Budgeting
Financing Strategy for the Seattle Commons
The purpose of this memo is to determine the best way to secure financing for the Seattle Commons urban renewal project.
The Seattle Commons project requires funding of $218 million to proceed. We estimate receiving $100 million in private donations, with the remainder secured via several different methods of public funding. We propose $5m from a REET for the housing portion; $25m in federal transport funds for the street improvements and Mercer St. artery; $5m in grant money from each of the county and the state for greenspace development; $20 in LID financing; and $60 in a voter-approved special levy. We believe the levy should be taken to vote as soon as possible, before opponents to the Commons have a chance to organize, and if the vote is successful that the other funding will fall into line.
Background/Discussion:
The Seattle Commons project has been gaining momentum for two years now. The project involves creating new park space on in the South Lake Union area. With this park, a continuous chain of green space would be created from Lake Union to downtown. In addition to the park, the project includes street improvements, arterial connections to Mercer St., and the preservation of 60 low and medium income housing units..
As a result of this project, several spinoff benefits would accrue to the city. These are the ultimate goals of the Seattle Commons project. The Seattle Commons would spawn a new neighborhood adjacent to downtown, and linking to several other of the city’s neighborhoods. Lake Union would be cleaned up. Traffic in the area around the park would be lessened in light of the street improvements.
Both economic and residential development would be encouraged by the presence of the park.
Several things are required to make the Seattle Commons project a reality: land acquisition, business relocation, building demolition, site remediation, park utility work and development, street improvements, and housing preservation. The estimated cost of these combined is $218 million.
There are several funding options available to help fund this project. In conjunction with analyzing the relative merits of the different funding options, we need to determine how many different funding options we wish to use.
The complexity of the funding formula is considered to be one of the issues in need of addressing. It has been argued that the project stands the best chance to succeed if the funding formula is simple. Given that we must present the proposal to the city council, it may be easier for them to approve if they can understand the formula. However, the best possible formula may not be a simple one. There are many different components to the project and some of these components may qualify under various county, state and federal funding programs.
Another significant issue we need to consider when deciding on the ideal funding formula is that of time frame. Members of the Executive Committee are split on the ideal time frame, but their views on the issue are related to their views on which sources of funding we intend to rely upon. As well, there is call for an environmental assessment, which could take upwards of one year to complete.
One of the more likely sources of financing is voted-approved debt. To acquire funds in this manner, we will need to hold a referendum and win 60% voter support. Another option is a voter-approved special levy, which requires 50% voter support. There are strategic considerations with regards to winning a referendum of this nature. While some Committee members feel that the best chance for success is to continue to build momentum for the project, others feel that the best opportunity is in the very near future, before opposition to the project can become organized. If we decide against seeking voter-approved debt, the issue of time frame will be of less strategic importance.
One last issue with regards to our funding formula recommendation is that of competing interests. As always, the bodies whom we will ask for funding are faced with many such requests, and will need to weigh each request carefully, considering opportunity cost. For example, funding is going to be required for capital projects with the Seattle School District, with regards to roadway repair, and there is a backlog of hundreds of millions of dollars for the city’s own facilities. These interests and several others will be taken into consideration by city councilors when we present our proposal to them.
We have previously outlined ten different funding sources that we may use to reach our funding objective of $218 million. The estimated total available from these sources combined is $566 million.
The first element of our funding formula is going to be private donations. Our Committee and city council have strong ties to the corporate community. We have already received donations from citizens who are in support of this project. Moreover, there are many very successful entrepreneurs in the region who have yet to make their philanthropical mark. For example, we have Paul Allen as one of our key supporters. We estimate that we will be able to generate $100 million in private funding. This brings the total required from public sources to $118 million.
The public sources available to us include the following: tax increment financing (TIF); Non-voted debt; voter-approved debt; voter-approved special levy; real estate excise tax funds (REET), local improvement district, business improvement area, federal transportation funds, and county and state grants.
Tax increment financing has the potential to yield us $100 million. It is a bond floated that will be paid for by increases in property values in the zone of improvement. This is an attractive option for the potential yield, but it is legally suspect. For TIF to be used in a project of this size will undoubtedly attract the attention of legislators, who will be forced to settle the issue concerning TIF’s legality. This represents significant risk.
Non-voted debt has a theoretical capacity of $100 million, which is the city’s remaining capacity by law. The law may be changing in the near future. Given the attractiveness of this option, it would be beneficial to use our contacts in Olympia to ascertain the likelihood of the city’s limits being increased. If the limits are not increased, the city is unlikely to use any of this capacity for the Seattle Commons project. They need to maintain a certain buffer in terms of the amount of non-voted debt they issue, and furthermore we would likely find ourselves in competition for this money with the School Board and the roadworks. The public, and therefore council, is unlikely to favor a new park over schools and roads.
The two voter-approved options hold promise, both structurally and historically. In 1986 King County voters approved bonds to improve the Woodlands Park Zoo. The debt issue has nearly limitless capacity, but needs a 60% clearance. Members of the Committee are in disagreement as to whether this clearance is attainable and if so, at what point in time. The similar voter-approved special levy has a lower clearance at 50% approval. Both would result in an increase in property taxes. There is $90 million available via this option.
The REET has a maximum value of just $6 million. This option could be easily utilized, but that amount of money is unlikely to be the deciding factor in the project. This is also true of the business improvement area option, which has a maximum estimated yield of just $5 million.
State, county and federal monies are available for greenspace and transportation projects. The total potential is significant – $45 million. Acquiring funding from different levels of government for certain aspects of the project will not only appeal to council but will also help to convince them that the project has merit, and strong support from other quarters.
