Oct 192012
 

Debt Pools – Voter Approved vs Council Approved

Why do we not get a vote on an Arena while everyone gets to vote on the Seawall ?  Because it’s a really tough sell in a town burned by the NBA before.  The arena is small enough to fit in one type of debt but the Seawall is a larger project that would be a tough fit.  You see, the City of Seattle has two pools to issue debt from – Councilmanic and Voter Approved.  Each pool is subject to a 1.5 or 1% limit based on the City’s total assessed value.  The Councilmanic debt is debt issued by the city council alone.  The current limit for Councilmanic debt service is 7% of revenues.  Over the next 6 years the council can issue between $360 and 500M of debt by their own devices.  The voter approved debt would be bonds created as a result of voter approval.  The ceiling on those debts is significantly higher, particularly because they’re usually coupled with voter-approved funding sources.

Legal Debt Capacity for the City of Seattle from May 29th Seawall Funding Presentation. Note that the Councilmatic (approved by council and not by public vote) portion is even more constricted by the amount of debt that can be paid off.  Right now the debt service is subject to limits of 7% of city revenues. The City enjoys good credit because it currently operates with a 6% debt service payments.

Non-Self Supported Councilmanic Debt Service projections indicate debt capacity is constrained until 2015. An earlier slide indicated that with no general fund revenue growth the current capacity is $160M of new debt over 6 years. With 4% growth in the general fund the capacity could be 360M over 6 years at current debt levels or 500M at the council’s 7% policy limit.  From the May 29th Presentation.

The Seawall – $1.07 B Project with a $290M Phase 1 Bond

The Seawall project is something that has to happen.  It was spun out of the Alaskan Way Viaduct program to help lower the apparent cost, but you can’t put a deep bore tunnel in without shoring up the Seawall and dirt in that area.  Even if voters don’t approve the bond, the City of Seattle will be need to do some portion of the Seawall replacement by 2016 to avoid stalling the even more expensive tunnel project.

The mix of funding proposed for the Seawall comes primarily from this $290M Phase 1 Bond, WSDOT funding, and a bunch of smaller sources.  A 30 year $290M bond with 5% interest equates to $19M a  year in bond payments.   Interestingly, the Seawall has been under consideration for federal funding of up to 65% of the project’s cost.  If the feds contribute the full 65% then the remaining 35% of $1.07B is about $375M, just slightly more than the Seattle Proposition 1 Seawall Bond.  That would suggest that if the $290M Phase 1 Bonds are approved then the portion paid by WSDOT, the stakeholder-proposed LID for other waterfront amenities, and other sources will dramatically shrink or disappear.

Slide from March 2011 presentation showing that the Army Corps Federal Cost Share may be as high as 65% of the project.

Waterfront Project Funding Sources from 07/23/2012 presentation.  Notice that the LID kicks in fairly late in the process, probably after the feds commit to what % of funds they’ll put in.

All the pieces of the Waterfront Project. The $290M bond would go towards a mix of the Phase 1 seawall and the Pier 58 and 62/63 reconstruction.  From the 7/23 presentation.

Vote AGAINST Seattle Proposition 1 and the Seattle City Council WILL Fund It

To avoid stalling the tunnel, the city will have to fund the Seawall.  If voters don’t approve the bonds then the council will have to do so from the Councilmanic debt, of which only $360M is recommended to be used.  The annual amount of Councilmanic debt issued has increased from below $60 to 90M recently.  The Seattle portion of Arena bonds would be a $120 to 135M Councilmanic debt expense spread over one or possibly two years.  The Seattle Seawall would be an additional $290M in Councilmanic debt if the Seattle City Council were forced to issue the bonds without voter approval.  In short, if the Seawall bond vote fails the Council will need to act and will use most of their Councilmanic debt capacity on the Seawall bonds.  In issuing those bonds the Councilmanic debt capacity would be reduced to just a sliver.  Would the council still rush to issue arena bonds without voter approval if they had no credit card for other items?

Yes, an arena would generate tax revenues and grow the base.  However, it would do so over time and would not dramatically increase the debt capacity at the time bonds are issued.  While the arena is marketed as mostly “self-supporting” the way it is backed up by the general fund and comes from indirect transfers from many different tax streams makes it not fit a “self supporting” model.  Sally Clark asked Ben Noble the exact same question, “would the seawall debt issued by the council come from the same pool an arena would come from” during the May 29th hearing. Basically, the “self supporting” vs “non-self supporting” designation has little effect on the overall Councilmanic debt capacity. In truth, it’s just a classification to make the internal calculations a bit easier. In practice, the arena would increase the AV of the city but the city could only use 1.5% of that increase.

