The Affordable Housing, Neighborhoods and Finance Committee took up the sale of the Pacific Place Garage this morning — a testament to how complicated government finances can be.
The City originally invested in the garage in 1998 as part of a larger deal with developers to redevelop a run-down three block section of downtown Seattle. They issued bonds to raise the money for their part of the investment. Overall the garage itself has been a good deal; parking revenues have covered costs, and in addition the city has received $900,000 in sales taxes and $6.6 million in commercial parking taxes. The problem has been the bonds; they were structured with small debt service payments in the early years and increasingly larger ones over the year. The last few years, the city’s revenues have not covered the debt payments — leading the city to do an inter-departmental loan in order to cover the deficit.
In 2013 the city received an unsolicited offer to buy the garage for $55 million; the Council’s staff evaluated the offer vs. the value of the property and recommended the Council decline the offer. That was a smart move, because late last year the Department of Finance and Administrative Services (FAS) ran a 2-round competitive bidding process and landed an $87 million bid to purchase the garage.
The purchaser is an affiliate of Madison Marquette, the company that operates Pacific Place Mall. The deal the city negotiated has some labor provisions to protect the garage workers and maintain equity principles; it also prohibits the buyer from raising parking prices for the remainder of 2016.
The first order of business with the proceeds is paying off debt. The inter-departmental loan gets repaid right away. The bond itself can’t be paid off yet; the first “call date” when it can be paid off is October 2017. So the city will set aside the remaining principal and enough to cover interest payments between now and then, and stick that all in an escrow account; at that point it’s effectively off the city’s books.
Now here’s where the finances get trickier (and why the city has a “bond attorney.”). Since the City used capital-improvement bonds to pay for the garage, proceeds from the sale are considered equivalent to bond proceeds and face the same restrictions on how they can be spent. So the City can’t just dump them into the General Fund and spend them on anything — or even use them to repay the bonds. Instead, they swap some money around: they find a capital project being paid for out of the General Fund, pay for it with the garage sale proceeds, and recoup the General Fund dollars which can then be spent without restrictions. Pay off the inter-department loan, and stick the required amount of money in the escrow fund.
That will leave proceeds of about $17-19 million. To the extent that the city can find additional capital projects in the General Fund, they can keep using that trick to get unrestricted funds; otherwise they need to find capital projects. This is pretty much a moot point right now, since the money will sit in a bank account and the city will have plenty of capital projects over the next couple of years to spend it on.
The real question, which was punted on today, is what to spend the proceeds on. The Mayor has stated that he intends to spend it on paying in part for the new North Precinct police station. Council member Herbold today expressed her desire to use some of it instead to ensure that the city can retain the entire Myers Way parcels of property in Delridge, rather than sell some of that off to pay for the $5 million of funds allocated to the State of Emergency homeless response as the Council committed to do last November. That debate will play out this fall during the 2017-2018 budget discussions.
In the meantime, the committee voted to approve the sale this morning (and the accompanying financial maneuvers), and they will go to the full Council for final approval on Monday.