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HomeMy WebLinkAbout01/11/1989 Meeting (2) e e e M I NUT E S Eugene City Council Dinner/Work Session McNutt Room, City Hall January 11, 1989 5:30 p.m. COUNCILORS PRESENT: Ruth Bascom, Robert Bennett, Shawn Boles, Debra Ehrman, Freeman Holmer, Roger Rutan, Emily Schue. The adjourned meeting of January 11, 1989, was called to order by His Honor, Mayor Jeff Miller. I. LIBRARY MIXED-USE PROJECT A. Cost Impact of Library Financing Plan Tony Mounts, Finance Division, reviewed the cost to the City of the various elements of the proposal to construct the Library in association with the Pankow office building. He identified two assumptions underlying all areas of the project as being: 1) constant dollars (all future revenue is discounted to today's dollars using a seven percent discount rate), and 2) interest rates (market interest rates are assumed to be today's rates for both borrowing and investing). 1. Site Preparation The first phase of the project is site preparation which involves utility relocation and right-of-way improvements. Total cost is estimated at $2 million. Sources of funds that have been identified are the Lane County Road Fund ($1 million) and State of Oregon Lottery funds ($1 million). The State funds are anticipated to be 50 percent loan and 50 percent grant. Terms of the loan portion would be seven percent with a ten-year payment that would be deferred for the first three years. The developer would pay three percent of the interest plus 50 percent of the principal and the City would pay four percent interest plus 50 percent principal. Cost in today's dollars would be approximately $510,000. Mr. Gleason added that the source of the County funds would be the Economic Development Fund within the Road Fund. He anticipated both the State and County funding requests would have a good chance of being approved and pointed out that the project's job generation would be an asset. Responding to Mayor Miller's question, Planning, Development, and Building Department Director Abe Farkas said utility relocation would occur regardless of what is included in the development. The rebuilding of Olive and Willamette streets will be required to accommodate below-street parking. MINUTES--Eugene City Council Dinner/ Work Session January 11, 1989 Page 1 . Responding to a question from Ms. Ehrman, Mr. Farkas indicated that relocation of an EWEB steam line would be necessary. 2. Land Disposition Mr. Mounts continued to outline project elements. The second phase involves land disposition and assumes that Pankow will receive title to the property and agree to pay market price for the land at the time of the building sale. For estimate purposes, the market price of the building is assumed to be approximately $30 million at the time of sale, with the land valued at one-tenth the value of the building. If the building is refinanced, the City would receive five percent of the profit. Additionally, the City would receive ten percent of the profits from the bUilding operation. Because the land would be in private hands, the City would receive tax increment revenue on the value of that land which Mr. Mounts estimated at approximately $1 million. Within a ten-year period, Mr. Mounts anticipated a net total return of $1.9 million. Answering Mr. Boles' question, Mr. Mounts pointed out that no appreciation in value of the land was built into his analysis. Mr. Holmer suggested that an agreement should be reached specifying that land value at time of sale would not be based on assessed value but on market value at that time. Mr. Gleason responded that in the contract relationship, the type of appraisal for computing value would be specified. e 3. Construction Financing The third project phase Mr. Mounts reviewed was construction financing which would involve the City providing a $9 million Line of Credit loan to the developer at a three-percent interest rate which can be drawn down as needed during the 24-month construction period. Based on that and a current rate of 8.25 percent, the cost of the City's share would be approximately $500,000 to be added to the cost of the library. Were the developer to obtain a commercial line of credit to finance construction, close to $1 million in additional costs would be added to the cost of the library shell. The City would therefore save approximately $465,000 it would otherwise have to pay through increased lease payments to cover interest costs. Responding to Ms. Schue's comment, Mr. Mounts emphasized that the City's loan would benefit only the library shell and parking, so it represents an investment in the public portion of the project. The $9 million in resources would be found in Bancroft funds, parking reserves, and Urban Renewal Agency downtown development funds. Mr. Mounts explained that the City would borrow from a bank on a short-term basis, with the funds mentioned serving as security to that line of credit. Mr. Gleason noted that a performance bond or bankable security would protect the City's repayment within the 24-month period. 