A last option is to create a local improvement district. This generates money from increases in local property taxes. The risk, however, is that it can be stopped within 30 days if 60% of those property owners affected challenge it. The maximum financing possible from this $20 million. This amount is not enough to make or break the project. The risk of using the LID is that it will give the opportunity and cause to galvanize the project’s opponents, which could ultimately be disastrous if there is a pending referendum on the issue.
Recommendations:
The funding decision should be broken down into two components. The core financing will come from private donations of $100 and another of the alternatives. Only three of the main funding alternatives are sufficient to proceed with the project. The TIF has been rejected because of the concerns surrounding its legality. If we used TIF for a project of this magnitude and visibility, we would likely force Olympia’s hand in dealing with the TIF question. This could result in our funding being pulled out from under us in the middle of the project. As a result, it is not prudent to use TIF to finance the Seattle Commons.
We do not anticipate success is securing a non-voted debt issue. Given the time frame for the completion of the Commons project, the city will weigh our request vs. The upcoming needs for school repairs and roadwork. Education is a touchstone issue for voters, and roadwork affects all voters in the city. Should council decide to issue any of their remaining non-voted debt capacity, it is unlikely they would choose to use it for the Commons project ahead of those two other priorities.
Voted debt, however, they can issue. If the public votes 60% in favor, council will not face the same concerns about opportunity cost. We will not be competing for money with schools. A voter-approved special levy would function in much the same way (financed through property tax increases) but requires only a 50% vote in favor. Although the capacity for such special levies is only $90 million, that is more than we will need to ask for. Furthermore, there is precedent for success in the 1986 King County vote to approve bonds for improvements to the Woodland Park Zoo.
We will ask for federal transportation funds. We believe sharing the costs of the Seattle Commons amongst several layers of government is both logical and prudent. First, the Commons will be a significant attraction to the city, one used by citizens not just Seattle and King County, but the entire Everett to Tacoma area. Visitors to Seattle will be drawn to the Commons as well, just as they are to Central Park or Boston Common.
The federal transportation funds will be specifically directed to the street improvements required for the project, and the establishment of arteries to Mercer Street. We will be seeking the maximum $25 million for this. We will request grants from the county and the state. We have sufficient connections to ensure that we are able to receive grants for the development of greenspace. The maximum available from each is estimated to be around $10 million, but we anticipate being able to secure half of that, or $5 million from each of the county and the state.
We recommend to pursue the LID option as well. Of the different options that places the cost of developing the Commons on those landowners who will benefit the most from it, this strikes the best balance of revenue generation and legality. We expect to be able to generate $20 million from this option. We also anticipate resistance. However, those opposed will have just 30 days to gather 60% disapproval from all affected landowners. The would require a very high degree of organization and we do not believe the opponents have this at present. We will also use a REET to finance some of the housing goals of the project. We estimate we will be able to generate $5 million from the REET.
So the funding sources we shall recommend to the city are as follows:
Private donations: $100 million
Voter-approved special levy: $60 million
LID: $20 million
REET: $5 million
Federal Transportation Funds: $25 million
County grant: $5 million
State grant: $5 million
Total: $220 million
This strategy should appeal to the city in that they are asking the voters to approve the bulk of the city’s contribution to the project, less than one-third of the project in total. The city will also appreciate that other levels of government are contributing $35million and that almost half of the budget is going to come from private sources. There are many sources of financing, but we do not foresee this as an obstacle, as many capital projects have funding formulas even more complex.
The last element of the strategy is the timeframe. We should proceed with the referendum as quickly as possible. We believe that there is no benefit to conducting an environmental survey. Voters are unlikely to weigh the survey’s results while at the ballot box. They are, however, likely to respond to the romantic vision that Seattle Commons represents. Emotion could carry the tide, but emotion subsides over time. We do not have any reason to believe a rational, sober vote will be more favorable than one conducted during a wave of positive emotion.
Furthermore, we recognize that there is an element of opposition to this project, as there will be with any capital project of this magnitude. At this point, however, opposition is not organized, whereas we are. We are able to conduct a well-financed, professional public relations campaign in support of the Commons, while our opponents scramble to organize. Plus, we should hold the vote before we announce the LID, as the latter will be a flashpoint around which our opponents will galvanize.
Additionally, once we secure the required popular vote, we will have the core of our financing – almost ae of it – in place (assuming private donations estimates hold). This increases the chances that the other layers of government will make their contributions, if the project has demonstrated voter support and ae of its financing in place.
The final consideration for a quick vote is that there are other capital projects being discussed that may come up for referendum in the coming years, such as the Sound Transit System and a new stadium to replace the Kingdome. If we wait, we may compete with those options for voter-approved funding, but if we get on a ballot before those come up we stand a better chance at success.
Sources:
Johnson, Gerry. (2005). New Life Emerges in the Wake of Seattle Commons Failure. Seattle Post-Intelligencer. Retrieved June 20, 2008 at http://seattlepi.nwsource.com/opinion/272622_focus04.html
Jacobson, Arthur Lee. (1995). The Seattle Commons, an Editorial Opinion. Olmsted Parks. Retrieved June 21, 2008 at http://www.arthurleej.com/a-commons.html
No author. (1995). The Commons: Time Line. Seattle Times. Retrieved June 21, 2008 at http://community.seattletimes.nwsource.com/archive/?date=19950911&slug=2141092
History of Washington State votes at http://www.historylink.org/essays/output.cfm?file_id=7536
Memorandum format at http://www-unix.oit.umass.edu/~pwtc/tw/memoformat.html
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