Tacoma City Council, developer debate merits of Point Ruston proposals

Point Ruston, a master-planned residential community and urban village slated for development on the former Asarco smelter site, was in the news this week. At issue is a two-pronged plan that involves the City of Tacoma, Point Ruston LLC, and the Environmental Protection Agency (EPA).

First, the City is considering a $3 million amendment to its Local Improvement District (LID) agreement with Point Ruston LLC, the project’s developer, in order to close a budget shortfall related to the first two phases of the project’s public infrastructure. The first phase involves the infrastructure for sewer, water, and power. The second phase involves the infrastructure for the roadway, street lighting, and stormwater drains. Additionally, a third LID phase would be introduced to address construction of the seaward 50 feet of a 100-foot-wide, 4,400-foot-long shoreline esplanade to be completed by the end of 2012. Approximately $1.9 million would come from the City’s sewer fund, and approximately $1.1 million would come from the City’s surface water fund. The LID amendment could appear on city council’s agenda as early as March 22. If so, it would be the second time the LID agreement has been amended. On Oct. 20, 2009, City Council unanimously approved an amendment that increased the LID financing from $11 million to $15.5 million.

Second, the City is considering a deal with the developer to purchase an eight-acre, 100-foot-wide swath of Point Ruston’s Commencement Bay shoreline stretching from Ruston Way to Peninsula Park for $6 million. Under the plan, the City would seek protection from any environmental liability related to the property by negotiating an indemnity agreement with the developer and EPA so that the costs of cleanup continue to be borne by Point Ruston or the Asarco bankruptcy settlement — not by Tacoma. Point Ruston and the waterfront esplanade are part of a superfund site purchased by the developer in 2005. The developer and EPA have worked together on cleaning up the toxic land. According to Tacoma City Manager Eric Anderson, this is an opportunity for the City to own an important piece of waterfront property. If the City owns the property, said Anderson, the charter preserves it as City-owned waterfront that can’t be sold without a vote of the people, and owning this stretch of waterfront — one-fourth of which is in Ruston — in perpetuity is a principal motivation. The city would pay for the purchase by adding it to a $40- to $45-million limited tax general obligation bond (the City’s total bonding capacity is $82 million).

Anderson briefed councilmembers on both plans during council’s noon study session Tuesday ( see “Point Ruston: Tacoma City Council discusses $6M waterfront purchase, $3M LID amendment,” TDI, 03/08/11 — http://www.tacomadailyindex.com/portals-code/list.cgi?paper=88&cat=23&id=1937814&more=0 ). He also discussed the issue during council’s committee of the whole meeting on March 1 ( see “Point Ruston waterfront for sale? Tacoma says it’s interested,” TDI, 03/04/11 — http://www.tacomadailyindex.com/portals-code/list.cgi?paper=88&cat=23&id=1936374&more=0 ).

In today’s edition of the Index, we look at some of the discussion between Mike Cohen of Point Ruston LLC, City Manager Eric Anderson, and several councilmembers during Tuesday’s study session.

For a complete transcript of the study session, click here — http://cms.cityoftacoma.org/cityclerk/Files/CityCouncil/ClosedCaptions/2011/SSMtgCaptions20110308.pdf . To listen to a complete audio recording of the study session, click here — http://www.cityoftacoma.org/Page.aspx?hid=9504 .

MIKE COHEN, POINT RUSTON LLC: Point Ruston, to date, has documented $6.5 million of their cash invested in public infrastructure. We have the agreement with the City of Tacoma to reimburse us, as [Tacoma City Manager] Eric [Anderson has] pointed out, in two phases. Now, the weak point of that agreement that nobody foresaw was the agreement that said in phase one, water, sewer and power, they estimated it at $3.2 million and we’re at $6.5 million and haven’t seen those other components. I think we have discussed in one of the meetings how that came about. But there are a lot of things you have to do to get the sewer line in — front-loading and the City public works folks all in agreement. They would have proceeded the way we did and had the same costs. So it is a cash flow problem. But it is a cash flow problem based on big numbers. We’re not asking for advances. We’re asking for a modified agreement to meet the reality of what is happening on the ground.

We did very clearly agree that this transaction is much more than a simple purchase of a piece of property. I think that, on its own, [it] is of tremendous merit and would accomplish a lot for the citizens of our area to complete in perpetuity, no question about it. It is great. But the reality is . . . this $15 million LID agreement for public infrastructure is now a $22 million infrastructure project now that all the plans and approvals and designs have been agreed between us and the City. There is that shortfall and how do we bridge that gap? This is an extremely creative approach that just accomplishes multiple things with the same dollars. And we firmly agreed that the proceeds of this sale will be invested in public infrastructure.

Eric mentioned in his first presentation — and we were very comfortable with that thought — that the money will be held in escrow and released to us upon proof that we spent it on this infrastructure.

