A Success Story: City of Ontario Attracts Retail, Business, and Housing to Inland Empire

Greg, let's begin by talking about the evolving Inland Empire, specifically in the City of Ontario. What is taking place there that TPR readers ought to be more aware of?

When many people think of the Inland Empire, they think primarily of big-box warehouses. Though we are certainly a logistics hub, I don't know whether people are as aware of the high-end office space, the mixed-use retail, and the master-planned housing that are starting to come into the marketplace. People also think of this area as having affordable housing, but maybe they aren't aware of the nature of our development plans, that the housing has a lot of amenities and great thought is being put into placing it in walkable environments. We're certainly seeing a lot of application of smart growth, building around transportation, and trying to balance all of that with job creation.

A lot of cities are challenged by explosive growth in California and the fiscal disincentives in the short term to intelligent land-use planning. How has Ontario tackled its growth?

Well, I think that Ontario really takes a different point of view. The City of Ontario understands that we are a corporation, although a municipal one. Many people think that a city's primary job is providing services. Our job is to help create, maintain, and grow economic value. We do that through services. If the streets are well-paved, the houses are nicely painted, the trash is picked up when it's supposed to be, there's no graffiti, the crime rate is low, a paramedic or fireman comes if needed, and there's a nice park down the street, then what happens? Value goes up. If the converse is true, if there are potholes, graffiti, high crime rate, and trash all over the place, then value goes down.

When you start viewing your job in the context of economic value, then you become more aggressive in particular about getting businesses open. My message to our community development folks – planning, building, and engineering – is that if businesses aren't open and making money, the city isn't making money. And we have to make money in order to provide the services and create an upward spiral instead of getting into a downward spiral of economic value.

Given this orientation, how does Ontario get around the state/local finance structure, which, because it diverts property tax revenue, does not reward cities for creating economic value?

That assessment of state fiscal policies is absolutely accurate. In Ontario, in part because of location and transportation assets, but also through aggressive investment, we have established a very broad-based economy that produces revenue for us to support the balanced community that we want with jobs and housing. Because of the airport, we have the majority of the hotels and the hospitality sector. We have a large retail base not only because we invested to bring the Ontario Mills mall here, but also because we aggressively seek out and pursue point-of-sale industrial. Half or more of our sales tax in Ontario comes from point-of-sale industrial. Now, that is good for us because it creates jobs, but also because the sales tax revenue far exceeds the costs of providing services to those revenue generators.

What is happening in Ontario's office market?

Our vacancy rate has been low for quite some time. We are seeing more and more demand for quality office product. Now, the market is beginning to shift because the institutional investors are finally becoming interested in our market. They invest for the long term, and so the quality, the density, and intensity of the product all increase. That in turn helps to attract more corporate headquarters and more arms of corporations. As clusters start to form – not just with industrial but also with office – you get whole groups of tenants, be they insurance, finance, or brokerages. So, we are really starting to see increased demand and increased quality to meet that demand.

Turning to your international airport as an economic generator, how are you leveraging it to benefit the City of Ontario?

A lot of people don't know this, but Ontario International Airport is already the 13th most active cargo facility in the United States. So, it is much bigger than a lot of people understand. It is projected to grow to carry more cargo than is going through LAX today, which will put us probably in the top five in the United States or at least well within the top 10. That cargo demand of course generates a lot of locational opportunities for manufacturers and for businesses needing just-in-time deliveries. So, the airport is really helping us to continue to grow our commercial and logistics sector, and that demand is not going to abate. In fact, it will increase as we continue to take more of the load from LAX.

Let's turn to housing. From your perspective as City Manager, how healthy is Ontario's housing supply/demand equilibrium?

Multiple things are happening. We annexed 8,200 acres, roughly 13 square miles, a couple of years ago. Since then, we have been working with the development community to provide the initial infrastructure that is necessary to start the first units down there. That 13 square miles is scheduled to include 31,000 units for 100,000 people, just to the south of the old city. Over the next 15 to 20 years, those units will be built in planned communities incorporating a variety of products with the latest designs and features. The demand is being created by people migrating out from Los Angeles County and Orange County. We are more affordable for the same quality or better quality of housing.

