Form revised: December 6, 2011

FISCAL NOTE FOR CAPITAL PROJECTS ONLY

Department:	Contact Person/Phone:	CBO Analyst/Phone:
Seattle Public Utilities Parks and Recreation	Pete Rude/ 3-9179 David Graves/ 4-7048	Karl Stickel/ 4-8085 Amy Williams/ 3-2651

Legislation Title:

AN ORDINANCE authorizing Seattle Public Utilities and Seattle Parks and Recreation to enter into a Settlement, Release and Cost Allocation Agreement with Puget Sound Energy, Inc. (PSE) for remediation of the combined Gas Works Park uplands and North Lake Union sediments; to enter into an Agreed Order or Consent Decree with the Washington State Department of Ecology or U.S. Environmental Protection Agency and PSE to undertake additional work at the Site consistent with the Agreement; and to seek and accept state Remedial Action Grants for cleanup work related to the Site.

This legislation relates to the City of Seattle’s continued participation in cleanup actions at the Gas Works Park uplands (the park proper) and North Lake Union sediments, which comprise the cleanup Site.

Summary and background of the Legislation:

Gas Works Park and the Seattle Police Department’s Harbor Patrol facility are situated on land that was historically part of or adjacent to a Manufactured Gas Plant (MGP) which processed coal and oil into gas that served as the primary fuel in the area for heating and light from 1907 until 1956.  PSE is the successor to the owner/operator of the MGP.  Operations on other industrial properties near the facility varied over the years, and included a plant for turning waste material from the MGP into a usable product.  That plant was on property owned by the City of Seattle’s Water Department.  Soil, groundwater, and sediments at the Site were contaminated by waste from the MGP and associated operations.

In 1962, the City purchased the Gas Works Park property from PSE’s predecessor.  Gas Works Park was opened by 1976.  The City of Seattle is a potentially responsible party (PRP) for cleanup of the Site due to:

• Historic City ownership (by the Water Department) of property that is now part of Gas Works Park and that was leased to a tar processing facility;
• Contaminants conveyed to the lake sediments through City storm drains; and
• City ownership of the Park and Harbor Patrol properties and a portion of the sediments.

The Washington State Department of Ecology (Ecology) is the lead agency for cleanup of the Site.  The Environmental Protection Agency (EPA) formally deferred lead responsibility for the site to Ecology in 1996.  However, the EPA can take over the site at any time. 

In 1999, the City and PSE signed a Consent Decree with Ecology to remediate the uplands, which was completed in 2001.   The City and PSE also executed a related settlement in 2000, which included an indemnification by the City of PSE for potential additional cleanup work on the uplands.  As part of the settlement, PSE provided $1 million to the City to support remediation work on the site. All but $90,000 has been spent, and the remaining funds will be used to fund additional consulting and environmental work in 2012 and 2013.

In 2005, PSE and the City signed an Agreed Order (AO) with Ecology to perform the Remedial Investigation/Feasibility Study (RI/FS) phase of work on the offshore contaminated sediments.  The AO identified a “split” site.  The split site allowed PSE and the City to control their own work but meant they each had a consultant team with much duplication of work and expense.  Also in 2005, the City and PSE entered into a Memorandum of Agreement (MOA) to facilitate the joint effort on the sediments RI/FS and identified an interim cost-sharing arrangement whereby PSE would pay 75% of most of the sediments RI/FS costs.  The agreement proposed in this legislation would supersede the terms in the 2005 MOA.

Basis for Proposed Legislation 

The current situation at the Site is as follows:

• EPA is highly critical of Ecology’s decisions at the Site. 

· The City and PSE have assisted Ecology in responding to the concerns raised by EPA, but EPA remains unwilling to review progress on the sediment cleanup until their questions about the uplands are addressed.

· The difficult relationship between EPA and Ecology has slowed the progress of the Sediment cleanup work and created great uncertainty for the City and PSE. 

· Within the existing framework, it could take years for Ecology and EPA to resolve their differences at the Site, if they are able to do so.  In the meantime PSE and the City are spending money with no certainty that their efforts will be worthwhile.

Given this situation, the City and PSE believed it would be more cost effective for PSE alone to manage the site and worked together on an agreement to make this change.

Agreement Framework and Cost Analysis

The proposed agreement meets City and PSE needs to:

• Be broad enough to address all future costs for both the sediments and the uplands.
• End duplication of effort and expense by having PSE take the lead  for future work at the site (except where City involvement is clearly necessary).
• Provide a simple and equitable means for sharing costs and eliminate the need for a lengthy and costly cost allocation process.

Pursuant to the proposed agreement, the cost split is 80%-PSE and 20%-City (as compared to the existing split for costs related to the sediments of 75%-PSE and 25%-City).  The City retains sole financial responsibility for:  1) Replacement of the City’s drainage lines and outfalls; 2) liability under the City’s storm water permits; and 3) excavation of Kite Hill, in the unlikely event that EPA or Ecology requires it.  The City’s share of sediment costs is expected to be split 55%-SPU and 45%-General Fund; uplands costs are expected to be split 5%-SPU and 95%-General Fund.

The City performed a cost analysis, which addressed potential uplands and sediments costs, took into account the probable and worst case (most expensive) outcomes, and considered different ways for managing costs.  It is important to note that absolute cost estimates for site cleanup are very uncertain at this phase of site activities but what was developed is useful for long-term planning and relative comparison of cost-sharing options.

In summary, the agreement identifies the following obligations and roles for the City and PSE:

1. Investigation and Cleanup.  PSE shall have sole responsibility for directing and completing the remaining investigation and cleanup of the Site.

2. Approach to Regulatory Agencies.  PSE will seek from the regulatory agencies a joint Ecology/EPA Consent Decree for the sediments or the entire site.

3. Parties’ Respective Roles.  PSE will negotiate with EPA and/or Ecology the terms of future Site agreements or orders.  The Agreement identifies key issues on which PSE will either confer with the City or gain the City’s approval during agency negotiations.

4. Communication with Agencies.  PSE will conduct all communications with EPA and Ecology and any permitting agencies concerning the Site.

5. Monitoring Obligations.  The City will continue to perform and pay for the remaining 1999 Compliance Monitoring Obligations and 1999 O&M Obligations.  The City will be responsible for normal maintenance of the Park and Harbor Patrol.

6. Grant Funds.  PSE will cooperate with the City in the City’s requests for grant funds from the State’s Model Toxics Control Account to cover a portion of the City’s share of costs.

7. No Indemnification.  PSE and the City will not indemnify each other or any non-Party, except to the extent required by EPA or Ecology under the terms of the Consent Decree and the indemnification obligations under the 2000 Settlement Agreement, will be null and void.

To address the prohibition in RCW 35.32A.090 on making financial commitments that exceed current budget authority, the agreement is structured so estimated costs for the coming year must be approved by City Council during the annual budget process.  Further, the City’s total share of costs may not exceed $25 million without City Council approval.   The City and PSE discussed the potential applicability of Public Works contracting requirements to the remedial construction work and agreed that such potential requirements would be addressed as the scope and timing of the actual remedial work clarified, which is anticipated to be at least two to three years in the future.

Project Name:	Project I.D.:	Project Location:	Start Date:	End Date:
Gas Works Sediment Cleanup	Various*	Lake Union (Gas Works Park and Harbor Patrol)	2005	Not yet determined**
Gas Works Park Remediation	K73582	2101 N. Northlake Way	2000	TBD

*  This project is contained in the Sediment Remediation Project/Activity group in the Drainage and Wastewater Fund of SPU. 

Because of Parks and Harbor Patrol involvement, a portion of costs covered by this agreement will be charged to the City General Fund.

**  Dependent on resolution of the relationship of regulatory agencies (Ecology and EPA) at the site.

Please check any of the following that apply:

____    This legislation creates, funds, or anticipates a new CIP Project.

____ This legislation does not have any financial implications.

_X___            This legislation has financial implications.

Appropriations:

Fund Name and Number	Department	Budget Control Level*	Existing 2012 Appropriation	New 2012 Appropriation (if any)	2013 Anticipated Appropriation
Drainage and Wastewater fund (44010)	SPU	C3503	$632,399	None	$345,900
Cumulative Reserve Subfund-Real Estate Excise Tax II Subaccount (00161)	Parks	K73582	$70,000	None	$140,000
Gasworks Park Contamination Remediation Fund (10220)	Parks	K73582	$20,000	None	$70,000
TOTAL			$722,399		$555,900

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

Appropriations Notes: This legislation does not request appropriation authority.  Appropriations for 2012 were anticipated in the 2012 budget.  Appropriation authority for 2013 will be submitted to Council in September 2012.

Spending Plan and Future Appropriations for Capital Projects:

Spending Plan and Budget	2012	2013	2014	2015	2016	2017	Total
Drainage and Wastewater Fund (44010)
Spending Plan	$219,755	$345,900	$751,200	$751,300	$1,040,000	$1,800,000	$4,908,055
Current Year Appropriation	$632,399
Future Appropriations		$345,900	$751,200	$751,300	$1,040,000	$1,800,000	$3,770,000
Cumulative Reserve Subfund (00161)
Spending Plan	$70,000	$140,000	$400,000	$560,000	$1,360,000	$2,400,000	$4,930,000
Current Year Appropriation	$70,000
Future Appropriations		$140,000	$400,000	$560,000	$1,360,000	$2,400,000	$4,930,000
Gasworks Park Contamination Remediation Fund (10220)
Spending Plan	$20,000	$70,000					$90,000
Current Year Appropriation	$20,000
Future Appropriations		$70,000					$70,000

Spending Plan and Budget Notes:

The spending plan above represents anticipated costs for both SPU and Parks.  Absolute cost estimates for Site cleanup are highly uncertain at this phase of site activities but are useful for long-term planning and relative comparison of cost-sharing options within the Agreement.

These figures may increase due to:

· Further studies EPA and Ecology may require,

· Further remediation if ordered by EPA or Ecology,

· Possible actions by other PRPs to recover costs they believe are attributable to Seattle

· Legal expenses for the City to recover costs from other PRPs.

The total may be reduced by:

· Grants

· Seattle’s recovery of costs from other PRPs.

Funding Source:

Funding Source (Fund Name and Number, if applicable)	2012	2013	2014	2015	2016	2017	Total
Drainage and Wastewater Fund (44010)	$66,000	$116,000	$256,000	$295,000	$420,000	$703,000	$1,856,000
Cumulative Reserve Subfund (00161)	$70,000	$140,000	$400,000	$560,000	$1,360,000	$2,400,000	$4,930,000
Gasworks Park Contamination Remediation Fund (10220)	$20,000	$70,000					$90,000
TOTAL	$156,000	$326,000	$656,000	$855,000	$1,780,000	$3,103,000	$6,876,000

Funding Source Notes:

· The annual funding requirement above for the Drainage and Wastewater Fund is a combination of the annual debt service payment (see Bond Financing section below) on the bond financing portion of planned spending related to this project in current and prior years PLUS cash financing equal to 25 percent of projected current year annual CIP expense. Cash financing of the project ($1.2 million over 6 years) is only applicable during years of capital spending.  The $253,000 in annual bond financing projected for 2017 will continue through the 30 year bond term, assuming no additional capital spending.

· The annual contribution from Parks will be funded with the Cumulative Reserve Subfund (CRS) and the Gasworks Park Contamination Remediation Fund in 2013. CRS will be the sole funding source in 2014 after the Remediation Fund is fully spent.  For planning purposes, the legislation assumes that CRS will continue funding the project after 2014.  However, the City Budget Office will determine whether an alternative financing strategy (i.e. bond financing) is necessary after 2014 based on the availability CRS/REET revenues to support the project.

Bond Financing Required:

Type	Amount	Assumed Interest Rate	Term	Timing	Expected Annual Debt Service/Payment
Drainage & Wastewater Revenue Bonds	$3,681,000	5.5%	30 years	various	$253,000
TOTAL	$3,681,000	5.5%			$253,000

Bond Notes:

Seattle Public Utilities is capitalizing this work.  This bonded amount ($3.7 million) represents 75% of the costs associated with the program ($4.9 million).  The remaining 25 percent ($1.2 million) will be financed with cash between 2012 and 2017. SPU will include bond-funded costs in its normally scheduled Revenue Bond sales issued for the DWF CIP.  2012 and 2013 costs will be funded out of June 2012 bond proceeds.  Annual debt service payments will increase from $11,000 in 2012 to a total of $253,000 by the end of the planning period (2017). Assuming no further project spending, the $253,000 annual payments will apply from 2017 through the end of the 30 year bond term. 

Uses and Sources for Operation and Maintenance Costs for the Project:

Operation and Maintenance Notes:

This legislation deals with an environmental cleanup and does not relate to a new facility.  O & M costs for Park operations and Harbor Patrol operations are not expected to be affected by the remedial work to be done under this ordinance.

Periodic Major Maintenance Costs for the Project: 

This legislation deals with an environmental cleanup and does not relate to a new facility.  Major maintenance costs for Gas Works Park and Harbor Patrol facilities are not expected to be affected by the remedial work to be done under this ordinance.

Total Regular Positions Created, Modified, or Abrogated through this Legislation, Including FTE Impact: 

No changes to positions and no FTE impacts expected.

Other Implications:

a) Does the legislation have indirect financial implications, or long-term implications?

The regulatory agencies will require some amount of long term monitoring upon completion of the remedial action.  The cost of this work is unknown but is not expected to be significant.  However if monitoring indicates recontamination is occurring, additional remedial work could be required.

b) What is the financial cost of not implementing the legislation?

City cost analysis shows continuing cleanup activities within the existing regulatory framework and City-PSE co-lead will cost the City more than if this legislation is implemented.  The cost for not implementing the legislation could range from $1 million to about $5 million more than if the legislation is implemented.

c) Does this legislation affect any departments besides the originating department? 

In addition to SPU and Parks, this legislation also affects the Harbor Patrol facility, which is managed by FAS.  FAS and SPD have both been briefed about this proposed legislation.

d) What are the possible alternatives to the legislation that could achieve the same or similar objectives?

Alternatives to the proposed legislation are:

• Continue to conduct the remedial work with PSE as previously approved.  This option is likely to take longer and be more costly than the agreement being proposed.
• Go through a formal allocation process with PSE for final allocation.  This option is likely to carry significant legal costs.

e) Is a public hearing required for this legislation? 

No

f) Is publication of notice with The Daily Journal of Commerce and/or The Seattle Times required for this legislation?

No

g) Does this legislation affect a piece of property?

Exhibit A of the proposed Agreement between the City and PSE, which is attached to the proposed legislation, shows the boundaries of the Site and the property parcels involved.