With a new Council and an apparent willingness to look beyond the DDA for solutions to the Evergreen properties quagmire, I am going to revive my analysis from several years ago that it is not financially imperative to sell and redevelop the city’s Evergreen properties, which were originally bought with the intent of tearing them down and replacing with a massive parking garage.
Recall that the properties were bought 10 years ago for more than 3 times their assessed market value, at a time the economy was in free-fall and for a project dependent on a developer with a history of fraud, not paying his taxes, and failing projects, a track record raised by community activists, but ignored by those in power. Over the years, many of the decisions, some of them mind-boggling (like the clean bill of health fiasco), related to the Project Formerly Known as City Center II have been driven by the desire of those in city hall to avoid accountability for the original costly mistake. Most of those directly implicated in City Center II are gone and the desire to shirk from responsibility is now more institutional than personal.
So, it is time to reconsider the write-down-your-losses, least-bad financial outcome, I called for after we finally managed to kill City Center II (and saved the city from total financial ruin, limiting the bonds to the less than $6 million actually issued, instead of the $30 million approved for issuing).
The key document is the 2015 DDA bond prospectus that has a coverage ratio spreadsheet for debt service of the 2000 DDA bonds (refunded) in combination with the Evergreen properties bonds (done as a private placement). The spreadsheet is outdated, because of the reduced city millage (accompanying the income tax), which is somewhat compensated for by added county mils and likely higher growth of taxable value than the conservative 1.5% annual growth projection in the prospectus. Since the income tax is supposed to replace reduced property taxes, this should really be considered a wash, meaning the coverage of debt service in the spreadsheet is probably better than projected. Also any net revenue from renting out the properties is not included.
According to the spreadsheet, for the fiscal years ending June 2020 through June 2025, it will be necessary for the city to subsidize the combined DDA debt service to the tune of ~$176,000 reduced to ~$136,000 the final year. After that, with the City Center I bonds having matured, the DDA would run a surplus in revenue needed to pay down the remaining Evergreen bonds. Since at best a sale of the Evergreen properties would be complete in time for debt service in October 2020 (probably later), the city would only be subsidizing the DDA for debt service for 5 years at an average of ~$150,000 per year.
In the big picture, that is a pittance and not worth pushing for some large project, if not otherwise desired, out of panic over paying for the debt service on the Evergreen properties. Reducing staffing/attorney costs for development authorities would more than cover the deficit. It is true the total cost of debt service on the Evergreen bonds is about $460,000 per year through 2035, but then you need to ask, if the DDA sold the properties for enough to cover all or a large part of the debt service, how would the surplus DDA revenue be spent?
Remember, the DDA TIF district #2 was created in 1992 (and extended in 1999), meaning it is still paying for public safety and other public services at 1992 levels—the theory behind DDA tax diversion is that TIF districts should never exceed 20 years duration, and the original plan should have had a drop-dead date in 2012, after which a renewal, if approved, would have restarted with 2012 taxable values. Also, the Planning Department was deliberately given bookkeeping for development authorities, instead of the Finance Department, even though no one had accounting qualifications. One result was a failure to use proper accounting that showed transfer of monies from the general fund to the DDA that should have been accrued as IOUs. This included the 4% of debt service for the City Center parking structure (by now about $800,000 IOU) and general fund spending for downtown maintenance, which was supposed to be paid for by the DDA millage.
So, an important part of the debate over selling and redeveloping the properties should be whether any DDA surplus revenue would be spent toward general fund expenditures or used for new DDA projects. For example, if the DDA ran a surplus, it could reimburse the city for the cost of police assigned to downtown (Traverse City has done this), as much as the available surplus could fund.
Also, if any redevelopment of the Evergreen properties were given tax incentives, that needs to be part of the equation, remembering redevelopment projects require public services, and tax diversion means homeowners pay for these public services with their taxes.
What I suggested several years ago was a debt millage (admitting that CC II was a financial disaster) to pay for the Evergreen bonds, then tear down the old homes and turn into green space, while converting the newer Seyfarth building into public use (farmer’s market space, restaurant incubator, meeting space, possibly short-term housing for visiting faculty, etc.). With the conversion this would probably come to about 1 mil. A simpler option would be to tear down the old building for green space then sell the Seyfarth building (by far the most valuable property) and allowing the new owner to use as is or redevelop, provided no tax incentives were given. (I’d probably be willing to give tax incentives if current building were updated and put to a use with strong public purpose.) The Seyfarth building really is within downtown, while the old houses are encroaching on the nearby neighborhood.
The bottom line is, the city’s general fund can easily handle transfers of ~$150,000 per year for 5 years to subsidize DDA TIF district revenue for the Evergreen bonds, especially if reimbursed from DDA TIF/debt service surplus of ~$200,000 to $300,000 from 2026 to 2035 (per spreadsheet). The actual debt service on the bonds of ~$460,000 for 15 years (after 2020) is much more significant, but if proceeds from any sale only result in a surplus used by the DDA for new programs and projects, that will be of little or no benefit to the homeowners whose taxes have been subsidizing downtown projects for more than 30 years (going back to the enormous debt service deficits for University Place).