The North Precinct and new affordable housing

Council member Kshama Sawant has been stumping non-stop for her plan to kill off the last vestiges of the North Precinct police station plan, and to divert the funds to build 1000 units of affordable housing. Her proposal came up for discussion in the Council’s budget discussions yesterday, and it didn’t fare well.

Even though the Mayor announced a few weeks ago that he was taking a step back from the old North Precinct plan to re-think it, he left money in the 2017-2018 budget for developing a new plan.  In fact, he left a bunch of money in there: $15 million in total, with $1.5 million in 2017 and $13,500 in 2018.  The budget describes it as “planning, design and construction for long-term police facilities needs in the North and funding for interim needs.” There are several options in play, which are not necessarily mutually exclusive. Among them:

  • come up with a new design for the North Precinct building;
  • split the North Precinct into two separate precincts (it’s already being split into two separate command structures), and have separate buildings for each –possibly using a combination of the old site, or the new site, or another site.
  • update the existing old North Precinct building, taking care of deferred maintenance that has been neglected under the belief that a new building would appear in the next couple of years.

The $15 million would be paid for using Real Estate Excise Tax (REET) funds, which are restricted under state law for specific kinds of capital projects (police facilities are an allowed use).

Sawant’s proposal would strip all that money out, cancelling all North Precinct station work, and redirect it to a new $160 million affordable housing project. She funds it in three parts:

  1. Selling the property that the new North Precinct building was to be built on (and still might be) would raise $15 million. That might take some time, so the city would loan itself some money to cover it in the short term until the sale closes.
  2. The $15 million in the Mayor’s budget for North Precinct planning would be repurposed.
  3. $130 million in long-term general obligation bonds would be issued, and the debt service on those bonds would be paid with additional REET funds.

Part 1 is straightforward. Parts 2 and 3 are problematic.

Since the $15 million in the Mayor’s budget for North Precinct planning is REET funds, it has restricted uses. And under state law, REET funds may not be used for affordable housing. So that’s not going to work.

The $130 million in bonds has a different kind of problem. Sawant justifies it by saying that it is what the Mayor had intended to do for financing the North Precinct, but that’s only partly true. Under state law, the city can use REET funds to pay debt service on bonds issued to pay for public safety facilities. But the city’s own policy says that REET funds can be used to pay debt service only on fire stations, so the Mayor intended to ask the Council to approve a change to that policy and make an exception for the North Precinct. He didn’t get a chance to do that before the project was shelved, but it wasn’t going to be an easy layup. There’s a reason that REET funds can’t be used for debt service: because it’s a volatile source of funds as the real estate market cycles, and the city would risk defaulting on its debt in a downturn.  The Council members, and particularly Burgess, would think very hard before they approved that exception.

But Sawant’s bond-financing proposal has a deeper problem: it would violate state law to use REET funds to pay debt service on bonds issued for affordable housing projects. So her plan uses a trick called a “funding swap.” There are other bonds that the city has already issued whose debt service could be paid with REET, but are currently being paid with unrestricted “general fund” dollars. The city could swap the money around and use the newly-freed unrestricted dollars to pay debt service on the new affordable housing bonds. But there’s still issues:

  • There may not be $130 million of eligible bonds that could be swapped. An initial memo by Council staff said that there were, but in further investigations and conversations with the City Budget Office, it seems that there might only be about $70 million issued in the past 4 years that would qualify. Sawant wants to look farther back, but that becomes less helpful because older bonds will expire before the new bonds — so there might not be revenues to cover the debt service on the later years of the new bonds.  $130 million of 30-year bonds has an annual debt service of $8.7 million.
  • When the older bonds were issued, they specified the source of revenues that would be used for debt service. To substitute a different revenue source, the city would need to declare that the original source was no longer reasonably available. Council staff suggested that could be justified by the Mayor’s State of Emergency declaration on homelessness. But bond holders might dispute that, particularly since REET is not as reliable a source of revenues. And messing with issued bonds might put the city’s stellar credit rating at risk.
  • The council would still need to modify the city’s financial policy to allow REET funds to be used to pay debt service — this time for affordable housing.

Beyond the financial engineering issues, Sawant’s proposal has another impediment: some of her fellow Council members.  While she gave a full-throated pitch for killing the North Precinct and redirecting all the funds for a project that is “socially beneficial,” none of her colleagues rallied to her cause. The closest was Council member O’Brien, who balked at the lack of a clear plan for how the Mayor intended to go forward with North Precinct planning and suggested freezing (but not removing) the funds until the Mayor produced a plan. On the opposite end of the spectrum is Council member Juarez, who represents the north end of the city and frequently reiterates the history of the project and the number of times the Council voted unanimously to move it forward.  Council members Herbold and Bagshaw have expressed support for building more affordable housing, but not for cannibalizing the North Precinct funding to do it; Herbold, in fact, proposed a property tax “growth fund” to fund it. Other Council members have pointed out that the recently-passed Seattle Housing Levy is pouring tens of millions of dollars into building and preserving affordable housing.

Sawant tried to put a positive spin on the discussion, suggesting that she would be open to other funding proposals. But she stuck to her main point: that hundreds of people (out of a city of 650,000) had stated their opposition to spending any more money on a North Precinct, and that the money should be spent on something socially beneficial instead.

Tonight Sawant and her supporters will hold a rally in support of their effort to build more affordable housing, and then march to Council Chambers to speak in favor of it at the budget public hearing. But with all the unresolved issues in the proposal, the Council may not be receptive to their call.

None of this in any way suggests that the city doesn’t need a lot more affordable housing — it most certainly does. The question is how to pay for it.

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