Form revised February 6, 2008

FISCAL NOTE FOR NON-CAPITAL PROJECTS

Department:	Contact Person/Phone:	DOF Analyst/Phone:
Parks and Recreation	Marshall Foster/684-8413	Jennifer Devore/615-1328

Legislation Title:

A RESOLUTION relating to the development of Lake Union Park; endorsing principles to guide the potential development of a Regional History Museum in the former Naval Reserve Building at Lake Union Park; and requesting the Superintendent of the Department of Parks and Recreation to negotiate an agreement with the Museum of History and Industry for such development.

· Summary of the Legislation:

This legislation endorses negotiating principles and requests the Superintendent of Parks and Recreation to negotiate an agreement with the Museum of History and Industry (MOHAI) for its development of a regional history museum at the Lake Union Park Armory. The principles are presented as an Attachment to the Resolution and will guide negotiation of a Project Agreement and long-term ground lease of the facility, both of which would be presented to the Seattle City Council for approval by Ordinance.

· Background:

The proposed legislation is a follow-up to Resolution 31011 adopted by Council on September 10, 2007 which outlined issues to be explored during a mutual due diligence effort, attached herein as Attachment A.  Many of these issues were first identified in Resolution 30917 which was adopted by Council on October 2, 2006.  Resolution 30917 supported and encouraged negotiations between the City and MOHAI to develop the Armory into MOHAI’s primary public venue.

A staff team with representatives from  Seattle Parks and Recreation (Parks), Department of Finance, Office of  Policy and Management, Law Department, and Council Central Staff have been working closely with representatives from MOHAI over the past year to complete mutual due diligence and negotiate principles for the Project Agreement.   

MOHAI and the City have had a successful relationship since 1948, when the Seattle-King County Historical Society established MOHAI and constructed the current MOHAI facility and donated it 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.  In 2004, MOHAI approached the City with a proposal to make the Armory its primary public venue. 

The City acquired the former Armory at Lake Union Park in 2000 from the United States Navy with the purpose of developing it into a community facility.  In 2004, Ron Wright Associates completed an assessment of the Armory on behalf of the City and determined that $11 million (2004 dollars) would be necessary to renovate the building for community use similar to other Parks community centers.  The City did not choose to renovate the Armory as a standard Parks Community Center and began to operate the facility as a special events venue.  In 2007, 46,417 people used the facility for special events, and Parks generated gross revenues of $302,821 from activities at the Armory.

Since the building was acquired from the Navy, Parks has completed seismic upgrades, replaced the upper roof, and made various tenant improvements. 

The City has supported the development of Lake Union Park with special attention to maritime heritage, including redevelopment of the Historic Ships Wharf in 2004.  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 interest in the development of the Armory as the Museum’s primary public venue. 

MOHAI Proposal and City Funding

MOHAI proposes to renovate the Armory and convert it into a regional history museum which MOHAI will operate under a long-term ground lease from the City.  The project includes a $45.4 million upgrade to the Armory building which will replace all building systems, provide circulation improvements, make ADA upgrades, remediate lead paint and asbestos, and construct new public spaces including a public portico on the west side of the building and new public galleries on the third and fourth floors.  Included in this budget are also $15.2 million in new exhibits and media.

The City’s contribution to the capital project  is anticipated to include four components: 1) $1.2 million in proceeds from MOHAI’s sale of a condominium interest in 800 Pike Street, plus accrued interest; 2) City’s agreement to enable MOHAI to pursue Historic Rehabilitation Tax Credits estimated at $4.7 million by designating the Armory as a National Landmark and conveying the building to MOHAI for the 50-60 year ground lease term (with a requirement that it revert to the City thereafter); 3) up to $750,000 in investments in utility upgrades to be completed as part of Lake Union Park Phase II construction; and 4) assignment to MOHAI of rights to the proceeds from Washington State Department of Transportion’s anticipated acquisition/condemnation of MOHAI’s current facility and the underlying land at McCurdy Park for the expansion of SR 520, estimated at $13,590,000, which is owned by the City but has been leased to MOHAI since 1948.

The City is also anticipated to contribute $300,000 annually to support the new museum’s operations and public programs.  The City currently provides MOHAI with $230,192 in support for utility costs at the Montlake facility.

MOHAI will design, develop and manage the project, with responsibility for all unforeseen cost overruns and other project risks.  The construction project budget includes a contingency of 11.4% of total project costs.  Although this is lower than the 15% contingency that is typical of similar projects at this stage of development, city staff believe this level of contingency is acceptable given that MOHAI will accept 100% of the construction risk and because more detailed cost estimating has been completed at this stage of schematic design than is typical. 

MOHAI and the City’s mutual due diligence has generally confirmed that this project is viable and appropriate given the terms outlined in the proposed Principles.  The attached due diligence report provides additional analysis of MOHAI’s project costs, fundraising and business plans, project team, and other considerations.

· 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:  N/A

Fund Name and Number	Department	Budget Control Level*	2008 Appropriation	2009 Anticipated Appropriation
TOTAL	N/A

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

Note:  If the City and MOHAI reach agreement, there will be financial impacts to the City.  If approved, an agreement based on the Principles would commit the City to provide $300,000 per year of financial support for the museum’s operations.  DPR would lose approximately $302,000 in gross revenues from special events at the Armory.  In addition, the City would forgo income from the State for its taking of the current MOHAI facility in McCurdy Park estimated at $9,540,000 for the building and $4,050,000 for the underlying land.

Anticipated Revenue/Reimbursement: Resulting From This Legislation: N/A

Fund Name and Number	Department	Revenue Source	2008 Revenue	2009 Revenue
TOTAL	N/A

Notes:  No revenue is anticipated as a result of this legislation. 

Total Regular Positions Created, Modified, Or Abrogated Through This Legislation, Including FTE Impact:  N/A

Position Title and Department	Position # for Existing Positions	Fund Name & #	PT/FT	2008 Positions	2008 FTE	2009 Positions*	2009 FTE*
TOTAL	N/A

Notes:  No staffing is requested as a result of this legislation. 

· Do positions sunset in the future?  N/A

· What is the financial cost of not implementing the legislation?  The City would retain responsibility for the Lake Union Armory.

· What are the possible alternatives to the legislation that could achieve the same or similar objectives?  None. 

· Is the legislation subject to public hearing requirements:  No, however a CLEAN hearing will be required as part of the subsequent ordinance approving a Project Agreement.

· Other Issues: 

Please list attachments to the fiscal note below: