Llte
Annual
Btralght
Llne
10,000
3.000
13.000
?EL"- 6
wn t
Replace-
Reserve
~
15,025
1.900
"-
7
hunt
br rowed 1
Year I
Prlnclpal Interesl
11
Y
.
DRAFT REPORT
11-20-80
have a similar complement of machinery, equipment, and live-
stock. It is also assumed thzt much of the equipment required
for the Ranch, such as barns, fences, houses, etc., would be
included in the purchase price.
e. Farm Unit Cash Flow Pro forma
An accurate estimate of farm unit econ-
omics requires that the income and costs are projected over
time and that the tax implications of the farm unit are
revealed. Table 11-13 shows a per year cash flow proforma for
each of the owner prototypes. Dollar values are expressed in
1980 constant dollars. The primary conclusion drawn from
this analysis is what might be expected. The existing
operator,.with substantial equity in the ranch, is in a very
comfortable posit'ion. The new investors do not do so well.
The investor with a cash purchase can realize a return to
investment comparable with other secure investments. The new
inves.tor, who must borrow substantial portions of the cash
required, shows a substantial loss for at least the first few
years of operation. It is important to note once again that
these numbers are hypothetical, and in actuality would tend
to vary somewhat from year to year because of changing
commodity prices, production decisions or new capital in-
vestments.
Figure 11-13
Economic Analysis of a Farm Unit, Form 3
Cash Flow and Economic Return Summary
Existing Operator (Land Fully Owned)
YEARS
Year 1 Year 5
Cash Tax Cash Tax Cash Tax
. CAPITAL INVESTMENT Flow Flow Flow Flow Flow Flow
1. Land
180,000 180,000 180,000~180,000 180,000 180,000 8. Timber Operation 119,595 119,595 119,595 119,595 119,595 119,595 7. Dairy/Beef Operations
GROSS OPERATING MARGINS
6. Total Investment 1,026,000
5.
126 , 000 4.
200 , 000 3. Equipnent
200 I 000 2. Machinery
500,000
10.
11. Total Gross Operating Margins 299,595 299 , 595 299,595 299 I 595 299 , 595 299,595
FIXED AND CASH COSTS
- " -
9. ,= -
I 12. Lana Rent
13. Property Tax
14. Insurance
15. Depreciation 16. Replacement Reserve
17. Total Interest Payment
18. Total Principal Payment
19. Interest on Operating Loan
- - - - - - I
2,9201 2,920 2,9201 2,920 2,920 2,920
27.
ECONOMIC =TURNS
I
237,015 228,090 228,0901 237,015 228,0901 237,015 30. Adjusted Annual Residual Margin 24,000 24,000 24,000 24,000 24,0001 24,000 29. Return to Operator Is Labor
261,015 252,090 261,015 252,090 252,090 261,015 28. Net Economic Return
-
Figure II-Ur continued
Economic Analysis of a Farm Unitr Form 3
Cash Flow and Economic Return Sumaty
I P;. I I =
I I I I IU .
11. Total Gross Ooeratinq EIarqins
FIXED AND CASH COSTS
299,595 299.595 299.595 299,595 299,595 299,595
12. Land Rent
13. Property Tax
14. Insurance
15. Depreciation
16. Replacement Reserve
17. Total Interest Payment
18. Total Principal Payment
19. Interest on Operating Loan
20. Legal and Accounting
I
29. Return to Operator's Labor I 30. Annual Residual Economic Margin I (739,532) I157,399)1 16,9191 73.900 /130364!140.279 1
Figure 11-13, continued
Economic Analysis of a Farm Unit, Form 3
Cash Flow and Economic Return Summary
For : New Investor, All Cash Purchase
YEARS
Year 1 I Year I Year
Cash I Tax I Cash I Tax I Cash I Tax
2. mcninery
- -
I 9:. I I I I I I I I
11. Total Gross Operating Margins 299,595 299,595 299,5951299,595 299,5951299,595
FIXED AND CASH COSTS
12. Land Rent
13. Property Tax
14. Insurance
15. Depreciation
16.. Replacement Reserve
17. Total Interest Payment
18. Total Principal Payment
19. Interest on Operating Loan
20. Legal and Accounting
" I "*
I I - *
2,920 2,920
1,000 1,000 1,000
2,920 2,920 2,920 2,920
1,000 1,000 1,000
-
I I I I I 1 LL.
23. Tctal Fixed and Cash Costs
OTHER RETURNS
251,144 250,151 251,144 250,151 251,144 (2,675,611) 24. Return From Farm Operations
48,451 49,506 48,451 49,506 48,451 2,975,206
- - - - - - 25. Sale of Assets r .\ I 26.
"
I I c I I I I Lf. I
. ECONOMIC ReTuRNS I
28. Net Economic Return
29. Return to Operator's Labor 251,144 250,151 251,144 251,144 250,151 . (2,675,611)
277.144 227,144 h6.151 226.151 227.144 (2.699.6111 30. Annual Residual Economic Margin
24,000 24,0001 24,000 24,000 24,000 24,000
DRAFT REPORT 11/20/80
(1) The Existing Owner
Barring major changes in dairy ec-
onomics, the prototypical existing owner should continue to
enjoy a good return on invested capital. The $1,026,000
investment produces annually a residual economic margin of
$228,090 or 22% of the total investment. The key problem with
any existing owner, especially one who is approaching re-
tirement age, is transfer of the property to the new gene-
ration. If no heirs willing to continue the operation exist,
the ranch will have to be sold. Problems associated with
purchasing a dairy are explored in the next two owner proto-
types.
(2) New Investor, Conventional Financ-
ing
Investing in a dairy is extremely
costly. The new investor, who must rely on conventional
financing, must secure loans for over $2,000,000 for the
ranch. Nearly $700,000 cash would be needed for down payments
in today's tight money market. Such an investment might be
difficult or impossible. For such a deal to work, the
existing owner might have to carry the mortgage or otherwise
participate in innovative financing for the new owner.
Over time the financial status would improve. The first few
years of operation would result in cash losses in addition to
I1 - 81
DRAFT REPORT 11/20/80
required investments. By the fifth year of operation, the
ranch should show amodest return, as thevalue of commodities
sold (milk, beef, timber) increase in proportion to the base
investment over time.
(3). New Investor, All Cash Purchase
with Additional Income to Protect
The owner prototype who had the
means to make an all cash purchase would face a similar
investment as the conventionally financed new investor.
However, the reduced cash flow requirements due to lack of
debt service and the investment credits available to protect
other income would make the dairy a profitable venture beyond
the first year's initial investment. The annual residual
economic margin is shown to equal 9.2%.
6. Mixed Use Programs
The mixed use programs are two hypothetical
combinations of the existing operation of the Pilot Study
with supplemental uses that have been shown to be possible.
The intention of the mixed use programs is to show how these
supplemental uses may effect farm unit operation and econ-
omics. The market analysis indicated two markets for supple-
mental uses along the south coast of Mendocino County,
visitor serving uses and cheese production.
I1 - 82
DRAFT REPORT
11/20/80
These findings led to the development of the two mixed use
programs, a guest ranch and an on-site cheese production
plant.
It must be noted that the Pilot Study at present is a highly
integrated, mixed use operation which combines dairy-beef
cattle and timber operations. The mixed use programs, while
developed for the Pilot Study, could be developed elsewhere
along the south coast of Mendocino if similar site character-
istics were available.
a. On-Farm Cheese Production
The addition of on-farm cheese produc-
tion to the Pilot Study would add another level of integration
to the existing operation. This would be consistent with the
strategyof attempting tocompete more effectivelywith dairy
products imported to the country. The cheese production
facility proposed is relatively small, processing approxi-
mately fifty percent of the present milk produced annually by
the dairy. The remaining production would continue being
sold as it is at present to the Petaluma Cooperative.
3
The actual cheese processing plant would be small, requiring
a single, new building on the ranch adjacent to the existing
I1 - 83
DRAFT REPORT
11-20-80
. milking barn. Total investment in the building and required
cheesemaking equipment would be approximately $58,000. La-
bor requirements would equal approximately 3,000 hours per
year based upon a five-day per week production schedule.
The estimated costs and income associated with on-farm
cheese production are shown on Table 11-14. Table 11-14 shows
a favorable economic return from the cheese plant. The return
is shown to vary depending upon how the initial capital
investment is financed.
The impact of the on-farmcheese production plant on the dairy
would include greater management responBibility, additional
capital and operating expenses, and marketing costs. The
economic return from the cheese production would add to the
Ranch's other income and make the Ranch more profitable. A
key advantage to the dairy is reduced dependence upon fresh
milk sales to the Petaluma Cooperative. Income coult! be
substantially increased if on-farm sales of the cheese could
be promoted. A small retail outlet could be developed on the
Ranch to facilitate sales to passing visitors. Cheese
2roduction produces whey as a by-product, which is a valuable
food for livestock. It is commonly used to feed pigs. The
potential for commercial pig production is yet another ad-
vantage of the cheese plant.
Table IX-14
Estimated Costs and Income for an On Dairy
Cheese Plant Handling 3000 lbs. Milk Dailx
(January 1980 Dollars)
DRAFT REPORT
11-20-80
1. Annual Operatins Expenses
Item Cost
Milk at Estimated Production Cost ($9 Per
Starter
Rennet
Fuel and Electricity
Maintenance
Miscellaneous
Packaging
Hired Labor
CWT) $ 98,550
3,395
694
2,606
1,283
5 20
5,475
20,000
TOTAL $ 132,523
2. Annual Operating Income
Cheese at 10% Yield, 109,500 lbs. @ $1.50 lb. =$ 164,250
3. Gross Operating Margin = $ 31,727
4. Investment Costs
Capital Investments - Building, 1400 Square Feet $ 28,000 - Miscellaneous Equipment 30,000
TOTAL 58,000
Fixed Costs - Depreciation - Taxes - Insurance
TOTAL
5. Net Operating Margin
With Cash Investment
With Mortgaged Investment
($58,000 @ 12%, 30 Years)
1,500
580
500
2,580
= 29,147 = - 7,159
$ 21,988
I1 - 85 .. . . .. -
DRAFT REPORT 11/20/80
The Pilot St .udy t qas shown in the faib unit analysis to be an
economically sound operation for either the existing owner or
a new investor with substantial cash. For these owner
prototypes, the cheese plant would simply improve economic
returns. The owner prototype must rely upon conventional
financing to purchase the Ranch and required equipment, was
shown not feasible at least for the first few years of
operation. The cheese plant would not improve the cash flow
of this owner prototype to the point where the total operation
would break even during this initial crucial period of the new
business.
b. Guest Ranch
The market analysis indicated that a
guest ranch could. be successful along the south coast of
Mendocino County. The Pilot Study site has the features that
would be conducive to such a guest ranch, including coastal
access, stream access, existence of anoperating farm, scenic
quality, and land that may be physically suitable for devel-
opment. Capital costs would be high. The risk, given limited
projected growth in recreation demand along Mendocino's
south coast, would also be high. The most secure investment
would be in a rustic but diverse guest ranch resort, which
served several visitor markets, including fishermen, divers,
overnight travelers, vacationing families and other groups.
I1 - 86
DRAFT REPORT
11-20-80
The proposed guest ranch would be composed of the following
facilities:
A central building containing the dining room, camp
store, and administrative office.
A small Summer dam on Elk Creek for water supply, fishing
and swimming.
Sites for 30 recreational vehicles or tents, and neces-
sary facilities.
20 cabin lodgings.
Necessary access roads and trails.
Activities at the ranch would include fishing in both the
stream and ocean, riding, ranch tours, and swimming. The
guest ranch would require much more labor and management than
the cheese plant, in addition to the much greater capital
investment. Because the guest ranch is so much a departure
from the ranch operation, it would be likely that it would be
leased to another operator/manager. Food service co~ld. ais0
be leased out as a concession. The estimated costs and income
for the guest ranch are shown on Table 11-15. The guest ranch
4
DRAFT REPORT
11-20-80
is assuned to operate 9 months of the year. Total investment,
required is estimated to be approximately $500,000. Occu-
pancy rates shown represent an average of weekend and weekday
occupancy. These rates were derived from comparable re-
creation facilities in Mendocino County. If the occupancy
rates are higher, profits would increase proportionately.
The annual debt service would become less a factor over time
if inflation continues-
The guest ranch would have a much different operational
impact upon the existing operation than the cheese plant. The
financial impact, at least initially, would be less positive.
Operationally, the guest ranch would probably require more
management and conflict to some degree, with both the
dairy/beef cattle operation and the timber operation. The
range presently used by cattle would be reduced slightly by
the development. The timber operation would probably lose
some timberland, depending upon the exact location of the
resort. Also, cutting practices would have to be improved to
reduce visual impact of logging in the areas surrounding the
resort.
The impact of the guest ranch on the owner prototypes is
similar to the cheese plant, but the profit potential is
probably lower. The existing owner and the new investor with
DRAFT REPORT
11-20-80
Table 11-15
Estimated Costs and Income for a Guest Ranch
(January 1980 Dollars) h
ITEM COST
1. ANNUAL OPERATING EXPENSES
Hired . Labor
Utilities/Fuel
Supplies/Repairs
Advertising
Legal and Accounting
$ 53,500
5,000
2,500
1,000
3,000
2. ANNUAL INCOME (275 DAY SEASON)
20 Cabin Lodgings @ $3O/Day, 62% Occupancy f 102,180
30 RV Sites @ $8/Day, 62% Occupancy = 40,872
Dining Roam and STore Margin, 10% Gross Sales = 13,900 .
TOTAL $ 156,952
3. GROSS OPERATING MARGIN - 91,952
4. INVESTMENT COSTS
Capital Investments
Dining Hall/Administration Building = $150,000
Cabins, 20 @ $8,000 Each 160,000
RV Pads, 30 @ $800 Each 24,000
Water and Septic Systems 40,000
Road Improvements 100,000
Smar Dam 25,000
TQTAL $ 499,000
Fixed Costs - Depreciation - Taxes - Insurance
TOTAL
20,000
5,000
2,500
$ 32,500
5. NET OPERATING MARGIN
With Cash Investment $ 59,452
With Mortgaged Investment - 49,400
80% of $499,000 @ 12%, 30 Years (First Year) ($ 10,052)
I1 - 89
" ". . "_ "_ ~ ~ "_
. ." . - . " ." ". ..
,I
DRAFT REPORT
12/12/80
substantial cash are shown to profit from the dairy/beef
cattle and timber operation alone. The new investor who must
rely upon conventional financing is not substantially aided
by the addition of the guest ranch, although initial cash
losses would be reduced.
B. San Diego County -- Carlsbad
The Carlsbad Pilot Study Area is not a single
parcel, as in the case of the Mendocino-County Pilot Study
area. It is an area, roughly 4,000 acres in size between Aqua
Hedionda Lagoon and Batiquitos Lagoon in San Diego County as
shown on Figure IV-16. The area contains several hundred
narcels ranging from large agricultural parcels to small
residential parcels and subdivisions. The area is nre-
dominately within the City of Carlsbad, and is surrounded and
interspersed with urban development. Because of past devel-
opment nractices, agricultural lands are under e!*treme pres-
sure for urban develonment. As such, this area nrovides a
good test for innovative agriculture preservation tech-
niques.
The market analysis for the Carlsbad Area indicated that a
reasonably high level of demand exists, within the market
area within which the study area lies, for the full range or
urban land uses, including residential, commercial and in-
dustrial. The nroximity of the study area to both trans-
I1 - 90
". .
DRAFT REPORT 11/20/80
portation (1-5, Paloma Airport Road, etc. ) and the ocean, as
well as its remaining large amount of open land, in com-
bination with a growing regional economy, supports this
demand.
In spite of conflicts with urban uses and high land values,
agricultural production in the study area has continued.
Agriculture is still the dominant land use and the area
remains a major producing area in San Diego County. The area
has a climatic condition which is ideal for pole tomatoes and
certain flower crops'.
A key premise of the supplemental use concept in this urban
fringe area is that a coordinated planning effort, in co-
operation with landowners and developers, can result in a
compatible mix. of urban and agricultural uses and insure the
long term preservation of key lands for agricultural use. A
distinction must be drawn between the application of supple-
mental uses in rural areas such as Mendocino County and urban
fringe areas, such as South Carlsbad. In the rural areas,
supplemental uses are essentially an economic development
program, where the Coastal Conservancy or the local govern-
merit support improvements to existing farm operations. In
rural areas, land use regulation is viewed as the main
..
- "_ . . . . - - -. "
. . . . . - .. 4
"
component of the agricultural preservation program. Supple-
I1 - 91
.
Figure 11-16
Regional Locator
DRAFT REPORT
11-20-80
I1 - 92
. .” . ”
Figure 11-17
Carlsbad Study Area and Case Study Sites
I1 - 93 ~. ~
.. . 1" -
DRAFT REPORT
12/12/80
mental uses are intended to mitigate hardship situations and
hopefully improve local agricultural economics.
a
The situation is entirely different in a developed urban
area. High land values and conflicts with urban uses and a
general decay of the business infrastructure necessary for
agriculture typically lead to a continual decline of agri-
cultural operations. This Drocess occurs in many cases in
spite of land use regulations which attempt to hold the
agricultural use. In these urbanized areas, supplemental
uses must be combined with innovative types of land use
regulations such as density transfer or planned unit devel-
opments. Under such an approach, the value of the agri-
cultural land for urban uses is used to preserve a portion of
the land for agricultural use. By providing an ongoing source
of revenue or a one time cash payment, this approach may not
always be appropriate. Also, there will be numerous problems
to be solved regarding the inherent conflicts between agri-
cultural and urban uses such as operational conflicts,
spraying, dust, noise, crop damage, etc. The conditions for
the appropriate application of supplemental uses to preserve
agricultural land on the urban fringe occur when an agricul-
tural resource exists, or when the agriculture is a component
of the urban open space system or contributes to stable urban
boundaries.
I1 - 94
DRAFT REPORT
12/12/80
The supplemental use concept for the urbanized and urban
fringe areas is essentially two-fold. For urbanized areas
where roads and urban services are already available, and
agricultural use is already adversely affected by adjacent
urban development, a density transfer approach could be
effective in preserving agricultural land in single owner-
ships or in groups of cooperating ownerships. Density
transfer in this case means the shift of division on a
specific parcel or group of parcels. The test as to the type
of density required in relation to the entire ownership would
have to be negotiated on a case-by-case basis, but general
guidelines can beestablished for agivenarea. Oneessential
rule is that the owner's expectation about the total market
value of the land -- with the development concentrated upon
a portion, plus. the residual agricultural value -- must be
high enough to induce the landowner to participate in the
project. Another rule is that both the landowner and the
potential developer must not be under the impression that
land use controls are transitory. Also, development should
be concentrated on the non-agricultural or otherwise
non-viable portion of the parcel.
Another key difference between the density transfer concept
recommended for urban fringe areas, and the supplemental use
concept, as applied in the more rural areas, is that there
I1 - 95
. ."
DRAFT REPORT
12/12/80
would not necessarily be an ongoing relationship between the
new 'supplemental' use and the remaininq aqricultural use,
which would generally be the case in rural areas. In fact,
an existing landowner, who may wish to sell off land, could
put a project together in concert with the local government,
sell the supplemental use portion of the land to one buyer and
the agricultural portion to another buyer. Land divisions
will nearly always be involved.
For urban fringe areas where the direct impacts of urban uses
are absent or are not so severe as to make continued agri-
culture impossible a different approach should be used. The
LCP being prepared for the City of Carlsbad recommends an
"Agricultural Subsidy Credit" Program, which in its affect is
similar to a system of transferable development credits. In
the Carlsbad case, incentives are created for developers in
a "receiving" area to contribute to a fund which will be used
to compensate owners of land in an "agricultural preser-
vation" area. In this way a new measure of equity is created
for owners, who, acting upon previous governmental action,
bought 1and"'at prices reflecting a potential for urban
development.
The following sections describe the study area, provide a
market analysis, a farm unit analysis, and a technical
description of the mixed use proposals for the Carlsbad Study
Area.
11 - 96
.. . ~"
1. Study Area Description
a. Land Form, Habitat, and Resources
The South Carlsbad Study Area encompass-
es thegeomorphic unit which commonly runs parallel to the San
Diego County coastline, consisting of beach, seacliff, and
sea terraces. The natural landscape and habitats have been
greatly modified by human actions, including urban devel-
opment, transportation systems, and agriculture. The re-
maining natural areas include the steep, coastal
scrub/chapparal areas, and the salt marshes surrounding the
lagoons, The littoral zone is primarily occupied by Carlsbad
State Beach, developed for recreation and overnight camping.
The grasslands occur upon fallow agricultural land, Coastal
scrub/chapparal.occupies the steep slopes and the arroyos and
in interspersed among the agricultural operations, which
occupy the terraces and lower slopes.
b. Environmental Constraints
The land forms, habitats, and resources
combine in nature to define environmental amenities and
constraints. Natural factors create opportunities for, as
I1 - 97
... . - .. - ""
. ". . "- ~ - . . . - . __ . .. .. .
A
DR4FT REPORT 11/20/80
well as constrain, human use. Natural factors create an
opportunity when a resource can be extracted or utilized.
Natural factors constrain development, either because of a
need to protect or manage a resource or because they create
hazardous conditions. Environmental constraints in the
South Carlsbad Study Area include both resources and hazards.
Major resources include the unique agricultural potential of
much of the area, the biological resources surrounding the
lagoons, and the state beach along the ocean which is a
valuable recreation resource.
No major environmental hazards exist within the study area,
however, the area is subject to erosion problems. Sewer and
water problems are mitigated by existing public utilities.
The barrancas (steep, narrow canyons), in addition to having
erosion problems, are subject to landslides and fire hazards.
These environmental hazards can be mitigated by appropriate
project siting, size, engineering design.
c. Land Use Regulation
The study area is subject to the land use
regulations Of Sari Diego County, the City of Carlsbad, and the
California Coastal Commission. The largest portion of the
I1 - 98
DRAFT REPORT 11-20-80
study area is within the city limits of the City of Carlsbad.
County of San Diego lands include a band along Batiquitos
Lagoon, and two large "islands" in the center of the study
area, surrounded by the City of Carlsbad.
The portion of the study area under the jurisdiction of
Carlsbad is primarily zoned for residential or commercial
uses. The large parcels north of Palomar Airport Road are
zoned for agriculture and include an agricultural preserve.
Carlsbad's general plan is generally consistent with this
zoning.
The county lands are presently zoned for agricultural use
with permitted densities ranging from one acre to ten acre
minimum lot sizes. The San Diego Community Plan shows the
county "islands" mostly in a low density residential cate-
gory. The land along Batiquitos Lagoon remains in an agri-
cultural classification.
Over the past eight years,. the major influence on land use
within the study area has been the State Coastal Commission.
This regulatory effort has emphasized preservation of coast-
al resources, including recreation, scenic quality, nattiral
resources and agriculture. This state regulatory effort is
in the process of being transferred back to the local agencies
TT - 99
DRAFT REPORT
11-20-80
via adoption of Local Coastal Programs (LCP's) . These pians,
mandated by the 1976 Coastal Act, are currently being com-
pleted by the County of San Diego and for the City of
Car lsbad.
The Carlsbad LCP recommends a new method for preserving
agricultural land. The method, called "Agriculture Subsidy
Credits" is essentially a variation of transfer of devel-
opment rights. In general, the LCP recommends that lands west
of the r'reeway receive development crcdits from agricultural
lands east of the freeway.
