Form revised October 26, 2007

FISCAL NOTE FOR NON-CAPITAL PROJECTS

Department:	Contact Person/Phone:	DOF Analyst/Phone:
Seattle Center	Robert Nellams, 684-7334 Kerry Smith, 615-0358 Helaine Honig, Law, 684-8222	Amy Williams, 233-2651

Legislation Title: AN ORDINANCE relating to the Seattle Center Department; authorizing execution of a ground lease with Seattle Opera for property that includes Mercer Arena at Seattle Center.

· Summary of the Legislation:

This legislation authorizes execution of a ground lease agreement with Seattle Opera for the Mercer Arena site. Under this agreement, Seattle Opera will enter into a 30-year ground lease with the City for the Mercer Arena site.  Additionally, the Opera is planning to renovate or reconstruct the facility to house their administrative offices, rehearsal spaces, and technical facilities.  Their current conceptual plan for the initial improvements is anticipated to cost approximately $40 million.

· Background: (Include brief description of the purpose and context of legislation and include record of previous legislation and funding history, if applicable):

The Mercer Arena was built in 1927 as part of the Civic Center complex, which included the Civic Auditorium (now McCaw Hall), the Civic Playfield (now Memorial Stadium), and the Civic Ice Arena (now Mercer Arena).   Over the years, the building has served as a venue for hockey, basketball, concerts, high school graduations, and myriad other public assembly activities. 

In 2001, as part of the Opera House renovation (McCaw Hall) project, Mercer Arena was converted for use as a temporary venue for Seattle Opera and the Pacific Northwest Ballet while the Opera House was under construction.  Like the Opera House, Mercer Arena has code issues that need to be addressed, including major structural and seismic improvements, life safety system modifications, and significant upgrading of the building’s electrical, mechanical, and accessibility systems.  Because the facility would be used on a temporary basis for the 18-20 months of McCaw Hall construction, the Department of Construction and Land Use and the Seattle Fire Department permitted alterations to the Mercer Arena without requiring full code compliance.  They did so with the understanding that when McCaw Hall opened in June of 2003, the Mercer Arena would be closed to public assembly use until the code issues could be addressed.

In 2002, Seattle Center began to evaluate redevelopment options for Mercer Arena that would balance the long-term needs of the City/Seattle Center with the prohibitive cost of completing required code improvements. To facilitate the analysis of usage and redevelopment options, the Center developed the following criteria:

1. Compatibility with Seattle Center mission, goals, existing facilities and existing lines of business.
2. Compatibility with and support of the adjacent community, with the intent that the new use would not create new significant parking and traffic impacts.
3. Financial return to the City.
4. Potential for private investment.
5. Compatibility with design proposals for the Seattle Center Theatre District.
6. Appropriate fit with facility needs of the region.
7. Recognition that the Mercer Arena property was an integral part of the Seattle Center campus and should not be sold.

Using those criteria, several redevelopment options were considered ranging from development of a 3,500 to 4,000-seat public assembly facility with an ice floor to a multi-screen theatre complex. However, the option that seemed most compatible with the City’s goals was to make Mercer Arena the home of Seattle Opera’s administrative offices, rehearsal spaces and technical support facilities.  This option was also included in the final recommendation by the Mayor’s Task Force for Seattle Center Sustainability in May 2006.  Further, the June 2007 report of the Century 21 Committee on Alternative Plans for Seattle Center’s Future included Seattle Opera’s development of the Mercer Arena in two of their options for development of the campus.

Seattle Opera has long been interested in centralizing its administrative and technical support functions and relocating closer to McCaw Hall.  Currently, their support functions are housed in various facilities throughout the region.  For the City, the Opera’s move to Mercer Arena meets all of the evaluation criteria for use of the Arena. Further, the relocation will enhance and enliven the pedestrian experience on Mercer Street, within the Theater District, and among the campus as whole.

Lease Terms

In the proposed ground lease, Seattle Opera will lease the Mercer Arena site for 30 years with an option for a 30-year extension.  The Opera plans to renovate or replace the facility to house their administrative offices, rehearsal spaces, and technical facilities. Their current conceptual plan for these improvements is anticipated to cost approximately $40 million in hard and soft costs.

Seattle Opera will pay an annual rent of $220,000 plus 15% of rent from any subleases to commercial tenants.  The rent will be adjusted upward every 5 years by 10%.  The Opera will be responsible for operation and maintenance of the facility.  The City will continue to be responsible for major maintenance of the building shell.  Upon execution of the lease, the Opera will pay the City a deposit of $110,000.  Of this deposit, $60,000 will be applied toward the first year’s rent if the Opera has taken possession of the Arena by July 1, 2009.  The Opera is in the process of raising funds for the project and hopes to begin construction by July 2009, although the lease provides for extension options through July 2011, for an annual fee of $110,000.  The City will have design approval of the project, which should be complete within 24 months of building permit approval.

