After years of charging rent at arbitrary rates, the city of Puyallup is preparing to change the way it leases city-owned property to nonprofit groups.
City officials say past lease agreements were politically driven and that “handshake” deals trumped sound business decisions. This led to discounted or nonexistent rent payments that cost the city money and increased its legal risk.
“These leases were made for political reasons, not sound business judgment reasons,” said City Attorney Kevin Yamamoto.
He said the city needs to establish a process for setting reasonable fees to avoid “backroom deals” and political favors.
City staff say the issue is part of a larger problem: City-owned property was neglected too long.
Now, Deke Jones is nearly a year into his newly created position as Puyallup’s property and facilities manager, and among other duties he’s working to improve the way fees are set for nonprofit tenants.
“Private tenants are paying their fair share,” he said. “It’s the nonprofit groups that have been all over the board.”
Without setting reasonable rates, Jones said, the city is “not recapturing any of the costs” for maintenance or operations.
He also stressed that standardizing rents would show that groups are equally valued in Puyallup.
The city leases space to two nonprofits: Valley Arts United occupies a corner unit in the City Hall building, and YMCA Friends and Servants is located at the Cornforth-Campbell building on Second Street Southeast.
The city also formerly leased space to the Daffodil Festival, Puyallup Main Street Association and Pierce County Juvenile Probation at the Community Resource Center on North Meridian Avenue. All three groups are moving to new locations since the city began finalizing the sale of the CRC building last month.
City records show inconsistencies in the groups’ rent rates.
Jones said Valley Arts United sits in a desirable 648-square-foot space at City Hall and pays $333 a month, a fraction of market value. He said a private tenant would likely pay five times that amount.
Friends and Servants pays about $200 a month for 3,000 square feet.
Before moving, Daffodil and Main Street paid the same amount — $325 per month — for 773-square-foot and 1,020-square-foot offices, respectively.
Pierce County Juvenile Probation paid nothing to use its 600-square-foot space. Jones said the history behind the group’s free rent is unclear.
Yamamoto said a lack of ongoing property management led to inconsistent rent rates.
Politics also played a role. Valley Arts United, for example, was popular with a majority of the City Council when the group moved into City Hall in 2009, Yamamoto said.
If the city fails to address rent inconsistencies, he said, legal issues could crop up. The Washington state constitution prohibits gifts of public funds, and providing space at a discount could risk violating the law, Yamamoto said.
The city has avoided that problem with Valley Arts United by having a so-called “services for space” agreement with the group. Its discounted rent is not considered a donation but rather an exchange for “valuable” services — arts education, retail sales and arts-related events.
Another property management concern for Puyallup is loss of city funds. If rent rates aren’t set high enough, Puyallup loses money on the taxes it pays and the maintenance costs of leased property.
Finance director Cliff Craig said the city pays a leasehold tax rate of about 12 percent on each property. He said establishing a standard rate would help Jones market space to tenants.
Jones was hired in June 2013. Yamamoto said his position was created as a direct response to the lack of property management in the city.
Jones said some issues he’s focused on include best use of property, lifespan of buildings, and immediate and long-term maintenance needs.
At a study session last month, City Council members agreed that Puyallup needs a formal process for charging rents.
Councilman Steve Vermillion said the loss of city funds is a top concern, specifically in the case of Valley Arts United. He said the group is operating at taxpayers’ expense.
Fellow Councilman John Hopkins stressed the need for consistency.
“We can’t just be doing things randomly anymore,” he said.