Form revised May 26, 2009
FISCAL NOTE FOR NON-CAPITAL PROJECTS
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Department: |
Contact Person/Phone: |
DOF Analyst/Phone: |
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Parks and Recreation |
Marshall Foster/684-8413 |
Jan Oscherwitz /684-8510 |
Legislation Title:
· Summary of the Legislation:
This legislation allows the Superintendent of the Department of Parks and Recreation (“DPR”) to enter into a Project Development Agreement and a long-term Ground Lease with the Museum of History and Industry (“MOHAI”) to develop a regional history museum at the former Naval Reserve Armory in Lake Union Park (“Armory”), if certain criteria are met. The Project Development Agreement describes the terms and conditions for MOHAI to renovate the Armory and provide necessary museum improvements, including requirements for the City’s review and approval of project funding, design and construction management. This agreement also provides for conveyance of the Armory Building to a MOHAI affiliate if MOHAI secures Historic Rehabilitation Tax Credits (“HRTCs”), which have a value of $4.7 million to the project. The Lease describes the terms and conditions for MOHAI’s long-term use and operation of a regional history museum at the Armory, including required public benefits.
Two versions of the Lease are included in this legislation, one of which will be executed depending on whether MOHAI is successful in securing HRTCs. The first version is a Ground Lease with a 55-year term, assumes conveyance of the Armory building to MOHAI and will be made effective if MOHAI is successful in securing HRTCs to offset the project cost. The second version of the Lease (for both the ground and the Armory Building ) has a 40-year term (a base term of 30 years with one 10-year extension at MOHAI’s option)and does not assume conveyance of the building. This second version will be made effective if MOHAI is not successful in securing HRTCs. The two versions of the Lease do not differ in any other material respects.
In the event that ownership of the building is conveyed to MOHAI to facilitate use of HRTCs, its use will be restricted to museum uses and it will revert to the City at the end of the lease term or in the event of a default by MOHAI resulting in termination of the Lease.
Project Summary
MOHAI currently operates from a museum facility at McCurdy Park under a long‑term agreement with the City dating back to 1948. The building and its grounds are now in the path of the Washington State Department of Transportation (“WSDOT”) project to replace the SR‑520 floating bridge. Consequently, MOHAI will need to relocate from McCurdy Park to allow the state to construct this essential public facility.
Under the proposal, MOHAI will restore the landmark Armory building consistent with applicable historic preservation guidelines, transforming it into a regional history museum. The total development is expected to cost approximately $45.4 million (in 2010 dollars) and will include comprehensive building upgrades, access, and circulation improvements, and achieve life safety code compliance. The project will include exhibit galleries in the large open volume of the building. Museum support spaces such as classrooms and a retail store; amenities including a café and restrooms available to both visitors to Lake Union Park and museum patrons; and work space for museum and DPR staff also will be provided. Along with other organizations already residing at South Lake Union, MOHAI will participate in a Maritime Heritage Partnership including the museum and other organizations using the Historic Ships Wharf. The goal of this Partnership will be to better serve visitors to the park by providing joint programming and marketing, and collaborating on day-to-day operations in the park.
In consideration of the public support for the project and MOHAI’s ongoing commitment to the community, MOHAI has agreed that for the term of the Lease, it will offer a range of public benefits, including the following: at least 50 hours of operation 50 weeks a year; free admission for children 14 years and younger; ongoing educational programs for students, including scholarship assistance; culturally-diverse programming, presentation of the history of African Americans, Asian and Pacific Islander Americans, Hispanic Americans, Native Americans and others; and provision of community meeting space, public restrooms and a café available to park users. These public benefits are described in detail in Exhibit E to the Lease.
Project Costs and Financial Impacts to the City
MOHAI’s total project cost is $45.4 million, of which $30.3 million will be spent to renovate the Armory building. $15.1 million will be spent on museum exhibits and related improvements. Attachment A provides additional detail on MOHAI’s project budget.
The project includes four sources of financial support from the City, as provided in Council Resolution 31092:
1) City’s share of proceeds from MOHAI’s sale of the 800 Pike Street Condominium. The City provided financial support for MOHAI’s acquisition of the condominium at 800 Pike Street in exchange for a restrictive covenant on that property. In 2007, the City lifted that restrictive covenant and allowed MOHAI to sell its interest in 800 Pike Street to the Washington State Convention and Trade Center, provided that $1.2 million of the proceeds associated with the City’s original investment, plus interest, be used for capital costs related to construction of the regional history museum in Seattle.
2) Armory and Lake Union Park Investments. DPR has completed approximately $2 million in utility upgrades, seismic, and other improvements to the Armory and surrounding portions of Lake Union Park that are directly or indirectly beneficial to development of a regional history museum in the Armory.