2. Market Assessment of Supplemental Uses
The market assessment of the Carlsbad area was
intended to identify the size and characteristics of the
market agriculture and non-agriculture uses potentially
suited for combination with agricultural operations. Be-
cause of its location, the size of its market and the strength
of demand, .it was clear from the start that the area was
economically capable of supporting almost any type of urban
use. As a result, the market assessment concentrates on
evaluating supplemental land uses within the coastal legis-
lation's guidelines for maintaining an agricultural economy
in the area. The uses to be considered include:
"
t
I1 - 100 - " - ..
DRAFT REPORT ll-20-.80
a Visitor-Oriented Uses
Hotei/motel - convention facilities
Recreation and retail
Marinas and boat launching facilities . Agriculturally Oriented Uses
Produce market
Flower markets and shows
0 Urban Uses
Industrial
Commercial
Off ice
Residential
In analyzing these supplemental land uses, it is also im-
portant to consider the variety of organizational struc-
tures under which these land uses can be arranged - from
those on small and scattered individual parcels, to major
concentrations on the most marketable locations. Each
approach will result in varying degrees of disruption to the
area, both social and environmental, as well as signi-
ficantly different levels of cost, revenue and taxation.
The market assessment intends to identify and analyze all of
these effects.
The subject area is located between Palomar Airport Road to
I1 - 101
DRAFT REPORT 11/20/80
the north and the Batiquitos Lagoon to the south, and is
bounded by the Camino Real to the east and the Pacific Ocean
on the west. (Figure 11-17) It is an area divided along its
north-south axis by both Interstate 5 (I-5), and the tracks
of the Santa Fe Railroad further to the west, and is bordered
by Carlsbad Blvd. , running parallel to Carlsbad State Beach.
The area east of 1-5 consists of low rolling hills, with the
Birtcher Business Park at the far northeast corner, and a
condominium project immediately to its south. Additional
development has already been approved for the adjoining
properties to the south, and will extend to the Spinnaker
Hillsingle-family development in the southeast corner. The
remaining open land lies primarily in two areas: . in the
southern half of the property bordering 1-5, and a portion
in the northwest section which maintains considerable agri-
cultural activity.
Another area of particular interest is the land along the
Batiguitos Lagoon. Originally planned for a county or
regional park, it has more recently been rezoned for agri-
cultural cropland by the San Diequito Community Plan. The
lagoon with its wooded perimeter is visually attractive,
though, to the east lie portions of the La Costa development,
I1 - 102
.. ".
and, to the south, the Regional Coast Commission has approved
two residential projects for the near future.
A number of the study area's features detract from its value
for residential, as well as, in some cases, commercial and
off ice use. These include:
0
0
0
0
0
For
the
The tracts of the Santa Fe Railroad.
Two existing mobile home parks.
The industrial uses to the north, including a sewer
treatment plant, and PG&E's visually obtrusive tower.
The low elevation, which precludes a satisfying view of
the ocean from all but a few locations.
The lack of parking facilities available for users of the
South Carlsbad State Beach.
the purpose of this study, the market area will include
Cities of Carlsbad, Oceanside, Vista and San Marcos.
a. Hotel/Motel - Convention Facilities
The demand for overnight accommodations
in the four city area consists of tourism, business/commer-
cia1 users, conventions and temporary housing for Camp Pen-
dfeton assignees. For the Oceanside market, studies indicate
I1 - 103
DRAFT REPORT
11-20-80
that 20% of the business is military, 20% business/commer-
cial, with the remaining 60% representing tourists. Carls-
bad, on the other hand, has a far heavier amount of tourist
use.
Of significance to the area is the La Costa resort hotel.
Unlike the area's remaining facilities, which are not
full-service and cater primarily to tourists, La Costa ' s
visitors are about 30% convention-related, with the re-
mainder consisting of long-term recreational users. In
*
addition, while the remaining facilities have an occupancy
rate near SO%, La Costa's is quoted at 93%.
With the exception of La Costa's enviable success, growth for
the area's hotels and motels has been relatively moderate
over the pakt 6 years. In fact, although growth in room
nights was strong between 1975-1977, it fell to 3.1% in 197%,
and experienced a significant decline in 1979 (Table 11-18).
In analyzing the potential for developing additional
hotel/motel accommodations in the area, a number of signi-
ficant facts arise. First, as La Costa has proven, the
northern San Diego area is well accepted as a destination
resort, as well as a convention facility location. However,
the San Diego Convention and Visitor's Bureau notes that,
t
. Table If - 18
Estimated Room Nights1
Carlsbad & Vicinity/1972-79
CARLSBAD OCEANSIDE VISTA
1972-73 56,000 102,000 8,000
1973-74 77,000 72,000 12,000
1974-75 76',000 78,000 15,000
1975-76 96,000 93,000 17,000
1976-77 129,000 102,000 17,000
1977-78 121,000 116,000 18,000
1978-79 116,000 108,000 17,000
SAN
MARCOS
800
800
800
800
800
1,600
1,300
TOTAL
166,800
161,800
169,800
209,800
248,800
256,600
242 , 300
SAN
% CHANGE DIEGO CO.
- 3,004,000
(3.0) 3,498,000
4.9 3,767,000
23.6 4,218,000
18.6 4,795,000
3.1 5,165,000
(5.6) 5,289,000
Estimates based on growth in room tax collections and adjusted by the
San Diego Consumer Price Index; with information from the City and
County Treasurer ' s Off ice.
I1 - 105
DRAFT REPORT
11-20-80
though business and touring groups accept the North Coast as
a stopping point, it is seldom regarded as a destination area.
In addition, the increasing cost and decreasing availability
of gasoline has encouraged the formation of group tours
organized around destination resorts. The area has the
advantage of being situated on a major thoroughfare. There-
fore, it seems clear that if the right incentives were
provided -- hotels, restaurants, recreation, ocean access --
the area could recapture and more than likely expand its share
of overnight visitors.
At present, movement towards the development of additional
overnight accommodations is limited, although Oceanside has
included a major facility in its redevelopment plans. The Pea
Soup Anderson Company has leased land at the corner of Palomar
Airport Road and Interstate 5, and in spite of its excellent
location, the project is unlikely to incorporate the range of
visitor attractions best suited for the area's development.
b. Recreation and Retail
In the north county area, the most under-
t
developed potential lies in the recreation market, with the
Carlsbad and South Carlsbad State Beaches being the principal
attractions both for local residents and outside visitors.
As present, the Carlsbad State Beach attracts nearly one
I1 - 106
." . . . ."". - . " "" . ."._ -
"
. - " -
DRAFT REPORT
11-20-80
Table 11-19
Visitor Attendance
South Carlsbad State Beach
1970-79
1970-71
1971-72
1972-73
1973-74
1974-75
1975-76
1976-77
1977-78
1978-79
1979 Year
Day Drive-In
41,420
42,385
N/A
N/A
39,828
30 , 379
28 I 358
36 , 354
25 I 999
21,843
Walk-In
75,532
57,323
N/A
N/A
107,752
147,450
179 I 205
551,501
556,080
513,122
Total
116,952
99,708
N/A
N/A
147,580
177,829
207,563
587,855
582,079
534,965
Source: California Department of Parks and
Monthly Totals. (R-48)
Campinp
155,757
160 , 050
N/A
N/A
169,175
337,827
199,006
181,858
182 I 150
203,606
Total Persons
272,709
259,758
311 I 804
287,350
316,755
515,656
406,569
769,713
764 I 229
738,571
Camping Turn-Aways
N/A
15,313
25,016
20,098
14 I 476
20,055
10,408
Recreation, Visitor Attendance
f
I1 - 107
DRAFT REPORT
11-20-80
million visitors annually, while South Carlsbad, despite
being reserved primarily for campers, attracts well over
700,000. (Table 11-19 presents the growth in visitor
attendance over the past decade.)
While these figures represent an already substantia: market,
forecasts predict considerable additional growth in the
demand for recreational faciiities for the area's beaches.
The Caiifornia State Parks and Recreation's $MIS model, used
by the Comprehensive Planning Agency, assumes an annual
growth rate equal to the growth rate in local population plus
a one percent growth in per capita participation. This, by
itself, represents a 10% annual increase in demand, yet it is
a figure considered low because is does not include outside
visitor participation. The San Diego Regional Coastal Access
Study indicated that over 40% of north coast beach patrons
were from outside the north coast communities.
Using these figures, in conjunction with historical records,
conservation estimates would place demand levels at 2.5
million visitor days per year by 1985, with the reasonable
possibility of seeing this level reach 3 million visitor days
per year to the Carlsbad beaches.
With the help of surveys made by the San Dieso Convention and
.." ~ "" ". """ . ." ." . _"." . _-__- .. ". ". - _- DRAFT REPORT 11/20/80
Table 11 - 20
VISITOR EXPENDITURES, SAN DIEGO COUNTY
(1979)
Food, Liquor &
Miscellaneous Retail Entertainment
Hote l/Mote
Resident ' s Guests
Campers
Day Visitors
$ 17.39
6.59
6.59
8.70
$ 1.86
1.47
.73
2.70
~~~ ~ ~ ~
Source : PACE Research
3
I1 - 109
DRAFT REPORT
'41-20-80
Visitors Bureau, one can go a step further and estimate the
levels of visitor expenditures to be expected in the future
(Table 11-20].
Because local residents are such a large component of the
total beach users, $5.00 was determined to be the average
daily expenditure. With this figure, visitors to the beach
would be spending between $12.5 and $15 million annually by
1985. The South Carlsbad State Beach, were it to retain its
share of the total visitor load, would be responsible for $5-6
million in total sales. Using a conversion fac.tor of $100 of
sales per square foot area, presently common to retail
facilities, beach visitors alone could support as much as
50,000-60,000 square feet of recreational/retail space by
1985.
Unfortunately, besides the beaches, the area offers few other
recreational attractions. Only the San Luis Rey Mission in
Oceanside, and the Carlsbad Raceway have the potential to
attract substantial numbers of visitors. However, Carlsbad
has made considerable efforts to enhance and 2romote its
downtown shopping facilities, and Oceanside, because it
provides the only berthing location between San Diego and
Dana Point, a distance of over 50 miles, has tho capability
for expansion.
I1 - 110
- .. . , - ,I
DRAFT REP( 11-20-80
Clearly, however, the beaches are the area's principal re-
creational asset, and the promotion of economic development
will necessarily revolve around them. At present, however,
there are a number of obstacles. ... to development of South
Carlsbad State Beach to its full potential -- most important
among them are the lack of parking and accessibility, as well
as the beach's present use as a primarily camping facility.
The San Diego Regional Coastal Access Study regards the
parking problem at the South Carlsbad State Beach as severe.
There are only 226 off-street parking spaces with roughly 960
more along Highway 101. The result is that the vast majority
of day users must walk onto the beach from the parking along
the highway (Table 11-19]. Further complicating the sit-
uation is the existence of only two access points -- one at
the north end, the other at the southerly tip. The incon-
venience €rom both the lack of parking and accessibility
inevitably curtails the area's development. Added to this is
. the thick shrubbery which hides the entire length of beach,
which restricts the visual connection between beach-goers
and potential sites for hotel, retail or entertainment ac-
AS one of only two major camping locations along the North
I1 " 111
.~ LJKICFT El? 11-20-80
i L coast, the So th Carlsbad State Beach's campins facilities
are important to the area's development (see figures in Table
11-19), On t.he one hand, it is apparent from data collected
by the California Department of PaX.ks and Recreation that the
numbers of potential campers in the area could easily support
an additional thirty camping spaces, thereby increasing
visitor flow. On the other hand, it is equally clear that
were the area not primarily a camping area, the number of day
visitors would increase substantially.
ti
c. Marina and Boat Launching Facilities
The Oceanside Marina is the only berthing
facility between San Diego and Dana Point. Its 800 berths are
presently filled to capacity with a waiting list of over 400
people, and a minimum one and a half year waft. Clearly,
additional berthing facilities would be well received along
the North Coast.
With this in mind, the Harbor Office is presectly negotiating
with Camp Pendleton for the acquisition of land on which to
construct an addit'ional 400 to 500 berths. However, nego-
tiations are complex, and actual construction will require
numerous agancy npprovalr, aB wall 4s Financing. For these
reasons, it is unlikely that capacity will increase in the
I
very near future.
TI -
DRAFT REPORT
11-20-80
On a lesser scale, boat launching facilities are also in
demand. Snug Harbor is a small, privately owned launching
facility on Aqua Hedionda Lagoon, which is extremely busy
during good weather. The property was recently sold.
Aside from their boat handling capacity, these facilities
provide the focus for other economic activity -- supplies,
repairs, parking, storage, restaurants, and even some retail
and hotgl units.
d. Agriculturally Oriented Outlets --
Flower Markets and Shows
The principal agricultural products in
Carlsbad are cut flowers and bulbs, while the adjoining San
Diequito area has extensive greenhouse facilities for flower
and house plant cultivation. There seems, however, to have
been little effort to either organize a flower market cater-
ing to visitors, or locally market the avocados and citrus
produce from Escondido. It would seem that efforts to
organize markets, shows or fairs, would prove not only
economically viable, but also promotionally valuable to the
area. The flower and garden markst could provide the focus
for a number of other visitor-serving facilities.
e. Produce Market
I1 - 113
"
DRAFT REPORT
11-20-80
I! At present there are two natural food
centers operating in the market area, providing specialty
foods, bakery goods, fresh produce, meats, deli items and
ethnic foods. These centers provide a marketing focus
serving both local residents and visitors. The Hadley
Orchard outlet, at the corner of Palomar Airport Road and 1-5,
is a large facility offering a wide selection of edible goods
in a comfortable, interesting environment. A similar center
has begun operating in San Marcos under individual shop
ownership. Here, again, an attractivemarketing concept such
as direct marketing of local flowers and produce couid serve
as the focus for other visitor-serving facilities.
f. Commercial Uses
Curr,ently, the total number of house-
holds within the study area is too small to sustain a shopping
center or' any size. Centers planned for surrounding commun-
ities will serve them sufficiently. However, if planned
residential units are added to the existing total, the 2,500
units and 5,000 to 5,000 people, will be, by themselves,
nearly sufficient to support a neighborhood center of about .
ten acres. (Table 11-21]
If the area were to be developed further into residential use,
the demand for retail space would become even more pro-
XI - 114
DRAFT REPORT
11-20-80
Table I1 - 21
Residential Units within Study Area
Exis tin9
Alta Mita Townhomes
Spinnaker Subdivision
Mobile Home Park
Planned
Covington Subdivision
Standard Pacific
Pacesetter Homes
Shell Oil
To tal
Population Total
700
300
300
300
400
300
20 0
2,500 units x 2.2
people/houshold =
5,500
.
11 - 115
DRAFT REPORT
11/20/80
nounced. Given the potential of developing the remaining
1,700 acres within the coastal zone, and assuming a density
of three to five units per acre, would result in an additional
11,000 to 19,000 residential units. This translates into
retail demand for a community center with an additional
200,000 to 300,000 square feet of space.
However, though this center would be large enough to attract
shoppers from surrounding communities, it would also exper-
ience strong competition from nearby regional centers. The
Plaza Camino Real Regional Shopping Center recently expanded
to include five major retailers, while a second center with
three major stores is planned on Highway 78 near El Camino
Real.
g. Industrial Uses
Construction for industrial use has
averaged between 500,000 and 600,000 square feet a year for
the four city market area over the past six years (Table
11-22).
Most of the new development took place in San Marcos where
land was readily and cheaply available, and where 678 acres
still remain available. Oceanside also has large industrial
areas near Palomar Airport and along Oceanside Boulevard.
I1 - 116
DRAFT REPORT
11-20-80
Table I1 - 22
Estimated Industrial Construction (square feet)
Carlsbad and Vicinity / 1974-1979
Car Is bad
1974 163,000
1975 154,000
1976 200,000
1977 56,000
1978 98,000
1979 SO, 000
San
Oceanside Vista Marcos Total -
48,000 - 78,000 289,000
24,000 - 148,000 326,000
11,000 - 142,000 353,000
66,000 27,000 295,000 444,000
308,000 - 800,000 1,206,000
23,000 11,000 772,000 856,000
San Diego
County
3,491,000
1,875,000
1,653,000
2,809,000
4,963,000
3,300,000
I1 - 117 .. ". .. .
DRAFT REPORT
11/20/80
Altogether, the area has nearly 3,700 acres planned, or
available, for industrial development. Table 11-23 presents
a breakdown of the area’s land available for industrial use.
Using a 25% coverage rate, the available 3,700 acres converts
into 40 million square feet of industrial space. If con-
struction took place at the presently estimated 800,000
square feet per year , the land would be absorbed over the next
fifty years.
The positive impact of industrial use is primarily on employ-
ment. In fact, within the subject area, manufacturing
employment accounts for nearly half of total employment, and
has more than doubled between 1972 and 1978 -- on average, an
annual growth rate of over 14%. (Table 11-24)
7
The area, in general, has considerable potential for in-
dustrial use, primarily light industry and warehousing,
with, perhaps, the best locations along Interstate 5. With
the proper environmental protections, industrial use could
prove beneficial in efforts to maintain and subsidize agri-
cultural production, primarily because of the higher land
values generated and the reduced potential for conflicts with
agricultural operations.
I1 - 118
Table 11-23
Available Industrial Land
Carlsbad and Vicinity - May 1980
Name
Carlsbad
Palmar Airport
Avenida Encinas
Carlsbad Oak
Koll Property
Oceanside
Oceanside Blvd.
Oceanside Airport
Vista
Imed
-
San Marcos
San Marcos Indus-
Unnamed
Unnamed
trial Area
TOTAL
Location
Palmar Airport Road
Coastal Zone
Northeast of El Camino
Real & Palmar Road
West of El Camino and
north of Palomar Road
Highway 5 to Vista
Mission Avenue
Sycamore, east of 78
San Marcos Blvd.
7 8 and Bingham Dr.
Barham and Hill Dr.
Size
Stage (Acres)
Under development 1,200
Under developnent 75
Planned 400
Planned 300
Under development 800
Under development 100
Planned
Under development
Planned
Planned
100
600
18
60 -
San Diego Regional Industrial Data Book (1977), by the
Comprehensive Planning Organization. Updated by interviews
with City Planning Departments.
. . .. . - ”. ”” . -
Table I1 - 24
Manufacturing Employment
Carlsbad and Vicinity - 1972-78
DRAFT =PORT
11-20-80
San San Diego
Car lsbad Oceans ide Vista Marcos Total County -
19 72 489
1975 1,301
1978 2,431
1,413
1,765
1,999
58 1,283 3
421 1,836 5
4 26 2,153 7
Source: Comprehensive Planning Organization
243
3 23
000
65,672
7f ,080
87,768
I1 - 119
DRAFT REPORT
11-20-80
Table 11 - 25
Estimated Office Space Construction
Carlsbad and Vicinity 1974-79 (square feet)
San San Diego
Car lsbad Oceans ide - Vista Marcos - Tot a1 County
1974 71,000 20,000 6,000 7,000 105,000 1,532,000
1975 11,700 - 13,000 23,000 48,000 734,000
1976 30,000 - 9,000 21,000 60,000 1,045,000
1977 30,000 98,000 61,000 15,000 204,000 1,046,000
1978 134,000 13,000 87,000 31,000 266,000 879 , 000
1979 - 19,000 45,000 13,000 77,000 3,414,000
I1 - 120
DPAFT REPORT
11/20/80
h. Off ice Uses
Over the past 6 years, the market area
has constructed off ice space at an average of 127,000 square
feet per year. Most of the expansion has been used to serve
medical and dental facilities, as well as bank branches.
(Table 11-25)
However, the area's expansion in office construction, rep-
resenting only 7% of the county total, compares very neg-
atively with the area's 21% share of the county's industrial
valuations, 21% of the population growth, and 11% of the
employment growth.
In addition, and further emphasizing the area's "soft" market
for office space, is the fact that even this level of
development is not being fully absorbed. Rents typically
averaging $.80 to $.85 gross per square foot, including
taxes, insurance, utilities and maintenance. The occupancy
rate for new buildings is about 80.%, with very little pre-
-leasing.
The soft condition of the market seems to prevail as far south
along Interstate 5 as Lomas Santa Fe Drive in the San Diequito
I1 - 121
." . .. - .- ... -. " - "I . . "- ". .
1 -
DRAFT REPORT
11-20-80
section of the county. Below this intersection, however,
market conditions are markedly different, with industrial
land being rapidly converted into high quality and high price
office use. In fact, there are roughly 155 acres of planned
office expansion located between the highly developed San
Diego market and the four city Carlsbad area -- 100 acres at *
the intersection of Del Mar Heights and 1-5, 25 acres. at
Carmel Valley Road and 1-5, and 30 acres at the northwest
intersection of Santa Fe Drive and 1-5. Given existing
community plan guideiines for the area, this converts into
between two and three million square feet of office space --
an area that could be absorbed, at present estimated rates,
within six to eight years.
Because of the high demand, escalating costs and rapid
absorption in this southern section, the Carlsbad area should
begin to capture an increasing portion of the county's office
construction. Aided also by its growing resident and employ-
ment base, it is likely that by the mid-eighties the four city
area will account for 12 to 15% of the county's office
construction -- 175,000 to 200,000 square feet per year.
*
The likely locations for office development are the existing
industrial areas, and the downtown sections of Carlsbad and
Oceanside. While, at present, there are no locations within
I1 - 122
I
DRAFT REPORT
11-20-80
the area to compare with existing and planned office parks to
the south, and while such a development would be infeasible
over the next few years, an active program could certainly be
possible mid-decade.
j. Residential Uses
Both the number of building permits
issued for residential construction and the Comprehensive ,
Planning Office's estimntes for housing inventory indicate
that the four city area has added an average of 3,500 homes
annually over the past 6 years. This amounts to 15% of the
county's permits and 18% of its change in inventory.
However, despite these seemingly healthy figures, residen-
tial construction has been significantly limited by the
Encino Water Pollution Control Facility's April 1977 mora-
torium on sewer permits -- a situation under which permits are
available only when an allocation is available. Because the
facility serves Carlsbad, San Marcos and Vista, but is not
responsible for Oceanside, there is a dramatic difference
between the construction patterns of Oceanside and the other
three cities (Table 11-26). In 1977, the four cities issued
an inordinately high total of 7,997 permits, of which Ocean-
side accounted for 42%. By 1978, with the moratorium fully
in effect, the number of permits fell to a more normal total
I1 - 123
Table If - 26
Residential Building Permits
Carlsbad and Vicinity / 1974-79
1974 1975 1976 1977 1978 1979 Total
Oceans ide 2,O 36 691 1,038 3,331 1,707 1,472 10,275
Carlsbad 6 19 335 1,799 2,762 146 174 5,835
Vista 290 162 912 1,195 736 503 3,798
San LNarcos 149 198 553 709 368 101 2,078
San Diego
County 16,124 14,705 29,410 36,493 28,054 19,038 143,824
I1 - I24
DRAF'T REPORT
11-20-80
of 2,957, and Oceanside now accounted for 58% of them. By
1979, its share was a full 65%. Even more illustrative of the
problem is the situation in Czrlsbad. While in 1977, the city
issued 2,762 permits, the average for 1978 and 1979 was a mere
160.
At least in the short run, the moratorium imposed by the
Encino Water Pollution Control Facility will continue to
limit residential development in the three affected cities.
The plant has recently been allowed 9,000 new residential
sewer connections to be distributed in the following way.