There is no easement on our property right now. The City has no easement. The public has no easement. Nobody does. We’re in full control of every bit of that property. The City’s building codes require a 15-foot easement be granted to the public when you develop waterfront property and that is granted at the time each of these parcels is developed. So we’re fully prepared to grant a minimum 15-foot easement because that is what the code requires. In all of our shoreline processes and from day one, we have always embraced the fact that to make our project as successful as it can be and as great for us, we have to have a very vibrant and alive community out there and attracting the public is very important to us. And we always said from day one that we will go beyond that 15 feet and give a 100-foot strip and, as the plan has always showed, a very wide swath coming through there. There is a big difference between a private development granting and allowing public access along this wide, 100-foot strip and giving a very specific, in perpetuity, 15-foot easement. That is in recognition [that] there are commercial uses in development . . . and even if you read, for instance, in our shoreline permit, it says very clearly that it anticipates there will be restrictions on hours, on use and all of those kind of things, which is normal. The City, by acquiring this 100-foot strip, they get to decide if there are any restrictions on use [and] hours because it is going to be just like the Foss or Ruston Way esplanade now. The assumption is it is a wide-open 24-hour-a-day public access and that is the big difference.

RYAN MELLO, TACOMA CITY COUNCILMEMBER — We heard earlier the previous council thought it would be a $15 million project. Now it is a $22 million project for what I believe are valid reasons and the city manager has come up with a creative way to help bridge the gap.

What I don’t think we have fully wrapped our brain around is needing EPA approval in order to commence a purchase and sale agreement. We can — the mayor can sign, Point Ruston can sign to sell the property as a willing seller assuming the appraisal checks out. But as I understand it, we can’t sell the thing until we get EPA approval and the indemnities we need. So what I am saying, the $6 million that needs to keep the project moving, what if it takes 18 months? The EPA is not the quickest agency in the world. What if it takes 18 months or two years, which is not crazy-sounding? It could take that long. Meanwhile, cash flow is of the essence to keep cranes in the sky and keep the private capital moving here. I am very concerned about that aspect of our deal in order to keep the momentum going.

What I would like to see, assuming this comes before council, I still want an understanding from the City and the developer about the consequences if the $6 million is not freed up for this construction season. What are the short term and long-term consequences for the project? I don’t understand that yet and I think we need to wrap our brains around that thoroughly.

ERIC ANDERSON, TACOMA CITY MANAGER — I must say we have talked about that at some length with the developer and it is a very real concern. The problem we have is the kind of protection that we are looking for and need means that we have no relationship with the property owner, with the developer. If we moved to taking action that in any way, shape or form assumes ownership or even suggests ownership before EPA has given us approval, we may never be able to get that approval. And then, consequently, would not be able to go forward. That part of my question to you in terms of going forward was to begin the discussions with EPA and then go forward from there.

Obviously, we’re going to have to keep track of this. This isn’t something that can take 18 months. If it does, we’re in trouble. But I do think that we need to approach EPA. This is a 60- to 90-day decision they usually make. It will probably take longer than that, I would suspect, but I think we need to approach them as an entirely separate party in a straight-forward way and then gauge the response and keep an eye on it. The issue you raise is a very real one. We concluded we could not solve it without endangering EPA approval of the protections we need.

JAKE FEY, TACOMA CITY COUNCILMEMBER — When the LID was originally constructed, the City bargained very hard and long on this and perhaps we didn’t take really into account fully that there was a benefit to the City for the improvement of those utilities unassociated with the development down there. So I think, from the public standpoint, we bargained for a developer to pay all the costs of that infrastructure albeit we wouldn’t need it necessarily. But anyone who is driven that way understands that maybe we have a viable road but Ruston doesn’t have a viable road to rely on and that is a significant complaint in terms to us on the condition of the roadway. So all that is to say that perhaps Mr. Cohen was too generous in his negotiations and should have gotten some portion of the costs paid by the City for this.

I thought we had something of substantial value with that easement. I was asking myself if we have an easement to build a 50-foot walkway, esplanade around there, why would we pay for it if we had a right to it to begin with? And thank you, Councilmember Mello and Mr. Cohen for explaining that we don’t have a whole heck of a lot there in terms of dollar value.

We still don’t know whether it will pencil out and that appraisal will be $6 million because $6 million is the number Mr. Cohen needs to be able to continue work. It might be $9 million, it might be only $3 million. We have no idea what that is going to be. I certainly don’t. I do have lingering concerns about getting this all done and if we can get it all done and have control of the dollar so that money is repaid by building the next stage of the LID, then we have assurance that things will keep moving.

Looking to the future, I think Mr. Cohen has a huge challenge in terms of being able to develop the property. But this is not probably the point to either second-guess that or make a speculation about whether [or] how this will all get developed in terms of a private development. We have to protect ourselves and make sure we’re getting something of value here.

I do believe we need to see the sequence of the dollars and the agreements so we can understand that there is a path forward that is going to lead in the end to the construction at the end of 2012 of the esplanade. Because otherwise, it will be another cost for us.

We’ve got a lot of infrastructure projects out there. I was not aware we were seeking as large a bond as we might be seeking and we’re running out of financial tools here, the City is. We have reached the end of our bonding capacity, then we reach the end of our bonding capacity and any good project at that point in time doesn’t matter because we can’t borrow for it.