3) City Capital Contribution. In addition to the $1.2 million plus interest reserved from MOHAI’s 800 Pike Street condominium sale proceeds, the City’s sole remaining contribution to the Project will be to assign to MOHAI compensation from WSDOT’s acquisition and/or condemnation of MOHAI’s McCurdy Park building for the SR-520 replacement project, including compensation for WSDOT’s temporary use of the site for construction staging. In 2008, DPR commissioned an appraisal that estimated the value of the building and the temporary construction use at approximately $15 million ($9.54 million for MOHAI’s current building plus $5.5 million for the value of the temporary construction easement). DPR has entered into an agreement with MOHAI that assigns MOHAI authority to negotiate a settlement of these interests with WSDOT on DPR’s behalf. Approval of the final settlement and transfer of the funds to MOHAI will be subject to Council review and approval via legislation that is expected to move forward in late spring 2010. MOHAI is required to direct proceeds from the settlement first to the Armory project.
4) Annual Operating Funds. The Lease provides MOHAI with $300,000 annually (with no escalator) to offset direct costs (utilities, janitorial, and related costs) of operating the Armory and its public amenities. The City currently pays a portion of these costs under MOHAI’s existing lease at McCurdy Park. MOHAI will be required to develop regular major maintenance plans for the Armory and, in the event that the City finds MOHAI is not adhering to the plan, the City may set aside these operating funds to address deficiencies in building major maintenance.
Long-Term Risk and Liability
The Armory building is built over water and is supported by a building pile system that was originally built by the Navy to support the building’s use for military training and storage. The mutual due diligence completed by the City and MOHAI found the building pile system to be structurally sound and capable of handling the loads anticipated from MOHAI’s use.
The Ground Lease allocates risk and liability for the project between the City and MOHAI. MOHAI will receive the building in “as-is” condition and be solely responsible for remedying unforeseen conditions discovered during construction, including any unforeseen conditions with respect to the building pile system. Once the project is complete and the museum is open, the City will again assume liability for the building pile system, including regular maintenance.
MOHAI and the City, through DPR, have had a successful relationship since 1948, when the Seattle-King County Historical Society established MOHAI, constructed with City support, and ultimately donated the current MOHAI facility to the City. MOHAI has successfully operated the museum at McCurdy Park in the Montlake neighborhood since 1952 and has grown to become the largest private heritage organization in the State of Washington, attracting more than 60,000 visitors annually from the Northwest and beyond. MOHAI collects, preserves, and presents the rich history of the Pacific Northwest, and its engaging exhibits and programs create an appreciation for the Northwest's diverse cultural, social, and economic history. To reach a broader audience of Seattle residents and visitors, MOHAI has been actively pursuing options to move to a more central location and expand its exhibit space since 1997.
The City acquired the Armory as part of a 5-acre site from the US Navy in July 2000. This acquisition completed the City’s ownership of the 12-acre site that is now being developed as Lake Union Park. The City, working with the Seattle Parks Foundation and community stakeholders, completed a Master Plan which envisioned Lake Union Park as a center for maritime heritage. Since 2003, MOHAI has been an active participant in planning for key elements of the development of Lake Union Park including the Historic Ships Wharf and the History Trail. This involvement has led, in part, to MOHAI’s decision to pursue development of the Armory as its primary public venue. After a satisfactory conclusion of due diligence, the MOHAI Board of Trustees has dedicated significant resources to develop its primary public venue at the Armory.
Timeline
o Resolution 28444 (Oct. 1991) adopted the South Lake Union Park (now known as “Lake Union Park”) Master Plan and adopted Resolution 30206 in July 2000 which updated the vision for the park as a center of maritime heritage programs and activities that provides free public access to the park’s shoreline and open space areas. In July 2003, the Board of Park Commissioners approved the final design, followed by the Seattle Parks Foundation Board on Nov. 3, 2004.
o The City acquired the former Naval Reserve Armory at Lake Union Park in 2000 from the Navy.
o MOHAI began to explore other options for its facilities based on concerns about the long‑term viability of the Montlake Location as MOHAI’s permanent home, particularly given its location adjacent to SR‑520 and the increasing likelihood that eventual expansion of SR‑520 would require MOHAI’s relocation.
o In 2003, MOHAI acquired a condominium interest in the Washington State Convention and Trade Center (“WSCTC”) property at 800 Pike Street. To facilitate development of a historical museum at that location, the City purchased an easement and restrictive covenant from the WSCTC in 2001 for $2 million which was to be repaid with interest if MOHAI failed to open and operate a historical museum at 800 Pike Street by a certain date. In 2004, the City reduced MOHAI’s obligation to repay the City by $1 million in lieu of paying rent for the Seattle Public Library’s use of 800 Pike Street as a temporary location for its Central Library.
o In 2004, an architectural consultant assessed the Armory on behalf of DPR and determined that $11 million would be necessary to renovate the Armory building for community use similar to other DPR community centers. DPR also determined that the Armory would be difficult to adapt to community center uses given its unique layout. DPR updated this estimate in 2007 and found the cost would be $18.8 million.
o In October 2006 City Council adopted Resolution 30917 which supported and encouraged negotiations between the City and MOHAI to develop the Armory into MOHAI’s primary public venue. Resolution 30917 presented a statement of the Council’s support for development of a museum dedicated to the history of Seattle, King County, and the Pacific Northwest in the Armory at Lake Union Park.
o In August 2007 the City released the remaining covenant on the property through Ordinance 122471, allowing MOHAI to sell 800 Pike Street back to WSCTC. Proceeds from that sale have been placed in a restricted account which can only be used to build a regional history museum in Seattle. If such a museum is not under construction in the City of Seattle by June 30, 2017, the funds, plus accrued interest, will be repaid to the City.
o In September 2008 City Council reviewed the findings of the City’s and MOHAI’s due diligence and adopted Resolution 31092 , which established the following basic principles for negotiating agreements with MOHAI to develop a regional history museum at Lake Union Park:
The Armory is a valuable public asset that will return to City ownership at the end of the City’s lease of the Armory site to MOHAI.
The City’s contribution to the Project shall be fixed and structured to minimize financial risk to the City.
Recognizing that MOHAI is a regional history museum, MOHAI shall use its best efforts to secure other public funding to offset construction costs for the Project.
The Armory and Lake Union Park shall be accessible to as broad a segment of the public as is possible.
Parking and vehicular access at the Armory shall be consistent with existing Lake Union Park plans and policies and designed to minimize vehicular traffic in the park.
Together with other maritime heritage organizations resident at South Lake Union, MOHAI will participate in a Maritime Heritage Partnership at its new Lake Union Park site.
The principles established in this resolution served as the basis for negotiating the project agreements with MOHAI presented in this legislation.
· 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 had, or will have, appropriations in other legislation, please provide details in the Notes section below.
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Fund Name and Number |
Department |
Budget Control Level* |
2009 Appropriation |
2010 Anticipated Appropriation |
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TOTAL |
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*See budget book to obtain the appropriate Budget Control Level for your department.
Notes: The cost of the DPR move from the Armory will be incorporated into the proposed 2010 budget. In addition to one-time relocation costs, there will be ongoing rent costs for new office space. If DPR exercises its option to expand at the RDA building, these costs are expected to be approximately $314,000 in 2011, assuming 60 staff are accommodated. The City will also have an ongoing annual financial obligation of $300,000 to assist MOHAI in meeting the Armory building’s operational costs. This is assumed to begin in 2012, replacing the $278,000 the City currently pays to MOHAI to support its operations at the Montlake facility.
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.
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Fund Name and Number |
Department |
Revenue Source |
2009 Revenue |
2010 Revenue |
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See below. |
DPR |
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TOTAL |
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Notes:
DPR currently receives net revenues of approximately $23,600 annually from rentals of the Armory that will be lost. ($241,456 in gross revenues, less $217,856 in maintenance and operations costs). In addition, the City will forgo income from the State for its acquisition of the current MOHAI facility in McCurdy Park estimated at $15 million. The City will keep its right to the value for any permanent acquisition of park land at McCurdy Park and will be responsible for negotiating that settlement separately with WSDOT.
Total Regular Positions Created, Modified, Or Abrogated Through This Legislation, Including FTE Impact: This table should only reflect the actual number of positions affected by this legislation. In the event that positions have been, or will be, created as a result of other legislation, please provide details in the Notes section below the table.
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Position Title and Department |
Position # for Existing Positions |
Fund Name & # |
PT/FT |
2009 Positions |
2009 FTE |
2010 Positions* |
2010 FTE* |
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* 2010 positions and FTE are total 2010 position changes resulting from this legislation, not incremental changes. Therefore, under 2010, please be sure to include any continuing positions from 2009.
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.
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Fund Name & # |
Department |
Budget Control Level* |
2009 Expenditures |
2010 Anticipated Expenditures |
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TOTAL |
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* See budget book to obtain the appropriate Budget Control Level for your department.
Notes:
· What is the financial cost of not implementing the legislation? The City would retain responsibility for operating and maintaining the Armory. Currently, building maintenance costs are offset by revenues from short-term rentals and other special events. Because Parks staff could stay in the Armory, Parks would not be required to rent additional space elsewhere, which would save in relocation costs and approximately $314,000 annually in rent costs, assuming 60 staff would otherwise be accommodated at the RDA building.
· Does this legislation affect any departments besides the originating department? No.
What are the possible alternatives to the legislation that could achieve the same or similar objectives? In fall 2007 DPR commissioned a detailed evaluation of renovation alternatives for the Armory. This evaluation looked at three scenarios for renovating the building – a community center, a special events facility, and minimal code upgrades to continue using the buildings as-is. The evaluation provided a summary program for each scenario and a detailed estimate of renovation costs, which were $18.8 million, $21.2 million and $1.7 million respectively.
· Is the legislation subject to public hearing requirements: A CLEAN hearing is required for this project and will be held on September 29, 2009.
· Other Issues (including long-term implications of the legislation):
· List attachments to the fiscal note below:
Attachment A: MOHAI at Lake Union Armory, Revised Project Budget August 2009