4. Parking Financing e Mr. Mounts reviewed the parking element of the proposal which involves the long-term financing of the underground parking structure with cost and revenue estimates based on the City loaning the developer $2.5 million at MINUTES--Eugene City Council Dinner/ Work Session January 11, 1989 Page 2 e e e three percent interest with payments deferred for the first five years during which time interest accrues to the principal. At the end of year five, the loan balance is amortized over 30 years and Pankow begins payments. At the end of year ten the loan is called and the debt is retired. The opportunity cost ($2.28 million) assumes investment of the $2.5 million at current rates over the ten-year period. During the ten-year period, the privately owned parking structure is generating tax increment revenue based on an estimated value of $3 million. The City will also receive loan interest payments. Mr. Mounts anticipated the potential net cost at $1.1 million. Benefits the City will receive from the parking being privately owned and operated include a savings of approximately $100,000 annually in operating costs and access to parking at no cost in the evenings and on weekends. Mr. Boles noted that the operating hours of the library should be reviewed to maximize the advantage of the available free parking. Responding to Mr. Holmer's request for information on the cost of City-owned parking, Mr. Farkas said current operating costs are $35 to $45 per space per month. Those costs include maintenance, security, and reserves. Site enforcement in the evening would be a City responsibility which Mr. Farkas anticipated being a minimal cost to the City. Mr. Gleason pointed out that a parking fund is not created for investment yield on profit but to purchase additional parking. He considered it advantageous to lend the money and obtain a parking structure that relates to the facility. Stressing that the parking faCility is intended for the mixed-use development, Mr. Farkas observed that if parking were not provided for office tower use during the day, those tenants would occupy Parcade and surface parking that otherwise will be available for library use. Councilors discussed the fact that as downtown development occurs, parking will become more of a problem. Mr. Gleason observed that the City is no longer in a financial position to build additional parking facilities speculatively. Answering Mr. Rutan's questions, Mr. Farkas explained that the addition of a 240-space facility would represent a net gain of 60 spaces. By shifting long-term leases in the Parcade (with 438 spaces and presently at 75-80 percent usage) to the Hult garage (with 515 spaces and presently less than 50 percent occupied by permit parking), he anticipated adequate parking would be available to accommodate the needs of the new structure. Referring to a second level of underground parking mentioned by Mr. Holmer, Mr. Farkas said engineering issues related to the water table being at 15 feet are being addressed. He added that a structural analysis has determined that an additional level with 160 spaces could be added to the Parcade. 5. Library Shell The cost of the Library shell is estimated at $6.32 million. Under the proposal, the City would lease the shell from the developer for the first five years, after which a decision would be made to renew the lease or purchase the shell at cost. In response to Mr. Bennett's inquiry, Mr. Gleason said terms of the lease renewal have not been negotiated. Mr. Mounts MINUTES--Eugene City Council Dinnerl Work Session January 11, 1989 Page 3 e explained that the method of financing would be the tax increment flow generated from the building itself. Mr. Gleason added that the City's lease payments would commence three to six months after the date of beneficial occupancy (dbo), or at the same time the City begins to receive tax increment revenue. 6. Tenant Improvements Mr. Mounts estimated that finishing the interior of the Library shell would cost between $3 million and $5 million, to be paid from cash held by the Renewal Agency or financed using the Renewal Agency resources as security. Given the assumptions contained in Mr. Mounts' presentation, the capital net cost to the City was estimated at $4,235,000 over a ten-year period. Referring to expansion of the Library at its current site, Mr. Mounts said the present site lacks the potential revenue streams available as a result of the mixed-use development at the proposed site. Expansion costs were estimated at $16.2 million (excluding construction financing). Mr. Boles asked for an indication of Pankow's commitment to development at the 8th Avenue and Willamette Street site. Mark Perniconi, Pankow Development Company Project Manager, responded that there was a good chance a building would be constructed regardless of the City's commitment to include the Li brary. e Ms. Schue asked for clarification of whether tax increment financing would be available on the existing library site. Mr. Mounts responded that the Urban Renewal District can be expanded up to 20 percent, given certain conditions, but M~. Gleason considered it unrealistic to assume tax increment revenue would be available except on the Charnel ton or 8th and Olive sites. B. Project Questions From Councilors Bob Hibschman, Development Department, referred to a memorandum that contained a discussion of six questions submitted to staff by councilors. 