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ORD 24-985 - Designating Downtown Tax Increment AreaORDINANCE NO.24-985 AN ORDINANCE of the City of Federal Way, Washington, designating the Downtown Tax Increment area; setting a sunset date for the increment area; identifying the public improvements to be financed; imposing a deadline for commencement of construction; indicating the City's intent to issue bonds to finance public projects; providing that the increment area will take effect June 1, 2024; and providing for related matters. WHEREAS, the City has previously taken action to facilitate the redevelopment of its downtown including the construction of the Performing Arts & Event Center, Town Square Park, the Grand Staircase, the designation of an Opportunity Zone, and the adoption of a Planned Action Environmental Impact Statement ("Planned Action EIS"); and WHEREAS, the Washington State Legislature, during its 2021 legislative session, enacted Engrossed Substitute House Bill 1189 as Chapter 207, Laws of 2021, titled "AN ACT Relating to tax increment financing" and codified as RCW 39.114 (the "TIF Act"), which authorizes local governments, including cities, to carry out tax increment financing of public improvements needed to support vital private economic development projects; and WHEREAS, the TIF Act was thereafter amended by Engrossed House Bill 1527 during the 2023 legislative session; and WHEREAS, it is desirable and in the best interest of the residents of Federal Way for the City to continue taking action to facilitate the redevelopment of its downtown including adopting tax increment allocation financing to fund public improvements in the downtown area; and WHEREAS, the purpose of this ordinance is to designate an increment area that will enable the City to carry out tax increment financing of the public improvements needed to serve the resulting private development within that increment area; and Ordinance No. 24-985 Page I of 27 WHEREAS, the City correctly followed the designation procedures identified in RCW 39.114.020(7); and WHEREAS, subsequent to the briefings and review by the State Treasurer, the City revised its proposed designation area (Exhibit B) in 2024, removing a property (parcel #0921049137), to ensure the assessed value of the area was less than $200,000,000. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF FEDERAL WAY, WASHINGTON, DO ORDAIN AS FOLLOWS: Section 1. Tax Increment Area designated. Tax Increment Allocation Financing is hereby adopted to pay for public investment project costs as provided for in 39.114 RCW, as described and illustrated within the Project Area delineated in Exhibits A and B attached hereto and incorporated herein by this reference ("Increment Area"). In making this designation, the City finds that the Increment Area (i) is the only increment area designated by the City; (ii) is located within the jurisdictional boundaries of the City; (iii) does not include the entire City; and (iv) does not exceed an assessed valuation of $200,000,000 or 20% of the City's current assessed valuation. Section 2. Commencement & Sunset date of the Increment Area. The Increment Area shall take effect June 1, 2024. The sunset date of the Increment Area created by this ordinance is (i) December 31, 2049, which is the date no later than 25 years after the first year (calendar year 2025) in which tax allocation revenues will be collected on taxable property located in the Increment Area; or, (ii) if earlier, the date on which the City certifies to the County Assessor that all public improvement costs to be paid or reimbursed with tax allocation revenues derived from the Increment Area have been fully paid, including but not limited to reimbursements to the City for principal and interest payments required to be made by the City from revenue sources other than tax allocation revenues on general obligation bonds issued to finance the portion of public Ordinance No. 24-985 Page 2 of 27 improvement costs that are intended to be paid or retired, in whole, from tax allocation revenues, as authorized by RCW 39.114.060(1). Section 3. Project List. A list of improvements to be financed is provided in Exhibit C attached hereto and incorporated herein by this reference. The City intends to issue bonds or other obligations, payable in whole or in part, from tax allocation revenues to finance the public improvement costs. The maximum estimated amount of bonds or obligations contemplated is $36,000,000. Section 4. Project Start Date. The City establishes a deadline of June 1, 2029, for commencement of construction of the first public project identified in Exhibit C. In no event will construction of the first project selected from the Project List commence later than June 1, 2029, unless that deadline is extended for good cause. Section 5. Findings. Based upon the Project Analysis conducted by the City's Consultant Tiberius Solutions LLC, the City Council hereby makes the following findings: (1) The public improvements proposed to be paid or financed with tax allocation revenues are expected to encourage private development within the increment area and to increase the assessed value of real property within the increment area; (ii) Private development that is anticipated to occur within the increment area as a result of the proposed public improvements will be permitted consistent with the permitting jurisdiction's applicable zoning and development standards; (iii) The private development would not reasonably be expected to occur solely through private investment within the reasonably foreseeable future without the proposed public improvements; and Ordinance No. 24-985 Page 3 of 27 (iv) The increased assessed value within the increment area that could reasonably be expected to occur without the proposed public improvements would be less than the increase in the assessed value estimated to result from the proposed development with the proposed public improvements. Section 6. Preparation & Consideration of Project Anal. As required by RCW 39.114.020(2), the City has caused to be prepared a Project Analysis to describe and analyze, among other matters, the factors and considerations listed in that statute. The Project Analysis is on file with the City Clerk. The City Council takes note of the conclusion expressed in the Treasurer's Review Letter, which is attached as Exhibit D and incorporated herein by this reference, that the City's Project Analysis addresses the requirements of RCW 39.114.020. In its consideration and adoption of this ordinance, the City Council has reviewed and considered, among other things, the Project Analysis and the