Czr 1 sbad 2,246
Vista 2,646
San Marcos 1,571
Other Districts 3,537
TOTAL 9,000 unit connections
Unless these cities are able to purchase additional con-
nections from other districts, rates of growth, presently
estimated at between 4,000 and 4,800 units per year, would
exhaust these unit connections within two years. However,
new plant improvements to be completed by 1983 will allow for
another 8,000 anits. It is expected that, beyond that point,
long-run growth will be accommodated through marginal addi-
I1 - 125
DRAFT REPORT
11-20-80
Table 11-27
Planned Residential Projects
Carlsbad and Vicinity
May 1980
Potential
Stage Rousing
Car lsbad
La Costa (new sections of 2,500 acres)
Covington Bros. (part of subject area)
Standard Pacific (part of subject area)
Pacesetter Bmes (part of subject area)
Lake Colevena
Carville Ranch Shell Oil Option (200 acres in subject area)
Applications
Sub-Total
Oceanside
Applications
Southridge Trails Leisure Village
Collins Development Co.
Ivey Ranch
Sub-Total
Vista -
Shadow Ridge by Doon
South Melrose 422
San Marcos
Approved Projects
Grand Total
Master Plan
Coastal Cammis-
sion Case
Get sewer, then
Coastal Com-
mission Sewer & Coastal
Commission Approval
Have Regional COm-
mission Approval
Approved
In-Process
Pending
Newly Filed
Newly Filed
Master Plan
Approved
Specific Plan
Processing
Waiting for sewer
10,669
300
400
300
3,500
450
210
1,300
600
17,729 -
10 776
1,467
1,084
3,670
3 907
20 854
4,000
4 000
700
47,283
- Source: Consultants Estimate, R-9, R-29, 1-31, 1-32, 1-33 and 1-34.
I1 - 126
tions to the plant.
DRAFT REPORT
11-20-80
As mentioned above, growth rates for residential construc-
tion, as estimated by the Comprehensive Pianning Agency,
amount to an average of 4,500 units per year through 1995.
These projections, based primarily on expected levels of
employment growth, compare with the number of developments
either already plrtnned or with pending applications. The
four city area presently sets these projections at 47,000
units, which, over the next ten years, would almost exactly
cover the estimated demand. (Table 11-27)
Projec'ting the proportion of the various types of residential
construction is a difficult problem, since it involves the
prediction of changing consumer preferences in both owner-
ship and design characteristics. Nevertheless, historical
data does provide the basis for an analysis of trends.
Over the past 6 years, permits for single family units
accounted for 65% of the four city total, with the remaining
35% in multi-family units. For the county, the breakdown was
closer to SO/SO. Included in these totals were both town-
houses and condominiums, but their actual share is difficult
to assess. While Security Pacific indicated that condo-
miniums accounted for between 2% and 4% of total construction
for the four city area for over the past 6 years, Recorded
Facts Magazine showed that residential sales of condominiums
amounted to 19% of the total in 1979. Despite the disparity,
the figures show a steadily rising demand for attached
housing. In fact, planned projects for the area indicated
that between 50% and 70% of new units are to be attached
housing.
Construction of apartments, on the other hand, continues to
be constrained by low rents. Added to this is the fact that
apartment demand is in many cases filled by the rental of
condominiums. The North Coast Viilage project in Oceanside
-- recently converted to condominiums -- showed sales of 70%
to owner/investors. The investment in ownership typically
involves short-term cash flow losses, which will be more than
recaptured by the long-term appreciation in property value
when the property is sold.
3 Agr icul tur a1 Uses
Crops grown in the Carlsbad Study Area -^include
tomatoes, field flowers, miscellaneous vegetables, and nur-
sery products. Greenhouse floriculture is also present.
Although the study area is subject to urban impacts, . " .- it
remains a major producing region of San Diego County.
I1 - 128
.. - "_ . .. - _"
DRAFT REPORT
11-20-80
Agriculture in San Diego County has been the subject of
extensive research over the last few years. The County
commissioned a major study, an economic analysis of aqri-
culture in San Dieqo County (R-20) in 1978. More recently,
the County has completed a further analysis of coastai
agriculture as a part of their LCP (R-23). A specific
analysis of agriculture within the study area was completed
as a part of the Carlsbad LCP. In addition to these public
agency commissioned studies, several analyses have been
prepared for specific parcels within the study area such as
the Sea Bluff properties (R-21). The purpose of the supple-
mental use study is not to repeat these prior effects. Data
has been drawn from these works that was useful in completing
the farm unit analyses, and other components of this study.
The major conclusions of the various agricultural studies
with regard to the study area are quite clear. First, it is
difficult, in the long term, to expect agriculture to con-
tinue on land which has a market value substantially above its
value €or agricultural production. Second, in addition to
land values often in excess of $25,000 per acre, the area's
agriculture also suffers operational conflicts with the
surrounding urban uses, and other problems such as poor
accessibility and high water costs.
DRAFT REPORT
11-20-80
Fresh market tomatoes are the principal crop. Of a total
3,300 acres of land under production in 1978, 2,600 acres were
devoted to tomato production. Other crops include field
flowers, strawberries, andvegetables such as snap beans, and
squash (R-19). Tomatoes grown in the Carlsbad area comprise
47 persent of the County's tomato production and 8 percent of
national consumption. Although there are production con-
straints, such as sloping lands, soil limitations and expen-
sive imported water, production is very high for tomatoes,
averaging 30 tons per acre year, in comparison with 11 tons
0
per acre for the state as a whole (R-19). Many field flower
varieties are also uniquely suited to growing conditions
found in the area. The primary factor is the maritime climate
which provides a continuously moderate, frost-free environ-
ment.
The advantages of the coastal agricultural production is both
a function of the optimum plant-climate for certain crops,
such as field flowers, strawberries, etc. , and an ability to
produce crops at an advantageous time in the crops' annual
market cycle as, for example, tomatoes. Winter tomatoes
bring a very high premium, making coastal agricultural areas
competititve with foreign (Mexican) markets. The competi-
tive advantage of coastal agriculture can also be expressed
in terms of energyconsumption. The mild, moist climate leads
operators. Agriculture is viewed by many of the landowners
as an interim use which reduces the cost of carrying the
investment. Landowners, including farmers who have ex-
perienced this cycle in other areas such as in Orange County,
are simply waiting for eventual conversion to urban use. The
cost of the land leases are very favorable, averaging around
$200 per acre per year. This is a very low rent in comparison
to other similarly productive agricultural regions. For
example, in the Pajaro region of Santa Cruz County, land which
"
3.
DRAFT REPORT
11-20-80
to lower evapotranspiration rates, and, hence, lower water
demand as compared with hot inland areas (this advantage,
however, is more than offset by the high cost of irrigation
water in the study area). Also, cooling and heating re-
quirements for greenhouses are much lower in coastal areas.
The continued availability of agricultural land is obviously
the key to preserving agriculture in the study area in
addition to long-term water supplies. From a market stand-
point, the competitive advantage of agriculture within the
study area will only improve as energy and foreign trade
constraints become more dominate because of operating econ-
omies and high production. The greatestprobiem is the value
of land for other, non-agricultural uses. At present, most
of the acreage under production is leased to agricultural
TT - 171
produces similar income producing lettuce, cole crops or
strawberries leases for over $500 per acre per year. The
value of the crops produced in the study area could probably
support somewhat higher rents and by extension, agricultural
land values. However, this would reduce income to the
growers. What is occurring presently is that landowners are
subsidizing agricultural operations with relatively inex-
pensive leases. Landowners are relying upon land value
appreciation as a primary source of economic return.
4. Farm Unit Analysis
The farm unit analysis for the Carlsbad Study
Area differs from that of Mendocino County, because in the
latter example, the basic agricultural activity was assumed
to continue basically as is -- a dairy/beef cattle operation.
The supplemental uses proposed would simply augment the
operation directly or provide an add.itiona1 use which would
have limited effect upon the actual operation's existing
ranch (while providing a new source of income). The Carlsbad
Study Area case studies, on the contrary, involve land
divisions which allow a "supplemental" use on one parcel or'
parcels and agricultural use on the other larger parcel or
parcels. Another major difference relates to the manner in
which existing agricdtural land is farmed. Existing oper-
ators typically farm several units which may be in different
I1 - 132
-. .. . . . .
I
".
4
DRAFT REPORT
11-20-80
locations. The minimum economic size for a tomato farm unit
was recently estimated to be 13 cares, based on the past five
(5) years of price experience (R-1) . For purposes of this
study, a larger combined unit size is utilized. This is
because existing operators tend not to farm "minimum economic
units", and a more representative unit was desired. For
purposes of this analysis, the farm unit size under con-
sideration contains 90 acres of cropland. This is a size
which reflects a current average operating unit. The des-
cription of this farm unit applies to all of the subsequent
parcel case studies.
Am important distinction must be drawn between the present
farm unit analysis and other analyses, such as those con-
tained in the more comprehensive "An Economic Analysis of
Agriculture in San Dieqo County" (R-20). The present farm
unit analysis is intended todemonstrate the actual economics
of three hypothetical farm units, each representing a unique
owner prototype. The farm unit analysis is essentially a cash
flow pro forma analysis. Past efforts at preparing economic
analyses of farm units typically are based on statistically
derived information and are shown only for a single year
(usually the first year). Although these economic analyses
are often useful, they fail to demonstrate the broader
implications of farm unit operations over time, including tax
DRAFT REPORT 11-20-80
advantages, the impact of inflation, and appreciation of
assets. They also fail to show the implications of farm unit
economics on owner/operators with various economic circum-
stances.
a. Description of the Farm Unit
For purposes of the Carlsbad Study Area
case studies, the farm unit is a 90-acre unit composed of
several non-contiguous parcels. The actual land leased or
owned may be greater than the 90 acres which are in production
and may include access roads, storage areas, non-arable land,
such as barrancas or other, steeply sloping land. The
principal crop of the farm is pole tomatoes. Supplemental
crops are grown on land which is rotated out of tomato
production every third year.
In any given year , GO acres are in tomatoes, and the remaining
30 acres in a legume, squash or green manure crop (such as
alfalfa or clover). The practice of rotating crops, while not
done by all current operators, is considered a management
practice which will promote long-term productivity of the
land, since tomatoes deplete soil nutrients more rapidly than
many other crops.
b. Owner Prototypes
11 - 134
h DRFLFT REPORT
11-20-80
The owner prototypes for the Carlsbad
farm unit anaiysis include an existinq owner, a new owner, and
a leasehoider. The leaseholder is added to the "owner
prototypes" because of the large proportion of iand which is
farmed by leaseholders in the Carlsbad area. For purposes of
comparison, each operator is assumed to operate identical
farm units as described above: the same acreage, same
crop2ing pattern, similar machinery and equipment and, in
general, achieve similar operational costs. Each of the
owner types is purely hypothetical in the sense that the
financial assumptions regarding the existing owner prototype
do not reflect the actual finances of any particular current
owner or operator; they were derived arbitrarily. The
purpose of the prototypes is simply to illustrate the impact
of a ranch of possible owner types on the economics of a
typical farm unit.
The differences between the owner prototypes are expressed in
the results of the farm unit analysis. Assumptions are made
concerning each owr-er prototype's investments, costs of
5
ownership, tax advantages, etc. (see Tables 11-30). In
general, the existing owner has a large financial advantage
in that his cost basis is low, relative to the cost required
to "buy in" at the present time. A new owner must face
DRAFT REPORT
11-20-80
substantial investments and debt service, and may e Serience
losses, especiiilly during the first few years of operation.
The leaseholder, typically does not carry the total cost of
the land but at the same time does not enjoy bene5its
associated with ownership such as tax advantages, appre-
ciation, etc.
4
c. Farm Unit Costs and Income Summary
An estimate of the operational costs and
income for the Carlsbad Farm Unit prototype is shown on Table
11-28, It is recognized that actual costs and income will
vary considerably from year to year. The assumptions made
concerning these variables are simply representative of
current farm operations in the Carlsbad area. One key
assumption relates to the cropping pzttern. The primary
crop, pole tomatoes, are rather hard on soil fertility.
Because of this, best management practices dictate that crops
be rotated or part of the operation regularly lie fallow. It
is assumed that two-thirds of the farm unit, or 60 acres, be
the basis of production in any given year. The remaining land
can either lie fallow or produce a supplemental crop such as
beans. No economic return is assumed for this thirty-acre
portion.
Figures used are derived from current sources and represent
.
I1 - 136 . "
- DRAFT REPORT
12/12/80
Figure 11-28 .
Economic Analysis of Farm Unit, Form 1
Operational Cost and Income Summary
.Description of the Operating Unit: Crop/Livestock: Tomatoes
Size : 60 Acres
I tern
GROSS PRODUCTION RECEIPTS
Fresh Market Tomatoes
1. TOTAL PRODUCTION RECEIPTS
Production Cost Per Acre
Pre-Harvest
Set Stakes
Plants
Fertilizer
Thin, Prune, Set & String Stake
Twine & Gloves
Pesticide Applications
Pull Stakes - Labor
Machinery - Labor
Irrigation - Water - Labor
Total Pre-Harvest Cost
Harvest Cost,
Pick and Haul
Packing
Selling
Total Harvest Cost
Total Production Cost Per Acre
Total Production Cost Per Crate
Gross Operating Margin Per Acre
- Supervision
- Fuel, Lube, Repair
Unit
30 Lb.
Crate
20 Lb.
Crate
Lbs .
Plant
Acre
Hour
Acre
Acre
Hour
Hour
Hour
Acre
Acre Foot
Hour -
Lbs .
Crate
Acre
Price or
Cost/Uni t
5.00
5.00
~~~~ ~~
1.35
.04
350.00
5.00
145.00
500.00
5.00
7.50
6.50
140.00
200.00
5.00 -
.05
1.70
945.00
Quantity
560
2240
100
5000
1
129
1
1
30
6
17
1
1.75
40 -
61600
2800
1
2. -TOTAL OPERATIONAL COSTS, 60 ACRES
3. GROSS OPERATION MARGIN, 60 ACRES
Value
or Cost
$ 2,800
$11,200
$14,000
$ 135
200
350
645
14 5
500
150
45
110
140
350
200
$ 2,970
3 , 080
4 , 760
945
$ 8,785
$11,755
$ 4.20
$ 2,245
$705,300
$134,700
I1 - 137
! I
I
i
i
I
I
I
I
!
'I
I !
I
-
Tera
YKS.
- & 7
mun
Deprcci
8 5
Useful Annual
Llfe Stralgh
" Line
11s
870
333
173
160
113
267
1,713
300
25
950 150
250
10.000
75
24.4e1
" 24,4e1
Investaent
~
1
hunt
Borroved
Debt n
60t 60t
60t
608
601
608
608
608
608
608
608 608
608
608
60t
608
?9,260
79,260
~~~
~. I
Rate
Interel
red
.14t
I4t
I4t
141
I4t
14t
I48
148 141
I48
148
14t
148
14t
148
14t
DW.t.
6
arcent
Ilglble
"_ 9
nsur-
nce
lOn
6 (11
mnt
Replace,
Reserve
-
683
729
293
152
141
252
100
264
234
1,621
14
126
172
63
e75
11,ele
23,561
23,561
I nve
2
Cost
250,000
16,300
17.400
5,000
2,600
2.400
4,300
1,100
4,000
4,500
9,500 200
10,000
3,000
36,000
1,500
13,lao
132,100
____ 382.100
1
Ulll t
Qual8 t It y,
I8
Propert1
?axes
5
3
mteresl
2,135
1.1135
I
Yea
rlnclml
li 1
Interest
11,096
11,096
0
Yea
PI lncipa!
11,991
" 11,991
-
20
20
IS
15
IS
1s
15
15
15
1
10 20
40
20
2
e
" Land
Maclllnery L
EqulwenJ
Tractor 60 IIP
Trdctot 75 IIP
S~b~~~ller
Cultivator
Offset olsc
Roller
Par xuw
Spr IngLoollh
Fertllirer Appl
SCakes
Stake nrlver Plckup (4 x 4)
Hlsc. Tools
Shop
Drlp lrrlgatlou
eqtllpellt rra11
syoiem
$2,500
1.321
z&!"
5 5
5
5
5
5 5
5 5
5
5
5
5
5
5
5
-
- ! "
Subtotal
Asauminy 108 inflatlon rate and 128 return on reserved capltal (expressed in cnnatant dollars)
Y
Flgure 11-29. conChued
monmlc A~~alysls of 4 Farm Unit, hum 2
Investment Cost S-
fora Ca_rlsbad Farm Unlt Case Stu~lles~Operator/Wsec
" " - "_
ment I 7 6 (1) 5 3 14
Depreclatlon - - Debt "
Annual
rent Stralght
hunt Replace-
Reserve Llne
Borrowed
384,000
"
" 9 nsur-
nce - t
lwestment nveat. Credit
6
lllglble
Awun hrcent 17
- "
%vice (then Currc lnve
1
Quaat1 ty/ Unl t
Cost
2
____ -
100 Acres 480,000
17,400
16.300
5,000
2,600
4,300
2,400
1,100
4,000 4,500
13,100
9,500
200
10,000
3,000
36,000
I, 500
132,100
" ~.
" 0
Rate
Intereal 9 Term
Yrs. -
30
5 5
5
5
5 5
5 5
5 5
5
5
5
5
5
5
.8
'roper t !
'axes
4,800
I, 321
- 6,121
Year Useful
Ll le
-
1980 -
19eo
15 1980
20 19ao
20
1980
15 1980
1s
1980 1s 1980
1s
1980
40 1980
20 1980
LO 1980
I 1980
15 1980
15
1990
20 1980
e
two 2
""
I 11
Interesl
46,080
11,096
"
b
Ye
Prlnclpa
1,591
11,991
" 13,582
rea
2
'rlnclp.1
2,503
20.252
22,755
1.4
4
'rlnolpal
4,412
0
4.412
- 10 IS [nteresi
43,259
0
l3&
5 13
Intereel
_I
45.16s
2,835
48,003
.- . " - -
I&
El!!*!* llakcttlnery b
Tractor 60 HP
tractor 75 IJP Subsolle:
Cultlvator
Offset Dlsc Roller
Farrow Springtmttl
fertlllrer Appl
Stakes Stake Orlver Plckup (4 n 4) Equlplent pail
wise. TOOIS
stwp
nrlp Irrlyatlon
System
-
815
070 333
173
160
113
20 300
1,113
25 950
150
250
75
281
a, ooo
4,481
128
I48
148
148
148
148
148
148
148
148
148
I48
148 148
148
148
148
683
129
293
152
141 252
100
234
1.621
264
815
24
126
172
17,838
63
23,567
608
608
608
608
608
608
60t
608
608
608
608
608
608
608
608
608
79,260
608
608
608
608
608
608
60t
608
608
608
608
608
608
608
608
608
79,260 Suhtotal
-t "
4 Asstlminy 108 Inflation rate and 128 return on reserved capltal.
Y
Flgure 11-29, contlnwd
momlc Allalysla of a Farm Unlt, Form 2
Investment Cost Suum
For: CarlshadParm Unit Case StudiQ&-se Holder
-~-
" I nvI
2 coe t
16,300
17,400
5,000
2,600
2,400
4,300
1,700
4,000
1 % 700
4,500
200
9,500
10,000 3.000
1,500 36,000
132.100
" 132.100_
Investment _- 1 Quantity)
Unl t
aeat 9 Term
xre. -
5
5
5
5
5
5 5 5
5
5 5
5
5 5
5
5
- -
Ion
6 ill Replace-
ment -, Reserve
683 729
152 293
141
100
264 1,621
875 24
I26
172 63
17.838
251
a34
t3,567
t3.567
-
At0
nteres
-
148
148 148
148 148
148 I48 148
14t 148
148
148
148 148
14t
I48
Wce (then Cum f
mount
br rowed
16 Beercent
illglbh
18
Proper t Taxes
.¶ 'nsur-
lnce
Annual
Stralqll~ Llne
815 810
173 333
160
287 111
267
300
4,713
950 25
150 250
'I5
0,000
4,481
I, 481
12
vs
Prlnclp.
20,252
ziEzE
ntereml - Interen
11,096
nZ9E
Interes
2,835
IziE2L
I00 &rea
1
1
1 I 1
I
1
1
1
I
1
1
I
NA I
.___
Tractor 60 IIP
Tractor 75 IIY Subsuller
CUI t lvator
Offset DISC
Roller
Farrw
SprIngtooLh
Fer t 1 I iter Awl Stake6
Stake orlver Plckup (4 x 4)
Bquipcnt Trall,
ShP nlsc. TCWI~
Drlp lrrlgatlon
Syster
1980 20
1980 20 1980 15
1900 15
1980 15 1980 15
1980 15
1980 15 1980 15
1980 0
1980 0 1980 10
1980 20 1980 40
1980 2
1980 ao
608
608
608
608
608
608 608
608
608 60 8
608
608
608 608
608 608
'9,260
9,260
Subtotal 0 1,321
nr-
' Asaumlng 108 inflatlon rate and 128 return on reserved capital.
Y !
DRAFT REPORT
12/12/80
Figure 11-30
Analysis of a Farm Unit, Form 3
Cash Flow and Economic Return Summary
For: Carlsbad Farm Unit Case Studies New Leasehold Operator "-
2. Machinery 1
3. Equipment 1
- -
*
13. Property Tax @ 1%
14. Insurance
15. Depreciation
16. Replacement Reserve
17. Total Interest Payment
18. Total Principal Payment
19. Interest on Operating Loan
20. (.15 X .10 X 705,300)
- *
* Expressed in constant 1980 dollars.
I1 - 141
DRAFT REPORT
12/12/80
Figure 11-30, continued
Economic Analysis of a Farm Unit, Form 3
Cash Flow and Economic Return Summary
For: Carlsbad Farm Unit Case Studies, EXiStincl Owner/ODeratqr
YEARS
Year 1 Year 10 Year 5
Cash Tax Cash Tax Cash Tax
CAPITAL INVESTMENT
-, 3. Equipaent )
132,100 2. Machinery )
250,000 1. Land
Flow Flow Flow Flow Flow Flow
4.
5.
6. Total Investment $382;100
..lm.c..o I GROSS OPERATING MAnurna
7. Fresh Market Tomatoes I- -
13. Property Tax
14. Insurance
15. Depreciation
16. Replacement Reserve
17. Total Interest Payment
18. Total Principal Payment
19. Interest on Operating Loan
I
I
3
I1 - 142
DRAFT REPORT
12/12/80
Figure 11-30, continued
Economic Analysis of a Farm Unit, Form 3
Cash Flow and Economic Return SUHtmarY
For: Carlsbad Farm Unit Analysis New Owner/Operator
CAPITAL INVESTMENT
480 000
Machinery 1 2,000 13: I- I 3. Equipment ) I I 49 I
Fresh Market Tomatoes
8.
9.
11. Total Gross Operating Margins
FIXED AND CASH COSTS
12. Land Rent @ 250 Per Acre
13. Property Tax @ 1%
14. Insurance
15. Depreciation
16. Replacement Reserve
17. Total Interest Payment
18. Total Principal Payment
i9. Interest on Operating Loan
20. (.15 X .10 X 705,300)
21.
23. Total Fixed and Cash Costs
24. Return From Farm Operations
OTHER RETURNS
25. Sale of Assets
26.
27.
