Metropolitan King County Council Committee of the Whole STAFF REPORT Agenda Item: 5 Name: Jeff Muhm, Andrew Kim Proposed No.: 2018-0266 Date: July 30, 2018 SUBJECT Proposed Motion 2018-0266 would state the county’s intent to specify the allocation of the county imposed two percent lodging (hotel/motel) tax that will become available beginning January 1, 2021 in accordance with RCW 67.28.180. SUMMARY RCW 67.28.180 authorizes the county to levy a two percent lodging (hotel/motel) tax and allows tax revenues that will become available beginning January 1, 2021 to be allocated as follows: (1) at least 37.5 percent to arts, culture, and heritage; (2) at least 37.5 percent to affordable workforce housing near transit stations or for services for homeless youth; and (3) remainder for capital or operating programs that promote tourism and attract tourists to the county. The proposed motion would state the county’s intent to allocate the lodging tax revenues that will become available beginning January 1, 2021 as follows: (1) 37.5 percent to 4Culture to support arts, culture, and heritage; (2) 37.5 percent to the Department of Community and Human Services to support transit oriented development including projects that preserve or develop workforce housing and ongoing services or projects that support homeless youth; and (3) 25.0 percent to promote tourism and attract tourists to the county which would include debt service payments for the Building for Culture program bonds between the county and 4Culture, contributions to the Washington State Major League Baseball Stadium Public Facilities District to support capital projects of Safeco Field, and contributions to the Kent Special Events Center Public Facilities District to support capital maintenance of the accesso ShoWare Center. Staff and legal analysis is on-going. The next discussion and possible action on the proposed motion is tentatively scheduled for the August 29, 2018 Committee of the Whole committee meeting. BACKGROUND Lodging Tax Authorization and Allocation (RCW) In 2011, the Washington State Legislature passed ESSB 58341, which amended RCW 67.28.180, to allow the county to allocate the county imposed two percent lodging (hotel/motel) tax revenues that will become available in 2021 as follows: • At least 37.5 percent for art museums, cultural museums, heritage museums, the arts, and the performing arts; • At least 37.5 percent for nonprofit organizations or public housing authorities for affordable workforce housing within one-half of a mile of a transit station, or for services for homeless youth; and • Remainder for capital or operating programs that promote tourism and attract tourists to the county. In 2015, the Washington State Legislature passed the Workforce Housing Bill2, which also amended RCW 67.28.180, to give the county the ability to issue either general obligation bonds or revenue bonds to help finance the affordable workforce housing allocation of lodging tax revenues that will become available in 2021. The bill requires that debt service for revenue bonds pledged against these revenues can make up no more than half of the 37.5 percent of lodging tax revenues. The bill also allows the county the option to use the same allocation to issue revenue bonds to finance projects authorized by Community Preservation and Development Authorities3 to promote sustainable workplace opportunities near a community impacted by the construction or operation of tourism-related facilities. Attachment 2 to this staff report includes the provisions of RCW 67.28.180. 4Culture – Building for Culture Program In 2002, the county established a Cultural Development Authority,4 now known as 4Culture. The Cultural Development Authority was established to continue the county’s support for cultural resources, including arts, heritage, historic preservation, and public art. It was funded through public art fees and revenues, and other cultural fees and revenues, as well as the portion of the lodging tax set aside for arts and cultural purposes as per RCW 67.28.180. In 2015, the council adopted Motion 144065 to approve the Building for Culture Program, a partnership between the county and 4Culture that would use bonds, backed by a portion of the lodging tax, to provide capital funding for arts, cultural and heritage programs, as well as for the preservation of landmark buildings. Subsequently, the council adopted a series of legislation to effectuate the motion and implement the Building for Culture Program. 1 Enacted as Chapter 38, Laws of 2011. Effective August 24, 2011. Substitute House Bill 1223, Enacted as Chapter 102, Laws of Washington 2015. Effective July 24, 2015. 