1. Vacancy rate and rent for existing major office buildings Mr. Hibschman pointed out that office vacancy rates for downtown core area office space is approximately 12 percent, but class "A" space vacancy is negligible. Mr. Rutan asked about the impact of additional office development currently being proposed. Mr. Gleason commented that core area office development occurs in cycles and he believed if the downtown area fails to create adequate class "A" space with large enough floor plates, development will be forced to other suburban areas. Mr. Farkas noted the importance of timing and allOWing the Pankow Company to give prospective tenants the date of beneficial occupancy of December 1990 . e MINUTES--Eugene City Council Dinner/ Work Session January 11, 1989 Page 4 e e e 2. Project risk relative to benefits Mr. Hibschman said the project is predicated on State and County grants for site improvements. If utilities are relocated but the project does not proceed, Pankow will be asked to reimburse a portion of the costs. He added that it is usual for the Renewal Agency to assume responsibility for site preparation. As mentioned earlier in the meeting, the development agreement will have provisions to ensure repayment of the construction loan regardless of the developer's completion of the project. Cost of the City's tenant improvements will be financed by tax increment funds, with higher costs resulting in less space being improved. Ms. Ehrman pointed out that interior improvements were identified as a potential area for fund raising. Mr. Gleason observed that excess library space that was not improved would most likely be leased for City use. Mr. Hibschman said if the developer were to go bankrupt, the lender would assume control of the project and find a buyer. The bUilding would continue to function with all agreements and leases not being affected. Mr. Gleason added that the development agreement would specify contingencies in a survival clause and he would anticipate bankruptcy meaning only a reduction in tax increment flow to the City. Mr. Rutan maintained that there would always be a risk that the value of the bUilding would be reduced, but Mr. Gleason replied that the value of the building could drop to $17 million without the City being adversely affected. Answering Mr. Boles' question, Mr. Gleason added that if the building's value dropped below that level, the City would be at risk for the difference in tax increment flow for that particular year. With a general obligation bond, there would be a risk that a tax limitation freeze would not honor past indebtedness, in which case the debt would be assumed within the operating account. Addressing a lack of sufficient tax increment generated by the Pankow taxable portion of the project, Mr. Hibschman said a shortfall in the amount needed to support the lease payments for the shell would require seeking increment from other sources or examining the curtailment of other programs. 3. Other projects that will be affected The Library project could require a delay in implementation of the following streetscape and parking facility improvements: Willamette Street between 8th and 10th avenues, pedestrian space improvements including the central plaza and mall rest rooms, redevelopment of East Broadway, parking garages not directly associated with development, and expansion area street improvements. 4. Impact of occupancy problems on tax increment revenue Mr. Hibschman said the amount of increment flow needed to cover the Library lease payments was approximately $763,200 per year. If the office tower value was reduced by 33 percent as a response to severe occupancy problems, there could be a shortfall of about $180,000 in annual increment flow. MINUTES--Eugene City Council Dinner/ Work Session January 11, 1989 Page 5 e e e 5. Assessed value history of significant buildings Mr. Hibschman presented a list of the 1982-88 assessed values of the Hilton, Citizens, and Aster buildings. 6. Sequence of events requiring a commitment by the City Mr. Hibschman reviewed the stages of the project to occur between January and June. An agreement to lease will allow Pankow to begin project design drawings with or without the Library shell. In February, a predevelopment agreement will outline mutual obligations and serve as an agreement to agree. Another critical event will be site preparation and utility relocation which needs to begin four months prior to building construction. In April or May, the Urban Renewal Plan will be amended by the council to authorize the expenditure of funds for the Library project and necessary adjustments to the FY90 budget will be made. In May, the final disposition and development agreement will specify the obligations of all parties, transfer the land, and allow building construction to begin. Ms. Ehrman directed a question to City Attorney Tim Sercombe regarding entering an agreement to lease before voter approval of a referendum. Mr. Sercombe said the City's commitment would be limited by contingencies written in the agreement. C. Discussion Mr. Gleason stated that the proposal meets the main goals of the council to revitalize the downtown core and to effectively deal with a Library project without radically impacting property taxes. He suggested entering the agreement to lease at this time with the contingency that voters will be asked to authorize the project in a March ballot and if the measure fails, a retail-mixed-use project would replace the Library mixed-use proposal. Mr. Gleason recommended including on that ballot a statement that a serial levy for operating and maintenance would be brought to the voters at a later time. If the measure is defeated in March, Mr. Gleason said the City would be obligated to repay Pankow for the cost of changing to a commercial-retail design for the building and he suggested that the City agree to pay the real cost, not to exceed $100,000, for the re-design. He said the public should be made aware of the comparative costs of a new Library at the Charnel ton and at the 8th and Olive sites. Mr. Gleason indicated that the operating and maintenance issue could better be addressed when details of the building itself are better known. Responding to Mr. Rutan's question, Mr. Gleason explained that if the voters fail to approve the Library as part of the mixed-use development and the project becomes a mixed-use commercial one, the City would still be involved with the parking and site development issues and with the normal process of bringing in a retailer (involVing some investment in support of the project). Answering Ms. Bascom's question, Mr. Gleason said he felt that combining a serial levy for operating and maintenance funding with a mixed-use project advisory ballot in the March election would confuse the question. MINUTES--Eugene City Council Dinner/ Work Session January 11, 1989 Page 6 e Mr. Boles was hesitant to begin a project without assurance that operation and maintenance funding would be available. Mr. Bennett commented that depleting tax increment capital would suggest that this project is so important it precludes having resources available for the numerous other needs of downtown. Mr. Boles wondered if tax increment funding would be available for use at the Charnel ton site. Because a Library at the Charnel ton site would not be a mixed-use project, State and County funds would not be available, and there would be no tax increment flow from the building. After completion of the proposed project, he anticipated that between $700,000 and $1 million would remain in the tax increment fund. Mr. Holmer stated that the proposal represented an opportunity to reduce the cost of a new Library and merited approval by the City. As a councilor elected to represent the voters, he was prepared to deal with the complex issue and vote on behalf of his constituents to direct staff to proceed with a development agreement to be reviewed by the council before January 31. Mr. Holmer suggested that the operating and maintenance question would not become an issue for two or three years and by that time additional revenue from EWEB's in-lieu-of-tax payments may be sufficient to meet a large part of the increased operating costs. e Mr. Boles viewed his primary responsibility as shaping alternatives to which the public can respond. He felt it imperative to include the voters in decisions on major public projects and supported proceeding with the project contingent on voter approval of the public-private partnership. Mr. Rutan observed that the question is not whether the City can pay for, but whether it can afford, the project. He pointed out that risk is involved and he expressed concern about a single project depleting reserves, but he supported the project and recommended asking the voters for a serial levy in March. Ms. Bascom considered an improved Library an important feature in the community's self-image but felt the community was not united in support of the project. She favored proceeding with the proposal and asking the voters' opinion in March, but she was unsure whether the serial levy should be proposed at that time. Mr. Bennett reiterated his concern about depleting all the capital reserves of the Urban Renewal District for a single project and suggested seeking an alternative source of funding for the tenant improvement portion of the project. He concurred with Mr. Rutan's recommendation to refer a serial levy to the voters but thought it was the council's responsibility to make a decision about the capital construction. e Ms. Ehrman referred to the Airport project and said an election process can provide the means for the council to share its information with the public. She shared Mr. Bennett's concern with the depletion of tax increment reserves and agreed with other councilors that some type of public vote is appropriate. Ms. Ehrman pointed out that the Council Committee on Library Financing had considered a serial levy and had chosen not to rely on property MINUTES--Eugene City Council Dinner/ Work Session January 11, 1989 Page 