Treasurer's Review Letter, including the "Risk Factors" and "Recommendations" noted in the Treasurer's Review Letter. Section 7. Reimbursement of Expenses. Pursuant to RCW 39.114.020(6), the City will reimburse the County Assessor and County Treasurer for the direct expenses incurred with the implementation and ongoing administration of the City's Increment Area. Such expenses shall be deemed part of the public improvement costs and may be paid from the tax allocation revenues. Section 8. Public Briefings Held by the City. As required by RCW 39.114.020(7)(a), the City has held two public briefings for the community regarding the proposed public improvements needed to serve the Increment Area. Public briefings were held on August 15, 2023, at 5:30 pm at City Hall, and October 24, 2023, at 3:30 pm at City Hall, and announced to the public at least two weeks prior to the date each briefing was held by publishing in the Federal Way mirror, and by posting information on the City's website and on social media. Each public briefing included a Ordinance No. 24-985 Page 4 of 27 description of the proposed Increment Area, the public improvements proposed to be financed with tax allocation revenues, and an estimate of tax revenues provided by each impacted taxing district. Additional briefings were held by the City Council at their annual retreat on January 21, 2023, at the Dumas Bay Center; before the full Council on September 5, 2023; and, at the City's Finance, Economic Development and Regional Affairs Council Committee on June 27, 2023, October 24, 2023, and March 26, 2024. Section 9. Designating the Increment Area. Following the adoption of this ordinance, the City will deliver a certified copy of this ordinance to the County Treasurer, the County Assessor, and the governing body of each taxing district within the Increment Area at their respective addresses. Section 10. Severability. The provisions of this ordinance are declared separate and severable. The invalidity of any clause, sentence, paragraph, subdivision, section, or portion of this ordinance, or the invalidity of the application thereof to any person or circumstance, shall not affect the validity of the remainder of the ordinance, or the validity of its application to any other persons or circumstances. Section 11. Corrections. The City Clerk and the codifiers of this ordinance are authorized to make necessary corrections to this ordinance including, but not limited to, the correction of scrivener/clerical errors, references, ordinance numbering, section/subsection numbers and any references thereto. Section 12. Ratification. Any act consistent with the authority and prior to the effective date of this ordinance is hereby ratified and affirmed. Section 13. Effective Date. This ordinance shall be effective thirty (30) days after passage and publication as provided by law. Ordinance No. 24-985 Page 5 of 27 PASSED by the City Council of the City of Federal Way this 16th day of April, 2024. CITY OF FEDERAL WAY: qJ-FE2TRELL, MAYOR ATTEST: NTJU� WWAX S P ANIE COURTN Y CMC, CITY CLERK APPROVED AS TO FORM: J. RYAN CALL, CITY ATTORNEY FILED WITH THE CITY CLERK: 03/27/2024 PASSED BY THE CITY COUNCIL: 04/16/2023 PUBLISHED: 04/19/2023 EFFECTIVE DATE: 05/19/2023 ORDINANCE NO.: 24-985 Ordinance No. 24-985 Page 6 of 27 Exhibit A - Legal Description Proposed Federal Way TIA Affected Parcels Property Total Total Identification Levy Appraised Taxable Number Code Value Value Zone Acres 921049057 1202 $0 $0 City Center Core 0.5 921049111 1202 $806,900 $806,900 City Center Frame 0.7 921049019 1202 $1,420,500 $1,420,500 City Center Frame 0.6 921049020 1202 $1,344,000 $1,344,000 City Center Core 0.4 921049030 1202 $2,305,100 $2,305,100 City Center Core 1.9 921049035 1202 $2,674,300 $2,674,300 City Center Core 2.4 7978200525 1205 $6,308,600 $0 City Center Core 4.4 7978200526 1205 $0 $0 City Center Core 11.5 921049163 1202 $1,597,700 $1,597,700 City Center Frame 1.3 921049172 1202 $3,242,200 $3,242,200 City Center Core 1.5 921049270 1202 $2,119,300 $2,119,300 City Center Core 0.9 921049271 1202 $1,722,700 $1,722,700 City Center Core 0.5 921049276 1202 $2,932,100 $2,932,100 City Center Core 1.9 921049280 1202 $0 $0 City Center Frame 0.8 921049296 1202 $749,000 $749,000 City Center Core 0.4 921049302 1202 $13,626,800 $13,626,800 City Center Frame 7.0 1621049023 1205 $3,689,500 $3,689,500 Commercial 6.5 1621049028 1205 $7,404,700 $7,404,700 City Center Core 2.0 1621049037 1205 $41,375,000 $41,375,000 Commercial 62.2 1621049039 1205 $0 $0 Commercial 2.2 2423200010 1202 $0 $0 City Center Core 0.1 2423200020 1202 $0 $0 City Center Core 0.5 2423200030 1202 $0 $0 City Center Core 0.4 2423200040 1202 $0 $0 City Center Core 0.8 2423200050 1202 $0 $0 City Center Core 7.5 2423200055 1202 $0 $0 City Center Core 0.5 2423200060 1202 $0 $0 City Center Core 0.9 2423200070 1202 $0 $0 City Center Core 0.5 7622400011 1202 $1,761,300 $1,761,300 City Center Core 1.5 7622400025 1202 $2,164,700 $2,164,700 City Center Core 1.8 7622400010 1202 $33,573,000 $33,573,000 City Center Core 31.7 7622400020 1205 $84,400 $84,400 City Center Core 0.9 921049299 1202 $5,452,800 $250,900 City Center Core 0.7 921049053 1202 $11,543,100 $11,543,100 City Center Frame 8.8 921049021 1202 $0 $0 City Center Core 3.9 921049297 1202 $23,856,200 $23,856,200 City Center Core 6.0 8575000010 1202 $0 $0 City Center Frame 3.1 Ordinance No. 24-985 Page 7 of 27 Property Total Total Identification Levy Appraised Taxable Number Code Value Value Zone Acres 8575000020 1202 $0 $0 City Center Frame 1.8 921049017 1202 $0 $0 City Center Frame 5.6 921049042 1202 $488,900 $0 City Center Core 0.8 921049321 1202 $1,374,300 $0 City Center Core 2.2 921049337 1202 $0 $0 City Center Core 1.0 921049027 1202 $1,617,100 $0 City Center Core 1.3 921049298 1202 $0 $0 City Center Core 4.8 7622400019 1202 $10,732,900 $10,732,900 City Center Core 10.4 8665030000 1202 $5,623,600 $0 City Center Core 1.7 921049304 1202 $5,523,700 $5,523,700 City Center Core 1.5 Total $216,417,300 $195,802,900 215.0 Source: Tiberius Solutions with data provided by the King County Assessor's Office Ordinance No. 24-985 Page 8 of 27 Levy Property 2022for Zane Acres 2023for 2023for Tax Code Identification 2023 payable 2024 payable 2024 payable Status Number -Total - Total - Total Taxable Appraised Taxable Value Value Value 1202 921049017 $0 City Center 5.6 $7,320,700 $0 X GOV Frame 1202 921049019 $1,420,500 City Center 0-6 51,455,700 $1,455,700 T Frame 1202 921049020 S1,344,000 City Center 0,4 $1,536,000 $1,536,000 T Core 1202 921049021 SO City Center 3.9 $5,487,400 $0 X GOV Core 1202 921049027 $0 City Center 1.3 $1,848,200 $0 X GOV Core 