Unless $10.3 million is pulled from a special pool of public money for the next 20 years, a city-owned garage planned as the base of a private development in downtown Tacoma can't stay in the black.
City staffers presented a financial analysis Tuesday of the parking structure that's the podium of an apartment complex next to the McMenamins Elks Temple.
Two key questions now face City Council members: Should they use most of a state grant, intended for downtown revitalization, to shore up the balance sheet of a parking garage for 20 years? Or, after investing $1.7 million, should they cut the project loose?
The presentation during the council's study session was a bleak moment more than two years after developers Grace Pleasants and Rick Moses brokered the deal that led Portland-based McMenamins to town. The pair structured a three-way agreement in 2009 to renovate one of downtown's historic jewels, bring in an entertainment destination and erect a $32 million mixed-use building covered in glass.
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But a project that started with deep ties to the McMenamins Elks Temple now is a 111-unit market-rate apartment building with ground-floor retail and no direct link to the brewpub operator. The McMenamins-run hotel and rooftop bar both are gone.
McMenamins is proceeding with its plans, having submitted for permits Jan. 31. Operators plan to start work in May and open next April, city economic development staff member Elly Walkowiak said Tuesday.
Pleasants and Moses "brought the Elks Temple project to the city," she said. "We're so excited that this is moving forward on its own."
The pair have had trouble nailing down financing since the start. Stymied by difficulties in the capital and tax-credit markets, they missed a key deadline last fall to prove they had financial backing to buy the property from the city and move forward. They've been in negotiations with the city since.
John Finke of the National Development Council, who analyzed Pleasants and Moses' project for the city, said the pair has always had strong letters of interest for financing, "but they were not commitments." He also recommended a new appraisal of the project now that it's entirely apartments to ensure the pair's revenue projections check out.
Pleasants said Monday that they've secured a private lender, who is completing a financial review. The lender is ready to close, she said, but the city must commit to building the garage.
According to the analysis presented Tuesday, the garage can't make enough money to pay its debt. It would be part of the city's parking enterprise fund, which is on track to fall into debt by 2014 and be unable to pay its bills for a decade after that. Some of the shortfall is related to vacancies in city-owned parking garages, many of them elsewhere downtown.
Acting City Manager Rey Arellano asked for an analysis of the proposed parking garage to ensure it didn't affect the general fund. The city has been grappling with a projected $31 million shortfall in that fund for several months.
Walkowiak identified several risks of moving ahead:
*Garage construction costs, estimated to be $10.5 million, could be higher.
*Pleasants and Moses offer a contractual guarantee to pay for 111 parking stalls, but the city's interest is further at risk if there's no money backing that up.
Councilman Ryan Mello asked how much tax revenue the project would generate. Walkowiak said the best direct estimate was $525,000 to $655,000 over 20 years.
The new garage would have 260 spaces. Pleasants and Moses propose to lease 111 of them at $140 per month per stall for 25 years. McMenamins won't lease any, Walkowiak said. That leaves more than half the spaces needing to generate revenue through hourly or daily lease rates in an area with ample free on-street parking.
"If this project operated on its own, it would lose $10.2 million" through 2040, said city assistant finance director Jeff Litchfield, who presented the garage analysis.
Walkowiak said city staff looked at that gap and tried to find a solution without affecting the general fund or the parking enterprise fund.
She and her colleagues arrived at Local Revitalization Funds, an annual allotment from the state of up to $500,000 for 25 years. The funds come from a share of the state's sales taxes generated in the City of Tacoma but can be used only in a designated development area, which is most of downtown.
The funds can be used for a variety of things, including streets, sidewalks, parks, stormwater management or historic preservation.
"It's a very, very flexible tool," she said.
Talk of a flexible fund wasn't lost on the council. For several hours before the Elks presentation, members heard proposals on cutting city support to community events such as the Daffodil Festival, some farmers markets, local business groups and Ethnic Fest. These cuts are in addition to the specter of further reductions to police and fire services. While the LRF funds can't be used for those things, the city has many other capital projects that might qualify.
"A lot of things are dangling out there with a limited amount of revenue sources," Mello said. "I urge us to find a process to put this to bed. It's not so good for us to have so many projects dangling."