7 e owners but rather on a form of taxation that would be shared by a larger population. She supported the project as an opportunity for the community to have a new Library for $4 million. Ms. Ehrman felt that some of the community opposition to the project was emotional and based on misinformation, and she said a public education effort was needed before an election. Ms. Schue considered the proposal an opportunity for revitalizing downtown and obtaining a needed Library. She suggested that the council pass a resolution to proceed with Pankow and then refer that resolution to the voters in March. Referring to the December 19 public hearing, Ms. Schue said the public had focused on the utility tax and had not provided the council with a clear indication of community opinion of the Library and the construction of the new building. She felt a serial levy might be the best source of revenue. Mayor Miller considered the mixed-use development the most economical option for obtaining a new or remodeled Library on any site. He maintained that the proposal was not the scheme of a California developer nor was an attempt being made to mislead the public. Mayor Miller summarized the council's comments as indicating majority support for proceeding with Pankow and referring that decision to the voters. Mr. Holmer favored referring only the decision to proceed to the voters in March and deferring the operating and maintenance question to a later time. While he would oppose a serial levy, he said he would not oppose referring a 4Ia tax measure to meet operating costs. Ms. Schue stressed the importance of presenting the fact that the project would add to the Library's operating budget, but she concurred with Mr. Holme~ that the operating and maintenance question could be deferred. Mr. Bennett strongly recommended that the council make a decision regarding capital construction without a referral and said the public's concern was about the amount and source of operating and maintenance funds. Ms. Bascom indicated she had reached the conclusion that the voters should be asked to approve the development and the council's capital decision, but the serial levy question should be deferred. Mr. Boles requested clarification as to what would happen if the Pankow development proceeds and the voters do not support the council's decision. He suggested that the building would provide the same amount of tax increment money regardless of the Library's inclusion, which funds could then be used for capital projects inside the Urban Renewal District, including a stand-alone Library. Mr. Farkas responded that some of that tax increment money would be committed to site improvement and parking, and an additional amount may be used for the City.s participation in the retail component of the project. e Mr. Boles supported taking both the capital and operating and maintenance questions to the voters simultaneously. In doing so, there could be four possible outcomes: project approval and serial levy disapproval, project and MINUTES--Eugene City Council Dinner/ Work Session January 11, 1989 Page 8 e serial levy disapproval, project disapproval and serial levy approval, or project and serial levy approval. Mr. Boles felt the first outcome would require conversion to a commercial project. Ms. Ehrman disagreed with Mr. Boles interpretation and said the voters could be indicating approval of the Library with another source of operation and maintenance funding. Mr. Rutan opposed referring a decision on the project because he thought voters need to know the cost before being asked to approve a project. Recalling the Nuclear Free Zone issue, he said two questions on a single issue is not practical. Ms. Schue said the community has not indicated whether it wants a new Library on the proposed site or any other site. Mr. Bennett concurred with Mr. Rutan's observations, and said the council should have confidence in its own analysis which led to the conclusion that relative costs require a new Library to be sited as proposed or not to be constructed at this time. Ms. Bascom preferred obtaining community approval of the council1s choice of site, but she continued to question whether there should be a single ballot with two questions. Mr. Boles responded that he did not advocate seeking voter approval of the compl~ funding scheme but on the siting of the Library and he asked about combining questions on a ballot measure. e Mr. Gleason explained that two questions cannot be asked in a single ballot measure, but it would be possible to structure the question to ask for a serial levy for a library on a particular site. Ms. Ehrman commented that the operating and maintenance question affects some people's choice of site and she favored Mr. Boles. suggestion to separate the questions. Mr. Bennett encouraged the council not to lose a good development opportunity and he felt the council had adequate information to make its decision. Mr. Holmer suggested that the council consider delaying its decision a few days while deciding what to refer to the voters. Ms. Schue said she favored reaching a decision during the evening because the ballot