1202 921049030 $2,305,100 City Center 1.9 $2,634,400 $2,634,400 T Core 1202 921049035 52,674,300 City Center 2.4 $2,790,500 $2,790,500 T Core 1202 921049042 50 City Center 0.8 $558,700 5o X GOV Care 1202 921049653 $11,543,100 City Center 8-8 $14,114,100 $14,334,100 T Frame 1202 921049057 $0 City Center 0.5 $661,400 $0 X GOV Core 12C2 921049111 $806,900 City Center 0.7 $864,500 $864,500 T Frame 1202 921049163 $1,597,700 City Center 1.3 $1,731,900 $1,711,900 T Frame 12C2 921049172 $3,242,200 City Center 1.5 $3,536,900 $3,536,900 T Core 1202 922049270 $2,119,300 City Center 0.9 $2,204,100 $2,204,100 T Care 1202 921049271 $1,722,700 City Center 0.5 $1,955,500 $1,955,500 T Core 1202 921049276 $2,932,100 City Center 1.9 $3,331,900 $3,331,900 T Core 1202 921049280 $0 City Center 0 8 $679,600 S4 X GOV Frame 1202 921049296 $749,000 City Center 0,4 $832,200 $832,200 T Core 1202 921049297 $23,85ll City Center 6.0 $26,397,000 $26,397,000 T Core 1202 921049298 $0 City Center 4.8 $54,635,900 $0 X GOV Core 1202 971049299 5250,900 CityCenter 0.7 $12,193,000 $303,500 T PARTIALLY Core EXEMPT-NP 1202 921049302 513,626,800 City Center 7.0 $14,150,9CO $14,150,900 T Frame 1202 921049304 $5,523,700 City Center 1.5 $5,751,500 55,751,500 T Care 1202 921049321 $0 City Center 2.2 $1,570,600 $0 X GOV Core 1202 921049337 $0 City Center 1.0 $44,200 $0 X GOV Core 1205 1621049C23 $3,689,500 Commercial 6.5 $4,216,600 $4,216,600 T 1205 1621049C28 $7,404,700 City Center 2.0 57,892,8C0 $7,892,800 T Core 1205 1621049037 $41,375,000 Commercial 62.2 $44,685,000 $44,685,000 T 3205 1621049039 $0 Commercial 2.2 $1,917,700 $0 X GOV 1202 2423200010 $0 City Center 0.1 $11,000 $0 X GOV Core 1202 2423200020 $0 City Center 0.5 $1,133,100 $G x GOV Core 1202 2423200030 SO City Center 0.4 $826,600 $0 X GOV Core 1202 2423200040 $0 City Center 0.8 $1,853,900 $0 X GOV Care 1202 2423200050 $0 City Center 7.5 $10,485,700 $0 X GOV Care 1202 24232000SS $0 City Center 0.5 $896,300 $0 X GOV Core 1202 2423200060 $0 City Center 0.9 S103,600 $0 X GOV Core 1202 2423200070 $0 City Center 0.5 $870,000 $0 X GOV Core Ordinance No. 24-985 Page 9 of 27 1202 7622400010 $33,573,000 City Center 31.7 $38,514,100 $38,514,100 T Care 1202 7627400011 $1,761,300 City Center 1-5 $1,907,100 $1,807,100 T Core 1202 7622400019 $10,732,900 City Comer 10.4 $12,725,100 $12,725,100 T Core 1205 7622400020 $84,400 City Center 0.9 $24,400 $84,400 T Core 1202 7622400025 $2,164,700 City Center 1.8 $2,245,600 $2,245,600 T Care 1205 7978200525 $0 City Center 4.4 $6,986,000 $0 X Core 1205 7978200526 50 CIty Center 115 $14,949,700 $0 x Cure 1202 8575NO010 $0 City Center 3.1 $21,559,700 $0 x Frame 2202 8575000020 $0 City Center 1.8 $2,430,800 $0 x Frame 1202 8665030000 $0 City Center 1.7 $0 $0 NA Core 1202 8665030010 $0 City Center $5,378,600 $0 x Core 1202 866503002D $0 City Center $6,640,700 $0 x Core 1202 866503003D $0 City Center $5,378,600 $0 x Core 1202 9665030040 $0 City Center $6,640,700 $0 x Core 1202 8665W0050 $0 CIty Center $5,379,600 $0 x Core 1202 8665030060 $0 City Center $6,640,700 $0 x Core 1202 8665030070 $0 City Center $5,378,500 $0 x Core 1202 8665030080 $0 Clty Center $6,640,700 $0 x Core 1202 9665030090 $0 City Center $5,378,600 $0 x Core 1202 8665030100 $0 City Center $6,640,700 $0 x Core Total $176,500,000 210.4 $404,778,100 $195,961,300 NP NP GOV GOV Condo Parent Parcel NP NP NP NP NP NP NP NP NP NP Ordinance No. 24-985 Page 10 of 27 Exhibit B — Area Boundary Map Ordinance No. 24-985 Page 11 of 27 Exhibit C —Project List 0� Ut � W N • C W p N I C 6�i n y ] un = `'�' y • 7 n l0 O un ■ ■ ■ ■ ■ ■ ■ m 0LA m;GE00 ti "O l0• C rD y aj ■ ■ ■ ■ 0 -yw D O D ■ ■ ■ ■ ■ ■ ^ 0onn�m3 O O O j C ■ ■ ■ ■ ■ ■ ■ pnm-��v n ti O rD W ■ ■ ■ ■ � 0 n 0 y G rD ■ ■ ■ ■ L+-0D O S C v, NnCr . `�, `� O 0 O N p' p Q n N NO n rrD N= y � M -�Cu 'o y_a� M rn �0 o �'—n 3`� C � fD �'ao C N 7 7 C C 7 7 y ou �° On ry 7 'O 7 C• O Rl C 21 a y uI �D �yon>o yy° �3 O>.v� o a y 3 N o O O O y o 3an D 7po y M Y Q• Q• .rD Q -. 0 n n N 0 N rD 0 �.� O 9- 0 0 O D. ti Q 0 0 �. -0 " 0 y 7 ' O• N LQ rD n 0�OS 3 Uo 5 ° �n z°ao „433 CT 3 E �q'g,Q E . gur 5 .y, n n 0 7Cv�•.y, n M M O � ^ j O o Lao ,^. ti _ C C C C C d C -gyp A. 3 �• b b u a a iaw ro � C 3 0 N N O v0i 7 C n' O 0 N N .C+ O W Co ti O N y n O N y N O N 01 1 0,v, Z O O O O D O O O N O N O N O N O N O N O A Lrl A 1TI W Lrl W U7 N 01 N O Ordinance No. 24-985 Page 12 of 27 Exhibit D — State Treasurer's Letter TAX INCREMENT FINANCING PROJECT ANALYSIS REVIEW -- CITY OF FEDERAL WAY -- OCTOBER 129 2023 OFFICE OF THE TREASURER STATE OF WASHINGTON Mike Pellicciotti Ordinance No. 24-985 Page 13 of 27 OFFICE OF THE TREASURER STATE OF WASHINGTON 0 Mike Petlicciotti October 12, 2023 Steve Groom, Finance Director City of Federal Way 33325 8th Avenue South Federal Way, WA 98003 Dear Mr. Groom: This letter confirms the Office of the State Treasurer's ("05T") receipt and review of the City of Federal Way's (the "City") tax increment financing ("TIV) Project Analysis provided on July 19, 2023. OST and Montague DeRose and Associates, the state's municipal advisor, have reviewed the provided material. Based on our review, which is detailed in the sections to follow, we believe the City's Project Analysis generally addresses the topics listed in section 020(2) of RCW 39.114 (the "TIF Statute"). Please note, this review is based on the information, projections, and assumptions provided by the City and its consultants in the Project Analysis. 05T has not independently verified the data or its accuracy or performed any feasibility analyses or projections of its own. Executive Summary Accordingto the City, its downtown area, or "City Center," does not currently present an identifiable sense of an urban center. To improve this, the City is taking steps to transform its City Center into a walkable downtown and destination for the community. The City built the Performing Arts & Entertainment Center and the Town Square Park as initial cornerstone elements to the City Center. Additionally, a Sound Transit light rail station is scheduled to open in 2026, which will allow residents, employees, and visitors greater transit access to/from the City Center. The City's proposed tax increment area (the "TIA" ) will include 215 acres surrounding these three community improvements and will be generally bordered by 1-5 to the east, South 312'h Street to the north, Highway 99 to the west, and South 3301" Street to the south. The Project Analysis identifies a set of public improvement projects estimated to cost between $72 million and $170 million in total (2023 dollars). The City plans to fund these projects directly with tax increment revenues collected over time or in the