Vote NO on Seattle Proposition 1!

A NO vote on the Seawall will require the city use $290M of Coucilmanic debt to keep things on schedule.  Seattle averages about $60M per year in Councilmanic debt, without Seawalls or Arenas.  The Seawall and average Councilmanic spending would use up $650M of the available capacity over 6 years from the City’s $640M capacity…   with some small amount of repayments during those 6 years.  The City of Seattle’s recent Councilmanic spending is a bit on the high side of $60M to boot.  Quite simply, a Seawall passed via Councilmanic act would pretty much eat up all the available Councilmanic debt capacity.  The arena MOU’s 5 year limit would mean Hansen would need to convince a strapped City Council to cut other spending or seek voter approval to actually issue the arena debt.

 

UPDATE: 10/24

The Seattle Channel’s City Inside/Out delves into the Seawall Bond.  I really, really miss how C.R. Douglas really grilled into issues as opposed to the way the programs conduct themselves now.    About 9 minutes in they have Charley Royer (Hansen’s lobbyist’s husband) pitching the same argument about public safety… . and he even slips up and starts his argument saying “we have to replace the viaduct, we keep patching it” which pretty much proves the copy and paste job of the old viaduct safety arguments.    My suggestion, vote NO!

UPDATE: 10/26

State Supreme Court Rules On Exceeding City Debt Capacity for Arenas

The state Supreme Court ruled Thursday in a case sparked by debt troubles involving Wenatchee’s events arena that municipalities can’t guarantee a loan to other entities if the obligation exceeds the city’s debt limit.

In the 5-4 ruling, the high court affirmed a ruling by a Chelan County Superior Court judge that the city of Wenatchee would exceed its constitutional debt load if it backed nearly $42 million in bonds for the Town Toyota Center.

“The role of our judiciary in this scheme is self-evident: We must enforce the constitution,” Justice Charles Wiggins wrote on behalf of the narrow majority. “We must not assume legislative bodies will police themselves.”

“From the taxpayer’s perspective, we don’t want to be faced with a situation where elected officials decide, without a vote of the electorate, to guarantee huge projects where the risk of having to pay can come back on the taxpayers,” he said.

O’Connell said the ruling could have far-reaching impacts on other municipalities.

Update 11/2:

I stumbled across some of the original financing options and it’s interesting to note that they all require voter approval of some sort.  This was from way back when they were talking about delaying action until 2011.  Interestingly, they all require voter approval in some form.  There’s a limit of $20 for any vehicle license fees without voter approval (not that I think that’s the best way to fund the seawall…  charging the student just scraping by with a 15 year old Civic the same fee as Ballmer and a Bentley).

Financing options from way back in 2010. The article describes how they all required some voter approval.

  
 Posted by at 12:32 am

  4 Responses to “Stop the Arena By Using Up the Council’s Non-Voted Bond Capacity – Vote NO on Seattle Proposition 1”

  1. Thank you very much for the good, detailed information. I plan to vote no.

  2. Ballot received and filled out with a big black NO next to the Seawall. The voter pamphlet doesn’t even talk about the other 700M in projects, possible federal funding, and how many of those “other projects” are going to come with additional requests for money from the city (probably without voter approval too).

    Plus, anything that can help sink the arena financing before it starts is fine by me.

  3. Keep it up folks, just another desperate attempt to stop the arena. You’re really reaching with this one, but that’s expected.

    Sincerely,

    Sonics Fans

    • Remind me how much Hansen’s arena will pay in property taxes towards a Seawall (if the bond does pass) ? I think it’s $0, if not a negative number simply because Seattle/County residents will pay more due to the arena but those funds get withdrawn to pay arena bonds rather than stay in the general fund or seawall effort.

      That’s ok, there’s a lot of voter push-back due to this arena and we’ll see requests for bonds fail left and right.

      This Seawall is one big expense that much be done. The council has been pushing it back for a while waiting for the Feds to commit money but they can’t wait any longer. It will be a real strain for the Council to step in and fund the Seawall, but they (or some other state agency) must. With the political wrangling on Seattle doing the Seawall while the state took care of the tunnel, I don’t see the state being eager to pick up the Seawall tab.

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