ECONOMIC RETURNS
28. Net Economic Return
29. Return to Operator's Labor
30. Return to Investment $
31. Return to Investment %
YEARS
Year 1 Year 5 I Year 10
Cash I Tax I Cash I Tax I Cash I Tax
I
I I I I 134 , 7001 134 , 7001 134 , 7001 134 , 7001 134 , 700 I 134 I 700
I I I I I I I
I - I
I I I I I
700 I 134.700 134,7001 134,7001 134,7001 134.7001 134 - 1
I I f
I I I I I I I I I 1 I
88,2331 87,556 66,244 57,3511 53,2951 47,452 46.4671 47.144 68.456 83,3491 81,4051 87,248
I I I I I I
I
46 467 68,456 81,405
24,000 24 ?OOO 24,000
22 467 44,456 1 57,405 1.8% 3.6% I 4.7%
I1 - 143
DRAFT REPORT
11-20-80.
the expenses and income of an actual farm unit. The cost and
income summary includes only farm commodity income and direct
operational costs. Other costs such as debt service, taxes,
insurance, etc., are included in the subsequent steps of the
analysis. The gross operating margin or' the Carlsbad farm
unit site is shown to be $134,700, which is considered a long
run average of income, expressed in 1980 dollars, or the more
and less successful years.
d. Investment Cost Analysis
Investment costs associated with the
farm unit for each owner Frototype are shown on Table 11-29.
The basic components of machinery, equipment, and land are
the same in each case, but the cost basis and method of
financing varies. Hence, three distinct cost estimates
result.
The existing operator is in the best position because the land
is fully owned. The analysis shows this owner purchasing new
equipment when, in fact, he would most likely have purchased
machinery some time ago. In this case, the overall machinery
cost would also be lower.
The leasehold operator has lower investment cost that the new
owner operator because land is leased rather than owned.
4 I1 - 148
DRAFT REPORT
11-20-80
The new owner operator is assumed to be able to purchase the
land at its agricultural value, and is deed restricted to
agricultural use. It is estimated that this value is $4,800
per acre.
e. Farm Unit Cash Flow Pro Forma
The farm unit gross operating margin and
investment cost estimates are combined on Table 11-30 in a
cash flow pro forma analysis which is intended to demonstrate
farm unit costs and income over time and project net economic
return.
The results of this analysis for the Carlsbad farm unit
prototype are not surprising. Each of the prototype owners
is shown to achieve a profitable operation. The largest
profit is achieved by the existing owner prototype, followed
by the leaseholder and the new owner operator.
The figures included on the pro forma analysis are expressed
in constant 1980 dollars. The annual inflation assumption
for the 10-year period shown is 10%. Some costs and revenues
are expected to keep pace with inflation while other costs
will diminish. The costs which will diminish with inflation
are those associated with long-term loans. .For example, a
land payment in 1960 dollars of $47,671 would equal $28,149
t
DRAFT REPORT
12/12/80
in 1985 if inflation continues at its current pace.
Inflation is advantageous to an operator, because major fixed
cost investments such as land mortgages decline constant
dollar terms, while gross operating margin tends to rise
relative to the general rate of inflation.
6. Miwed Use Programs
The potential mixed use approaches for the
Carlsbad Study Area are illustrated in three case studies,
one for each of three general classes of property found in the
study area suitable for agricultural use, which include the
following:
Small individual ownerships off main roads, less than 40
acres in size.
Individual or corporate ownerships adjacent to main
roads or the freeway, which have market potential for
commercial use.
Large individual or corporate ownerships greater than 40
acres in size.
Each case study involves adifferentmixof useswhich relates
I1 - 146-
to the marketpotentialwithineachproperty class. The first
case study consists of mix low density sinsle family resi-
dences together with agricultural uses; the second, a mix of
commercial and agricultural uses; and the third, a mix of
planned residential community and agricultural uses. No
specific farm unit is developed for each case study property.
Rather, it is assumed that the residual agriculturai use for
each case study would consist of a larger operation as
described in the farm unit analysis. This assumption re-
flects current operations. It does not imply that units
smaller than the 90-acre unit described in the farm unit
analysis would not be economically feasible. A mixed use
proposal on a smaller parcel could involve a single farm
operation under the right circumstances. The case studies
are presently as examples of what could be done. They do not
represent detailed project proposals, and do not have a?-
proval or consent of the landowners, the City of Carlsbad, the
County of San Diego, or the California Coastal Commission.
a
.
I1 - 147
DRAFT REPORT
12/12/80
a. Small Individual Ownerships
The first case study is directed at the rela-
tively small (less than 30 acres) ownerships not adjacent to
major roads. The main concentration of these small parcels
is located in the central part of the study area, in a large
county "island" within Carlsbad's city limits. This area is
surrounded by undeveloped portions of the City of Carlsbad.
It has no developed city or county rpads. The area is
currently divided into small parcels ranging from less than
one acre to 80 acres in size. The island area contains land
of both high agricultural potential and very low potential
(due to steep slopes, shallow soils, etc.).
This agricultural area does not have significant urban
interface impacts. The main problem for continu.ed agricul-
tural operations is that land costs, and hence, operating
costs, reflect the value of the land for development rather
than for agriculture. Currently, there are examples of
operators who have tried to enter agricultural operations by
paying for non-agricultural land values. While this may work
for some under the best conditions, over time, it will lead
to financial difficulties or the conversion of the land to
other uses. This is because high land prices are often paid
in anticipation of eventual sale for non-agricultural use.
Other problems include the present pattern of small owner-
I1 - 148
A DRAFT REPORT
12/12/80
ships, access, and lack of an assured long term water supply
at a cost affordable by agriculture.
The ideal approach to insuring the long term productivity of
these lands must involve reduction of economic pressure to
convert to urban uses and include specific solutions to other
operational problems. In this regard, the agricultural
subsidy credit program suggested by the LCP is probably
superior to a parcel based density transfer system. The
Coastal Commission strongly supports this type of program.
The agricultural .subsidy credit program allows developers of
partly urbanized lands to gain increases in density by
purchasing "subsidy credits" from the local agency. The
proceeds from these sales are used to compensate landowners
in agricultural preservation areas who are restricted from
further urban development.
A similar effect could be achieved by a system of direct
transfer of development credits. Owners could be allocated
development credits on the basis of the size of their parcel.
Taking the existing zoning of One unit per 10 acres as an
example, an owner of a parcel of 80 acres would qualify for
eight development credits. Because the Coastal Act would in
this case require preservation of the agricultural land,
I1 - 149
development would not be allowed on site. However, these
credits could be sold to developers in areas where some
development is suitable, and would allow construction of an
additional eight units above the base density in that area.
The concept is essentially similar to a cluster development
plan in a PUD, but operates at a larger scale, and involves
more than one ownership. The proceeds from the sale of the
development credits represent the "supplemental uses" for
the agricultural landowner. In return for the receipt of
subsidy credits or the sale of development credits, deed
restrictions, easements or other restrictive mechanisms
would be applied to the agricultural land to both restrict
the potential for urban development and to help maintain land
prices at a value commensurate with continued agriculture.
This approach to the area seeks to simultaneously preserve
the agricultural uses and reduce or eliminate the economic
pressures for urban development in the area. It would
preserve the area for agricultural use by transferring de-
velopment rights to partially urbanized areas or areas where
existing urban/agricultural conflicts are greater and pro-
vide a source of capital for making desirable improvements
which enhance agriculture.
The parcel based density transfer system for the small
I1 - 150
.
DRAFT REPORT
12/12/80
parcels in the area would not be as e,ffective as the agri-
culture subsidy credits concept but has the advantage of
being easier to implement.
The basic concept would be to restrict overall densities to
reflect existing zoning (presently 10 acre minimum), while
allowing the creation of smaller lots, down to one-half acre
in size. Density bonuses would be offered for dedicating the
residual agricultural parcel for permanent agricultural use
(where environmental conditions permit).
-
.
This concept is suitable for the area because the mix of
agricultural and scattered rural residential use has already
been established in the area. The agriculture presently
being conducted includes very high value production from
greenhouses and nursery crops, in addition to tomatoes,
strawberries, and other row crops. The additional limited
residential use would have two major positive impacts on
agriculture in the area. First, roads would be constructed
which would improve access to agricultural parcels (This is
currently a very serious problem, since existing roads are
not surfaced and are prone to flooding and erosion.). Second,
the land dedicated to agricultural use would be valued by its
agricultural productive capacity and would be secured for
agricultural use.
I1 - 151
DRAFT REPORT
1211 218 0
Negative impacts of additional residential use would pri-
marily include operational conflicts with the remaining
agricultural operations. The type of agriculture being
conducted (i.e., nursery crops, field flowers, greenhouses,
and the overall density of potential residential use within
the area under the concept suggest that operational conflicts
can be managed by adequate siting, setbacks, etc. However,
operational conflicts for other more extensive field crops
such as tomatoes, strawberries, etc. , are much more difficult
to manage. A specific plan would establish building en-
velopes and standards for mitigation measures.
b. Larqe Parcels with Commercial Potential
This case study considers a large existing
agricultural parcel which has potential for commercial use.
The case study area is near the Palomar Airport Road inter-
#change with 1-5. The area is currently in agricultural use
and surrounded on three sides by lands within an agricultural
preserve. The area has frontage on Palomar Airport Road and
Paseo Del Norte. It is shown on Figure 11-31.
The mixed use proposal for this parcel involves a commercial
planned unit development or land division and permitted for
commercial use. The 15 acres between the freeway and Del
Norte would be permitted for commercial use, while the
I1 - 152
balance of the agricultural land would be permanently re-
served for agricultural use.
The area presently has an average assessed market value of
approximately $3,000 per acre. Actual market value of the
entire parcel is not known, but parcels zoned for commercial
or industrial use, in the study area are on the market asking
- $. 50 to $1 .OO per square foot. Since the case study area is
zoned for agricultural use -- "(10) -- b; the City of
Carlsbad, its present market value will be speculative.
Development would require a rezoning, in addition to re-
quiring a State Coastal commission permit.
Small undeveloped commercially zoned parcels in the areawith
good access, similar to the case study parcel, are currently
on the market for $4.00 to $6.00 per square foot.
For purposes of this analysis, the case study area's For
purposes of this analysis, the case study area's existing
value is assumed to be $.50 per square foot. The proposed
commercial lot's value is assumed to be $5.00 per square foot.
A comparison of the assumed value of the existing parcel with
the mixed use proposal is shown on Table 11-32. Based upon
the assumptions made, the commercial lot resulting from the
I1 - 153
Figure 11-31
Commercial Development as a Supplemental Use
Agricultural Preserve
Case Study Area
Area for Continued
Agriculture
Area for Commercial
I
~
\\ Existing Commercial Use
Agricultural Preserve
Area for Continued
Agriculture
Area for Commercial
Existing Commercial Use
4 I1 - 158 ..
DRAFT REPORT
12/12/80
Table 11-32
Comparison of Estimated Value, Existing Parcel
Versus the Mixed Use Proposal for Commercial Use
1. Present Value of Case Study Area 115.00 Acres
@ $.50 Per Square Foot
Total = $2,526,480
2. Value of Mixed Use Proposal
Commercial Program, 16 Acres
@ SS.00 Per Square Foot
Remaianing Agricultural Parcel 100 Acres
$5,000 Per Acre = $ 500,000
TOTAL $3,984,800
3. Added Value if Commercial PUD Concept
is Implemented
f
I1 - 151
mixed use concept would yield over $1,458,320 more than sale
of the area as it is presently restricted. The 100 acre
parcel would be permanently deed restricted for agricultural
use. The commercial area could be developed for visitor-
serving uses or as an extension of commercial development
which currently exists in the area.
c. Larger Parcels with Primarily Residential Po-
tential
The final category of parcels in the study are
those that are large (greater than 40 acres), and have
potential for residential use. The mixed use proposal for
these parcels involves application of a "planned community"
(PC) type zone which allows clustering of the development.
One positive note regarding this case study is that the
appropriate zoning designation is presently applied to sev-
eral of the largest ownerships in the study area which fall
into this category. Also, the LCP supports this concept, and
expands upon the existing PC zone. The LCP recommends use of
a planned agriculture zone aswell. Implementationof amixed
use proposal 'in these areas would involve the development of
a suitable plan by the developer and approval by the City of
Carlsbad and the California Coastal Commission. Several
parcels suitable for planned community-type development also
exist within the unincorporated island. These parcels would
require rezoning and action by the County of San. Diego.
Within the context of a planned community the agricultural
land could be managed by a variety of techniques, including
fee simple sale to an agricultural operator, commonownership
and lease to an operator, or operation directly by members of
the planned community. In each case, the development rights
to the agricultural residual would be deeded to the City, a
land trust, or the State Coastal Conservancy.
The case study area is located near the intersection of 1-5
and Pointsettia Lane. In this area, the Coastal Commission
supports the concept of mi-ed uses. The State and Regional
Commissions have jointly approved that this area, owned by
The Occidental Land Company, be designated as a planned
agriculture zone, which allows additional developmentoppor-
tunities if the planned development concept is adopted by the
landowner. The designation allows additional commercial and
residential density in trade for dedication of the most
productive agricultural areas. A schematic diagram of this
concept is shown on Figure 11-33. The total area is approx-
imately 140 acres in size. Of this area, 50 acres would be
permitted for residential/commercial use, while 90 acres
would be preserved for agriculture. Density in the devel-
opment area would be based upon the planned agricultural
7 I1 - 15f
district which permits four and ten units per acre. Addi-
tional density would be permitted in the development areas
through the agricultural subsidy credit program described
above, if it is implemented. It should be pointed out that
this land is highly productive agricultural land that would
have been totally preserved by the Coastal Act Prime Land
Policy had it now been removed from production.
t
I The econokic return anticipated from the planned community
development will vary depending upon the current investment
costs and the value resulting from the approved plan. Table
11-34 shows a comparison of existing value and the mixed use
proposal based upon estimated values. Table 11-34 demon-
stratesthat the concept is potentially an economically sound
approach, which also meets requirements of the Coastal Act.
4
I1 - 15f
Figure 11-33
DRAFT REPORT
12/12/80
Table 11-34
Comparison of Estimated Value, Existing
Parcel Versus the Mixed Use Proposal for
a Planned Community Development
1. Estimated Value of Existing Area, 140 Acres
@ $1.00 Per Square Foot = $6,098,400
2. Value of Mixed Use Proposal
36 Acres, Approved for Clustered
Dwelling Units @ $2.50
Per Square Foot . 20 Acres, Approved for Commercial
@ $5.00 Per Square Foot
Agricultural Parcel, 90 Acres
@ $5,000 Per Acre
3. Difference Between Existing Value
and Mixed Use Proposal
= 4,3S6,000
z' 450,000
$8,073 , 000
= $1,974,600
0
I1 - 16#
111. MIXED USE GUIDELINES
DRAFT REPORT
11-20-80
A. Introduction to the Mixed Use Guidelines
The mixed use guidelines are intended to assist
implementation of the Local Coastal Plans (LCP). The guide-
lines are essentially a set of procedures whereby mixed use
opportunities for agricultural land can be identified, eval-
uated, and proposed in a consistent manner. The guidelines
were developed during the preparation of two mixed use pilot
studies for agricultural land, one in Mendocino County and
one in San Diego County.
The purpose of the mixed use guidelines is threefold:
First, the guidelines suggest a technique for the evalu-
ation and inclusion mixed use projects within the LCP's,
and include a model policy.
. Second, the farm unit analysis, contained in the guide-
lines, can be applied to develop appropriate farm unit
size criteria for use in land use regulation. The farm
unit analysis also can provide a standard format for
determining the question of economic feasibility of a
DRAFT REPORT
11-20-80
given farm unit. This can facilitate negotiations be-
tween alandowner and the regulating agency. At present,
economic analysis are often not done in a manner which
is credible to either the landowner or the regulating
agency.
. Third, the farm unit analysis can be used to evaluate a
specific mixed use proposal. This will be useful to the
conservancy commission or local agency when they become
involved in a specific mixed use project. The coastal
conservancy can use the methodology to project their own
project relative cash flow and as a component of a
prospectus on projects that would be marketed.
The concept of mixed use for agricultural land requires some
definition. Most simply, mixed use means the addition of a
non-agricultural use to a continuing agricultural operation,
which provides supplemental income to the landowner. By this
definition, many coastal farms and ranches are presently
mixed use operations. Ranches along California's North Coast
are an example. They typically combine livestock operations
with timber sales. Mixed uses also include less traditional
additions to agricultural operations including recreational,
residential, commercial, and industrial uses. The mixed use
.~ .. " - . . . 111-2
"
DRAFT REPORT
11-20-80
guidelines are directed toward coastal agricultural arhas
where agricultural land is subject to pressure for conversion
to a higher intensity use or the long term agricultural use
is otherwise threatened. Mixed uses supplement the agri-
cultural landowners income and possibly meet some demand for
higher intensity uses while preserving the agricultural use
through deed restrictions, easements or other enforceable
restrictions.
In urban fringe areas, where urban development pressure is
particularly intense, mixed uses might also involve divi-
sions of the original farm unit to permit higher intensity use
on a portion of the property in trade for development rights
on the balance of the property. In this case, the farmer
would receive a payment for the developed portion of the
property and continue farming the remaining unit. Cash
derived from the sale of the developed portion would become
a source of capital for ongoing agricultural operations.
The mixed use guidelines are intended for use in developing
LCP implementation programs. A mixed use policy would be
supportive of other planning tools, making regulation more
flexible and equitable. Mixed use policy alone does not
.DRAFT REPORT
11-20-80
represent a complete implementation program. /! When con-
sidering agricultural preservation and land use regulation
in general, it should be recognized that success is entirely
dependent upon the local governments' resolve to formulate
and consistently enforce land use regulations, Mixed uses or
other economic enhancement or compensatory techniques such
as transfer of development rights (TDR) purchase of develop-
ment rights or density transfer schemes require firm ad-
herence to zoning and general plan implementation, It is
equally important to recognize the broader context of regu-
lations affecting agriculture, including EPA environmental
quality standards, federal price support programs, and state
coastal commission regulations.
B. Application of Mixed Use Policy in the Local Coast-
al Programs
The application of mixed uses as an agricultural
enhancement technique requires two essential steps on the
part of local government. First, apolicysupportiveofmixed
uses must be adopted as a part of the LCP. Second, areas where
the policy is applicable should be defined. The following
section provides both a model mixed use policy for the LCP's
and instructions for evaluating mixed use proposals.
t
DRAFT REPORT
12/12/80
1. Model Policy for Mixed Use Implementation
The first step in formulating land use regu-
lations consistent with the mixed use concept is the pre-
paration of a policy which establishes support for mixed uses
within the LCP. This must be followed by specific amendments
to the local agencies' general plan and zoning ordinance.
Although the language of a mixed use policy will vary given
the specific needs of a local agency, a model policy is
provided below. The basic orientation of this policy is
toward use of a "conditional use permit" which establishes
performance standards for the proposed mixed use project.
Model Mixed Use Poli.cy
There are numer'ous examples of agricultural operations,
particularly those on non-prime agricultural land, or small
parcels, which are economically marginal operations. Re-
turns from agricultural production on these lands may be
below ownership costs and necessary operating costs. Sup-
plemental, higher intensity uses may improve profitability
and enhance agricultural preservation.
Supplemental uses on such parcels should be permitted. Pro-
posed projects should be subjected to a conditional use
I11 - 5
"
12/12/80
permit specifically developed for supplemental uses, in-
cluded in the zoning ordinance. The conditional use permit
should require the following findings and conditions, and
impose other conditions that result from the environmental
review procedure:
a. The 'city/county shall make the finding that con-
tinued and renewed agriculture is not feasible on
the given ownership without the supplemetal use.
b. The city/county shall make the finding that the
long term economic viability of the agricultural
portion of the ownership and/or the viability of
the local agricultural economy will be enhanced by
the prolect; and that the conditions of use imposed
on the project will minimize conflicts between
agricultural operations and the supplemental use.
Where conflicts cannot be reasonably forseen, a
workable means for conflict resolution should be
provided.
c. The city/county shall make the finding that the
proposed supplemental use addressesthe priority of
coastal uses contained within the coastal act of
1976.
I11 - 6
.-
DRAFT REPORT
12/12/80
d. The city/county shall make the finding that the
proposed supplemental use, in combination with the
ongoing agricultural operation does not exceed
the environmental carrying capacity of the pro-
ject site. Limited resources such as water shall
be allocated first to existing agricultural oper-
ations followed by the supplemental use.
e. The city/county shall make the finding that the
proposed development has been sited and designed so
that:
(1) The more productive agricultural soils of the
site are avoided.
(2) The construction of new roads or other facil-
ities are minimized.
(3) Environmentally sensitive habitats are pro-
tected.
(4) Views from beaches, public trails, and other
public recreation areas not obstructed or de-
teriorated (improvements required for the ag-
I11 - 7
DRAFT REPORT
12/12/80
ricultural operation are excluded from these
findings).
(5) The rural character of the site is preserved.
Should the city/county make these findings, the supplemental
use may be permitted subject to the following conditions:
a. Any public service capital improvement costs
created by the project shall be borne by the owner.
b. Residential supplemental uses shall require dedi-
cation of development rights for non-agricultural
uses on the portion of the project remaining in
agricultural use. Development rights shall be
deeded to the county and a third party such as the
California Coastal Conservancy or the Trust for
I11 - 8
DRAFT REPORT 11/20/80
i. lblic land. The residential users shall be re-
sponsible for permanent maintenance of the agri-
cultural and open space areas which will be held in
common ownership.
C. Large supplemental useprojectsor thosecontaining
unique coastal resources may be required to dedi-
cate and develop land for public recreation Or
beach access.
d. The developer must demonstrate market demand for
the proposed supplemental use and prepare a cash
flow pro forma analysis that exhibits the financial
relationship between the supplemental use and the
ongoing agricultural use. The purpose of the sup-
plemental use is ultimately to make continued agri-
cultural operations viable. In the case of a
non-economically viable agricultural operation, a
specific financial plan should be submitted by the
developer o'r owner which demonstrates how the sup-
plemental use will insure the long-term viability
of the remaining agricultural operation.
DRAFT REPORT
11-20-80
TI^ application of
the context of LCP
typically include
such a mixed use policy should occur within
implementation. LCP implementation will
amendments to the local agency's general
plan and zoning ordinance. The policies and regulations
which encourage mixed use projects can be adopted among these
other amendments required by the LCP.
The data base developed during the LCP program will provide
the basic information for application of policies and regu-
lations. In most cases this should be rather simple, in-
volving conditional use permit language to the existing
agricultural district (s) within the local agency's zoning
ordinance. In such areas where a specific mixed use is
desired, a use-specific overlay zone may be appropriate.
Land use regulation including both zoning and general plan
designation are the basis of any agricultural preservation
program. Planning and zoning an area for agricultural use
indicates a commitment on the part of the community that the
land is appropriately h'eld in agriculture. As stated in the
introductory remarks to the mixed use guidelines, land use
regulation should reflect the community's desire for the use
t
- 111-10 ""
of the land and be consistently enforced.
DRAFT REPORT
11-20-80
Zoning regulations for agricultural land typically establish
parcel size requirements and various use restrictions. - It
must be stressed that the calculation of farm unit size solelv
on a cost-income basis, such as the farm unit size methodology
herein proposed is not solely adequate for establishinq land
use Policy and parcel size requirements. In addition to the
farm Unit analysis, other factors should be considered in-
cluding:
0
The minimum parcel size, if any is chosen, for a given
area should be large enough to discourage cse solely for
residential purposes. For example, the economic farm
unit size in an area suitable for a highly productive,
intensive crop such as strawberries may be small enough
'to permit use for residential purposes (5 to 10 acres).
On the other hand, residential use of agricultural land
has occurred in counties that have imposed 40 and 60 acre
minimums.
. A major issue conflicting with the need to limit resi-
dential use in agricultural areas is the need to keep
parcel sizes small enough to allow people to enter
farming. The continued existence of agriculture depends
DRAFT REPORT
11-20-80
upon new, younger people entering agriculture. The
present costs of land, machinery, and equipment make a
new agricultural investment very expensive. Entry re-
quires the ability of an individual to "start small" and
enlarge the operation over time.
