Council MIN 05-08-2014 Special Mtg/Study SessionCITY OF
.� Federal Way
MINUTES
FEDERAL WAY CITY COUNCIL
SPECIAL MEETING / STUDY SESSION
Council Chambers - City Hall
May 8, 2014
6:00 p.m.
www.cityoffederalway.com
1. CALL MEETING TO ORDER
Mayor Ferrell called the meeting to order at 6:05 p.m.
City officials in attendance: Mayor Jim Ferrell, Deputy Mayor Jeanne Burbidge,
Councilmember Lydia Assefa - Dawson, Councilmember Kelly Maloney, Councilmember Susan
Honda, Councilmember Bob Celski, Councilmember Martin Moore and Councilmember Dini
Duclos.
City staff in attendance: Interim City Attorney Amy Jo Pearsall and City Clerk Carol McNeilly.
2. PLEDGE OF ALLEGIANCE
Betty Taylor led the Pledge of Allegiance.
3. PERFORMING ARTS AND CONFERENCE CENTER DISCUSSION
Mayor Ferrell thanked everyone for attending and stated public comment would be taken later
in the meeting. He noted the Mayor's Blue Ribbon Panel (BRP) members have performed a
tremendous amount of work on this topic. Yesterday the BRP provided a 139 -page report on
their findings which is available on the City's website. The Mayor announced that Council will
conduct another study session on this topic on May 20tH
Mayor Ferrell recognized the presence of Senator Tracy Eide and thanked the Senator for the
state funding to purchase the property being discussed.
Chief of Staff Brian Wilson introduced the BRP members: Dave Berger, Scott Brown, Brian
Bullard, Kathi Ferrari, Rob Harpster, Steve Lewis, Mildred 011e'e, Pam Smith and Susan
Streifel, all of whom have generously volunteered their time and expertise to review the PACC
project. Mr. Wilson provided background information on this panel which was formed by Mayor
Ferrell in February to study information relating to the PACC and to address key questions
regarding the project.
Presentation of Mayor's Blue Ribbon Panel Findings
The nine - member panel was divided into three subcommittees which provided the following
reports.
Finance Subcommittee
subcommittee presented
development of the PACC:
(presented by Brian Bullard and Kathi Ferrari): The
the costs and allocated funding associated with the
City Council Minutes — May 8, 2014 Special Meeting Page I of 5
Capital cost: $31,850,000.
Committed funding: $19,065,842.
Shortfall: $12,784,158.
Other potential funding sources such as naming rights, grants and fundraising efforts
would reduce the shortfall amount. New Market Tax Credits could potentially allocate
an additional $7,200,000 towards development, but Congress has not yet
appropriated the 2014 funds — which are highly competitive.
The option of adding a full - service kitchen and associated benefits was evaluated. The
cost of this option, including some improvements for storage, is being developed by
the City and the developer. The revenues and costs to operate a full kitchen were
reviewed by the Pro -Forma Subcommittee.
Temporary financing is necessary to ensure the completion of the project, and allow
for other potential funding sources (as identified above) could be pursued. One option
for temporary financing is a 3 -year inter -fund loan of $12,000,000 at 1 % would cost
approximately $120,000 in the first year and approximately $300,000 over the full 3-
year term. Permanent funding may be needed for the balance of the temporary loan if
it is not paid off in 3- years. This would be the final contribution of capital funding to the
project by the City.
The subcommittee did not analyze the construction and development costs associated
with the project, but feels the developer is reputable and their cost estimates are
reasonable.
Conclusions: After the 3 -year temporary loan matures, permanent financing is likely to
be required. If New Market Tax Credits are received, the need for permanent financing
will be significantly reduced. According to the City's Finance Director, a 20 -year
$9,000,000 bond yielding 3% could be serviced at an annual cost of $604,942 without
passing a special tax levy.
• Pro Forma Subcommittee (presented by Scott Brown): This subcommittee reviewed
the community input and studies compiled prior to the formation of the BRP They also
reviewed and analyzed data /reports provided by:
• Nida Tautvydas, Director of McIntyre Hall, Mt. Vernon, WA;
• Joe Mcllwain, Director of the Edmonds Center for the Arts;
• Webb Management Services.
The subcommittee focused on Nida Tautvydas' revised Pro Forma as it appeared to
be the most reasonable and relevant to the proposed Federal Way facility. The
subcommittee then conducted a sensitivity analysis and made changes to specific
variables, resulting in the following three scenarios:
• PACC Pro Forma Operating Budget by Nida Tautvydas;
• "Hypothetical Worst Case" Pro Forma;
• "Reasonably Conservative" Pro Forma.
Findings: Based on reviews of content experts and the sensitivity analysis, there is
enough flexibility in the Pro Forma statements for a strong executive director to
manage and achieve reasonable net operating revenue and expenses while
maintaining the same level of contributions by the City. The ultimate name of the
City Council Minutes — May 8, 2014 Special Meeting Page 2 of 5
facility should have regional significance and indicate its diverse functionality.
Conclusions: An experienced executive director will be critical to the startup and
success of the PACC as well as a board of directors with financial expertise and
connections to the community that will actively assist in fundraising and programming
for the facility. Flexibility with event cost and types of events will help offset revenue
and expense variables. Modifications to certain aspects of the facility and parking will
strengthen overall operations. There is a potential revenue opportunity if a full - service
kitchen is added.
• Economic /Fiscal Impacts Subcommittee (presented by Dave Berger): The
subcommittee studied facilities in Washington, Oregon and Iowa. All cities studied
experienced positive economic and fiscal outcomes, following the opening of their
facilities.
Opinions were sought from experienced local developers and a commercial real
estate broker, as to whether or not the PACC and an adjacent hotel would positively
influence the private sector's potential interest in redeveloping the 176 -acre City
Center area. All opinions expressed the belief that a PACC /hotel would positively
influence development conditions in the area. The subcommittee estimated that
construction of the PACC (excluding the hotel) would generate $59 million in
construction - related costs and 338 jobs, while the ongoing operations would generate
approximately $3.2 million in spending and 29 new jobs each year.
Analysis was performed of estimated one -time construction and on -going economic
impacts, and fiscal impacts based on three, selected growth assumptions:
1. Low growth scenario — focused on re- tenanting of existing /vacant commercial
buildings.
2. Mid - growth scenario — focused on redevelopment of under - developed and
vacant parcels in the City Center area. This scenario presumes full build -out of
parcels and is based on allowed zoning of currently available land.
3. High - growth — this scenario doubles the Mid - growth density while remaining
within allowed zoning and available land. The BRP dos not consider this
scenario realistic under the current and foreseeable economic conditions and
therefore did not consider this scenario.
The subcommittee reviewed charts that identified the potential economic and fiscal
impacts of the PACC on the City Center for each of the three scenarios identified
above. In order to leverage the City's proposed investment in a PACC, creating an
Economic Development strategic direction and process is essential and will attract
private reuse of existing buildings and redevelopment of the surrounding area over
time.
City Staff Presentation
City Finance Director Ade Ariwoola provided a brief summary of best practices for
financial management as outlined by the Government Finance Officers Association
(GFOA). Total estimated cost to develop a PACC (including infrastructure) is
approximately $32M. Total available funding is approximately $19M.
Community Development Director Patrick Doherty provided information on the CDBG
Section 108 Loan.
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He noted the current annual entitlement amount of $650K and its following allocations:
0 15% for human services (15% being the maximum amount allowed)
0 20% for admin /planning
0 65% for capital and economic development
Mr. Doherty provided information on the loan option and he explained how up to
$3,000,000 is available in the Loan Fund. Repayment (over 20 years) would equal
approximately $200,000 per year, leaving $222,500 per year for other capital or
economic development projects.
Deputy Mayor Burbidge noted that the City also provides a significant contribution to
human services funding from its general fund.
Mr. Doherty provided information on the New Market Tax Credits and explained
congress has not yet made allocations. Council action on the PACC can substantially
increase the "readiness" of the project for potential allocations /funding.