near -term from the issuance of bonds to be repaid with tax increment revenues. The City specifically identified two high -priority projects requiring funding early in the life of the TIA in order to facilitate the Phase 1 development of a planned mixed -use development: a civic plaza estimated to cost $6.0 million and a public parking garage estimated to cost $30.0 million. Including the developer's contribution to the public improvements, the net funding requirement for these two public improvements is equal to $30.8 million and would he partially financed from the City's issuance of Limited Tax General Obligation Bonds in late 2024. Legislative Building, P.O. Box 40200 Olympia, Washington 98504-0200 (360) 902-900D • TTY USERS: CALL 711 • FAX (360) 902-9037 www.tre.wa.go� Ordinance No. 24-985 Page 14 of 27 PAGE 2 OF 14 OST's primary goal in our statutorily mandated review of the Project Analysis is to ensure that the Project Analysis addresses the topics listed in the TIF statute and that risks to the City that might result from the implementation of the project are adequately disclosed. Our review of the Project Analysis found potential risks worth consideration. Most notably, after the issuance of bonds, the City will be obligated to pay any deficiency between tax increment revenues and debt service. The City anticipates issuing $29.6 million of tax-exempt bonds to finance the $30.8 million of Public Improvements at a true interest cost of 4.67%. In the Baseline Development Scenario, the City projects twelve years of annual deficiencies between tax increment revenues and debt service, averaging $1.0 million per year, resulting in an accumulated deficit of $12.1 million by 2036. The City expects to draw from general revenues and reserves to fund these annual shortfalls through 2036, and then reimburse itself over nine years from 2037-2045, when annual tax increment revenues are projected to exceed annual debt service. Certain other factors, including the following, could negatively impact tax increment revenues, potentially causingthem to be inadequate to fully reimburse the City for funds advanced to pay debt service on the Bonds: (1) increases in the cost of the Public Improvements; (2) delayed or less than expected private development within the TIA; (3) lower -than -expected future assessed values within the TIA; and, (4) higher than expected borrowing cost for the bonds issued to finance the Public Improvements. Because of the project's potential cost to the City's general fund, it is essential that decision makers understand and accept the project's risks and potential long-term costs in comparison to its benefits. Statutory Role and Purpose of Review As enacted by the 2021 Washington State Legislature, section RCW 39.114.020(7)(h) requires that prior to the adoption of an ordinance authorizing the creation of a TIA, the local government proposing the TIA must provide a project analysis to OST for review. OST must complete the review within 90 days of receipt of the project analysis. Upon completing the review, OST must promptly provide to the local government any comments regarding suggested revisions or enhancements to the project analysis that OST deems appropriate. OST received the City's Project Analysis (dated July 19, 2023) on July 19, 2023. Ordinance No. 24-985 Page 15 of 27 Project Team Jurisdiction: City of Federal Way Project Title: City Center TIA City of Federal Way: Steve Groom, Finance Director Proposed Tax Increment Area PAGE 3 of 14 County: King County Development Areas: The TIA boundary includes 215 acres and is generally bordered by 1-5 to the east, South 312th Street to the north, Highway 99 to the west, and South 330th Street to the south. Consultants: Tiberius Solutions LLC Nick Popenuk, Principal PFM Financial Advisors LLC Duncan Brown, Director Matt Schoenfeld, Sr. Managing Director Foster Garvey PC Bill Tonkin Federal Way's TIA will include 215 acres and is generally bordered by 1-5 to the east, South 3121" Street to the north, Highway 99 to the west, and South 330t" Street to the south. The City's downtown, or "City Center," does not currently present an identifiable sense of an urban center. To improve this, the City is taking steps to transform its City Center into a walkable downtown and destination for the community. The City built the Performing Arts & Entertainment Center and the Town Square Park as initial cornerstone elements aimed at defining the City Center neighborhood. A Sound Transit light rail station opening in 2026 will allow residents, employees, and visitors greater transit accessto/from the City Center. Figure 1 below shows the boundary map for the TIA. Ordinance No. 24-985 Page 16 of 27 In tax year 2023, the 58 tax lots within the TIA had total taxable assessed value of approximately $195.8 million, compared to a total market value of $267.3 million. All parcels in the TIA are zoned City Center Care, City Center -frame, Community Business, or Multi - Family Residential with respective 53%, 14%, 40% and 29% shares of the total 215 acres. Of the $195.8 million of total taxable assessed value, 62% is from the City Center Core parcels, 15% is from the City Center -Frame parcels, 2% is from the Community Business parcels and 210% from the Multi -Family Residential parcel. Figure i - Map of the City Center TIA PAGE 4 OF 14 There are 17 taxing districts whose tax levy be directly - _- - - property would impacted by TIA. These districts are: (1) County -wide regular levy (non- voted), (2) AFIS (Fingerprint ID) Lid #j --- Lift, (3) Parks Lid Lift, (4) Human 5rvs/Vets Lid Lift, (5) Children/Family Justice Ctr. Lid Lift, (6) Best Start for Kids Lid Lift, (7) 1 Radio Communications Lid Lift, (8) County -wide Transport levy, (9) [Elf,11�11 County Cons. Futures, (10) County Source: City of Federal Way Flood Zone, (11) County Ferry District, (12) Port General Fund, (13) EMS (voted), (14) Sound Transit, (15) City General Fund, (16) Library General Fund and (17) Fire 39 General Fund. The levy rate for each of these jurisdictions will be applied to the increased assessed valuation within the TIA and remitted to the City to pay debt service on the bonds. Project Description Public Improvements within the TIA The Project Analysis identifies numerous public improvement projects related to public parking, recreation, mobility, community building, public safety, and placemaking which are estimated to cost between $72 million and $170 million in total (2023 dollars). The City plans to fund these projects directly with tax increment revenues collected over time or in the near -term from the issuance of bonds to be repaid with tax increment