This development will help our market evolve. Many times, small high-tech companies and industrial companies will only locate where the owner wants to live. And so, this area will give us more move-up and executive housing to attract those kinds of businesspeople, as well as a lot more parks, amenities, and open space than exists in the current community.

In the current community, we – like many other areas – have seen dramatic increases in prices, and we think that is happening for a number of reasons. Ontario has a wealth of historic homes that are getting noticed. In fact, one of our neighborhoods was profiled in the Los Angeles Times' Real Estate section last week. Those areas are being noticed by people who can't afford Santa Monica, Pasadena, or Long Beach, and who are coming out because these are the kinds of homes and neighborhoods that they want to live in.

Greg, obviously a lot of housing plans, as well as open space and other amenities, are proceeding through the approval process in Ontario. How does the city assure these developmental amenities in a fiscal system in which new housing typically doesn't pay for itself?

One of the things that we are looking at is establishing Community Facilities Districts. They are really additional assessments on the property. CFDs have been used in many places in Southern California, but often the development community has been allowed to utilize them to build basic infrastructure. We are saying that the development community will have to come to the table and build the infrastructure as part of its costs, because providing amenities and continuing high levels of service are critical to us attracting the kind of incomes, educations, and demographics that we want. So, we are going to make sure that we pay for the services, not the infrastructure. The infrastructure will have to be paid for by the developers. That will help us overcome the underlying problem of the tax system.

What are the most pressing infrastructure challenges for the Inland Empire and for Ontario? What infrastructure challenges actually threaten your plans for managing growth?

Internally, we are able to meet all of our infrastructure needs within the city. We have our own water company that is able to provide water. We are able to provide adequate streets and sewers. So, we can take care of that.

I think that one of the biggest challenges is regional transportation. There is no question that our freeway system hasn't kept up with the growth of Southern California, and we still don't have enough rail or other assets to move people within the region.

We have been very aggressive in working with the planning agencies to pursue alternative technologies, like mag-lev trains. If SCAG can get funding from the federal government, we will have the first operating segment, from West Los Angeles to Ontario International Airport. We are also on the California-Nevada line that would go from Las Vegas to Anaheim, with a stop at Ontario Airport. And, we are on the steel-on-steel line that will run from Northern California to Southern California. We have been aggressive in making sure that if any of these lines get built, Ontario will have a stop.

Lastly, the City of San Diego just experienced a "civic revolution" in its last election. The voters chose to dispense with their professional city manager in favor of a strong mayor form of governance. How would you make the case for the city manager form of government if the issue came up in Ontario?

First of all, we are very clear about our roles here. The mayor and council provide the policy direction. They provide us very clear goals and objectives to achieve.

I have been city manager in Ontario for seven years. Within that time, we have improved the city's fiscal position by over $250 million in terms of reserves, funding, what were heretofore unfunded liabilities, and reinvestment in community facilities. We have just completely redone and expanded our downtown library, a $20 million project. We took over an old FedCo and did about a $25 million rehab, so now we have a 170,000-square-foot new police station – at half the cost that it would have taken to build it new. We are in the midst of building a 45-acre soccer complex for the community. In the past few years, we have opened a brand new teen center with a gymnasium and a brand new senior center.

All of those accomplishments came because of a council that has been clear about its goals and desires and then allowed the professional managers to do their jobs. So, I think that it is clearly demonstrated in Ontario that our form of government has worked because both sides, the policy-makers and the managers, respect and honor each other's roles. Also, the development community knows that the relationship that exists between our council and our managers provides them with predictability and certainty. I find that that to be critical to getting investment in the community. Since attracting investment is part of our overall philosophy, the city council clearly understands that they have to empower the staff to be able to tell developers what we are looking for and that we can help them through the process and get them open in a timely manner.