Monday, September 27, 2010
MOHAI & THE CITY BUDGET
By City Councilmember Nick Licata
With assistance from my Legislative Aide Frank Video
Urban Politics (UP) blends my insights and information on current public policy developments and personal experiences with the intent of helping citizens shape Seattle’s future.
Today, the Council arrived at a compromise on the City’s agreement with The Museum of History & Industry (MOHAI) on its move to the Armory at South Lake Union. The compromise will provide the City an additional $8.5 million next year to help soften the blow to human services and other budget areas in 2011 & 2012. It is not a loan, as some have claimed. Rather, it restructures when money flows from the State through the City and to MOHAI. I detail the compromise below. But first let me provide a little background, some history and an outline of the various proposals that have been made.
BACKGROUND
The City budget will see severe cutbacks in public services over the next two years due to shrinking revenues caused by our current economic recession. Consequently the Council and Mayor are struggling to evaluate expenditures and commitments to seek the fairest solutions. It is in this context the Mayor proposed that MOHAI receive none of the funds the City will get from the state for selling the land MOHAI’s building occupies to make room for the new SR 520 Bridge.
After talking to Councilmembers, the Mayor and his staff, and MOHAI’s leadership I offered a compromise that meets both the City’s immediate need of addressing our shortfalls in 2011 and 2012 and still allows MOHAI to proceed with their move to the South Lake Union Park Armory.
HISTORY
With their own funds, MOHAI built and has occupied their current building in Montlake for over 50 years. The new 520 Bridge will displace their space plus additional City-owned land on the periphery, forcing MOHAI to move. At first they were going to move into a section of the Convention Center. The City financially assisted that intended move to the tune of $1 million. However, with the City coming into ownership of the old armory in South Lake Union, it faced a problem: the cost of bringing the building up to code was over $20 million and the city did not want to spend that much. And, the building could not be incrementally upgraded without triggering the requirement to spend all that’s needed to meet current code requirements.
The City under Mayor Greg Nickels then encouraged MOHAI to move into the old armory. Both the park and the museum would benefit from serving a growing urban residential population. In exchange for receiving public benefits, the City would lease the building to MOHAI for 55 years, subject to them making all of the necessary upgrades and maintaining the building. The City would also contribute $300,000 a year, without an inflation clause, to the maintenance of the building.
In October of 2009 the City Council passed legislation (Ordinance 123132) authorizing conveyance of the museum building proceeds from the State to MOHAI. The sale of the land was not included. However, the City’s budget, submitted by the Mayor and approved by the Council, did include the land sale. The estimated total was to be $15 million: $9.5 million for the building and $5.5 from the land.
The City under that ordinance asked MOHAI to negotiate on behalf of the City with the State for the total amount to be paid for both the building, the land and moving MOHAI to the new location. Since the museum is not City-owned, MOHAI would have a better rationale than the City for requesting relocation funds from the State. After having asked the State for as much as $60 million they settled, with the City’s blessing, on asking for a little more than $40 million for the building and the move. Neither the City nor MOHAI expected that they would receive $40 million.
Originally the State wanted to lease the land, but they later decided to buy it. In January of 2010, the City and MOHAI renegotiated the land portion of the agreement while applying the October 2009 budget assumptions.
In June, the Executive signed the land agreement with MOHAI. It stated MOHAI would receive 40% but no more than $7 million from the sale of the land that it was using. The City would receive 100% of the proceeds from land unused by MOAHI.
MAYOR’S PROPOSALS
After the surprise acceptance by the State of MOHAI’s $40 million request, the Mayor, seeing the budget crunch coming in 2011 and 2012, had his legal counsel Carl Marquardt send a letter to MOHAI in August. In it, Marquardt requested they renegotiate the division of proceeds from the land sale and the maintenance subsidy MOHAI was expecting. In addition, the Mayor was “interested in opening discussions on funding relocation costs for City staff that will need to move from the Armory building to make way for MOHAI.”
Each of those requests is problematic.
Land Sale Proceeds –
The Executive proposed that MOHAI forgo any land sale proceeds. The land sale money is capped at $7 million, but will most likely be at least a million less. More importantly, it doesn’t arrive until 2012 at the earliest and probably not until 2013. So, there is an unknown amount of money that cannot be counted on for meeting our most immediate needs in this budget cycle. It does not provide any relief to our current crises.
Remember the Executive’s June agreement providing MOHAI 40% of the land sale proceeds with a cap of $7 million? One party cannot amend a mutually signed agreement. The Executive requested the Council to amend the agreement by eliminating all land proceeds to MOHAI. However, the Council does not want to amend it since they had already signed off on the agreement with MOHAI. The Executive’s request raised concerns over not honoring prior commitments. The upshot is that MOHAI would have to either agree to renegotiate their agreement or cancel their move to the Armory.
On Going Maintenance Subsidy –
The Executive also proposed that the annual $300,000 paid to MOHAI for maintaining the Armory be eliminated if MOHAI receives 40% of the land sale proceeds. This suggestion has two draw backs.
First, the funds would not be available until late 2011 and they would represent a relatively small amount of that year’s $900 million budget. We need millions now.
Second, since the City owns the building, it would have to pick up the cost of the maintenance, which would eliminate a good portion of the savings. If the City demanded that MOHAI cover the maintenance expenses, that might nix their move to the Armory and leave us with the maintenance expense and a building lacking a tenant, other than City Parks employees currently using its office space.
Covering City Staff Relocation Costs –
Aside from the two suggestions above, the Executive would like MOHAI to fund the relocation costs for City staff moving from the Armory building to make way for MOHAI. This would amount to just under $500,000. The money could be received in 2011 as a onetime contribution. However, this too might derail MOHAI’s move to the Armory.
COUNCIL’S RESPONSE
The Council’s Parks Committee (with a vote of 7 in favor, O’Brien abstaining and me absent) moved to uphold their previous legislation and maintain the 40/60 split on the proceeds coming from the portion of land used by MOHAI. There was no mention of the Executive’s other two proposals. There appears to be no support for them, given that they would amend conditions that both the past and current Mayor and the City Council had previously agreed to.
A COMPROMISE
There is a real need to meet the City’s budget crises in 2011 and 2012. The Executive’s proposals, while providing additional revenue, would not be available for the very real needs that the City will be facing in the next two years. Meanwhile, if South Lake Union Park is to contribute to our cultural and economic vitality, it needs to have a tenant in the Armory able to fully activate the space in a way office space use can’t. Every elected official, including the current Mayor, agrees that MOHAI would be the ideal tenant, a perfect complement to the just-opened South Lake Union Park. It would not help the public if we were to lose it or cripple its ability to operate.
At my request, MOHAI chose to take another look at its financial spread sheet and determine how they could help the City mitigate the dramatic cuts in public services we are facing in this coming budget period.
MOHAI leadership and representatives from the Mayor’s Office met with Parks Committee Chair Sally Bagshaw and I to explore how our common interests of meeting our budget needs and having MOHAI move to the Armory could be achieved.
Restructuring the release of the $40 million that MOHAI will receive from the State can achieve these two objectives. The City will retain $8.5 million during 2011 and 2012 and then pass that amount onto MOHAI after we receive our share of the land proceeds in 2013 or later. The result is that we have real cash to spend on one-time needs, like summer youth employment, library collections, and food banks that we otherwise would not have.
Admittedly, it is not a perfect solution – it is a compromise. But it does result in a real gain, and it allows MOHAI to proceed with its move to the South Lake Union Park. The Council expects to vote on legislation formalizing this agreement sometime over the next few weeks.
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