Column: Is city wasting funds on privately-owned business center?

Jim Cogan Paso Robles

Jim Cogan

City offering pay-as-you-can deal to Santa Barbara co-working center

–By Jim Cogan of Paso Robles

On Tuesday, the Paso Robles City Council will consider additional incentives for The Sandbox – a Santa Barbara-based co-working business – in exchange for the company establishing a second location in Paso Robles. In 2019, the city hired a consultant for $33,150 to oversee the acquisition and build-out of the space at 1345 Park Street to create a “Business Success Center.”

The project relies on the city leasing the office space and in turn subleasing that space to The Sandbox. That agreement has already cost taxpayers $64,600 in unpaid rent and $20,300 in unpaid loan repayments. The original agreement authorized the city to provide approximately $99,500 in loan forgiveness out of a total loan of $399,500 to pay for part of the tenant improvements.

The current city staff report recommends the city council approve amendments to the sublease and loan agreements allowing The Sandbox to repay taxpayers based on its “ability to pay” until December. It references delays in opening due to the pandemic as justification for the unpaid rent and loan repayments, however, it offers no evidence of The Sandbox’s financial hardship.

Business Success Center

1345 Park Street where a Business Success Center is planned. Photo from Google Images.

It is helpful to pause for some background on the type of business The Sandbox is and more importantly what it is not. The innovation industry offers three types of businesses that provide space and/or support to start-up businesses: accelerators, incubators, and co-working spaces.

Accelerators provide targeted services for a startup, such as investment and business development. They are typically private, for-profit companies funded largely by equity stakes in their clients, plus fees for services and events. Incubators typically provide many of the services of accelerators, plus office space. Incubators may be funded privately or publicly, but often rely on continued public support and private sponsorships to serve entrepreneurs. Co-working spaces are predominantly private for-profit companies like The Sandbox. Operators divide larger commercial space and sublet to startups or to larger companies for satellite offices, in order to provide affordable access to conference space, offices, and other shared amenities.

With many employees working remotely from home this past year, there are concerns about the future viability of co-working spaces. Some co-working space businesses have responded with “virtual coworking memberships.” The Sandbox, for example, charges $109 per month to work from home, while enjoying the use of their mailing address, mailbox, one hour per month in a meeting room, and “1 day of coworking each month (Post COVID).”

According to the city’s staff report and the company’s website, The Sandbox is not an accelerator or an incubator, it is simply a co-working space. The city refers to the new center as a “Business Success Center,” but does not define what that is. It describes business support services beyond co-working but does not list or describe them.

The entire project looks problematic, but the question for the city council and for taxpayers is whether it is worth additional public subsidy. The three primary revenue sources for the city are sales taxes, property taxes, and hotel taxes. The Sandbox will not directly contribute to any of these.

It is possible for a startup to contribute to job growth and tax revenue as a secondary result of the services provided by a true incubator or accelerator, but it is not guaranteed. If the city wishes to invest in a true incubator or accelerator, then it should do further analysis before committing public funds.

Columnist Jim Cogan is the managing partner of 805AgTech Ventures, an agricultural technology accelerator, serving the needs of agtech startups. Cogan moved to Paso Robles in 2018. He previously served as assistant city manager in Paso Robles after nearly 20 years working for the cities of Menlo Park and San Jose.