revenues. The City specifically identified a civic plaza estimated to cast $6.0 million and a public parking garage estimated to cost $30.0 million as two high -priority projects requiring funding early in the life of the TIA Ordinance No. 24-985 Page 17 of 27 PAGE 5 OF 14 to facilitate the Phase 1 development of the One Trent project (an apartment and condominium development).. The City's Project Analysis assumes One Trent will pay the City $10.0 million to acquire the City -owned Town Center property located within the TIA, with $4.8 million of the $10.0 million being used to repay an interfund loan on the property. The net funding requirement for these two public improvements of $30.8 million would be financed from the City's issuance of Bonds in late 2024. Private Development within the TIA There are currently no projects in the TIA under construction or with approved permits for construction. The City -owned property within the boundary is anticipated to be the site best situated for new private construction. The City is negotiating an agreement with One Trent, a Seattle -based real estate developer, forthe execution of four -phase development project on 10.6 acres of the TIA to construct apartments and condominiums with an expected taxable assessed value of $472.5 million in 2023 dollars and $923.7 million in nominal dollars. Table 1, as prepared by the City, shows the expected phasing of the One Trent Development Plan from 2027 through 2032. The City's tax increment revenue projections anticipate that One Trent will apply for the City's Multifamily Tax Exemption (MFTE) exempting new construction projects located in designated areas with at least 16 multifamily units from property taxes for an eight -year period. For phases 1, 2, and 3 of the development, over 95% of total taxable value is assumed to be eligible for the MFTE exemption, with phase 4 assumed to be not MFTE eligible. Table 1— One Trent Development Plan (in $ 2023) Taxable Value of Development Completion Development MFTE-Eligible Non MFTE- Phase Type Year (2023 $) Value Eligible Value Phase 1 Apartments 2027 $ 179,827,337 $ 172,312,858 $ 7,514,479 Phase 2 Apartments 2028 $ 110,900,540 $ 107,920,895 $ 2,979,645 Phase 3 Apartments 2030 $ 118,393,420 $ 115,507,471 $ 2,885,949 Phase4 Condos 2032 $ 63,355,171 $ - $ 63,355,171 Total $ 472,476,468 $ 395,741,224 $ 76,735,244 Source: City of Federal Woy A market analysis identified speculative development opportunities for properties located in the TIA but not associated with One Trent. These potential developments are expected to occur in the TIA after construction begins on One Trent and the bond -financed civic plaza and public parking garage. Of the 9.4 million square feet of potentially developable properties in the TIA, the market analysis estimated 17% would experience new development over the 25-year forecast period, resulting in a total of 5,300 new housing units with $1.6 billion in speculative new taxable assessed value (2023 dollars). The analysis assumed that 80% of new value would be multifamily properties, with 100% of this value eligible for the 8-year MFTE, reducing the taxable assessed value from $1.6 billion to $1.2 billion. Table 2, as prepared by the City, forecasts the baseline scenario of private development projected to occur in the TIA both from One Trent and speculative development. Ordinance No. 24-985 Page 18 of 27 PAGE 6 of 14 Table 2 — Projected Increased Real Property in the TIA (in $ 2023` Baseline Development Scenario Year on OneTrent Speculative Tax Rolll Development Development 2028 $ - $ 14,819,826 2029 $ 7,514,479 $ 14,819,826 2030 $ 2,979,645 $ 14,819,826 2031 $ - $ 14,819,826 2032 $ 2,885,949 $ 14,819,826 2033 $ - $ 14,819,826 2034 $ 63,355,171 $ 14,819,826 2035 $ - $ 14,819,826 2036 $ - $ 74,099,129 2037 $ 172,312,858 $ 74,099,129 2038 $ 107,920,895 $ 74,099,129 2039 $ - $ 74,099,129 2040 $ 115,507,471 $ 74,099,129 2041 $ - $ 74,099,129 2042 $ $ 74,099,129 2043 $ $ 74,099,129 2044 $ $ 74,099,129 2045 $ $ 74, 099,129 2046 $ $ 74,099,129 2047 $ $ 74,099,129 2048 $ $ 74,099,129 2049 $ $ 74,099,129 Total $ 472,476,468 $ 1,155,946,409 Source: City of Federci Way In its Project Analysis, the City prepared an Alternate Development Scenario which retains the anticipated taxable value of the One Trent project but excludes all speculative development. In the Alternate Development Scenario, the City issues bonds only to finance the $6.0 million cost of the civic plaza, not the $24.9 million cost of the public parking garage, as existing surface parking capacity is deemed adequate to support the One Trent development. Assessed Value of the TIA The assessed valuation of the TIA for the 2023 tax year is approximately $195.8 million, below both statutory limits of $200 million in assessed valuation and 20% of the City's total assessed valuation of $17.3 billion ($3.5 billion). The TIA's 2023 assessed value represents 1.1% of the City's total assessed valuation. The magnitude and timing of real property development in the TIA will drive growth in incremental assessed value and therefore tax increment revenues. For the two development scenarios provided by the City, the incremental taxable assessed value of the TIA is estimated by assigning market -based improvement prices reflecting the land use, size of the proposed development and the City's Multifamily Tax Exemption. The City assumed the TIA base value and the assessed values of newly developed properties both increase by 5.1% annually. This assumption uses long-term historical trends for per -capita personal income growth for King County as the basis for forecasting appreciation of existing assessed Ordinance No. 24-985 Page 19 of 27 PAGE 7 OF 14 values and employs forecasts of population growth as the basis for projecting the increase in assessed value from new construction. Tax Increment Revenue Projections The TIA is expected to take effect on June 1, 2024, and 2025 will be the first year that the TIA will receive tax increment revenues. The term of the TIA is assumed at 25 years (the maximum allowed) with 2049 as the final year the TIA will receive tax increment revenues. The City estimated the 2024 tax increment base assessed value at $205.8 million and prepared the Baseline Development Scenario with $6.2 billion of additional assessed value added to the TIA between 2025 and 2049 through new construction and appreciation. Under the Baseline Development Scenario, $68.9 million of tax increment revenues are projected to be collected over the 25-year term of the TIA. See Table 3 — Tax Allocation Revenues of the TIA (Baseline Development Scenario). Table 3 —Tax Allocation Revenues