3 Currently, the Pioneer Square-International District Community Preservation and Development Authority (d/b/a Historic South Downtown Community Preservation & Development Authority) is the only community preservation and development authority established under RCW 43.167. This development authority was established by the state as per RCW 43.167.060 and therefore is currently operating as a state agency responsible for preserving, restoring, and promoting the health, safety, and cultural identity of Seattle’s Pioneer Square and Chinatown-International District neighborhoods. 4 Ordinance 14482. Enacted October 1, 2002. 5 Enacted July 28, 2015. 2 The council adopted Ordinance 181816 authorizing the executive to enter into an agreement for implementation of the Building for Culture Program by and between the county and 4Culture. The agreement identified 102 capital projects totaling approximately $28,416,000. Attachment 4 to this staff report provides a list of the capital projects by council district. The agreement required the county to issue $29,000,000 of bonds which included up to $28,450,000 for specific projects, $50,000 for the cost of pre-issuance project management, and up to $500,000 for issuance costs. The agreement also required 4Culture to contribute a total of $3 million from 2016 through 2020, and a total of $300,000 from 2021 through 2030, as contribution to the debt service payments of the bonds. Lastly, the agreement required the county to cover the remaining debt service payments, beginning in 2021, using the lodging tax revenue dedicated to tourism promotion as specified by RCW 67.28.180(3)(d)(iii). Attachment 3 to this staff report includes a copy of Ordinance 18181. The council also adopted Ordinance 181807, to issue $29,000,000 of limited tax general obligation bonds for the Building for Culture Program, and Ordinance 181798, making a supplemental appropriation of $28,000,000 to the cultural development authority and $500,000 to the historic preservation program for the Building for Culture Program. On March 30, 2018, twenty-four months after the date of issuance of the bonds, 4Culture transmitted a report9 to the county stating that it was 4Culture's assessment that four projects funded by the Building for Culture program, totaling $1,356,000, would not be able to expend or fully expend their awards.10 At the last Committee of the Whole committee meeting (July 25, 2018), the council adopted a striking amendment to Proposed Ordinance 2018-0257 to reallocate the $1,365,000 and an additional $300,000 (due to interest earnings and underspending) to other projects and amend the list of approved Building for Culture Program projects. Attachment 5 to this staff report includes a redline version of the list of projects as amended by Proposed Ordinance 2018-0257. Transit-Oriented Development Bond Allocation Plan In 2016, council adopted Motion 1468711 acknowledging the receipt of the executive transmitted Transit-Oriented Development (TOD) Bond Allocation Plan and also amended the TOD Bond Allocation Plan. The TOD Bond Allocation Plan would issue a total of $87 million in bonds to be backed by the lodging tax revenue dedicated to nonprofit organizations or public housing authorities for affordable workforce housing within one-half of a mile of a transit station, or for services for homeless youth. This amount was based on the financial forecast at that time and a state law provision that limits the debt service for bonds pledged against these revenues to no more than half of the 37.5 percent of the lodging tax revenues. 6 Enacted November 24, 2015. Enacted November 24, 2015. 8 Enacted November 24, 2015. 9 Report 2018-RPT0052. 10 The Agreement, adopted by Ordinance 18181, required that 4Culture advise the county if, 24 months after the bonds were issued, a project would not be able to expend all of its funds within 36 months of bond issuance, and gave the council the ability to reallocate any unexpended funds to other projects or to use those funds to defease the bonds. 11 Enacted July 19, 2016. 7 The Plan would allocate the bond funds as follows: • All County: $32.3 million for projects within one-half mile of a transit station; • I-90 Corridor: $10 million for projects near transit stations along the I-90 Corridor between Issaquah and North Bend; • Northgate: $10 million for a project or projects at the Northgate Transit Center; • South County: $10 million for projects near the Des Moines or Federal Way transit stations; • Bel-Red: $10 million for projects near the Bellevue-Redmond Corridor transit stations; and • Seattle South Downtown: $14.7 million total, of which $8.7 million would be dedicated to the Historic South Downtown Public Development Authority, $3 million for the Pacific Tower affordable housing project, and $3 million for affordable housing near Othello Station. In addition the plan specified that beginning in 2021, the remainder of the lodging tax revenues dedicated to affordable workforce housing within one-half of a mile of a transit station, that is not reserved for debt service for the TOD bonds will be available for annual funding awards for other TOD projects. Attachment 6 to this staff report includes a copy of the TOD Bond Allocation Plan. The 2017 Transit-Oriented Development Bond Allocation Annual Report12, as required to be transmitted by the Transit-Oriented Development Bond Allocation Plan, stated that $14.2 million has been awarded out of the “all county” portion to fund five projects totaling 549 units of affordable housing within a one-half mile of high capacity transit. Additionally, $2 million of the set-aside for the Historic South Downtown Preservation & Development Authority has been spent. Of that $1.7 million was coupled with the $3 million set-aside for the Pacific Hospital Preservation & Development Authority to purchase the Pacific Hospital North Lot for future affordable housing development. In addition, a briefing13 on Transit-Oriented Development and Transit Expansion was conducted at the June 20, 2018 Mobility Committee. Washington State Major League Baseball Stadium Public Facilities District In September 1995, the Washington State legislature authorized the county to impose three new councilmanic taxes to finance the construction of the Ballpark14 including: • 0.5 percent restaurant, bar and tavern food and drink sales and use tax; • 2.0 percent car rental sales and use tax; and • 0.017 percent sales and use tax which would be credited against the state sales and use tax so that consumers would see no net tax increase on retail sales. In October 1995, the county enacted Ordinance 1200015 to impose the state authorized taxes and create the Washington State Major League Baseball Stadium Public Facilities District (PFD) to construct and operate a Major League Baseball ballpark now known as 12 2017-RPT0113 , transmitted August 14, 2017. Briefing 2018-B0122. 14 Engrossed House Bill 2115 Chapter 1, Laws of 1995. Effective October 17, 1995. 15 Ordinance 12000. Enacted October 24, 1995. 13 Safeco Field (Ballpark). The PFD is governed by a seven member board, four of whom are appointed by the county and three of whom are appointed by the state. The county also donated the land (valued at $38 million) associated with the Ballpark’s construction to the PFD and issued $336 million in bonds to repaid by the revenue streams listed above. The bonds were repaid in October 2011 and the above taxes expired as well. The Washington State legislature also authorized the PFD to impose a 10 percent parking tax and a 5 percent admissions tax on all ticketed events at the Ballpark to help finance the Ballpark and associate parking facilities construction and later authorized these taxes to be used by the PFD for capital and operating costs associated with the Ballpark. These taxes are still in effect and are used to maintain and improve the Ballpark. The Seattle Mariners (Mariners) pledged to contribute $45 million to the Ballpark’s design and construction as well as covering any cost overruns associated with the Ballpark’s construction or design. The final construction costs of the Ballpark amounted to $517 million with the county, PFD and state contributing $372 million and the Mariners contributing $145 million. The PFD and the Mariners entered into a 20 year lease agreement in 1996 for exclusive use of the Ballpark. The Ballpark was completed in June of 1999 and was first used by the Mariners on July 15, 1999 and the lease expires on December 31, 2018. In 2015 the Mariners and the PFD began discussing new lease renewal terms and jointly hired B&D Venues and Populus Architects (Consultant Team) to investigate the extent, cost and timing of anticipated capital improvements over 20 years. The Consultant Team issued its preliminary report in 2015 and updated the report on May 15, 2018.16 The updated report identified $385.5 million worth of “Necessary Improvements” to keep the Ballpark in first class condition through 2041. The report also identified proposed “Upgrade Improvements” to enhance the Ballpark’s economic vitality through the same time period. No cost estimates were included with the proposed “Upgrade Improvements” in the Consulting Team’s report. PFD Resolution 18-004 identified the need to fund the $385.5 million in “Necessary Improvements” identified in the Consulting Team’s report and identified the Mariners’ estimate for “Upgrade Improvements” to cost an additional $160 million. No specific Upgrade Improvements were identified in PFD Resolution 18-004; however the Mariners have provided a list of potential “Upgrade Improvements” to council staff totaling $190 million and have stated that this list represents a minimum of necessary “Upgrade Improvements”. The Mariners have also stated to council staff that expansion of the current parking facility may also be necessary in addition to the identified “Upgrade Improvements”. However, executive staff has confirmed that the allocated funds to the PFD would only be used to support major maintenance needs of the Ballpark and would not be used for “Upgrade Improvements”. Attachment 8 to this staff report provides a list of the “Upgrade Improvements” as identified by the Mariners. Washington State Major League Baseball Stadium Public Facilities District – Safeco Field Long-Term Capital Needs Assessment. URL: http://douglas-sma.com/wpcontent/uploads/2018/05/Safeco_LTCNA_Revised_Draft_III.pdf. Accessed July 26, 2018. 16 On May 23, 2018, the PFD and Mariners agreed to a new lease term sheet for exclusive use of the Ballpark from January 1, 2019 through December 31, 2043 (PFD Resolution 18-004); however, no final lease has been executed. Attachment 7 to this staff report includes a copy of the proposed term sheet approved by PFD Resolution 18-004. Summary of Proposed Motion Section A of the proposed motion would state the county’s intent to allocate the lodging tax revenues that will become available beginning January 1, 2021 as follows: (1) 37.5 percent to 4Culture to support art museums, cultural museums, heritage museums, the arts and the performing arts; (2) 37.5 percent to the Department of Community and Human Services to support transit oriented development including projects that preserve or develop workforce housing and ongoing services or projects that support homeless youth; and (3) 25.0 percent to promote tourism and attract tourists to the county. The tourism portion of the allocation would first include debt service payments for the Building for Culture Program bonds between the county and 4Culture. 60 percent of the remaining funds would contribute to the Washington State Major League Baseball Stadium Public Facilities District to support capital projects for the Ballpark to sustain the long-term viability of the facility, and 3 percent of the remaining funds would contribute to the Kent Special Events Center Public Facilities District to support capital maintenance of the accesso ShoWare Center. Section B of the proposed motion requires the executive, in consultation with the council to develop a countywide strategic arts, heritage, historic preservation, and culture plan for the arts, culture, and heritage portion of the lodging tax revenues. The strategic plan is required to be sent to council by December 31, 2019. Section C of the proposed motion requires the council, the executive, and county visitor and tourism organizations to work in collaboration to set up a tourism promotion fund. Lastly, section D of the proposed motion requests the executive to develop and transmit legislation to support the identified planned allocations as specified in the proposed motion. This would include appropriation requests, and any necessary interlocal agreements with the Washington State Major League Baseball Stadium Public Facilities District, the Kent Special Events Center Public Facilities District or 4Culture. ANALYSIS Compliance with State Law and Past Council Actions RCW 67.28.180(3)(d) establishes guidelines on the allocation of the county imposed two percent lodging tax that will become available beginning January 1, 2021. The allocations as specified in the proposed motion complies with the guidelines of state law. Table 1 below provides a comparison of the state law and the proposed motion. In anticipation of lodging tax revenues that will become available in 2021, the council have already adopted various legislations that would utilize the future revenue stream. All of these past council actions are discussed in the Background section above. Table 1 below provides reference to these past council actions and aligns them to the appropriate allocations as directed by state law and specified in the proposed motion. Table 1. Comparison between state law and proposed motion with references to related past council actions. No. Allocation Guidelines as per RCW 67.28.180(3)(d) Allocations specified by Proposed Motion 2018-0266 Past Council Actions 1 At least 37.5% for art museums, cultural museums, heritage museums, the arts, and the performing arts. 37.5% shall be transferred to 4Culture to support art museums, cultural museums, heritage museums, the arts and the performing arts. None 2 At least 37.5% for the following: a. Nonprofit organizations or public housing authorities for affordable workforce housing within one-half mile of a transit station; or 37.5% shall be allocated to DCHS to support transit oriented development including projects that preserve or develop workforce housing and ongoing services or projects that support homeless youth. Motion 14687 acknowledged receipt of the Transit-Oriented Development (TOD) Bond Allocation Plan which plans to issue $87 million of bonds, revenue backed by lodging taxes available in 2021, for TOD projects. The plan specifies that remaining lodging tax proceeds not allocated for debt service payments would be available for annual funding awards for other TOD projects. 