The adaptive reuse of the 1927 facility continues Seattle Center’s tradition of creative reuse of existing structures such as the transformation of the Coliseum to the Key Arena and the Opera House to Marion Oliver McCaw Hall.  Not only will Seattle Center’s long-term maintenance obligations be reduced, but the City’s standards for environmental sustainability are also furthered by Seattle Opera’s proposed stewardship of this aging structure.

· Please check one of the following:

____ This legislation does not have any financial implications. (Stop here and delete the remainder of this document prior to saving and printing.)

__X_ This legislation has financial implications. (Please complete all relevant sections that follow.)

Appropriations:  This table should reflect appropriations that are a direct result of this legislation.  In the event that the project/ programs associated with this ordinance have appropriations that were, or will be, received because of previous or future legislation or budget actions, please provide details in the Notes section below.

Fund Name and Number	Department	Budget Control Level*	2007 Appropriation	2008 Anticipated Appropriation
TOTAL

*See budget book to obtain the appropriate Budget Control Level for your department.

Notes: 

Anticipated Revenue/Reimbursement: Resulting From This Legislation: This table should reflect revenues/reimbursements that are a direct result of this legislation.  In the event that the issues/projects associated with this ordinance/resolution have revenues or reimbursements that were, or will be, received because of previous or future legislation or budget actions, please provide details in the Notes section below the table.

Fund Name and Number	Department	Revenue Source	2007 Revenue	2008 Revenue
SCOF/11410	Seattle Center	469990		$50,000
TOTAL				$50,000

Notes:  Upon execution of the lease, the Opera will pay the City a deposit of $110,000.  Of this deposit, $60,000 will be applied toward the first year’s rent if the Opera has taken possession of the Arena by July 1, 2009. The remaining $50,000 will be considered additional revenue in 2008.

Total Regular Positions Created, Modified, Or Abrogated Through This Legislation, Including FTE Impact:  This table should only reflect the actual number of positions created by this legislation.  In the event that positions have been, or will be, created as a result of previous or future legislation or budget actions, please provide details in the Notes section below the table.

Position Title and Department*	Position Number for Existing Positions	Fund Name and Number	Part-Time/ Full Time	2007 Positions	2007 FTE	2008 Positions**	2008 FTE**
TOTAL

*   List each position separately

** 2008 positions and FTE are total 2008 position changes resulting from this legislation, not incremental changes.  Therefore, under 2008, please be sure to include any continuing positions from 2007.

Notes:

· Do positions sunset in the future?  (If yes, identify sunset date):

Spending/Cash Flow: This table should be completed only in those cases where part or all of the funds authorized by this legislation will be spent in a different year than when they were appropriated (e.g., as in the case of certain grants and capital projects).  Details surrounding spending that will occur in future years should be provided in the Notes section below the table.

Fund Name and Number	Department	Budget Control Level*	2007 Expenditures	2008 Anticipated Expenditures
TOTAL

* See budget book to obtain the appropriate Budget Control Level for your department.

Notes:

· What is the financial cost of not implementing the legislation? (Estimate the costs to the City of not implementing the legislation, including estimated costs to maintain or expand an existing facility or the cost avoidance due to replacement of an existing facility, potential conflicts with regulatory requirements, or other potential costs if the legislation is not implemented.)

The Mercer Arena is an 80 year-old building with extensive code deficiencies, which makes this facility a significant liability to the City.  In its current condition, annual operating expenses for the Arena are estimated at approximately $35,000 to $50,000, primarily for utilities and limited repair work sufficient to keep the building safe.  While closure minimizes the Center’s operating expenses, continued vacancy of the building and limited maintenance will result eventually in further deterioration of the building’s appearance and operating systems. 

· What are the possible alternatives to the legislation that could achieve the same or similar objectives? (Include any potential alternatives to the proposed legislation, such as reducing fee-supported activities, identifying outside funding sources for fee-supported activities, etc.)

Since 1999, no other options have emerged that are compatible with the Seattle Center Theatre District and the surrounding neighborhood, that make capital improvements with all private funds, or that provide net revenue opportunities for the City.

· Is the legislation subject to public hearing requirements:  (If yes, what public hearings have been held to date, and/or what plans are in place to hold a public hearing(s) in the future.)

No

· Other Issues (including long-term implications of the legislation):

The renovated Mercer Arena will be the property of the City upon completion of the initial and extended lease term.

Please list attachments to the fiscal note below: