Town Center Financing Tool From State Not As Simple As "No New Taxes"

University Place has the option to accept $500,000 in sales tax revenue generated in the city annually for Town Center infrastructure. It requires no new tax increases and UP's wallet is safe, but some are still asking questions about the money.

Some call it directing sales tax revenue back to the community in which it was generated.

Others argue that tax dollars are tax dollars, and it doesn’t matter which local government is doling them out.

And even others question why more money should be spent on an already expensive project.

Whatever the case may be, a state-funding tool that allows a city to recoup a portion of sales tax revenue generated within its borders is creating a stir in University Place.

Through the state Legislature’s Local Investment Financing Tool, or LIFT, the City of University Place was granted permission two years ago to collect $500,000 a year for 25 years to pay for infrastructure improvements at the city’s future development, Town Center. (Click here for city staff's report on the measure)

What that means is a portion of the $15 million in state sales revenue generated annually in UP from its 9.3-percent sales tax would go back to the city for the mixed-use project instead of the state. The city only can spend the money for street, sewer and other infrastructure improvements.

The money would be repaid with sales tax revenue collected in University Place, not out of the city’s general fund. There would be no tax increases.

No new taxes, no problem, right?

When the issue came up at the University Place City Council meeting this month, most on the dais said that redirecting sales tax money to help a project that will likely generate sales tax dollars for the suburban community when completed – yet has been crippled by a struggling economy and delays with potential developers – is a good thing.

They liken the model to the Greater Tacoma Convention and Trade Center, for which a public facilities district was created. A portion of the sales tax collected in University Place, Tacoma, Lakewood and other local governments helps pay for the center’s infrastructure every year. (Click here to view the City of Tacoma's report on the center)

The UP measure would require the creation of a separate board run by the University Place City Council that would take out a bond that must be repaid with sales tax dollars.

“Creating a public authority will ensure that the city and its taxpayers have no liability or responsibility for paying the bonds,” Mayor Debbie Klosowski . “Instead, the bondholders can only look to state funds.”

University Place City Councilwoman Caroline Belleci says although the community generates $15 million for the state every year, “we only get a portion of that back.”

But not everyone agreed that accepting the money is a good thing.

Councilman Javier Figueroa sent an e-mail to his supporters over the weekend with a laundry list of questions about the financing:

- Why should the city be allowed to spend any more tax dollars on the city

owned Town Center property?

- What specific projects/tasks will be completed with the bond money?

- Should we approve the bond issue and receive the funds before we know how

the funds will be spent?

- Will the funds cover the entire infrastructure that is needed to complete

the city's required infrastructure to secure/attract developers and tenants?

- Why were we told that the properties were pad ready?

- When will we be done using tax dollars towards the proposed Town Center?

The last question refers, in part, to some $11 million that the city has spent on the project’s infrastructure since 2009.

University Place School Board member Kent Keel, who’s running for a spot on the City Council in November, encouraged officials “to ask a lot of questions about this.”

“If I’m a resident of the state, I will be affected,” he said.

The questions come at a time in which the city has yet to officially sell a Town Center parcel for retail, although officials insist there is interest and action from developers that the public won’t know about until a deal is closed.

Momentum, officials have said, is key to Town Center’s attraction, as the opening of an Applebee’s has been pushed back to next year.

Depending on the rate of the bond when it’s issued, the city could get $5 million to $6 million.

Whether or not the city should accept the money is still up for debate.

The UP City Council is scheduled to vote on the measure at its June 20 meeting.