25% percent shall be allocated for the following: a. Building 4 Culture bonds debt service; Motion 14406 established the Building for Culture Program to fund capital projects that supported arts, culture and heritage using lodging tax revenues designated for tourism promotion. Ordinance 18179, 18180, and 18181 effectuated the motion to implement the program and issue $29 million of bonds to support 102 capital projects. Proposed Ordinance 2018-0257 would reallocate $1.7 million and modify the adopted list of projects. b. Services for homeless youth; or c. 3 Repay general obligation or revenue bonds for affordable housing or sustainable workplace opportunities near a community impacted by the construction or operation of tourismrelated facilities authorized by a community preservation and development authority. Remainder must be used for capital or operating programs that promote tourism and attract tourists to the county. b. 60% remaining to the Washington State Major League Baseball Stadium Public Facilities District for capital projects; and c. 3% remaining amount to the Kent Special Events Center Public Facilities District from 2021 to 2029 to support capital maintenance of the accesso ShoWare Center. Financial Analysis Table 2 below provides a financial snapshot of the total allocation of the county’s two percent lodging tax revenues as specified by the proposed motion from 2021 to 2043. The year range reflects the duration of 15 to 20 year term bond issuances for the Building for Culture Program and TOD Bond Allocation Plan, and a possible new lease term duration between the PFD and the Mariners. The financial snapshot also assumes allocation based on past council actions. The financial snapshot is based on the county’s Office of Economic and Financial Analysis (OEFA) March 2018 revenue forecast through 2027. Revenues beyond 2028 were estimated based on an annual increase of 3.6 percent. Table 2. Allocation of Lodging Tax Revenues from 2021 to 2043 as per Proposed Motion 2018-0266. Arts, Culture & Heritage Affordable Workforce Housing Near Transit Tourism Promotion 37.5% 37.5% 25% • TOD Bond Allocation Plan – $116 million (Debt Service for $87 million of bond proceeds) • TOD Annual Funding Awards – $360 million • Building for Culture Program Debt Service – $22.3 million • PFD – $177-190 million • ShoWare – $1.3 million • Unallocated – $102-115 million TOTAL: $476 million TOTAL: $318 million • 4Culture – $476 million TOTAL: $476 million Future Actions by Council As specified by section D of the proposed motion, the Executive intends to transmit an ordinance to adopt an interlocal agreement between the county and the PFD to effectuate the intent of the proposed motion. The Mariners have indicated in media accounts and to council staff that they will not start final lease negotiations with the PFD until the county adopts an interlocal agreement to transfer a portion of the lodging tax revenue designated for tourism promotion for capital needs of the Ballpark. The council may need to also take action on appropriation requests, and any necessary interlocal agreements with the Kent Special Events Center Public Facilities District and 4Culture to also effectuate the intent of the proposed motion. Section D of the proposed motion requests the executive to transmit such legislations. Executive staff have also confirmed that they will work collaboratively with the council to establish a strategic arts, heritage, historic preservation, and culture plan (as specified in section B of the proposed motion) and also to identify the county visitor and tourism organizations that will collaborate with the county to set up a tourism promotion fund (as specified in section C of the proposed motion). NEXT STEPS Staff and legal analysis is on-going. The next discussion and possible action on the proposed motion is tentatively scheduled for the August 29, 2018 Committee of the Whole committee meeting. ATTACHMENTS 1. Proposed Motion 2018-0266 2. RCW 67.28.180 (State law on lodging tax authorization and allocation) 3. King County Ordinance 18181 (Ordinance authorizing the executive to enter into the agreement for implementation of the Building for Culture Program by and between King County and 4Culture) 4. Building for Culture Program projects by council district 5. Revised Building for Culture Program projects by Proposed Ordinance 2018-0257.2, dated July 25, 2018 6. King County Motion 14687 (Motion acknowledging receipt of the Transit-Oriented Development Bond Allocation Plan) 7. Lease Renewal Term Sheet between PFD and Mariners, dated May 23, 2018 8. List of “Upgrade Improvements” as identified by the Mariners, dated June 15, 2018 INVITED 1. Rachel Smith, Chief of Staff, Office of County Executive