Many farm operations occur on several non-contiguous
parcels under one ownership. If the unit size calcu-
lation is applied to the aggregate size of all the
agricultural parcels in a given operation, parcels below
an economic unit size could be permitted. In this case
the question becomes, "What is the smallest parcel that
can be economically and conveniently operated and yet
will adequately discourage use for solely residential
purposes?"
. Parcel size restrictions should not reflect the poten-
tial addition of supplemental uses. The fact that the
addition of an intensive recreational use such as an RV
park on a 1000 acre cattle ranch.lowers the cash flow
required from the cattle operation to one expected from
a 100 acre unit is no justification for zoning an entire
area 100 acre minimum. First of all, not every parcel
could develop an RV park, and second, if the supplemental
use fails a smaller than economicaliy viable parcel
would have been created.
5
111-12 ~ ." .
An effective approach to agricultural parcel sizes is to
freeze all parcels in the agricultural area at their
existing size. This can be accomplished by the adoption
of an "overlay zone" on the existing agricultural zon-
ing. Requests for land divisions would require a special
review process which would only approve land divisions
consistent with continued agricultural land use. In
such a procedure, the farm unit analysis' methodology can
be used to determine an economic parcel size. Similarly,
mixed use programs could be proposed and approved if they
met the planning agencies objectives.
Land use regulations should permit the range of opportunities
and mixed use possibilities that were developed in prior
steps that are determined to be consistent with agricultural
preservation. Another important factor is time. There are
many examples of land held out of production while awaiting
eventual urban development. Agriculture should be encour-
aged on this "urban reserve'' land. It may be many years
before the land is developed and during the interim, agri-
cultural production should continue.
2. Guidelines for the Farm Unit Analysis
The farm unit analysis prepared in each case
study is essentially a pro forma cash flow analysis applied
.
"_ . .~
DRAFT REPORT 11-2 0- 8 0
to an agricultural business. The farm unit analysis may be
applied to a specific farm operetion or be used in a more
general fashion to develop local regulatory policies. As
such, the methodology provides three types of information to
an analyst:
It can be used to estimate the average requirements of
a given crop type farm.
. It may serve as a tool for preparing "sensitivity anal-
yses" of existing farm units, that is, it can be utilized
to determine the impacts of operational, capital, or
tenure changes on farm unit economics.
. It can provide the bases for estimating the need for and
impact of supplemental uses on a given farm unit.
The cash flow analysis is an essential component for eval-
uating the economics of a farm unit. Farm unit analyses which
analyze a single year fail to exhibit the effects of time or
the relationship of farm costs and income to the financial
status of the owner/operator. The cash flow analysis pro-
vides the ability to consider these factors.
The effect of time is essential primarily because of equity
DRAFT REPORT 11-20-80
accumulation, debt retirement and inflation. Few businesses
are capable of producing profits during the first few years
of operation. Over time, however, as debts are retired and
income rises in proportion to fixed costs, the financial
picture improves. This same principal applies to agri-
cultural businesses.
Farm commodity prices tend to rise in proportion to general
inflation, although individual crops' prices may fluctuate
dramatically from year to year. Over the ten year period
between 1968 and 1978, average farm commodity prices in-
creased 105% (€?-32) while the overall consumer price index
(CPI) has incrertsed 87% (based upon a CPI in 1968 of 164.2 and
a 1975 CPI of 195.3). Prices for goods and services required
by farmers increased 112% over the same period. (R-32)
However, major fixed costs of a given farm unit, such as a
fully amortized land mortgage, decline in current dollar
terms in proportion to this general rise in prices. A
mortgage payment of $1,000 in 1968 would have equaled $504 in
1978, if expressed in dollars of constant purchasing power.
The farm unit analysis is designed to be flexible and adagt-
able to new assumptions, changed costs, or other conditions
related to a pzrticular crop. The methodology contains three
main sreps, description of the operating unit, investment
cost summary, and finally a cash flow summary. Exam?les of
completed farm unit analyses are included in the case
studies.
Step 1. Prepare description of the operatinq unit
The description of the operating unit is prepared on a
cost sheet (Figure 111-2) similar to those used by the
U.C. Co6perative Extension. All costs and income asso-
ciated with a producing acre of the subject crop should
be listed, except those costs for ownership of land and
equipment and interest on operating capital. It is im-
portant to recognize that per acre operating costs are
often a function of unit size. It may be necessary to
prepare descriptions for a range of farm unit sizes.
Data for the description of the operating unit must be
deveioped concurrently with the farm unit size analysis.
The U.C. Cooperative Extension cost sheets provide an
excellent starting point, but often require precise
updating and editing. It is often helpful to survey
farmers or other knowledgeable,persons to insure accur-
acy of the cost and income data.
Step 2. Prepare Investment Cost Summary
111-16
DRAFT REPORT
12/12/80
Figure 111-2
Economic Analysis of Farm Unit, Form 1
Operational Cost and Income Summary
Description of the Operating Unit: Crop/Livestock:
Size :
I tem
GROSS PRODUCTION RECEIPTS
1. TOTAL PRODUCTION RECEIPTS
2. TOTAL OPERATIONAL COSTS i
3. GROSS OPERATION MARGIN
Unit
Price or
or cost Quantity Cost/Uni t
Value Price or
or cost Quantity Cost/Uni t
Value
i
111 - 17
" . . . . . - .
DRAFT REPORT 11/20/80
The investment schedule (Figure 111-3) is an estimate of
the total capital investment required for crop pro-
duction, including machinery, equipment, irrigation
systems, land (if the unit is assumed to be owner-
operated), and, in the case of Perennial crops, crop
establishment costs. Cost estimates should be made for
a realistic range of unit sizes for the subject crop.
When possible, the chosen unit sizes should represent
size "threshold points" above which an additional incre-
ment of equipment would be required. It must be noted
that great variations may exist in the actual capital
investments individual farmers have made. For example,
well and pump costs can vary greatly depending on
groundwater availability. Estimates made for purposes
of this analysis should represent, insofar as possible,
averages of the local experience.
Like the operating cost data, investment data must be
developed concurrently with the farm unit size analysis.
Unfortunately, much greater variation often exists in
required investments than in operating costs for a par-
ticular crop. A survey of local farmers operating a
variety of unit sizes can provide this data. Care should
be taken to choose truly representative numbers. Table
I11 - 18
" . "" . ". .
Figure 111-3
Economic Analysis of a Farm Unit, Form 2
Investment Coat Summary
For x
t " ,n 6
men t
Replace
Reserve
Inv
2
cost
teprecia
5
1
"
"
-
~ Debt Service I
.-__ -
-. " 19
ance
Insur-
-" ___ 18
Taxes
proper I
0 - 4
Usefu.
Li Le
t rea
17
I\moUl
1
Quantity unl t
7
bunt
Borrowed
8
Rate
Intere 16
Percenl
Eligibl -
Annual
Llne
Straight 10 Yt
Principi 11
1
lnteres
12
Y€
Principa
- .I
nteres 15
Interes
TOTALS
"" "
1 i
DRAFT REPORT .
12/12/80
Figure 111-3, continued
Column Description of Investment Cost Summary
Column Item Description
0. N- of Investment, i.e., "Land," "Milk Cows," "Trac-
tor, 75 HP," etc.
1. Quantity and Unit, e.g., "400 Acres"
2. Purchase Price of Investment
3. Year of Purchase of the Investment
4. Useful Life of Investment
5. Annual Straight-Line Depreciation:
SBV - SAL
L DEP, - -
6.
Where :
DEP, f Deperciation for each year of invest-
ment's life
SBV = Starting book value of investment
SAL = Salvage value of investment
L = Useful life of investment
Replacement Reserve is the amount of capital which must
be reserved each year to replace an investment when its
useful life is completed. The Replacement Reserve is
essentially a sinking fund which, at maturity equals the
then purchase price of the investment. The rate of
inflation during the period must be assumed- as well as
the return expected on the reserved capital. The
following table shows a schedule for Replacement Re-
serve which assumes 10% inflation and 12% return on
reserved capital.
I11 - 20
h
Figure 111-3, continued
ANNUAL REPLACEMENT RESERVES NECESSARY
TO REPLACE AN ASSET WITH REPLACEMENT COST INFLATION
AT 10% PER ANNUM. .
DRAFT REPORT
12/12/80
Return on Reserved Capital equals 12% Per Annum.
Replacement Resserve (% of Original Price)
Useful Cons tan t Current $ %
Life $% In Year 1 In Year 5 In Year 10
2 Years 49.55% 54.50% - -
8 Years 11.73% 12.90% 18.88% -
10 Years 9.21% 10.13% 14.83% 23.89%
15 Years 5.86% 6.44% 9.44%. 15.20%
20 Years 4.19% 4.61% 6.75% 10.87%
40 Years 1.72% 1.89% 2.77% 4.47%
Source: McDonald h Associates
I11 - 21
DRAFT REPORT
12/12/80
Figure 111-3, continued
Column Item Description
7.
a.
9.
10. through 15.
16. and 17.
Amount Borrowed is simply the original amount borrowed
on the investment.
Interest Rate is the annual interest rate, expressed as
a percentage.
- Term is the original term of the debt. Machinery and
equipment loans are typically 5 years or less.
Debt Service shows the actual cost of the investment
divided into principal and interest for three annual
periods. The years chosen may be sequential or skip
years to show longer term consequences. Figures for
Debt Service may be derived from loan amortization
schedules or calculated on a financial calculator (such
as the HP 22) , or a programmable calculator.
Investment Credit
The investment tax credit is a direct reduction of the tax liability, rather than a deduction from taxable income. Added to the law in 1962 , it was intended by
Congress to stimulate investment by the business com-
munity in assets other than real property. The credit
has been subject to numerous significant changes since
its original enactment. For property acquired or placed
in service on or after January 27, 1975, an investment
credit of 10 percent of original cost is allowed.
In any one year, the amount of the credit available is
limited to the first $25,000 of tax liability plus 50
percent of the excess over $25 , 000 of the acquirer's tax
liability for that year.
(1) Qualifying Property
To determine the amount of the qualified investment
eligible for the credit, it is necessary to determine
three factors:
(1) Does the acquired asset qualify?
(2) what is its estimated life?
(3) Is it new or used?
*
-.
I11 - 22
DRAFT REPORT
12/12/80
Figure 111-3, continued
Column Item Description
In general, most agricultural investments will
qualify for an investment credit, including all
investments which are used in production such as
fencing fruit trees, grain storage bins, silos,
livestock, etc.
Estimated life was calculated in Column (4).
The amount of the credit is 10 percent of the
qualified investment for assets having a useful
life of seven years or more. A reduced credit
applies to shorter-lived assets. The amount of the original cost that will qualify for the credit is
based upon the life of the asset, according to the
following scale:
Percentage of
Original Cost Estimated Life Qualified
Less than 3 years ' 0%
3 years but less than 5 33-1/3%
5 years but less than 7 66-2/3%
7 years or more 100%
It also is necessary to determine whether the assets
acquired are new or used. In the case of used,
assets, an annual maximum cost of $100,000 may be
used in computing qualified investment. Each
partner in a partnership or shareholder in a Sub-
chapter S corporation is entitled to $100,000 of
investment credit for qualifying used property. In
no event may a partnership of Subchapter S cor-
poration pass investment credit to all partners or
shareholders on more than $100,000 of used prop-
erty. The entity must select the items of used
property that are to make up the qualified invest-
ment.
I11 - 23
Figure 111-3, continued
Column Item Description
Credit in excess of the amount usable in any one
year can be carried back to the preceding three
years and carried forward to the succeeding seven
years. The credit is carried first to the earliest
. year available and then to each of the seven years
succeeding the year of acquisition. When invest-
ment credit can be applied through carry-back,
taxes paid in prior years are recovered by filing
claims for tax refunds.
The calculation of an investment credit for each
investment which qualifies is done as follows:
IC = SBV(PQ) (0.1)
Where:
IC = Investment credit
SBV = Starting book value
PQ = Percentage of original cost qualified
For example, if the starting book value or qualified
capital investment is $12,000, and its useful life
' is 15 years, the calculation of its investment
credit would appear as follows:
IC = $12,000 (1.0) (0.1) = $1,200
19.
Property taxes are levied on real and personal property
by the county government. The tax rate in California is
1% of assessed market value. This calculation is
straight-forward for newly purchased property. Prop-
erty tax on real property owned prior to 1978 is based upon 1975 assessed market value, increased by 2% each year. The county assessor is the best source of this data for a given parcel. If the agricultural land is under a Williamson Act Contract, land taxes will be less than 1%. Check with assessor for parcel specific taxes.
Insurance is the amount of the annual insurance premium on a given investment. Insurance premiums are often
shown as U.C. Extension cost sheets.
I11 - 24
DRAFT REPORT 11/20/80
111-3 also gives descriptions of the data to be included
in the columns of the investment cost summary.
Step 3. Calculation of the Farm Unit Sizes
When calculating economic farm unit sizes, it is im-
portant to recognize the great variety of financial
circumstances and lifestyles of farm owners and oper-
ators. The economic farm unit size will vary greatly
depending upon the owner's expectations and needs. For
example, an established owner-operator may achieve a
given level of economic performance with a smaller farm
unit than a new agricultural investor. This is primarily
because the established owner-operator may have owned a
farm for years, perhaps having acquired it through in-
heritance, and may calculate economic return on the
agricultural operation without consideration of cash
flow required to service a land loan. The new investor,
on the other hand, must cover land and capital costs
completely out of the farm's economic return.
Farm owner-operators also have a variety of lifestyles
that affect economic farm unit size. Farmers include a
range, from "hobby farmers" to large scale corporate
enterprises. Hobby farmers as well as an increasing
number of commercial farmers supplement their farm in-
I11 - 25
DRAFT REPORT 12/12/80
come with other employment. This variety leads to the
necessity of distinguishing several levels of economic
performance when defining farm unit size, although vir-
tually any definition can be used.
Four levels of economic performance have been defined in
the present study to illustrate a range of farm unit
sizes that match a range of individual financial circum-
stances:
0 Long-Term Minimum Unit. The lower bound on the
ability of an economically motivated individual to
continue in business over a long term (i.e., for a
time period longer than the remaining life of owned
assets) is defined as a situation where net oper-
ating margin (the farm operation's net cash flow)
exactly equals the annual charge for the replace-
ment value of machinery, equipment, and perennial
crops. Conceptually, this situation would occur
when the farm unit operation is just able to return
cash sufficient to replace the value of assets with
limited productive life. It should be noted that
at this level of performance, there would be no
return either to the operator for his labor or to
the investment in land, equipment, machinery, or
111 - 26
" " . ." . __"" AL_" ~ . _._^L.^ ~ ." " .
L 4
DRAFT REPORT
12/12/80
perennial croDs. Nonetheless, it is an econom-
ically realistic situation for an i'ndividual who
uses the farm operation as an investment in a
lifestyle.
Return to Operator's Labor. This farm unit is
characterized as being more in keeping with the
classic concept of providing a "household income."
This unit performs as a self-sustaining unit and
also provides an income to the operator of $18,000
per year. In this situation, the operator receives
a living, but there is no return from the farm's
operating margin for the investments in land, ma-
chinery, equipment, or perennial crops.
0 Return to Landsand Capital Investment. This farm
unit is characterized as a "commercial farming
operation" where the revenues produced provide an
economic return in excess of the foregoing levels.
The rate of return is figured at 2 percent, net of
111 - 27
DRAFT REPORT
12/12/80
inflation, of the actual value of the farm's
assets: machinery, equipment, and the agricultural
value of the land.
Return to Cover Costs of New Investment. The most
demanding measure of economic performance is the
farm unit size,requir.ed to support a new investment
in a farm. In addition to meeting all of the above
criteria, this farm unit must generate sufficient
income to cover the costs of new investment in the
required machinery, equipment and, in the case of
an owner-operator, land. This level of performance
is difficult to achieve even if the land is pur-
chased on today's market solely for agricultural
purposes. Land prices for agricultural land are
often above agricultural production value alone.
1 g*he 2 percent rate of return is a l~realt~ rate of interest (which conventionally is assumed to be in the range of 2 to 4 percent). This rate. is applicable to farm unit economics, because it can be anticipated that the under-
lying value of the land for agricultural purposes will increase in stepwith price inflation. The market price for the annual production (as well, of course, as annual operating costs) will increase, in contrast to a fixed interest rate situation such as a savings account. As with any other assumption used in the present report, an
analyst with a different viewpoint could substitute a different assumption for an appropriate return on the value of the land in real terms. The rate of 2 percent was selected as appropriate for the purposes of the present project.
I11 - 28
, x.
"
h
DRAFT REPORT 11/20/80
Farm unit sizes consistent with these levels of economic
performancemaybe calculated. The dataprovidedby the first
two steps, operating cost and income summary and the invest-
ment cost summary, are converted into per acre costs and
applied to the formulas given in Table 111-4. A number of
additional assumptions and data are required to complete the
formulas:
A value for the operator's labor and management must be
estimated.
Replacement reserve must be divided into two categories,
one for capital investments which are fixed costs not
directly related to unit size (such as a tractor), and
one for investments that are directly proportional to
acreage planted or used (such as irrigation equipmentor
costs of establishing a perennial crop).
An appropriate return on investment must be estimated.
For purposes of this example, a two percent return, net
of inflation, was chosen.
The value of the equity in land, machinery, equipment,
and perennial crops or livestock must be assumed. The
lowest level of investment would be the minimum down-
payment requaired to purchase the capital goods. (Column
2 minus column 7 on the investment cost summary).
Loan payments should be based on current agricultural
111 - 29
1.
2.
3.
4.
._ - .. . " " . .. .~~ - ." "- .~.. . -. .c
DWT REPORT 11-20-80 Table 111-4
CALCULATION OF MINIKUM SIZE OF FARM UNITS
AT FOUR LEVELS OF ECONOMIC PEPJ'ORMANCE
Long-Term Minimum Unit (U1)
*1 = Dl
M - D2
'Economic Return to Operator's Labor (U2)
u.r =
M -. D2
Economic Return to Land and Capital Investment (U3)
+ $18,000 + O.O2(V2) u3 = M - D2 - 0.02 (Vl+V2)
Economic Return to Cover Costs of New Investment (U4)
Replacement reserve on the minimum machinery required to operate
the farm unit. This machinery represents a fixed cost that
does not vary directly with size.
Replacement reserve on equipment or perennial plants whose (dollar
per acre) amount and cost increase in direct proportion to the
unit size.
The farm unit's gross operating margin per acre. (From the -
Operating Cost and Income Summary)
Investment in the agricultural land.
Investment in machinery and equipment.
Investment in perennial crops.
Total annual loan payment on required machinery, equipment,
and operating capital.
Total annual loan payment on agricultural land (dollars per acre).
3
18,000 = Assumed return to operator's labor.
0.02 = Assumed 25 real rate of return on capital invesiments.
DRAFT REPORT
12/12/80
:' .
/ lending policies and interest rates. (Column 8, invest-
ment cost summary)
All cost and income estimates must be updated with new
data or appropriate assumptions to reflect the most
recent data available.
The assumptions must be rechecked for appropriateness
after unit size has been calculated. For example, "Dl"
in Table 111-4 represents the replacement reserve on a
complement of equipment and machinery that was assumed
to be appropriate and necessary for operation of the
unit. After the unit size has been calculated, the
analyst should confirm that the assumed equipment and
machinery complement is appropriate to the estimated
unit size. If not, a new assumption should be made and
*
the calculation should be repeated.
The variables P1 and P2 relating to loan payments are
based on the current financing available. As these loans
are paid, value is transferred to equity which is re-
flected by the variables VI, V2 and V3. The present
analysis is based on 20% of the total investment as
equity and 80% financed.
The calculation of unit size for leased land may differ
significantly from owner-operated land. Land lease
payments are deducted from production revenue as a cash
overhead item. Loan payments, for land as well as
SI1 - 31
equipment, are deducted from the "economic return," The
present cost of purchasing agricultural land is often
greater than may be supported by lease payments, Land
value appreciation is an important component of farm
.
income.
The results of these equations are totally dependent
upon the data and assumptions concerning net operating
margin, equipment and machinery depreciation, costs of
ownership, and levels of economic performance desires,
\
A change in any of these assumptions will change the unit
size required. In general, the less demanding the
economic performance expectations ind the higher the net
operating margin, the smaller the unit size required.
This methodology for estimating unit sizes is generally
applicable to any crop or farming operation for which the
necessary data is available.
I11 - 31(a)
Step 4. Prepare Cashflow Summary.
The cashflow summary (Figure 111-5) is a format for
projection of farm unit cashflow expressed both in cash
and tax terms. The cashflow can be carried forward for
as many years as necessary. Typically a five or ten year
period is adequate. Data for the cashflow summary is
derived partially from Form #l (Figure 111-2) and Form
12 (Figure 111-3). The cashflow summary allows the
evaluation of an agricultural investment over a speci-
fied time span and permits the addition of other sources
of income (such as supplemental uses). Tax advantages
of the farm unit may also be estimated. The tax advan-
tages are dependent upon the owner/operator's income tax
bracket, the economic performance of the farm unit and
available investment tax credits.
¶
Table 111-6 gives the source of data included on the
cashflow summary.
111-31d
DRAFT REPORT
12/12/80
Figure 111-5
Economic Analysis of a Farm Unit, Form 3
Cash Flow and Economic Return Summary
I YEARS 1 Year 1
Cash Tax Cash
Year Year
Tax Cash Tax CAPITAL INVENTORY Flow Flow Flow Flow Flow Flow
1. Land
2. Machinery
3. Equipment
4.
5.
6. Total Investment
GROSS OPERATING MARGINS
7.
8.
9. a.
10.
11. Total Gross Operating Margins
"""S -
I
13. Property Tax
14. Insurance
15. Depreciation
16. Replacement Reserve
17. Total Interest Payment
18. Total Principal Payment 19. Interest on Operating Loan
20. Legal and Accounting
28. Net Economic Return
31.
I 30. Annual Residual Economic Margin
29. Return to Operator's Labor I
I11 - 32
Figure 111-5
CASH FLOW SUMMARY (FORM 3) DATA SOURCES
Year 1 Year n1
ITEM BY
ROW NUMBER CASH TAX CASH TAX
Capital Investment
1. Land
2.-3. Machinery and
H
H
1
’ equipment
margins
H 7.-10. Gross operating
w 12. Land rent (if land
is leased w
13. Property tax
14. Insurance
15. Depreciation
16. Replacement reserve
17. Capital investment
interest payment
18. Capital investment
principal payment
Purchase price of land
Current market value
Form 1, Line 3
Annual rent for
agricultural land
Sum column 18, Form 2
Sum column 19, Form 2
None
Sum column 6, Form 2
Sum column 11, Form 2
Sum column 10, Form 2
N/A
N/A
Same as cash
Same as cash
Same as cash
Same as cash
Sum Column 5, Form 2
None
Sum column 11, Form 2
None
N/A N/A
N/A N/A
Form 1, Line 3 Same as cash
Same as Year 1 Same as cash
Sum column 18, Form 2 Same as cash
Sum column 19, Form 2 Same as cash
None Sum column 5, Form 2
Sum column 6, Form 2 None
Sum column 13, Form 2 Sum column 13, Form 2
, , Y Y
Sum column 12, Form 2 None
minus amortized loans
Figure 111-5, continued
Year 1 Year,
ITEM
CASH TAX CASH TAX
19. Operating capital
interest
Same as Year 1 Same as cash An assumed percentage Same as cash
of operating costs
multiplied by current
interest rate
23. Total fixed and
cash costs
Sum rows 12 through 22 Same as cash Sum rows 12 through 22 Same as cash
H n operations
H
I
w 25. Sales of assets
24. Return from farm
IP
26. Investment credits
Row 11 minus row 23 Same as cash Row 11 minus row 23 Same as cash
Assumption
None
Same as cash
Sum column 17
Assumption Same as cash
Sum column 17, Form 2
(Express as a negative
number
, Form 2 None
(Express as a negative
number
Assumption Same as cash Assumption 29. Return to operator Same as cash
30. Return to investment $ Net economic return Same as cash
(Row 28) minus
operator's income
Net economic return
(Row 28) minus
operator's income
Same as cash
Y
DRAFT REPORT 11-20-80
3. General Considerations for Application of
Mixed Uses
a. Mixed Use Opportunities
Mixed use proposals should address spe-
cific problems and issues existing in a given area. Mixed
uses should be applied in the context of the many oppor-
tunities that often exist to an agricultural preservation
program.