of the TIA (Nominal $j Baseline Development Scenario Tax Assessed Value Tax Allocation Year Total Base Value Increment Levy Rate Revenues 2023 $ 195,802,900 $ - $ $ $ 2024 $ 205,788,848 $205,788,848 $ $ $ - 2025 $ 216,284,079 $205,788,848 $ 10,495,231 $ 3.290400 $ 34,533 2026 $ 227,314,567 $205,788,848 $ 21,525,719 $ 3.012200 $ 64,839 2027 $ 238,904610 $205,188,849 $ 33,118,762 $ 2.895700 $ 95,901 2028 $ 269,174,210 $205,788,848 $ 63,385,362 $ 2.651100 $ 168,039 2029 $ 311,542,953 $205,788,848 $ 105,754,105 $ 2.548600 $ 269,522 2030 $ 351,421,265 $205,788,848 $ 145,632,417 $ 2.450100 $ 356,808 2031 $ 390,336,150 $205,788,848 $ 184,547,302 $ 2.355300 $ 434,672 2032 $ 436,602,762 $205,788,848 $ 230,813,914 $ 2.264200 $ 522,608 2033 $ 482,057,730 $205,788,849 $ 276,268,882 $ 2.176600 $ 601,321 2034 $ 635,199,468 $205,788,848 $ 429,410,620 $ 2,092300 $ 898,476 2035 $ 693,208,380 $205,788,848 $ 487,419,532 $ 2.011500 $ 980,454 2036 $ 863,162,204 $205,788,848 $ 657,373,356 $ 1.933700 $ 1,271,146 2037 $ 1,377,615,782 $205,788,848 $ 1,171,826,934 $ 1.859000 $ 2,178,386 2038 $ 1,813,096,405 $205,788,848 $ 1,607,307,557 $ 1.787500 $ 2,873,039 2039 $ 2,061,826,488 $2.05,788,849 $ 1,856,037,640 $ 1,718600 $ 3,189,718 2040 $ 2,587,219,174 $205,788,848 $ 2,381,430,326 $ 1.652100 $ 3,934,363 2041 $ 2,991,774,698 $205,788,848 $ 2,685,985,850 $ 1.589400 $ 4,266,440 2042 $ 3,220,665,528 $205,788,848 $ 3,014,876,680 $ 1.527000 $ 4,603,647 2043 $ 3,575,581,717 $205,788,848 $ 3,369,792,869 $ 1.467900 $ 4,946,590 2044 $ 3,958,322,406 $205,788,848 $ 3,752,533,558 $ 1.411100 $ 5,295,382 2045 $ 4,370,802,557 $205,788,848 $ 4,165,013,709 $ 1.356600 $ 5,650,136 2046 $ 4,815,060,087 $205,788,848 $ 4,609,271,239 $ 1.304100 $ 6,010,966 2047 $ 5,293,263,427 $205,788,849 $ 5,087,474,579 $ 1.253700 $ 6,377,987 2048 $ 5,807,719,537 $205,788,848 $ 5,601,930,689 $ 1.205200 $ 6,751,314 2049 $ 6,360,882,392 $205,788,848 $ 6,155,093,544 $ 1.158500 $ 7,130,790 Total $ 68,907,079 Source: City of Federal Woy As noted above, the City prepared an Alternate Development Scenario which retains the anticipated taxable value of the One Trent development but excludes all speculative development. With the Alternate Ordinance No. 24-985 Page 20 of 27 PAGE 8 OF 14 Development Scenario, $2.2 billion of assessed value is added to the TIA between 2025 and 2049 through new construction and appreciation. Under the Alternate Development Scenario, $30.9 million of tax increment revenues are projected to be collected overthe TlAterm. See Table 4 —Tax Allocation Revenues of the TIA (Alternate Development Scenario). Table 4—Tax Allocation Revenues of the TIA (Nominal $) Alternate Development Scenario Tax Assessed Value Tax Allocation Year Total Base Value Increment Levy Rate Revenues 2023 $ 195,802,900 $ 3.730590 $ 2024 $ 205,788,848 $20.5,788,848 $ 3.487226 $ - 2025 $ 216,284,079 $205,788,848 $ 10,495,231 $ 3.290391 $ 34,533 2026 $ 227,314,567 $205,788,848 $ 21,525,719 $ 3.012184 $ 64,839 2027 $ 238,907,610 $205,788,848 $ 33,118,762 $ 2.895675 $ 95,901 2028 $ 251,091,898 $205,788,848 $ 45,303,050 $ 2.651069 $ 120,102 2029 $ 273,533,933 $205,788,848 $ 67,745,085 $ 2.548528 $ 172,650 2030 $ 291,500,045 $205,788,848 $ 85,711,197 $ 2.449975 $ 209,990 2031 $ 306,366,547 $205,788,848 $ 100,577,699 $ 2.355220 $ 236,883 2032 $ 326,287,697 $205,788,848 $ 120,498,849 $ 2.264036 $ 272,814 2033 $ 342,928,370 $205,788,848 $ 137,139,522 $ 2.176389 $ 298,469 2034 $ 464,603,684 $205,788,848 $ 258,814,836 $ 2.092129 $ 541,474 2035 $ 488,298,472 $20.5,788,848 $ 282,509,624 $ 2,011276 $ 563,205 2036 $ 513,201,694 $ 205,788,848 $ 307,412,846 $ 1.933408 $ 594,354 2037 $ 868,342,479 $205,788,848 $ 662,553,631 $ 1.858555 $ 1,231,392 2038 $1,129,170,653 $205,788,848 $ 923,381,805 $ 1.786943 $ 1,650,030 2039 $1,186,758,356 $205,788,848 $ 980,969,508 $ 1.717900 $ 1,685,207 2040 $1,503,291,030 $205,788,848 $1,297,502,182 $ 1.651328 $ 2,142,601 2041 $1,579,958,873 $205,788,848 $1,374,170,025 $ 1.587535 $ 2,181,543 2042 $1,660,536,776 $ 20.5,783,848 $1,454,747,928 $ 1.526015 $ 2,219,967 2043 $1,745,224,151 $ 20.5,788,848 $1,539,435,303 $ 1.466879 $ 2,258,165 2044 $1,834,230,583 $ 205,788,848 $1,628,441,735 $ 1 Al0034 $ 2,296,158 2045 $1,927,776,343 $205,788,848 $1,721,987,495 $ 1.355392 $ 2,333,968 2046 $ 2,026,092,936 $ 205,788,848 $1,820,304,088 $ 1.302868 $ 2,371,615 2047 $2,129,423,675 $205,788,848 $1,923,634,827 $ 1152379 $ 2,409,119 2048 $ 2,238,024,283 $ 205,788,848 $ 2,032,235,435 $ 1.203846 $ 2,446,499 2049 $2,352,163,521 $205,788,848 $2,146,374,673 $ 1.157151 $ 2,483,679 Total $ 30,920,161 Source: City of Federal Way Under the TIF Statute, only certain regular tax levies are available to the TIA_ The taxes applied with regular levies must conform with the constitutional 1% limit as well as the $5.90 aggregate limits_ Both parts of the State School levy, local school district excess levies, voted band levies, and levies of part districts for bond payments are excluded from the TIA levy rate. The TINS annual levy rate may change from one year to the next based on factors includingfuture incremental assessed value of the TIA, future assessed values of the taxing districts, and relevant levy limits. For the two development scenarios, the City's analysis calculated the levy rate for each of these jurisdictions and applied the levy rates to the incremental assessed valuation within the TIA. The City created a multi -year cash flow model to estimate the annual tax increment revenues for the two development scenarios; Figure 2 below provides a visual comparison. Collection of tax increment Ordinance No. 24-985 Page 21 of 27 PAGE 9 OF 14 revenues is projected for the 2025-2049 period, with total revenues for the Baseline Development and Alternate Development scenarios at $68.9 million and $30.9 million, respectively. The total tax increment revenues of the Alternate Development Scenario are equivalent to 45% of the total for the Baseline Development Scenario. 8,000 Figure 2 — Projected Tax Increment Revenues Baseline and Alternate Development Scenarios ■has Na Develop—.t Sc anon. ■Alternate D—d.p.