Jonathan June 14, 2011 at 03:15 AM
Receiving the LRF area designation from the State was a huge($12.5 mil) stroke of good fortune for the City. Sort of equivalent to winning the lottery without having to buy a lottery ticket. Most people are not familiar with how bonds and taxes work so it's understandable that the average joe might be suspicious of this seemingly "too good to be true" development. Perhaps even candidate Keel should be cut some slack for not immediately "getting it." But it would be inexcusable for a member of the council to fail to grab this opportunity with both hands.
Kent Keel June 14, 2011 at 05:05 AM
Let me put my quotes into context... “If I’m a resident of the state, I will be affected.” City officials maintain that if the bond should go into default no UP city taxpayer will have to pay. I and the many people who support my candidacy for council do not believe this is totally accurate. While we won't be paying for the default as a UP taxpayer, we will be paying for the default as a Washington state taxpayer. I further believe elected officials should be completely honest about how things affect the people they represent. Because of this "half-truth" I say we should ask a lot of questions. I have been legislating multi-million dollar bonds in University Place as an elected official for the past decade. Every penny collected and spent was with voter approval. Facilities were built on-time and on-budget. Few people on the council, running for council or blogging on Patch have my successful experience with bonds.
Brent Champaco June 14, 2011 at 07:30 AM
Thanks Kent for giving a little context to your quote. I'm glad you were able to explain your position much better than I could. To be clear, I'm not supporting or arguing against it, but I'm glad you were able to clarify where you stand.
James Rand June 14, 2011 at 02:19 PM
The Local Revitalization Financing (LRF) bonds are a great deal for the City of University Place and we would be foolish not to issue them as they are essentially free money. Is there any way we can redirect these funds for real economic development purposes instead of wasting them on Town Center infrastructure?
Irene Potter June 14, 2011 at 02:27 PM
I also appreciate Kent Keel's comments. For some time now, I have watched UP City's leaning and depending on grants. Most everyone thinks they are wonderful. They may seem to be so, BUT, that grant money comes from the same place as all moneys that our governments have and that is OUR POCKETS! We should be cautious as to where it goes and how it is spent. Irene Potter
Michael Adams June 14, 2011 at 04:02 PM
It would be inexcusable for the city council to move the city liability over to the state without a outside audit.This city has never taken responsibility for the white elephant of a town center why should they now.Maybe we should have the State Auditor look into the viability of this project before the whole state is responsible for the actions of the City of University Place.
Jonathan June 14, 2011 at 08:13 PM
In what way do you imagine the City could "take responsibility" for Town Center beyond what it already bears? This strikes me as a meaningless statement. There is nothing about the LRF which will "move the city liability over to the state." Again, this is a statement which makes no sense. The town center project has been audited by an outside auditor before without any findings of impropriety. How frequently do you think the project should be audited and how much money and staff resources should be expended doing so? If it receives another clean audit would you be satisfied? If not then why bother auditing it?
Jonathan June 14, 2011 at 08:47 PM
The LRF designation was specifically given to the Town Center area north of 40th and south of 35th on both sides of bridgeport. This is essentially the inner core of the Town Center zone. The whole point of it was that the State feels it is worthwhile to invest in the development of this area. The State's rationale for this investment is the same as the City's. It is a belief that public investments in this area will grow the sales tax base and that through this growth the investment will be returned over the long term.
Jonathan June 14, 2011 at 09:21 PM
You are correct that money for the grants comes from the taxpayer. Perhaps reasonable people could disagree about whether investments in sidewalks, parks or other infrastructure are worthwhile. I think the point people who are critical of the City's use of grants miss is that that taxpayer money(our money!) is going to be used to pay for grants whether University Place receives the grants or not. Those decisions are made at the state, county and federal level. For instance, there is competition for these WA State "Safe Routes to School" grants that have built so much sidewalk in UP. If UP doesn't win these grants then the funds are going to go to build sidewalks in some other community. Whether UP wins these grants or not, we as state taxpayers are going to pay for them. Realizing this how could any reasonable person be opposed to building them here? You can apply the same analysis to the acceptance of the LRA funds and probably every other grant the City receives.
Jonathan June 14, 2011 at 11:59 PM
It sounds like your concerns are based on a misunderstanding of how this type of bond differs from the bonds issued during your tenure with the UPSD. The bonds issued by the UPSD were general obligation(GO) bonds which are backed by the full faith and credit of the State of WA through the School Bond Guarantee Program. That State guarantee is a unique feature which provides that if the District defaulted then the State would be obligated to do everything in its power, including raising taxes, to pay the bond. The bonds that would be issued by the TC Project Authority are revenue bonds. This type of bond is NOT backed by the full faith and credit of the City or State. Bondholders can only look to repayment from the revenue stream upon which the bond is sold. In this case they are secured by the State portion of sales tax revenue which will be remitted to the Authority to cover the servicing. If in some doomsday scenario UP suffered a massive contraction in its economy in which the State portion of the sales tax(currently $15mil) was insufficient to cover the $500k needed to pay the debt then the bondholders would have to accept a delayed repayment schedule until they were made whole. They have no other recourse. So it really is the "whole truth" to say that the taxpayers, be they City or State, are at no risk in the case of default. The bondholders are accepting this increased risk(still extremely low!) in exchange for receiving a higher yield compared to GO bonds.