Within any coastal agricultural area, various opportunities
may exist beyond typical land use regulation which may
support agricultural preservation. These opportunities are
primarily other reasons, in addition to agricultural preser-
vation, for keeping land in an open non-urban status. These
may include a variety of reasons. Typical examples are
utility corridors, clear zones surrounding airports, open
space green belts surrounding urban areas, groundwater re-
charge areas, watershed lands, and wastewater irrigation
areas. These uses are typically compatible with some form of
agriculture and provide additional justification for holding
land open. They often provide scurces of funds for various
purchase schemes.
3
Probably the best example of an opportunity is land for
wastewater irrigation. It solves several planning goals at
DRAFT REPORT 11/20/80
once, while providing for long .term production use of the
land. Most coastal urban areas have problems with wastewater
disposal as well as loss of agricultural land. Cities or
districts can secure land by a variety of techniques as a part
of the sewer project capital improvement program (R-14). By
doing so, they accomplish at least three objectives:
. Guaranteed, environmentally sound disposal of waste-
water . Achievement of the agricultural preservation require-
ments of the state Coastal Act . Permanent green belts in and around urban areas.
Once these opportunities have been identified, they should be
geographically located on the parcel base map.
A mixed use program is the addition of a non-agricultural use '
to a continuing agricultural operation which provides sup-
plemental income to the operator and/or landowner, or
otherwise allows a portion of the farm unit to remain in
production. Mixed use opportunities fall into a number of
different categories depending upon the location of the farm,
the proximity to urban areas and the surrounding recreational
opportunities. Three general categories are identified:
I11 - 36
.~ ." __ " . "" ""- . . c- L . . .. -. ..
DRAFT REPORT
11-20-80
. ... Those which augment the farm operation by providing
on-site processing of raw products
Those which serve a visitor market such as roadside farm
product sales . Those which serve a resident market
The potential for on-site processing uses depend upon the
type of farm, the structure of the local or regional commodity
market, the availability of necessary infrastructure such as
transportation and utilities, and the desire of the operator
to expand his or her management responsibilities. An example
of on-site processing is a milk processing plant on the dairy
farm. On-site processing is advantageous for more remote
farms. Transportation of finished products is often less
expensive than raw products and processing costs in a rural
area may be below large urban area processors. On-site
processing also allows the farm to efficiently serve local
markets directly.
In coastal areas where visitors are a large or dominant
portion of the local economy, visitor serving facilities may
be developed in agricultural areas. Uses may include:
. Visitor serving commercial uses
On-site recreation such as a guest ranch, fishing, or
hunting
\Ti
'. .J
,-
',
DRAFT REPORT 11/20/80
Commercial camping and recreational vehicle (RV) sites
Coastal agriculture within an urban fringe area is typically
subject to demand for the full range of urban uses, resi-
dential, commercial, industrial, and institutional. The
level of this demand is determined by the urban areas' growth
and the availability of other developable land. It is easier
to imagine the mixed uses whi.ch provide on-site processing or
serve visitor markets than mixed uses which are essentially
urban. There are many existing examples of the former types
of mixed.uses but the mix of urban and agricultural uses-is
less common and more problematic. This is mainly because of
the inherent conflicts which tend to exist between urban and
agricultural land uses.
Nonetheless, some potential does exist if the inherent con-
flicts are somehow mitigated. The two most important com-
ponents of an agricultural urban mixed use would be some form
of permanent dedication of the agricultural portion of the
project and adequate buffering to limit operational con-
flicts.
Mixed uses in the more remote agricultural areas, as exem-
plif ied by the Galletti Ranch, should mostly involve low-
intensity visitor oriented uses or supplemental uses asso-
111 - 38
DRAFT REPORT
11-20-80
ciated directly with the agr'kulture 1 such as on-site pro-
cessing. In this case, implementation may require amendments
to the local zoning ordinance (if not already compatible)
which permits these supplemental uses, and possibly finan-
cial assistance. Mixed uses in rural areas are essentially
an economic development effort, where the Conservancy or the
local government facilitates improvements to an existing
agricultural operation. In this case land use regulation is
viewed as the main component of the agricultural preservation
program. Supplemental uses are intended to mitigate hardship
situations and hopefully improve local agricultural econ-
omics.
The situation is entirely different in an urban fringe aarea.
For purposes of this report, an urban fringe area is defined
as an area contains, is directly adjacent to, or is inter-
spersed with urban infrastructure such as roads, sewer and
water service, etc. These areas have typically been indi-
cated for some level of urban development in past planning
efforts. Within urban fringe areas, high land values . and
urban conflicts and general decay of the business infra-
structure necessary for agriculture typically lead to a
continual decline of agricultural operations. This process
occurs in many cases in spite of land use regulations which
attempt to hold the agricultural use. In these urban fringe
DRAFT REPORT
11-20-80
/i areas, supplementa ' uses must be combihed with innovative
types of land use regulations, including density transfer,
planned unit developments, etc. Under this scheme, the value
of the agricultural land for urban uses is utilized to
preserve a portion of the land for agricultural use. This
approach may not always be appropriate. Also, there will be
numerous problems to be solved regarding the inherent con-
flicts between agricultural and urban uses. The appropriate
application of supplemental uses to preserve agricultural
land on the urban fringe occurs when a unique agricultural
resource exists, or when the agriculture is a component of the
urban open space system, or contributes to stable urban
boundaries.
The mixed use concept for urban fringe areas is essentially =
a density transfer approach for a single land ownership or
group of cooperating ownerships. The test as to the type of
density required in relztion to the entire ownership would
have to be negotiated on a case-by-case basis, but general
guidelines canbe established for agiven area. The essential
rule is that the total market value of the land -- with the
development concentrated upon a portion, plus the residual
agricultural value -- must be roughly equivalent to the
original market value of the entire holding.
DRAFT REPORT
11-20-80 .
Another key difference between the density transfer concept
recommended for urban fringe areas, and the mixed use con-
cept, as applied in the more rural areas, is that there would
not necessarily be an ongoing relationship between the new
"supplemental" use and the remaininq agricultural use, which
would generally be the case in rural areas. In fact, an
existing landowner, who may wish to sell off land, could put
a project together in concert with the local government, sell
the supplemental use portion of the land to one buyer and the
agricultural portion to another buyer. Land divisions will
nearly always be involved.
It should be recognized,that most mixed use opportunities are
of limited use. That is, are constrained by market demand or
other factors to a few locations or occurances. For example,
on Mendocino's south coast, there may be demand for milk
processing or a small cheese factory, but this could only
occur once. It would serve as a solution to a single
agricultural operation directly, although there may be in-
direct benefits to other farmers. Other mixed uses, such as
wastewater irrigation, may have broader use, but will be
limited by environmental characteristics and proximity to
the source of the wastewater.
Once potential mixed uses have been identified a market
DRAFT REPORT
*11-20-80
analysis should be conducted to determine whether or not the
potential use would succeed. The market analysis can vary
from a straight-forward judgment on the part of knowledgeable
persons to a detailed study which quantitatively estimates
demand, existing supply, and potential market share for the
proposed supplemental mixed use. The market analysis for the
three types of mixed uses would focus upon specific markets:
Mixed uses involving on-site processing should focus on
the specific agricultural commodity market and the role
the new processing capacity might play in meeting local,
regional, or other demand.
Mixed uses involving recreational uses should focus on
the existing pattern of recreational use in the area, how
demand is being met, and projections for future re-
creational use.
Mixed uses involving urban uses should focus on supply
and demand for the potential mixed use in the market
area. Key variables are local population, economic
growth, and competing supply of land.
The market analysis conducted by the planning agency need not
be specific or extremely detailed. The purpose of the
DRAFT REPORT
12/12/80
analysis is simply to determine if the potential mixed uses
are feasible in the study area. The answer to this question
is often obvious and elaborate efforts are simply not re-
quired. When a specific proposal is developed, however, the
project proponent may wish to conduct a more detailed,
specific market analysis for the project. This data, as it
is developed, can be used by the local planning agency for
evaluating subsequent projects.
b. Mixed Use Impacts
The addition of non-agricultural uses in
an agricultural area can lead to various impacts. Insofar as
possible, the local agency should anticipate these impacts
-
and attempt to mitigate them by revisions or amendments to the
project design. ,As indicated in the model mixed use policy,
mixed uses are themselves intended to enhance the agri-
cultural operation or local agricultural economy. BY so
doing they would address such fundamental problems as high
land values in urban fringe areas, the poor competitive
relationship of many rural coastal areas due,to their rela-
tive distance from urban markets, and, in the case of both
urban fringe and rural areas, the dependence by producers
upon conventional marketing channels.
Urbanization is an ongoing process in California as its
population grows. The coastal zone is particularly attrac-
I11 - 43
-. .
DRAFT REPORT
12/12/80
.. -.
tive as a place to live for many the same reasons agriculture
located in the coastal zone (moderate climate, access to
population centers, etc. ). Many cities and towns which
-.
I11 - 43(a)
DRAFT REPORT 11-20-80
originally were developed to serve the surrounding agri-
cultural economy have grown and displaced much agriculture
and made continuing operation for the agriculture remaining
difficult. Growth of major population centers along the
coast and the advent of automobile transportation and free-
ways has stimulated the market for rural residential and
second home development. Agricultural areas are very at-
tractive for this sort of development.
Urbanization, either intensive urban uses or rural resi-
dential type development causes two basic types of impacts on
agriculture.
Increase in land values beyond the land's value strictly
for agricultural production
Agricultural-urban conflicts including impacts of farm
operations on urban land use and the impact of urban land
use on agricultural operations. .
The dynamics of land values within a conflict area is typ-
ically complicated. In general, the pattern is established
by the urban land market. As urban pressures develop prices
invariably increase. Urban land uses typically yield a
higher return on a per acre basis than does agriculture. The
' "-.
\ '. ._.
DRAFT REPORT
11-20-80
price established by the urban land market is much greater
than can be justified by agricultural returns. Price of
agricultural land rises to reflect expected future urban
earnings (usually discounted by some level of uncertainty).
The possibility of future conversion to urban use and the
price inflation associated with it typically affects a much
greater amount of land than can be absorbed by the market for
a long time (often greater than 20 years). The chance for
future urban conversion create farmers' unwillingness to
make capital investments for long term productivity. The
result of this process is that land is often removed from
production, mined or underutilized. A large problem associ-
ated with land values in,excess of agricultural use values is
the problem this creates for turnover of the land to new
agricultural operators, either heirs or new investors. If
young farmers cannot afford to enter local agriculture,
because of high land costs, it is only ,a matter of time before
existing operators retire, cash out and operation ceases.
. Agricultural-urban conflicts result from the close proximity
of urban land use and agriculture. The conflicts work both
ways, that is, farm practices may impact or be a nuisance to
urban land use and visa versa. Farm practices which often
cause problems for nearby urban land use, particularly resi-
dential uses include:
DRAFT REPORT 11-20-80
price established by the urban land market is much greater
than can be justified by agricultural returns. Price of
agricultural land rises to reflect expected future urban
earnings (usually discounted by some level of uncertainty).
The possibility of future conversion to urban use and the
price inflation associated with it typically affects a much
greater amount of land than can be absorbed by the market for
a long time (often greater than 20 years). The chance for
future urban conversion create farmers' unwillingness to
make capital investments for long term productivity. The
result of this process is that land is often removed from
production, mined or underutilized. A large problem associ-
ated with land values in excess of agricultural use values is
the problem this creates for turnover of the land to new
agricultural operators, either heirs or new investors. If
young farmers cannot afford to enter local agriculture,
because of high land costs, it is only a matter of time before
existing operators retire, cash out and operation ceases.
4
Agricultural-urban conflicts result from the close proximity
of urban land use and agriculture. The conflicts work both
ways, that is, farm practices may impact or be a nuisance to
urban land use and visa versa. Farm practices which often
cause problems for nearby urban land use, particularly resi-
dential uses include:
DRAFT REPORT 11-20-80
. Spraying of gesticides
0 Dust
0 Noise
0 Odors
Urban uses nearby agriculture typically are associated with
increased operational costs or loss of crops or livestock.
The impacts include:
. Ctop theft . Predation of livestock by domestic animals . Equipment theft and damage . Trespassing and off road vehicle use
Random creation of small "rural residential" parcels and
other speculative land divisions which create parcels
smaller than can be efficiently operated.
In addition to the agricultural-urban conflicts and land
value impacts, many agricultural commodities are suffering
internal economic difficulties. While some crops and live-
stock production is doing well from a cost-income standpoint,
others are relatively poor performers. Factors which have
been increasing the cost of agriculture which have not been
t
entirely reflected in price increases include:
DRAFT REPORT 11-20-80
Market competition from other producing areas with more
favorable costs of production
Costs imposed by environmental quality regulations such
as water quality, air quality, etc.
Competition for factor inputs such as labor, water, and
land
The rising cost of energy
The rising cost of money
Since mixed uses are conscious combinations of agricultural
and non-agricultural uses, it can be expected that these
impacts would be mitigated by the project design and other
requirements. Land value impacts should be mitigated by the
required land dedication or deed restrictions. Operational
impacts must be mitigated primarily to protect design fea-
tures. Some combinations of agricultural operations, non-
agricultural land uses, given a particular site, may simply
not be feasible because operational impacts are beyond so-
lution. In this case, other use combinations should be
sought.
4. Specific Project Application of the Farm Unit
Analysis
The farm unit analysis can be used in both a
generalized fashion as would be the case for establishing
DRAFT REPORT 11-20-80
!,
appropriate farmunit parcel sizes,or very specifically, for
example, the Coastal Conservancy would typically use the
methodology when evaluating a specific mixed use proposal in
which they were involved. The following considerations
assist the application of the farm unit analysis to specific
farm units.
Step 1. Prepare Description of the Operatinq Unit.
(Figure 111-2) Because an actual farm unit is being
considered, the unit description can be very specific.
A problem may exist in having an owner/operator release
detailed information about all operational costs because
this information is proprietary. Often competition with
other farmers' makes release of this information im-
possible. Although it would be best to have the actual
operating data, the analyst nay have to rely upon more
general data and simply ask that the operator confirm the
general validity of the estimated costs and revenues.
Step 2. Prepare Investment Cost Summary.
(Fugure 111-3) Similar to Step 1, the analyst has an
opportunity to accurately record capital investment
costs. However, similar limitations regarding proprie-
tary information will apply. The cost basis in the land
and the total amount of debt are also proprietary in
DRAFT REPORT
11-20-80
I '. . " nature. The basic components of machinery and equip-
ment, as well as land can be well defined. Ownership -
costs related tocost basis, debt service, etc., may have
to be estimated using the "financial prototype" approach
used in the case studies.
Step 3. Calculation of Farm Unit Size.
No special consideration for the Conservancy's use is
required. Application of the specific farm unit oper-
ating costs and income and capital investment costs
would result in the minimum size for the particular farm
unit being considered.
i
Step 4. Prepare Cash Flow Summary.
(Figure 111-5) The cash flow summary includes data from
the operating cost and income summary and investment
cost summary in a protection of farm unit summary in a
projection of farm unit cash flow. The summary indicates
both cash flow and tax flow associated with the farm
unit, and estimates the economic returns from the farm
unit. This information would be used as the baseline
upon which the supplemental uses would be applied. The
analysis would provide valuable information regarding
the impacts of the new use upon the existing operator and
operation, and also permit the comparison of different
DRAFT REPORT 11-20-80
supplemental uses, and indicate long term financial
performance.
. . __
DRAFT REPORT 11/20/80
5. Tax Considerations for Farm and Mixed Use
Operations.
Income and estate tax considerations are par-
ticularly important to farm operations and mixed use pro-
jects. The tax consequences of such projects produce real
economic effects and also produce perceptions about economic
effects. Many of the "tax shelter" aspects of agriculture,
such as annual deductibility of the preproduction costs of an
orchard or vineyard by farm syndicates are no longer appli-
cable. The tax laws were changed in
response to perceptions about undesirable tax avoidance.
Other tax benefits remain and are important to a complete
economic evaluation of the farm unit. In fact, actual and
perceived tax consequences are a primary reason that the
economic evaluation depends on the circumstances of the
owner/operator, as well as the circumstances of the agri-
cultural unit itself.
There are certain tax laws for agriculture that are not
applicable to other forms of business. For example, a farmer
can deduct all, or a portion of, the cost of soil and water
conservation improvements, while another business (e.g., a
land developer) cannot. As another example, a farmer (with
certain exceptions) can use the cash basis of accounting,
DRAFT REPORT 11/20/80
i
without treating crops, seed, etc., as an item of inventory
in the way that would be required of other businesses. In
general, however, the tax impacts on farm unit operations
arise out of the same laws that apply to any other business,
but tend to have a different effect. The effect is generally
applicable to:
An operator or owner having non-farm income that can be
"shelter" from incdme tax by farm unit operating losses
or credits.
An ownerr or investor, who, because of other assets or
other income, does not need a high annual income, but is
very interested in capital gain. (Increasingly, foreign
investors are seeking an asset that is safe from ex-
propriation, and that maintains a constant real value in
the face of inflation).
I An additional sensitivity to tax consequences arises because
an agricultural operation may be difficult to convert into
ready cash at the time that estate taxes are due.
The major tax effects of farm operations are summarized
briefly in the following paragraphs. It should be carefully
understood that this is general information. It is intended
only to identify instances where a more careful analysis
I11 - 53
_" . .
" . "" . . . . - ._~ "" " "" - - ." . .- . ... - - .
".
DRAFT REPORT 11/20/80
.- - .
should be done for an individual owner, or operator, by a
qualified tax practitioner. Income and estate tax planning
are highly specialized areas, and appropriate strategies
depend very much on the, circumstance of the individual
taxpayer.
a. Profit and Loss
The traditional farming "tax shelter"
has depended on a situation wherein net operating costs
exceed net operating income. In some types of investment
(e.g., real estate development), the term "paper loss" is
applicable since allowable depreciation (a non-cash item) is
responsible for the difference between profit and loss. In
fact, the asset is often appreciating in value, rather than
depreciating. In farm operations, this is generally not the
case. The "loss" from farm operation is a true economic loss,
but it may be justified:
. Because the farm unit (or a new mixed use) is in its
formative period, and early-year losses can lead to
significant profits over the long term.
Because the owner/operator believes that increases in
value of the assets more than justify theoperatin gloss. . Because the owner - particularly, an owner with a sub-
stantial outside income, derives a certain amount of
111 - 54
"
DRAFT REPORT 11/20/80
enjoyment from the farm operation, and considers the tax
deductible operating loss to be outweighed of other
gains.
The third example deserves further discussion. A farm
operation that is conspiciously and demonstrably, "...not
engaged in for profit ..." does not produce a deduction.
However, if the operation produces a prof it in two out of five
consecutive years (or two out of seven for breeding, train-
ing, showing, or racing of horses), the presumption is that
the operation is not creating a so-called "hobby loss." The
loss is deductible against other income.
The preceding discussion of deductibility of farm losses is
generally applicable, only if the taxpayer has other income
to shelter.' This situationwould exist, for example, when the
farming/mixed use operation was owned by one or more inves-
tors who held the property as a general or limited partner-
ship, and who had substantial income from other sources. The
option of a corporation to be taxed as a partnership, provided
by subchapter S of the Internal Revenue Code, may be avail-
able, depending on the number and type of owners, and the
sources of income. There is no equivalent to the Federal
provision for tax option corporations in California's income
tax laws.
DRAFT REPORT 11/20/80
The use of carefully planned farm loss deduction strategies
can be combined with a capital gain strategy (discussed
below). For example, a supplemental use can be structured
with the intention of selling or exchanging the property at
the time when tax benefits are negligible or discontinued,
and operating profits are available. For example, tax
motivated investors could sell or exchange a mixed use unit
to a buyer (e.g., a foreign investor) motiviated by capital
appreciation and income, but not by availability or deduc-
tions from U.S. taxes.
b. Capital Appreciation, Gains and Security
A major factor in the total economic
value of a farm unit (and, increasingly, of any asset as long
as the U.S. economy continues to experience high rates of
inflation) is the ability of the asset to maintain or increase
its value in the face of inflation. Farmland has tradi-
tionally been able to maintain and increase its value, in
part, because of the ability of the agricultural products to
be adjusted in the marketplace to compensate for the effects
of inflation.
A non-corporate taxpayer may deduct from gross income 60% of
net capital gains. In effect (neglecting the maximum tax on
personal service income), the total capital gain is taxed at
111 - 56
DRAFT REPORT 11/20/80
f -. _. 40% of the rate that would be applicable if, instead, the
taxpayer enjoyed the same amount of ordinary income. Thus,
a high bracket taxpayer can justify operating losses, and, in
fact, can improve farming practices, thus increasing the size ’
of the deductible loss, wi,th an objective to receive the
preferential treatment given to capital gains when the asset
is sold.
A final factor should be mentioned regarding appreciation of
agriculturalvalues. The extent to which agricultural lands
in California are owned by foreign investors is not docu-
mented, since disclosure of the true owners of real estate is
not required in all circumstances. Nonetheless. there is no
question that foreign investors are extremely active in
California’s agricultural real estate market. This activity
tends to accelerate the increase in value because foreign
investors often have motivations that are satisfied if an
investment maintains value in the face of inflation, and is
secure from the threat of expropriation.
As long as a world market is bidding for California agri-
cultural land, and as long as immediate annual return is not
the primary objective of a portion of this market, then
capital gain considerations will continue to be important in
the economic evaluation of mixed uses.
111 - 57
I DRAFT REPORT
12/12/80
C.
federal income tax
Investment Tax Credit
The availability .- of a credit against
for investments in certain depreciable
personal property was discussed on page FF. In con-
trast to a deduction, the value of which depends on the
taxpayer's tax bracket, a tax credit produces a dollar-for-
dollar elimination of taxes that would otherwise be paid.
Nonetheless, the tax credit is of greater economic value to
the higher bracket taxpayer. The percent by whic,h the higher
bracket individual would have to have increased earnings to
have the same net remaining income as exists because the
credit is higher than for a lower bracket taxpayer.
d. Calculating the Impact of Tax Ef-
fects
Provided that appropriate cautions
are given about the necessity to review an actual situation
with an individual's tax practitioner, it is often useful to
make an initial example calculation of the after-tax impacts
of farm unit economics. The after-tax income available to an
individual with and without the farming operation can be
calculated to indicate the total economic return to that
individual. 'A form to facilitate this calculation is shown
as Figure 111-6, and is followed by a comDleted example
(Figure 111-7).