—t Scenario 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2023 2026 2027 2071 2029 2030 2931 2032 W33 2034 2039 2036 2037 2039 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 Source: City of Federal Way Financing Plan for Public Improvements As stated in the Project Analysis, because of their general obligation pledge, the City will be required to pay the full debt service due on the Bonds from available resources, regardless of the amount of tax increment revenues generated within the TIA. The City acknowledged that tax increment revenues early in the life of the TIA are projected to be insufficient to fully cover debt service payments in both development scenarios. In the Baseline Development Scenario, the City anticipates issuing $29.6 million of tax-exempt bonds in December 2024 to finance the $30.8 million of Public Improvements. The City's structure for the bonds assumes interest rates as of July 12, 2023, plus a 0.50% cushion, resulting in a true interest cost of 4.67%_ In this scenario, total principal and interest is projected to be $62.0 million. The City plans to structure its bonds with interest -only payments from 2025 through 2039 to better align debt service payments with anticipated tax increment revenues, and to minimize the amount of general fund resources that the City will need to use to pay debt service in full each year. From 2040 through 2049, annual debt service payments are projected to escalate from $2.4 million to $5.6 million. In the Baseline Development Scenario, the City projects twelve years of annual deficiencies between tax increment revenues and debt service, averaging $1.0 million per year, resulting in an accumulated deficit Ordinance No. 24-985 Page 22 of 27 PAGE 10 OF 14 of $12.1 million by 2036. The City expects to draw from general revenues and reserves to fund these annual shortfalls through 2036, then reimburse itself over nine years from 2037-2045, when annual tax increment revenues are projected to exceed annual debt service by $6.9 million. The City indicated it may apply the $6.9 million surplus to fund additional public improvement projects within the TIA. Regarding the City's projected annual shortages between tax increment revenues and debt service costs, the Project Analysis notes: (1) the City maintains reserve fund balances in 14 funds in addition to its general fund; (2) the City's current fund balance policy requires transferring the subsequent year's debt service payment into the debt service fund during the current year; and (3) the City has a separate Strategic Reserve Fund of $3 million to accommodate unexpected operational changes, legislative impacts, or other economic events affecting the City's operations which could not have been reasonably anticipated at the time of budget preparation. In the Alternate Development Scenario, the City reduces its bond issuance to $6.0 million to finance the cost of the civic plaza (roughly 19.5% of the $30.8 million), excluding the $24.8 million cost of the public parking garage. This approach would allow the City to retain flexibility to adjust the amount of debt to better reflect the amount of actual development during the first few years of the TIA. In our cash flow analysis, we applied the 19.5% share to the Baseline Development Scenario's $62.0 million in total debt service, maintaining the same amortization structure as the larger bond issue. The total amount of principal and interest due under this scenario totals $12.1 million to finance the $6.0 million in civic plaza improvements. In the Alternate Development Scenario, the City projects eight years of insufficient tax increment revenues compared to debt service, averaging $138,000 per year, resulting in an accumulated deficit of $1.1 million by 2032. The City expects to cover these annual shortfalls with City general revenues and reserves through 2032, then reimburse itself over five years from 2033-2037 as total tax increment revenues are projected to exceed total debt service by $18.8 million. Ordinance No. 24-985 Page 23 of 27 PAGE 11 OF 14 Debt Capacity Based on the City's total 2023 assessed value of $17,270,222,086, the City has $259,053,331 in total non - voted debt capacity (1.5% of 2023 AV). The City currently has $27,983,000 in outstanding non -voted debt, leaving sufficient non -voted debt capacity of $231,070,331 before issuing the $29,630,000 of bonds described in the Baseline Development Scenario in December 2024. See Table 5 — Debt Capacity in 2023. Table 5 — Debt Capacity in 2023 2023 Assessed Valuation $17,270,222,086 Non -Voted Debt Capacity (1.5% of AV) 259,053,331 Less: Outstanding Non -Voted Debt (27,983,000) Remaining Non -Voted Debt Capacity 231,070,331 Less: Financing Proposed (29,630,000) Projected Remaining Nan -Voted Capacity $201,440,331 Projected Remaining Non -Voted Capacity% 77.89/0 Source: City of Federal Way Projected Debt Service Coverage Tables 6 and 7 below summarize the total tax increment revenues, revenue shortfalls and debt service coverage for the two development scenarios. In the Baseline Development Scenario, the City would be required to fund a portion of the annual debt service payments from general revenues or reserves due to insufficient tax increment revenue from 2025 through 2036_ Full reimbursement of the $12.1 million cumulative shortfall is projected by 2045. • In the Alternate Development Scenario, the City would be required to fund a portion of the annual debt service payments from 2025 through 2032, with a cumulative shortfall of $1.1 million, and full reimbursement anticipated by 2037. Ordinance No. 24-985 Page 24 of 27 N N N N N N N N N N N N N N N N N N N - N oNo oNo pNop oNo oNp D Q D Q D 0000 Q 0 0 w N C, p w ��pppKppjj 1 V a% LA A W W 0.D ONO T A `0�0 V 61 61 61 [!1 [!1 A A A W W N N F•� Ln V LD o w ."i 0 M M ui un 0 N M 0 LM .n 0 W DVD N °'D 000 N [n [n A A A W W W N N F+ F+ F+ F+ F+ F+ F+ F+ F+ F+ F+ F+ h•+ F+ F+ P+ A p .l A A A A A A A A A A A A A A A F+ W 61 LD W 07 N OD F•j DO Do DO 0W DO 00 DD Do 00 DO DO Do DO G 61 0 No N A N N N N 00 �➢ D V N N N N N N N N N N N N N N N C] C C1 rn N N N N N N N N N N N N N w w N pD In up o in 0 0 0 0 0 0 .1 W A N Ln in OD -0D i-� i..L .i w A A k�m.~ioo N�fp�roroM ID o CD W o� 0D' tA .° i"1 .A 0 m W N N o Ln w N N w in rn Oa a N N �--+ F' D LD OD V rn- A r:� i� W W w W Oo V N J N V N LD W � 00 W V LD LD W V L, N w A N W W� A W W 4 R� 4 � W A V 3 Pam•+ LLM Lrt OAO LJD LAp D N N W W W A A A [r1 61 F•� LD A 00 G1 G1 A W N N P+ P+ O O 0 ; x x� °x° x X X x X X x X x X x� x x x xD X X X x x xA x p N NA N N N N N N N `-+ `•+ P+ NA N A A A rj N1 N 00 A O V rj W A W W LND T A LDD V W V N �D C] W:) UDWD LWn P M W A m LD N A ❑1 W O N W Ln 0- A W- W W J 0 W 0 LJL Ln Ln 0 a m N 3 D 0 O LD DO w J m m w A N N N N N N N N N N N N N N N m 00 N A Ln D W D W �Y W Da Da Du Da Da W % T W Da Oa Of% W O P+ W w O J Lr'I lJl J Da N � P+ LD LD LD lD LD lD lD LD LD LO lD lD LD LD LD D M �6 0 N 00 P+ P+ Fpp+ F+ P+ P+ P+ I-•+ I-+ P+ P+ P+ 3 A W LD N G1 LAD N L'D , LD m A D UU1 ut 61 Lp N lNft w LD Qg D V N V LD D DD 4'� N V F•� W D1 D W D 61 N VD 61 f- W A R D 8 m d Do J rn p w N� oa w Ln w N N N N N 0 0 N 1D `w V i••+ A o s NL~1'1 oD `o i-� o o �D oD m A r:+ W N m m W V w m N A 0 LD LP U1 W LD D W W U1 W J V Ln in LD LD N CD A A A T m w I O Y YD 00 Y Y Y A V V V 00 A 4 N N N N N W W W R A [n In A N P+ P+ F+ 4 4 G 4 4 4 G G hl 0 :4 LD i•+ W D Ln J N .IA D LD pppp D LD W ��11 w N P I V LJ'L A % N -Xi Dl% -Xi x DO W x % lC x N x x x x N N % YL X YL % YC YC X X X % % x % ]C m1 rr rD V I a 3 3 C d x x 3 M R ru 3 M C 3 c rg S O r r•r m 3 M C a rD rD rr L17 f4 n rg n c d V4 rD D rD 4 a D C i rD rD D a K rD K rD W D m N D In Ln Cl a 10 a a v D rD rD m n °' �• 3 rD o 3 rn � x � rD N) Pli m rD," a 19 A m M CF x C L 3 Ln 77 d N N �. (D N .3•F lii ttn G L w rD A m N LD D S N y D w m x ^ G 00 C n N O G j ryrD rD a :3 A r 1 v rt qf� m d Cr N N Ln O O 3 N y A Q_ f;rD n 3 � 7 C 0 P N ? D Q P 0 N CrD - � Q D _ - OD D LA Co OD cD W N n v R Z- r N n C � N F•+ w [!Q N U) or n [o D d Cr CD 0) I V1 C 3 p} 0 cs x 3 n I3 3 rD 3 CD C rg 3 C rD V7 S O v Ci 7 n c r4 CS 0'4 f4 M rr V] M n M n C f0 CS 0'4 M Ordinance No. 24-985 Page 25 of 27 T L7 m L PAGE 13 OF 14 Key Risks to the City From our review of the Project Analysis, it appears that the anticipated Public Improvements and economic development will provide significant benefit to the City. Nonetheless, the financial plan comes with certain risks and costs to the City, primarily related to the projected annual tax increment revenues being insufficient to fully pay the debt service due on the bonds the City plans to issue to finance a portion of the Public Improvements, especially in the early years of the project. During years with revenue shortfalls, the City will be required to pay any difference between the debt service due and tax increment revenues collected using general City resources. While the City plans to reimburse itself for debt service payments made from general City revenues and reserves, it is important for decision makers to be aware of the potential magnitude and timing of such payments and reimbursements. Since the TIF legislation limits the ability to collect tax increment revenues to a period of not more than 25 years, delays could reduce the City's ability to fully reimburse itself from tax increment revenues. Additional factorsthat could impactthe amountof tax increment revenues collected are described below: Escalation of Project Costs: With the Public Improvements projected to he completed over a number of years, inflation could have a significant impact on the final cost. The City did not disclose if a construction cost inflatorwas included in its cost range for the Public Improvements. Economic Conditions: Growth in the TIA's assessed value could be negatively impacted by a downturn in the economy. A variety of economic factors could negatively impact the timeline and ultimate demand for development, jeopardizing the rate and scale of private development, potentially reducing tax increment revenues. Permits: Unforeseen delays in permits could negatively impact the construction of private developments within the TIA. Such delays could negatively impact the timing and/or amount of tax increment revenues generated by the TIA. Construction Delays: Any delay in the construction timelines of the private development projects could reduce the amount of tax increment revenues produced by the TIA. Similarly, any delay bythe City in completing the planned Public Improvements could delay private developers' abilities to complete their private developments, potentially reducing the amount of tax increment revenues. Assessed Valuations: As private developments are completed, tax increment revenues may be lower than projected if the assessed values of the projects are lower than expected or take more time to be reflected on the county's tax rolls than expected. Interest Rate Risk: The City is exposed to interest rate risk until its bonds are sold. The Project Analysis assumes interest rates as of July 12 plus a 0.50% cushion, resulting in a true interest cost of 4.67%. However, between July 12 and September 25, tax-exempt interest rates rose by an average of 0.60% in the 2025-2049 maturity range expected for repayment of the bonds. The current borrowing cost for the bonds is higher than the 4.67% true interest cost assumed in the Project Analysis. Risk Summary: The general impact to the City from any of the risk factors outlined above could be lower than projected tax increment revenues and a greater than expected reliance on the City's general revenues and reserves to pay the debt service due on the bonds issued to fund the Public Improvements in the TIA. If tax increment revenues are lower than expected, it will force the City to apply more of its available funds towards repayment of the bonds, reducing the City's ability to allocate those funds to other projects or operations. Ordinance No. 24-985 Page 26 of 27 PAGE 14 of 14 Recommendations To help ensure the financial success of the project and to minimize unanticipated costs, we recommend the City consider the following measures: 1. Prior to approving the TIA, we recommend that the City discuss and establish a policy regarding how much debt service it is willing to pay from City general revenues and reserves on an annual basis to offset years of tax increment revenue shortfalls. 2. We recommend that the City conservatively budget for and set funds aside to cover any projected tax increment revenue shortfalls. 3. Prior to approving the TIA, we recommend that the City coordinate closely with other taxing districts impacted by the project, and the County Assessor's Office, to ensure that all parties have an accurate understanding of how the TIA will impact them, and to provide sufficient time to work through any concerns. 4. As the project moves forward, we recommend that the City coordinate closely with the County Assessor's Office to help ensure that the tax increment revenue projections match the County's assessment process and are as accurate as possible. S. The City's interest rate assumptions for its planned 2024 Bond issuance are below current tax- exempt interest rates. We recommend that the City consider using more conservative interest rate assumptions. 5. We recommend the City revisit public improvement cost projections frequently and utilize a publicly recognized inflation index to inform inflation projections. Thank you for the opportunity to review the City's Project Analysis. Based upon the information provided to date in connection with this project, this concludes our review. If there are material changes in the scope, timing, or cost of the project, please let us know. We wish the City all the best with the project. Respectfully, Mike Pellicciotti Washington State Treasurer Jason Richter Deputy Treasurer Ordinance No. 24-985 Page 27 of 27