Kent Keel June 15, 2011 at 12:32 AM
As I mentioned, I have been legislating multi-million dollar bonds in University Place as an elected official for a decade. I understand the difference between a General Obligation bond and a Revenue bond. Glad that you finally completed your research for your response. This LRF may be the thing that will save this project or it may already be too late to save it only time will tell. My point is be truthful. Your own words confim my point: "Bondholders can only look to repayment from the revenue stream upon which the bond is sold. In this case they are secured by the State portion of sales tax revenue which will be remitted to the Authority to cover the servicing." We all pay Washington state sales tax. I get it. I use to think you did, but now I am not too sure.
Kent Keel June 15, 2011 at 12:33 AM
Sorry blogger Bird perhaps I should cut you some slack.
Jonathan June 15, 2011 at 12:47 AM
I'm not sure you do understand the diference. In one the bondholder has recourse in case of default. In the other he does not. In one the taxpayers are at risk. In the other they are not. This strikes me as the crux of the argument and I'm surprised to see you gloss over it as if it were no diference. Certainly being elected to the school board does not gurantee ones expertise in maters finance. You have to demonstrate this expertise. I understand the need as a candidate to challenge the status quo and raise criticism to prove his bone fides. But this strikes me as a particularly poorly chosen criticism.
Christie Anderson June 15, 2011 at 03:12 AM
Perhaps Michael Adams means the council needs to own up to the egregious errs in Town Center planning and ask forgiveness?
James Rand June 15, 2011 at 01:12 PM
The question is is, is prudent or ethical to waste any more taxpayer money on a failed project? The council should reevaluate the town center from the perspective of reliving our city of the crushing debt of this failed project rather than continuing to live in a dream world, rounding up every spare tax dollar they can find and throwing it at the problem. When the council hired Sugg without a job search, they sent a strong message that they we eager to continue living the dream that is killing our city. Don't forget to vote!
James Rand June 15, 2011 at 01:29 PM
Mr. Bird, I get your point but I think you misunderstand what many here express. As residents of the city of UP and the state of Washington we feel that any additional spending on the development of Town Center is a waste of the taxpayer's money. So lets not do it! The specific source of the money is irrelevant. It is taxpayer money, entrusted to government entities for judicious and beneficial use. Spending on town center is neither judicious nor beneficial.
Jonathan June 16, 2011 at 03:06 AM
Candidate Howard Lee has suggested that the name of the Town Center needs to be changed. My reaction to that was that it would be a pointless and expensive exercise. But when I read comments like yours I begin to see the wisdom in it. Some people have a knee jerk reaction in opposition to anything associated with the words "Town Center." Many people don't realize that Town Center was both a project and a geographical area in the City. This LRF funding is for the Town Center area. Not the now defunct public private partnership by the same name that so many people vocally oppose. It has now been years since that project was abandoned and yet people are still vocally opposing it without even understanding what they are opposing. These funds would build sidewalks, streets, and parking within this Town Center geographical area. I understand that some people don't think University Place is worthy of these types of investments. I can't think of anyplace in the City where this type of investment is more appropriate. I think it is worthy, and I glad the State legislature also thinks so.
Stephen June 16, 2011 at 09:03 PM
We should put in more back-in parking spaces along the other side of Bridgeport. Hey, it's a 'shovel ready' project and they will be used just as much as the ones on the Northbound side. While we are spending, maybe we could pave the permanent/temporary parking lot at the corner of Bridgeport and 37th, I hate when I have to stomp my feet before going into the library and police department... wait a minute the police department is still across the street. Okay I hate having muddy feet while I eat good in the neighborhood ... wait, that's in Lakewood. Well, at least we have a brand new library where a brand new library once stood. Most of the UP City Council wouldn't know a "judicious and beneficial" use of taxpayer monies if it paraded into the City Council chamber naked and danced on the dais.
Ken Campbell June 18, 2011 at 04:09 AM
The establishment of the Town Center Project Authority Board and the authorization of the LRF will be considered at the June 20 Council meeting. For the packet information on these agenda items, go to the city's web page and select `government' and select electronic packets for the meeting http://www.cityofup.com/page368.aspx
James Rand June 18, 2011 at 08:45 AM
Mr. Bird, I don't think there is any confusion about what or where Town Center is.
James Rand June 18, 2011 at 04:11 PM
Ken, I read the agenda and it looks like a done deal. Oh well what's another $8,500,000!


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