111 - 58
DRAFT REPORT
12/12/80
Figure 111-6
Illustration of a Tax Impact Analysis
of a Farm Unit Operation
(Sample worksheet with instructions)
TAXPAYER
FILING STATUS
NON-FARM INCOME
1. Personal service taxable
2. Other taxable income
3. Income tax - U.S.
4. Income tax - California
5. Gross income tax
6. U.S. investment tax credit
7. Net income tax
FARM OPERATIONS
8. Taxable income from farm
9. Personal service taxable
10. Total other taxable income
11. Income tax - U.S.
12. Income tax - California
13. Gross income tax
14. U.S. investment tax credit
from farm investments
15. Net income tax
16. Net economic benefit from tax
considerations
income
other than from farm operations
operations
income
I11 - 59
Figure 1x1-6, continued
DRAFT REPORT
12/12/80
Sources of Data
Line 1 Estimate this amount for each year of the analysis. Deduct
applicable items of tax preference income.
Line 2 Estimate this amount for each year of the analysis.
Line 3 Apply appropriate tax tables (e.g. , from R 34 or R 36) to calculate
taxable income. Use "this year ' sn tax notes for future years , unless
a change, is assured. Carry out the alternative calculation for
Personal Service Taxable Income if taxpayer benefits from the
maximum 50% rate.
Line 4 Apply appropriate tax tables (e.g., from R 35) to calculate taxable
income.
Line 5 Line 3 plus Line 4.
Line 6 Include any available investment tax credit other than from farm
operations.
Line 7 Generally, Line 5 minum Line 6, but the credit reduces only U.S.
Income Tax. . See R 36 if both Line 3 and Line 6 exceed $25,000.
Line 8 Taxpayer's portion of Form 3, Line 28 (Cash Flow & Economic Return
Summary) .
Line 9 Normally equal to Line 1, unless taxpayer also receives personal service income from the farm operation.
Line 10 Line 2 plus Line 8.
Line 11 Same procedure as for Line 3.
Line 12 Same procedure as for Line 4. Note if loss from farm operations
(from Line 8) creates a tax preference item under California law and
adjust tax calculation.
Line 13 Line 11 plus Line 12.
Line 14 Taxpayer's portion of Form 2, Column 17 (Investment Summary).
Line 15 Same procedure as for Line 3, applied to Lines 13 and 14.
Line 16 Line 7 minus Line 15.
111 - 60
Figure 111-7
Illustration of a Tax Impact Analysis
of a Farm Unit Operation --
Hypothetical Example
TAXPAYER SAM SURGEON, M.D.
FILING STATUS Married, filing joint return
NON-FARM INCOME
1. Personal service taxable
2. Other taxable income
3. Income tax - U. S.
4. Income tax - California
5. Gross income tax
6. U.S. investment tax credit
7. Net income tax
FARM OPERATIONS
8. Taxable income from farm
9. Personal service taxable
10. Total other taxable income
11. Income tax - U.S.
12. Income tax - California
13. Gross income tax
14. U.S. investment tax credit
from farm investments
15. Net income tax
16. Net economic benefit from tax
considerations
income
other than from farm operations
operations
income
$100,000
20,000
52 , 008
11 I 232
63,240
-0-
63,240
(15,000)
100,000
5,000
42 I 628
9,582
52,310
1,000
51 IO00
$ 12,240
I11 - 60(a)
DRAFT REPORT 11/20/80
e. Estate and Inheritance Tax
AS noted previously, the - cash re-
turn to agriculture is lower than for certain other capital
investments because a portion of agriculture's economic
return comes through appreciation of land asset value. Fur-
ther, the appreciated value of the farm unit cannot be turned
into cash nearly as readily as (say) a publicly listed
security that has appreciated in value. These factors lead to
the perception that the farmer "lives poor and dies rich and
the family then can't pay the death taxes."
In fact, the effect of estate and inheritance taxes is a key
factor in agricultural economics. The effect is even more
significant if an owner - particularly an older owner - is
considering a mixed use and wonders whether the necessary
capital investment should instead be kept available to pay
death-related taxes. The intergenerational problems of a
non-corporate farmer are quite comparable to those of any
other closely held, privately owned business. Partial solu-
tions lie in recognizing the ultimate requirement to pay
estate and inheritance and take such standard estate planning
steps as
taking full advantage of federal laws that recognize the
illiquid nature of a family-owned farm;
I11 - 61
DRAFT REPORT 11/20/80
. securing adequate life insurance to pay estate taxes
and, if necessary, providing cash in the estate that the
heirs can then use to pay inheritance taxes.
While the estate planning problems of agricultural operators
are not unique, it should be understood that they are becoming
more difficult to solve. Price inflation and real dollar
appreciation create difficulties in any attempt to secure
"enough" cash to cover estate taxes. Further, an "adequate"
level of life insurance secured when an operator was rela-
tively young and healthy, may appear totally inadequate 20
years later - at a time when additional insurance may no
longer be available,
A successful and'carefully planned mixed use project can ease
estate planning problems in at least two important ways.
First, certain mixed use concepts (e.g., cluster develop-
ment) can produce significant cash flow. The mixed use
directly improves the liquidity of the agricultural oper-
ator.
The second role of a mixed use strategy in estate planning is
applicable even if the mixed use does not increase cash flow
dramatically. Assuming the augmented use is economically
I11 - 62
DRAFT REPORT 11/20/80
;' -\ ,.
*. . /' sound (considering profit, appreciation and intangible ap-
peals) t it should be practical to establish a partnership or
joint venture with a financially qualified partner. In .
effect, the partner would buy an interest in the underlying
asset - the farm, ranch, or vineyard - as well as financing
the augmented use. The amount of payment and the terms of the
transfer of partial ownership depend on all applicable cir-
cumstances and are matters for negotiation between the par-
ticipants. The point is that involving a partner can produce
cash at the time a mixed use is implemented.
111 - 63
. -~. "." .
DRAFT REPORT
11-20-80
IV. CONSERVANCY ACTION PROGRAM
A. Introduction
The Conservancy action program is essentially a
series of recommendations regarding how the California
Coastal Conservancy might implement a mixed use project and
improve its agricultural preservation program. The recom-
mendations address how mixed uses might be supported by the
Conservancy. They also address management and legislature
changes.
Although the mixed use concept can operate at the local level
without Conservancy intervention, an active and supportive
conservancy agricultural preservation program could be of
great assistance to local governments who wish to utilize
this tool. There are three different roles the Conservancy
can perform regarding mixed uses:
The Conservancy can serve as a technical assistant to
local governments. In this role the Conservancy staff
might identify mixed use opportunities in a given area
and assist the local government in evaluating actual
mixed use proposals. Specific technical assistance
could include market analysis and preGaration of the
farm unit analysis.
IV- 1
DRAFT REPORT 11-2 0- 8 0
The Conservancy can support a local government by serv-
ing as the land bank for dedicated land or development
rights that result from mixed use projects. In this role
the Conservancy could also provide financial support for
a specific project.
The most aggressive role for the Conservancy would be
actual packaging of mixed use projects. This would
involve Conservancy purchase of agriculture land and
sell back of a mixed use project. In this role the
f Conservancy would act as a developer working closely
with local government. The Conservancy would identify
a mixed use opportunity, prepare an evaluation, 9urchase
the land, and gain project approval. Both the agricul-
tural operation and the non-agricultural components
would then be marketed.
A major conclusion of this report is that the California
Coastal Conservancy could have, with adequate financing and
legislative support, a major and effective role in preserving
agricultural land in the coastal zone. The initial focus of
the Conservancy's agricultural program, however, should be
upon completing a project. A key to this goal is locating a
situation where there is a need as well as willing players --
3
including the land owner, the local government, and the
n-\
i .-.J
DRAFT REPORT 11/20/80
California Coastal Commission.
A distinct difference was identified regarding the appli-
cation of mixed uses in rural versus urban fringe areas.
Conservancy mixed use programs, which essentially involve
financing, assisting, or otherwise promoting a supplemental
use on an existing agricultural operation are ideal for use
in rural areas beyond the urban fringe. These areas, while
not subjected to intense development pressure, may still
suffer from poor economic performance due to factors such as
the lack of service or processing infrastructure, or high
costs of feed, water, energy, and labor. This poor economic
performance may lead to complaints about lack of economic
viability and subsequent land divisions which further aggra-
vate maintenance of a healthy agricultural economy. Supple-
mental uses in rural areas should be targeted at specific
local problems such as energy production, development of
local markets, as well as producing an additional source of
farm income. Lowering the cost of production is equivalent
to increasing income. A supplemental use can also broaden the
economic base of a given farm unit and thus make inter-
generational operation and transfer more successful.
In the urban fringe areas mixed use programs will typically
IV - 3
DRAFT REPORT 11-20-80
be associated with innovative land use policies. This is
clearly indicated by the Carlsbad pilot study. Development
pressures and existing land use conflicts are so great that
simply improving a farm unit's cash flow is generally not
adequate. In urban fringe areas, the Conversancy would
utilize its traditional powers and resources (purchase-
sellback, lot consolidation, etc.) in cooperation with the
local agency and the California Coastal Commission. This is
in contrast to the "economic development" role suggested by
the mixed use programs in rural areas.
B. Background of the Recommended Action Program
The Conservancy staff has recognized the essential
issues and problems surrounding coastal agricultural preser-
vation. In a report prepared for the Coastal Conservancy
Board, in October 1978 (R-17), the Executive Officer outlined
the magnitude of the problem, the related Coastal Act poli-
cies, the Convervancy's role in agricultural preservation,
and techniques the Conservancy might apply to the problem.
The problems presented in the Executive Officer's report have
not decreased over the past two years. If anything, while
inflation has proceeded and the critical decisions involved
in the LCP's are surfacing, agricultural preservation has
become even more difficult to achieve in the coastal zone.
DRAFT REPORT
11-20-80
The Conservdncy Action Program begins with a summary of
present powers and resources of the Conservancy, and a
restatement of the scale of the problem of preserving coastal
agriculture. This is followed by the program recommenda-
t ions .
1. Summary of Present Powers and Resources
a. Leqislation
The California State Coastal Conservancy
was brought into existence by the Coastal Conservancy Act of
1976, and funded by the Park Bond Act of 1976. It has been
in operation since 1977. The Conservancy is granted author-
ity for its agricultural preservation program under Sections
31150 through Section 31155 of the Government Code. This
authority has been summarized as follows (R-19):
"Section 31150 permits the Conservancy to acquire fee
title interests in land located in the Coastal Zone in
order to present loss of agricultural land to other uses
and to assemble agricultural lands and parcels of ade-
quate size to permit agricultural production. Section
33151 states that in acquiring an interest in agri-
cultural land, the Conservancy shall give the highest
priority to urban fringe areas where the impact of
urbanization of agricultural land is greatest.
.
DRAFT REPORT
11-20-80
Section 33152 sets forth the two findings which the
Conservancy must make in approving any agricultural
preservation program. The first finding is that the
lands to be acquired must be specifically identified in
a certified Local Coastal Program (LCP) (or in an adopted
Issue Identificationfiork Program) as agricultural
lands. The second finding is that there must be no other
reasonable means, including the means of police power,
of assuring continuous use of such lands for agri-
cultural purposes.
As with all of the Conservancy's programs, the ultimate
purpose is to carry out the policies of the Coastal Act
of 1976. The policies most directly related to agricul-
tural preservation are found in Sections 30241 and 30242
of the Coastal Act. These provide that the maximum
amount of prime agricultural land shall be maintained in
agricultural production to protect the agricultural
economy. Conflicts between agricultural and urban uses
shall be minimized by: .
. Establishing urban-rural boundaries/buffer areas;
. Limiting conversion of agricultural land to par-
cels whose viability is severely limited by con-
DRAFT REPORT
11-20-80
i flicts with urban uses where conversion will com-
plete a logical neighborhood and help establish an
urban development;
b Developing lands not suited for agriculture first;
Assuring that public facilityand service expansion
and development do not impair agricultural via-
bility; and
Assuring that productivity of prime lands is not
diminished by divisions and adjacent development
(30241) .
All other agriculturally suitable land shall not be
converted to non-agricultural use, unless (1) continued
or renewed agricultural use is not feasible, or (2)
conversion would preserve prime land and concentrate
development. Such conversion shall be compatible with
adjacent agricultural uses (30242) .I'
b. Financing and Budget
The Conservancy was funded initially in
1976, under the State Urban Coastal Bond Act. The Conservancy
was granted $10 million. Seven million was budgeted for
DRAFT REPORT
11-20-80
Table IV- 1
Conservancy Costs - Cash, Accrued and Projected
as of December 1979
Cash Expenditures
- Administration
(through FY 1981) - Programs
Non-agr icultural 1,039,400
Agr icul tur a1 6,500
Total Cash Outlay $ 2,845,900
Comi tted Funds
- Administration
(through Fy 1983)
- Programs
Non-agr icul tural
Agr icul tur a1
Total
$ 1,200,000
2,085,500
665 ,0001
$ 3,950,500
Un-committed Funds - Programs
Non-agr icul tural $ 3,452,500
Total - Cash, Committed
& Non-commi t ted $ 10,24a,9002
Source: California Coastal Conservancy (R-30)
1/ It should be noted that the Morro Valley agricultural preserva- tion project represents 98% of the committed agricultural
project funds .
2/ Additional funds may become available in the future from an appropriation of Tidelands oil revenues.
DRAFT REPORT 11/20/80
projects and three million was budgeted for administration
and contingencies or emergencies.
Table IV-1 shows the actual use of the Conservancy's funding.
A total of $2.8 million will have been expended by the end of
1980/81, an additional $4.0 million will have been committed
but not yet expended and the remaining $3.5 million will
remain uncommitted and available.
\
Future funding for the Conservancy will come from additional
state grants and financial returns on projects. Previous
Conservancy projects have returned $0.88 for every $1.00
spent. Of course, turn around time for the payback is often
several years. At existing levels of expenditure, the
Conservancy will need an additional grant by the end of fiscal
year 1983. However, with passage of the 1980 State Park Board
Bond Act, the Conservancy is guaranteed an additional $10
million. The Conservancy will also administer $20 million in
grants to local governments for LCP implementation.
2. Summary of the Conservancy's Agricul-
tural Program
During its existence, the Conservancy
has evaluated a total of eight agricultural projects. Of the
total, two projects were deleted after protracted but un-
IV - 9
I
DRAFT REPORT 11/20/80
successful negotiations. One was preserved without Con-
servancy action; one was dropped from further consideration
by the staff; and four are pending. A summary of the projects
3
Table IV-2
CONSERVANCY AGRICULTURAL PROJECT LIST
Date of Conservancy
Board Action Project Description Proposed Action Results and Comments
1. March 1979
2. April 1979
c" 3. May 1979
t
c1 0 4. February 1980
5. Pending
6. Pending
7. Pending
8. Pending
San Luis Obispo County
Moro Valley
Purchase 146 acres
San Luis Obispo County
Osos Valley
Purchase 70-120 acres
North Monterey County
Exercise lease option
on 365 acres
San Mateo County
Half Moon Bay
Purchase 146 acres of
agricultural land
Mendocino Botanical Gardens
Santa Cruz County
Zils, San Andreas Rd.
Ventura River Mouth
Zellerbach Property
Odello Ranch Project
(Monterey County)
Preserve agricultural Project deleted because
"easement" on subject Owner was unwilling to
land and commit an sell at appraised value.
"easement" on adjoining
land.
Save the central agri- Project deleted because
cultural lands by of complexity and cost of
purchasing selected purchasing multiple ownerships.
easement properties.
Extend lease on farm land Project deleted because
for farm cooperative. an agricultural cooperative
was able to secure a lease.
Save agricultural land Conservancy Board has taken
which is surrounded by no action pending receipt of
urban development. further information.
Purchase of open space Project dropped by staff.
easement on 45 acres.
Purchase-Sellback of Staff proposal pending
30 acres of agricultural Conservancy Board action.
land on urban fringe.
Purchase-Sellback of Staff proposal pending
105 acres of agricultural Conservancy Board action.
land.
Cooperative venture with Staff proposal pending
the Big Sur Land Trust to Conservancy Board action.
preserve agricultural land
via purchase-sellback.
-. Source: R-27
, . 11 Y ti
...-
DRAFT REPORT
11-20-80
and their status is presented in Table IV-2.
The method of preservation proposed in each case was purchase
of fee title, or purchase of some other interest in the land.
No projects have been broughttocompletion successfully, and
no preservation techniques other than purchase have yet been
attempted.
C. The Conservancy's Role in Implementing Mixed Use
Programs
1. General Considerations
As stated in the introdution, the Conservancy
has essentially three roles in supporting the mixed use
concept:
The
Technical assistance to local agencies
Serving as land bank for local government initiated
projects
Developer of mixed use projects.
following paragraphs describe these roles in more detail.
a. Technical Assistance to Local Agencies
Under the first role, technical assis-
tance, the Conservancy would advertise its functions and
-\
DRAFT REPORT
11-20-80
provide technical assistance to local agencies. The first
aspect,’ advertising, would involve communicating to local
agencies that specific services, such as project funding,
land banking, and technical assistance are available. Ad-
vertising might also include cooperation with federal aqen-
cies to inform local agencies of how various federal programs
might be applied in a local agency mixed use program.
The farm unit analysis described in Chapter I11 is designed
for use by non-economists; however, a clear understanding of
the model and a maintained data base maintained by the
Conservancy could greatly assist local governments who were
considering a mixed use proposal. In such a case, the
Conservancy’s familiarity with real estate finance would
also be of great assistance.
b. Financial Surqort and Land Bank
The second role in supporting the mixed
use concept should be a grant program for financing supple-
mental uses. In this role, the Conservancy would evaluate
various mixed use proposals made by landowners through the
local agencies. Attractive ?roposalswould be considered for
grant funding. In return, the Conservancy would receive
development rights to some portion of the land.
3
IV- 12
DRAFT REPORT
12/12/80
In this event, the landowner would be assured a more inten-
sive, economically productive land use, as well as having the
advantage of grant funding. In return the Conservancy would
receive title to development rights, scenic easements or
accessways.
c. DeveloDer of Mixed Use’Projects
The Conservancy should evaluate the
feasibility of a mixed use project on land that is purchased
in fee. If a mixed use concept is feasible, the Conservancy
should implement this project during the time that the land
is in public ownership. When the land is offered for resale
(with the development rights remaining in public ownership),
potential buyers will capitalize the additional revenue from
the mixed use. This additional value would seldom equal the
value of the land with its development rights, but can provide
an important increment of value. Presence of the mixed use
may increase buyer interest in the property because the
energies required to run the mixed use operation and the
improved financial return may well suggest that a full-time
owner/operator would be appropriate.
Financing for a Conservancy-initiated mixed use project
could come directly from Conservancy funds or from any other
appropriate source, such as the Farmers Home Administration.
IV - 13
2.
DRAFT REPORT 11/20/80
Conservancy Action Steps Toward Implementinq
Case Study Projects
The two case studies, the Galletti Ranch in
Mendocino County and the Carlsbad Area in San Diego County,
provide good subjects for howtheConservancycouldintervene
to implement 3 a mixed use project. In actual practice the role
of the Conservancy would be defined by the precise nature of
the project and the needs of local government.
The following paragraphs describe how the Conservancy could
be involved in promoting the mixed use projects suggested in
the case studies.
a. Mendocino Pilot Study
The Galletti Ranch is typical of many of
the large ranches along California's rural coastalareas. It
is presently a mixed use operation by virtue of the current
combination of dairy, beef and timber operations. Demand for
urban land use is low, comprised of demand for visitor serving
' uses (guest ranch) or low density residential (vacation or
second homes). In general, this low level of demand makes
county land use regulation a viable, long term method of
preserving agricultural land.
A key problem in these areas, even when urban pressures are
IV - 14
,
DRAFT REPORT
11-20-80
low, is the economic viability of agriculture. Agriculture
is often a difficult business under the best of circum-
stances, and several factors work against profitable agri-
culture in remote areas like Mendocino's south coast. Al-
though the ranch, along with much of Mendocino's south coast,
is physically ideal for dairy operations, the distance to
markets makes costs higher than more close in dairies. An
obvious response to this problem would be increased local
marketing.
The mixed use concept which evolved in response to this
situation was an on-farm cheese plant. Other concepts exist
such as on-farm milk processing or development of a local
cooperative for both local milk sales and cheese production.
3
The role of the Conservancy in this situation is more in the
area of economic development than land use regulation;.that
is, the principal goal of such an intervention would be to
enhance local agricultural economics. In turn, the long term
agricultural use of the land would be promoted. The following
discussion documents how the Conservancy would approach a
situation such as the south coast of Mendocino County pre-
sents.
It is important to note that this role (economic development)
DRAFT REPORT 11/20/80
or any involvement in an area such as the south coast of
Mendocino County transcends existing Conservancy policy.
The area is certainly not on the urban fringe and the
agricultural use can probably be maintained by existing
zoning.
Assuming that the Conservancy decided that it were appro-
. priate to pursue a mixed use project on the Mendocino Pilot
Study Area and also assuming that the landowner was inter-
ested, and that the information in the case study is complete
and accurate, the implementation action steps might be as
follows:
. Project Approval -- The landowner would need to gain
approval of the mixed use project from regulatory agen-
cies including Mendocino County and the California
IV - 16
DRAFT REPORT 11/20/80
Coastal Commission. The Conservancy would participate
in this process, insuring compatibility of the project
with local land use requirements and Coastal Commission
policies, and assisting in required dealings and nego-
tiations. It appears that the mixed use proposal for the
Pilot Study area would be consistent with both Mendocino
County and Coastal Commission policies. Hence, project
approval should not meet major obstacles.
Project Implementation -- Once the project has received
approval it could be implemented. A contract would be
prepared and signed by the landowner and the Conser-
vancy. A grant for the required capital investments
could then be issued.
b. Carlsbad Pilot Study Area
The Carlsbad Study Area is typical of
coastal agricultural areas which suffer from a high degree of
conflict with urban uses. This fact, in combination with its
high agricultural productive capacity, make the area an
obvious target for Conservancy action. Under the density
transfer approach suggested in the case study, the Con-
servancy could play two major roles.
0 First, the Conservancy would be the logical agency to
IV - 17
DRAFT REPORT 11-20-80
receive the development rights or easements on the dedi-
cated residual agricultural lands (although a local land
trust would also be acceptable). The Conservancy could
also purchase the remaining fee simple interest for
consolidation or other resale back to agricultural
users.
Secondly, the Conservancy could also provide technical
assistance to local governments interested in such a
plan. For example, the Conservancy could prepare the
farm unit analysis (as suggested in Chapter I11 of this
report), as a means of determining the most acceptable
mix of agricultural and supplemental uses.
Assuming that the Conservancy decided to yrsue a mixed use
project within the study area, and assuming that a landowner
could be interested, and that the concept was endorsed by the
California Coastal Commission and included in the Carlsbad
LCP, the Conservancy's action steus might be as follows:
.
Choose a Good Potential Site for a Project the Con-
servancy Would Like to Develop -- Of the different case
studies, some provide better coastal management oppor-
tunities and should be given priority for specific Con-
servancy action. A good potential project is the mixed
TV- 1 8
DRAFT REPORT
12/12/80
use project suggested in the Carlsbad market analysis
near Palomar Airport Road. This project could invol've
coastal access, visitor serving commercial uses, and a
dedicated agricultural operation.
Define Roles of the Players -- This project would be
complicated by the fact that several public regulatory
agencies (City of Carlsbad and the Coastal Commission)
the state parks department, and the land owners would all
be involved. The Conservancy could take a leadership
role in organizing this group around a proposed project t
or it could simply play a supportive role, providing
technical support and serving the land bank function for
the residual agricultural parcel.