Mr. Ariwoola discussed the unfunded development balance of $12,784,158. There are
two issues regarding the outstanding balance: Temporary Financing and Permanent
Financing He stated with current budget projectsion and assuming the lower end of
the gap - approximately $9,000,000, the City can accommodate potential annual
payments of $604,942 without a Special Tax Levy on the citizens.
Councilmember Honda stated Dumas Bay Centre (DBC) is in need of improvements;
and would like to see funding allocated improvements to that facility. Mayor Ferrell
noted he will be taking a tour of DBC soon. Staff is working on a long -range plan to
ensure funding is available for improvements.
Councilmember Celski stated he is comfortable using the reserve funds given the
strength of the reserves built.
Deputy Mayor Burbidge noted building costs are currently lower than they may be in
the future and overall, the existing funds may be better used /invested by leveraging
them versus earning such a small investment return of less than 1 %.
4. PUBLIC COMMENT
Byron Hiller thanked the BRP for their work and noted he would have liked a comprehensive
report done two years ago. He feels the new market tax credits are a gamble due to the
competitive nature of the award process. Mr. Hiller stated he believes other facilities (such as
the Community Center) are losing money and their performance should not be celebrated. He
supports the City building the PACC; however, not the operating of it and feels the taxpayers
should have the ultimate decision in obligating funds.
John Wilde inquired about road improvements with the development of this venue and
increased cost of police officers in the city associated with the project. He noted traffic
congestion in this area is already an issue and doesn't want people to have a negative
experience. Mr. Wilde would like to see political restrictions lifted so that anyone is able to use
the facility for events which are currently not allowed in existing facilities.
Peter Townsend shared his concerns with the project. He inquired about City of Lynnwood's
facility - the percentage of possible debt they projected versus the reality when they developed
the project. He stated he would like to see funding increased for street overlay projects in the
City. If the city can spend $600,000 on this project, what is the maximum that can be spent?
Margaret Nelson stated she was very impressed by the BRP's reports as well as Mr.
Ariwoola's presentation. She spoke in support of re- development in the downtown and urged
the Council to move forward with this project. She does not want to see this project stalled
another 30 years.
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Betty Taylor summarized a recent article in the Federal Way Mirror regarding a poll they
conducted on the development of the PACC. She stated she is impressed with the BRP's
findings; however; she does not support the development of the PACC.
Paul Levy thanked the BRP for their reports, and spoke in support of moving forward with the
project. He stated if BRP findings are even partially on target the impact of this project will be
very positive. He inquired whether anyone had identified the multiplier effect it will have on city
revenues and whether a unified financial model for the facility. He congratulated everyone and
thanked the Mayor for establishing the BRP.
5. COUNCIL DISCUSSION
The Council discussed the information presented by staff as well as the BRP and asked
clarifying questions.
Councilmember Maloney inquired if it was possible to identify similar facilities that were
developed as an economic catalyst and if they were successful in creating improvement in the
surrounding area. Mr. Doherty responded there is some information in the report relating to
the facility in Ohio. Mr. Doherty will seek additional information and provide it to Council. He
added that many strategies are typically used to spur economic development rather than one
single project.
Councilmember Assefa- Dawson asked for clarification on the net profit for the second year of
operation. BRP members noted the second year would be the most difficult. Mr. Doherty
stated they started with the original pro -forma and cut back on revenues to be more
conservative.
Councilmember Maloney asked what the timeline was moving forward, and when the Council
would consider alterations to the proposed project. Mr. Doherty responded staff will provide
additional information relating to alterations and additional cost based on the timeframe set by
the Council.
Councilmember Honda asked why a full service kitchen would be added to the PACC if a hotel
partner would be included in the project. Mr. Doherty noted there is less overhead and costs
associated with a full catering kitchen.
Deputy Mayor Burbidge thanked the Panel for volunteering their time and excellent work.
6. ADJOURNMENT
With no additional agenda items, Mayor Ferrell adjourned the meeting at 8:41 p.m.
Attest:
au� q)Q�)t_
Carol McNeilly, CIVIC, City &rk
Approved by Council: June 3, 2014
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