deadline is January 28. e Ms. Bascom moved, seconded by Mr. Rutan, to continue negotiations with Pankow Development on financing of construction costs and parking improvements, disposition of real property, and construction of the library shell at the 8th and Willamette site; to take whatever actions are necessary to finalize these negotiations by January 31, 1989; and, to bring by that time to the council and Urban Renewal Agency Board for approval, the actions necessary to implement the understandings reached in those negotiations; and that this be referred in a March election to the voters of the city for confirmation. MINUTES--Eugene City Council Dinner/ Work Session January 11, 1989 Page 9 e Mr. Boles said he would oppose the motion because it failed to address the question of library operation and maintenance. Saying he also would be unable to support the motion, Mr. Bennett asked why Pankow would continue to negotiate with the knowledge that an election at the end of March could negate all the agreements reached up until that point. Mr. Gleason said the Pankow Company was willing to agree to proceed with design work and to charge the City the real cost of redesign, not to exceed $100,000, in March if the voters fail to approve the Library's inclusion in the project. He encouraged the council to allow staff sufficient flexibility to develop ballot language that will meet the requirements of law without involving the Pankow Company in public controversy surrounding a City project. Mr. Holmer moved, seconded by Mr. Rutan, to amend the motion to delete reference to seeking voter approval of the matter in March. Mr. Holmer explained that his amendment would avoid involving Pankow in the referral of a policy decision on which the council has full charter authority to proceed. Ms. Bascom called for the question and debate on Mr. Holmer's amendment ended. e The amendment passed 4:3; with Councilors Bennett, Schue, Holmer, and Rutan voting in favor and Councilors Bascom, Boles, and Ehrman voting against. Mr. Holmer called for the question, and debate on the motion ended. Roll call vote; the motion passed 6:1, with Councilor Boles voting against. Discussion continued regarding whether site, operation and maintenance funding, or both, should be referred to the voters. Mr. Sercombe pointed out the law limits what can be displayed on a ballot for a bond issue and said he was unsure whether a question of location could be combined with funding on the same ballot. Ms. Ehrman moved, seconded by Ms. Bascom, to put a serial levy to fund operating and maintenance costs of a library at the 8th Avenue site on the March ballot. The motion passed, 4:3; with Councilors Schue, Ehrman, Bascom, and Boles voting in favor and Councilors Bennett, Holmer, and Rutan voting against. Responding to Ms. Bascom's request for clarification, Mr. Gleason said the City Attorney's Office would attempt to draft a motion within the confines of the law to accomplish the council's intent. If a ballot measure cannot accomplish that, Mr. Gleason said the council would have an opportunity to act through resolution and/or ordinance. e MINUTES--Eugene City Council Dinner/ Work Session January 11, 1989 Page 10 e There was general agreement to consider two issues if it was determined that a single ballot measure could not be drafted. Mr. Gleason requested further clarification of the council's intent if the voters reject the proposed library project. Mr. Boles moved, seconded by Mr. Rutan, under the Urban Renewal Authority, to reimburse Pankow Development for reasonable expenses, not to exceed $100,000, to allow the design of the building to be switched back to a mixed-commercial-use space in the event that the voters of Eugene do not approve the library project. Ms. Schue stated that the implicit assumption is that the voters' rejection of the serial levy request would be a rejection of the whole project. Answering Mr. Holmer's questions, Mr. Gleason said that a serial levy is limited to three years. Ms. Schue asked when collection of a serial levy would commence if the money is not needed for three years. There was agreement to discuss Ms. Schue's question at a later time. The motion passed unanimously, 7:0. Mr. Gleason said the motion would be brought to the council as an Urban Renewal Authority. e Ms. Bascom indicated her preference was not to go to the voters on a difficult issue on which the council's vote was four to three. She suggested obtaining wording from the City Attorney's Office for both a single measure and two separate questions and then attempting to obtain a unanimous vote of the co.uncil. Mr. Miller requested staff to bring back wording on both one and two questions for council consideration at its next meeting. Ms. Ehrman noted that she would be absent from the council's January 18 meeting. The work session adjourned to January 18, 1989, at 8:55 p.m. Respe~~.~rpJ~ ??~'/7.. .- .. ~_ -,,:...-..,'-i,--,>--'-'..-_ .,,,. ....1.! ,,j.' , ,o'-~::"./,'"/V- ~";~7"- ~ Miih~al Gl~ason, City Manager (recorded by Mary Feldman) mncc 011189-530 e MINUTES--Eugene City Council Dinner/ Work Session January 11, 1989 Page 11