Define Precise Conservancy Function -- The functions of
the Conservancy could range from technical assistance to
financial involvement. At this point the project would
be subjected to an evaluation. Any financial involve-
ment would, of course, require Conservancy Board ap-
proval.
e Project Approval -- It can be assumed that a mixed use
project, developed in coordination with the regulating
agencies, would have little trouble being approved. The
Conservancy could be involved in preparing various corn-
IV - 19
ponents for the required environmental and adminis-
trative documents. For example, the farm unit analysis
could be a component of the project EIR.
. Project Implementation -- The Conservancy could be the
agency which manages the residual agricultural land in
such a project. Similar to other. Conservancy agri-
cultural projects a number of options are open. In this
case the Conservancy might receive title to the agricul-
tural residual for an agricultural price, approximately
$5,000 per acre. This land could be deed restricted and
sold or leased back to an agricultural operator.
D. State Coastal Conservancy Agricultural Program
Recommendations
The following recommendations address the imple-
mentation of mixed projects within the context of the entire
Conservancy agricultural program. If mixed use projects are
to be a viable tool for the Conservancy, certain basic changes
are required. The following recommendations cover four basic
areas:
3
Resource allocation
' Project screening and evaluation
Pilot project development
IV - 20
DRAFT REPORT
11-20-80
Legislative changes
These recommendations imply an entirely new structure for the
agricultural program as well as a level of commitment on the
part of the Conservancy Board.
1. Resource Allocation
The Conservancy has had, and will continue to
have, limited financial resources for agricultural projects.
It is important that these resources be allocated in a manner
which maximizes the effectiveness of the program. The
agricultural program is certainly one of the most important
Conservancy functions -- a successful agricultural program
would result in the largest amount of land secured and has the
added advantage of enhancing local agricultural economies.
a. The Conservancy Board should promote the success of the
agricultural grogram by providing adequate funding for
agricultural projects.
b. The Conservancy staffing plan and the annual Conservancy
budget should include a staff position for an individual
who would be responsible for the technical assistance
aspects of the agricultural program. This individual
should have some experience in agricultural economics.
.".
DRAFT REPORT
11-20-80
In addition to the technical support function, this
individual should have principal responsibility for de-
veloping Conservancy agricultural projects.
2. Recommendations on Project Screening and
Evaluation
The following recommendations are intended to
streamline and make more consistent the process of identi-
fying and evaluating agricultural projects:
a. Identifying Candidate Projects
Land capability studies and land use in-
ventories are useful and appropriate to the local governments
who are designing, implementing and maintaining LCP's and to
the Coastal.Comission. They are not particularly useful to
the Conservancy. The Conservancy agricultural program must
be opportunistic -- in a completely nonpejorative sense of
the word. Land capability and resource value are important
criteria when the Conservancy evaluates a project, but a far
more critical criterion -- at least in terms of probability
of successful implementation -- is the circumstance and
attitude of the landowner or operator. By its nature and its
legislative authority, the Conservancy is iii business to
"make deals" and deal-making inherently hinges on the ob-
jectives and the circumstances of the involved parties.
IV- 2 2
DRAFT REPORT
11-20-80
Interest in considering a proposal from the Conservancy is
normally affected by a change in circumstance, such as a
desire to retire, a death in the family, a change in tax
bracket, a.nd so on. There is no point to devoting major
Conservancy resources to extensive inventories and evalua-
tion without focusing on the first (and often most important)
consideration -- whether a landowner or operator is ready to
reach an agreement. What is essential is that such indi-
viduals know that the Coastal Conservancy may be of help, and
they are encouraged to pursue an agreement.
The experience of land trusts and other conservancy organ-
izations in the U.S. has demonstrated repeatedly that re-
sponsiveness to the particular circumstances of individual
owners and the factors that motivate them to enter into an
agreement are usually the key to an agreement (R-28). The
analysis of the attempts by the Coastal Conservancy, cited
previously, indicates that while the facts varied from case
to case, the overall problem was that the willingness or
ability of both parties to "make the deal" was simply not
present. Accordingly, the return on the investment in time
and energy was zero.
Unfortunately, an initial lzlck of an outstanding success or
a series of projects that do not move forward to completion
DRAFT REPORT
11-20-80
create a shadow that is very difficult to avoid. Landowners
approached subsequently have a negative rather than a posi-
tive series of footsteps to trace. In fact, the major
rationale for the emphasis in Section D, following, is on an
immediate "success story", even if it is not ideal in all
respects, intended to produce a practical case study of
success as quickly as possible. The immediate pressure on the
Conservancy staff should be to extend this attitude to
projects other than mixed use projects and to implement
reasonable projects immediately. This will come about only
if potentially participating landowners are aware of the
Conservancy's intentions, as well as its powers and author-
ities. Tangible steps that should be taken include the
following:
There must be an immediate emphasis among the Con-
servancy leadership and throughout the Conservancy staff
that "everybody sells". The attitude must be that
projects are to be identified and implemented. Of some
importance, the process of project identification must
be carried out with both efficiency and candor, so that
a decision that a project is not suitable, once an
evaluation has started, can be made as quickly as pos-
sible. A landowner who receives the answer ''no" quickly
and openly will be willing to discuss further projects.
DRAFT mPORT
11-20-80
.
A landowner, or other participant, who is told "no" after
months or even years will have quite another attitude
about further involvement with the Conservancy.
. The Conservancy Board should adopt tangible objectives
for each year. These objectives should be publicized
widely among potential participants. The objectives, if
they are formulated realistically and communicated
forcefully, will make clear to the entire coastal com-
munity that the Conservancy staff is ready to take action
and, in fact, is under considerable pressure from its
governing board successfully to implement projects. The
(slight) danger of appearing over-eager to approve a
project is balanced by the fact that there are more
potential participants than available resources would
support.
The Conservzncy's project evaluation process and time
schedule should be published widely. The rhetorical
commitment to successful project implementation and to
a timely evaluation (even if the decision is "no") will
appear significantly more credible if potential parti-
cipants can understand the Drocess that will be used to
evaluate projects and can be convinced that the Con-
servancy has the cagability to use these procedures
3
.
effectively.
DRAFT REPORT 11-20-80
b. Project Evaluation and Development
There are two alternative basic proced-
ures used to evaluate potential capital investments and to
Grepare a capital improvements program. In the first,
projects are evaluated sequentially. A decision is made
whether or not to invest in one project before a second
project is even considered. The other alternative involves
gathering a number of candidate projects, making a compara-
tive evaluation and selecting the project or projects that,
considered cumulatively, produce the best result, given the
agency's criteria, and the funds available.
The latter procedure is usually preferable for most public
agency purposes, and is traditionally used in evaluating such
disparate types of projects as parks and highways. Since a
number of choices are available -- normally significantly
more than could be funded, given the resources available --
the agency is able to apply a consistent set of evaluation
criteria and to choose the best set of projects from among the
contenders.
t
In the case of the Conservancy, the actual circumstances tend
to require use of the first procedure. As previously em-
"- c) c
An appropriate evaluation procedure, in this circumstance,
involves three steps:
Establishing guidelines and criteria, endorsed by the
Conservancy Board, that describe in conceptual terms the
types of projects that can be considered and, in as
specific terms as possible, the projects that will not
be acceptable.
-
using the same criteria, but at a more general level of
detail than the for detailed evaluation, carrying out a
"first screen" evaluation of each individual #project
proposal. This first screen is designed to identify
projects that are either inconsistent with Conservancy
objectives, or that, on the basis of informed judgment,
do not have a high probability of success.
3
IV - 27
DRAFT REPORT 11/20/80
. The third and detailed evaluation is reserved for those
projects that both meet the general criteria, and that
have a high (if subjective) probability that they can be
implemented.
(I) General Evaluation/Acceptance Cri-
ter ia
The previous discusison suggests
that the Conservancy should deliberately adopt a procedure
that emphasizes a sequential, rather than comparative pro-
ject evaluation process. A decision is made about an indi-
vidual project proposal as early as possible, rather than
collecting projects until a comparison can be made. This
approach is definitely facilitated by as explicit a set of
evaluation criteria as possible, so that staff will have
standards endorsed by Conservancy Board policy that can be
used in evaluating each project on its own merits.
Additional, general criteria may be adopted that are appli-
cable to all or most of the preservation techniques available
to the Conservancy. A by no means exhaustive list of examples
include:
. A policy to test a broad range of techniques in practice,
e-g., mixed use, transfer of density, transfer of devel-
IV - 28
"
u
DRAFT REP( 11-20-80
opment rights, purchase/sale-back, purchase/leaseback.
(An alternative and opposite policy would be to con-
centrate maximum resources on the techniques that are
first successful in producing actual project successes.) .. .
An emphasis on project examples and on preservation
techniques that are relatively permanent, e.g., a pro-
ject that brings in a long-term agricultural operator
may be more appealing than is a project where the pres-
sure or desire for conversion to urban use may recur
within the next 10 years.
The first purpose of the general evaluation criteria is to
identify almost immediately the projects that either are
unsuitable or have an extremely low probability of successful
implementation. The second and equally important purpose of
adopted evaluation criteria, particularly those that refer'
to a specific technique (e.g., mixed use) is to create a
presumFtion that projects meeting the guidelines and cri-
teria will be accepted by the Conservancy Board.
(2) Evaluation of Individual Projects
The following criteria would be ap-
plied to all projects that are not in conflict with the
general evalxation criteria, 2nd criteria for acceptance.
DRAFT REPORT
11-20-80
They would be applied twice. The first application would
occur as quickly as possible to identify projects that are
worthy of a detailed evaluation. The proponents or potential
participants of projects that do not appear destined for
successful implementation would have every opportunity to
request additional findings, but -- as noted previously --
would not suffer the extremely negative process of a time-
consuming and protracted evaluation that leads to a negative
decision.
It is recommended that the following project evaluation
criteria by applied in the following order:
. Statutory criteria
Participant's situation and motivation . Economic characteristics of the project
Implementation analysis
(a) Statutory Criteria
An obvious but by no means per-
functory first step in project evaluation is to test the
project's conformance with the Conservancy's statutory cri-
teria: ,Proximitv to Urban/Rural Fringe and Failure of the
Po.lice Power. The major threat to agriculture occurs where
urban land uses meet agricultural land uses. The two land
IV-30
DRAFT REPORT
12/12/80
uses tend to conflict with each other inmanyways, including:
. Land value -- residential land value far outstrips value
in agricultural uses. . Air quality -- offensive odors, hazards of pesticide
application, etc. . Noise level -- use of farm machinery. . Wastewater runoff -- creating nuisances or perceptions
of nuisances that are unacceptable to adjoining resi-
dents. . Vandalism to farm equipment or livestock from urban
populations and their pets. . Presence of a transient workforce that is often un-
welcome to permanent residents. .
In recognition of these problems, the Conservancy legisla-
tion specifies that urban fringe have a priority Over other
areas.
It is recommended that this particular statutory criterion,
at least for the moment, be viewed as being desirable, but not
mandatory. A proposed project that did not yet involve
urban/rural conflicts, but that, otherwise, had high poten-
tial -- particularly the potential to be implemented SUC-
cessfully -- should still be considered.
IV - 31
. \
I
DRAFT REPORT 11-20-80
The Conservancy enabling legislation states that Conservancy
action is warranted only when there is ". . . no other
reasonable means, including the means of police power, of
assuring continuous use of such lands for agricultural pur-
poses." (R-33)
This criterion is directly applicable, in some instances, but
involves a careful judgment in others. For example, if the
existing general glan designation and zoning would permit a
use that conflicts with continued agriculture (and if this
land use de'signation had not been granted capriciously) the
police power to remove the incompatibility would exist only
in unusual cases.
=.
The less simple but more commoncase occurs when the permitted
uses on a potential project do not conflict with agriculture,
but where other circumstances bring into question the perm-
anency of the current zoning. A case in point would be a
project in an area characterized by:
A recent history of nonfarming and of conversion from
agricultural to urban uses.
An area characterized by small parcel sizes and con-
tinuous subdivision activity.
A physical setting where there are urban uses on two or
DRAFT REPORT 11-20-80
. . ..
three sides of the proposed area. . An obvious deterioration of local agricultural support
services, including processing facilities, suppliers,
repair services, etc.
In general, thedecision as towhether continued use of police
power is actually realistic is a professional judgment, but
the statutes create a presumption that further evaluation of
a project is warranted only if there is a clear question as
to the applicability of land use controls and zoning powers.
Projects that obviously fail both of the direct statutory
tests (do not involve urban/rural conflicts, and are reason-
able candidates for preservation through the police power)
should be dropped from further consideration. Other candi-
dates should be evaluated according to the remaining cri-
teria, at least at the first, or screening level.
- -
(b) Participants' Situation and
Motivation
Considerable previous emphasis
has been placed on the fact that a Conservancy project will
seldom, if ever, succeed unless all participants are highly
motivated to reach an agreement, and the circumstances of the
participants (particularly the landowner) are such that
".
DRAFT REPORT 11-20-80
there is an overwhelming advantage to a successful nego-
tiation as soon as possible. Factors that indicate urgency
or a high level:
Declining health or death of a family member holding key
parcels on the urban/rural fringes;
A negotiating deadlock between owner and local govern-
ment over an adjoining parcel, or even over a parcel in
which the Conservancy could become an active partici-
pant :
A pending bankruptcy or other change in circumstances
that would affect key Farcels;
An impending change in local governmental land use pol-
icy that might motivate either the Conservancy or the
owner to reach an accord before such a change is imple-
mented.
The evaluation criteria related to urgency and motivation do
not attempt to give value of one type of motivation over
another. Instead, the point is to assess carefully the
factors that exist which motivate either or both parties to
3
reach an agreement, and to give a negative weight to a project
proposal where no such factors are present.
DRAFT REPORT 11-20-80
(c) Economic Characteristics of
the Project
The feasibility and practical-
ity of agriculture projects that would be of interest to the
Conservancy depend on the project's economic characteris-
tics. A project's ability to return some portion of the
initial Conservancy cost is of particular importance.
An economic evaluation of each project should be carried out,
using the procedures presented previously in the present
report. The following paragraphs consolidate and summarize
these procedures.
Site Chracteristics. The advantages and disadvantages of a
site, and the potential for revitalizing either the current
or historic use, or of developing a supplemental use, de-
pends, in large part, on the following site characteristics:
Characteristics of ownership; .. Size and shape of the parcel;
Access to roads and highways;
Current and historic land uses;
2roperty values
- historic (owner Is price)
IV-35
DRAFT REPORT 11-20-80
" . - current (market value); . Current agricultural carrying capacity - soil quality - water quality and availability - production statistics.
After the site evaluation, it should be possible to develop
a list of potential uses. These uses will fall into three
categories:
Community Settinq. Once a potential project, or projects
have been identified as feasible based on the characteristics
of the site, it is necessary to test the acceptability of the
potential projects in terms of community goals and values,
land use regulations, etc. The benefit of community accept-
ance for a project are obvious.
A potential project will have a greater chance of success if
there is an existing infrastructure to serve the project.
DRAFT REPORT 11-20-80
Market Demand. The next step is to evaluate the practicality
of the potential uses in terms of market demand. An existing
market structure may have an advantage over the development
of new and untested markets. Alternatively, the profit
potential may be extremely attractive for the first entrant
in a new market. Novelty uses (e.g., a cheese factory) must
be considered particularly carefully, since the first pro-
ject may be successful but may also capture the entire market
in an area.
Local Management Potential. Are there people or groups in the
community who are willing and technically able to manage the
project? Is it necessary to look- outside the community for
management potential?
Income/Expense Analysis. If a proposed project appears to be
feasible from a marketing and management standpoint, a com-
plete income and expense analysis should be prepared. The
format of the analysis of income, operating expense, and
capital expenditure requirements can be that exhibited pre-
viously in the present report. Careful consideration should
be given to the tax consequences to the participants.
(d) Implementation Analysis
Assuming that all previous con-
DRAFT REPORT
11-20-80
clusions have been relatively favorable, the final step of
the analysis is to prepare a careful judgment as to the
probability of success. Each step in the process of actually
implementing the project should be listed and scheduled and
the inter-relationships of the steps should be noted. A
"critical path" schedule of the type used to schedule and
control construction projects is quite suitable for this
. purpose.
At this point, depending on the technical background and
preferences of the individuals evaluating the project, it
would be feasible to assign a subjective estimate of the
probability of successfully completing each step in the
process and then to evaluate the overall probability of
success. Whether this process is done mathematically or
purely subjectively, it would be entirely appropriate to
defer or discontinue consideration of a project solely be-
cause success appeared improbable. Excellent project econ-
omics and potential to contribute to the goals of the Con-
servancy are insufficient to justify the commitment of staff
time, if there is another project potentially available with,
perhaps, slightly lesser potential, but wiith a much higher
probability of success ant! irnplenentation.
Assuming that the project appears to have a reasonable
t
IV- 3 8
- . - ~- .-.- - -" -~ "" - ".I
. . . . - . . . . . ~. .
DRAFT REPORT
11-20-80
probability of success, the final step is to document the
project's merit in terms of:
Ability of the project to achieve statewide goals and
policies; . Difficulty, and time required to complete project; . Financial commitment required: . Ongoing administrative burden to the Conservancy.
Achievement of statewide goals and policies is a value
judgment about the ability of a project to meet statewide
concerns, including :
. Protection of coastal areas of critical statewide inter-
est; . Efficient use of existing public investment/infrastruc-
ture; . Conformance with mandated Coastal Act guidelines.
The information used to make this judgment can be derived from
project descriptions, from specific field interviews con-
ducted by the Conservancy staff, and from discussions with
Coastal Commission and LCP staffs. The key references are the
State Coastal Act, the Conservancy enabling legislation, and
other policies established by the Coastal Commission, Con-
servancy ,
Difficult
DRAFT REPORT
11-20-80
or the Legislature.
;y and time to complete project is a criteria whic :h
places the highest value on simple projects that can be
completed in a short amount of time.
Financial commitment required considers the cost implica-
tions of the project, both in terms of initial investment
required and the ultimate net cost. The least expensive
projects receive the highest value.
Ongoing administrative burden considers the administrative
aspects of the project following implementation. Projects
which involved loans, or the Conservancy holding title to
property, would place an administrative burden on the Con-
servancy, The projects with the least administrative burden
would receive the highest value,
3. Pilot Project Development
The steps that the Conservancy Board should
. take immediately to identify and implement a successful mixed
use project that reflects the overall recommendations pre-
sent4 previously. Immediate steps include:
DRAFT REPORT 11/20/80
Adopting a specific objective of successfully nego-
tiating (at least!) one mixed use project by June 30,
1981; . Endorsing and adopting the Mixed Use concept as des-
cr ibed in the foregoing report, amended, as appropriate,
to reflect Conservancy policy; . By formal and informal means, communicating as widely as
possible in the coastal community the interest of the
Conservancy in implementin4 a mixed use project;
Providing Conservancy staff with adequate financial re-
sources to accomplish a successful project; . Working closely with the agricultural advisor in each
coastal county to be sure that potential participants
understand that the Conservancy is serious and is com-
mitted to a'mixed use project; . Moving diligently on promising proposals that are
brought to the attention of the Conservancy.
The general theme of the recommendations presented pre-
viously was that an opportunity for the Conservancy is such
a unique combination of physical and economic circumstances
and individual circumstances of the landowner that projects
should be evaluated sequentially. That is, a decision should
be made about a particular opportunity without necessarily
waiting to compare it with other investment opportunities.
DRAFT REPORT
11-2 0- 8 0
If, in fact, the Conservancy is successful in attracting a
number of candidates for mixed use projects, it would be
appropriate to modify this evaluation procedure slightly and
to compare the contending projects in terms of --
e Adherence to Conservancy policies,
Economic potential,
Probability of success,
before a selection is made. This process should not be
allowed to delay the initial "go -- no-go" decision for any
specific proposed project.
4. Recommended Legislative Changes
The Conservancy's agricultural preservation
program is unnecessarily constrained by the current enabling
legislation. The primary constraint which will continue to
affect the program is limited funding. The Conservancy \
pogram should not, in addition, bedenied creative approaches
to meeting the goals of the State Coastal Act. The following
recommendations suggest amendments to the State Coastal
Conservancy's enabling legislation which commences with Sec-
tion 31000 of the State of California's Government Code.
The limitation of $100,000 on the amount the Conservancy can
IV-4 2
i'
DRAFT REPORT ~/20/80
pay for an option should be removed. (Section 31150.1) The
Conservancy staff, with governing board approval should have
the flexibility to offer any reasonable option price depend-
ing upon the circumstances and the merit of the project.
The preservation of agriculture is threatened throughout the
coastal zone, both within "urban fringe" areas and in more
rural areas. Mixed use programs are an excellent means of
enhancing coastal agriculture. Section 31151, which places
highest priority on urban fringe areas, should be amended to
include the following sentence: "Mixed use projects, which
enhance agricultural operations beyond the urban fringe,
shall also be given a high priority."
Sub-section (b) of Section 31152 requires that "NO other
reasonable means,, including the police power, of assuring
continuous use of such lands for agricultural purposes" be
available if a property is to quality for Conservancy action.
While in theory this is a reasonable restriction, it is a
finding that will vary depending upon who is making the
finding. There are numerous examples where different regu-
latory levels such as a local government and a regional
coastal commission may differ on what lands can be held by
regulation. In such an instance, whose opinion prevails? A
IV - 43
. . . .. . ..
,-
DRAFT REPORT 11/20/80
local government may designate agricultural land for 3i ban
development simply because of the failure of zoning to hold
agricultural use. In this case, Sub-section (a) of Section
31152 would restrict the Conservancy from acting.
Section 31152 should be amended to allow the Conservancy to
'secure agricultural land regardless of LCP designation. The
failure of the "police power" as a criteria should also be
amended. The Conservancy should work in concert with a land
regulation program, rather than in lieu of it. Suggested
language for the two sub-sections:
(a) The lands are specifically identified in a certified
local coastal plan or program as agricultural lands or
such lands, still capable of agricultural production,
which are designated for urban use because of urban land
use demand or operational conflicts.
(b) The ability of the police power alone to maintain the
agricultural use is questionable, because of severe
operational conflicts.
The Conservancy should ger,erally not pursue an agricultural
preservation project which is opposed for cause by either the
local agency or the state Coastal Commission. Opposition to
IV - 44
,/ . .
DRAFT REPORT 11/20/80
a proposed Conservancy project by the Coastal Commission
staff, should be forwarded in a staff report to the state
Coastal Commission. The Commission should decidewhether the
conservancy project is the best manner to preserve the agri-
cultural use. Realistic alternatives to the Conservancy
proposal should also be presented in the staff report.
A key limitation of the agricultural preservation program is
the inability of the Conservancy to work through local public
land trusts. Recently adopted legislation, SB 1323, permits
the Conservancy to work with public land trusts on public *
access projects and should be expanded, to include agri-
cultural preservation projects.
-
Local direction or management for a project builds local
trust and support. The chances of success in obtaining
an easement and developing a successful program for
IV - 45
DRAFT REP
11-20-80
revitalized or supplemental use on the site are greatly
enhanced.
The potential for funding 'outside the Conservancy's
resources is enhanced when public trusts or local agen-
cies are involved. The Conservancy gains the contacts
and resources of local which can facilitate
larger, more successful projects.
Administrative burden of the project on Conservancy
staff is reduced.
The Conservancy could provide grant funding to the public
land trust or local agency as well as technical support.
Language for the amendment to the Conservancy's enabling
legislation should be included at the end of Chapter 4,
Preservation of Agricultural Land:
"31156. Where a public land trust or local agency is
willing to undertake an agricultural preservation pro-
ject in accordance with this chapter, the Conservancy
may award s grant to the public land trust or local
agency. Such grants shall be subject to the ficdings in
Section 31152, and approval by the Conservancy of a plan
for management of the project. 'I