The #Megablock

The #Megablock

Folks who know me know that I have opinions about the Mercer Mega Block. Not as much as to the disposition of the parcels of property that make up the Mega Block, but what to do with the money.

In Seattle, anyone paying moderate or more attention to land use and housing policy knows about the Mega Block. Purchased using various fund sources a long time ago, the parcels were used for staging after filling in the Broad Street tunnel - staging for the Mercer corridor project and for the tunnel project. And now these publicly owned parcels are no longer serving that purpose, the decision from the city is to dispose of them.

Many urbanists advocated for the city to keep the parcels within the public portfolio, and called for a redevelopment inclusive of a substantial amount of public housing. While this is definitely an admirable goal, I generally have disagreed with this approach for a few reasons.

  1. It’s Too Damn Expensive
    Building to the highest and best use - even with inclusion of park-like settings and other non-housing services - would be a budget breaker. The money simply isn’t there, unless our city were to pull funding for housing and community assets from the rest of the city (and then some).

  2. It’s a Terrible Site for Housing
    During the MHA amendment discussions, much hay was made about the Crown Hill “density swaps.” Instead of having more modest density a block away from the arterial in the neighborhood, the choice was made by a majority of council to place it all on the arterial. This creates a situation wherein those most likely to benefit from rent-restricted units get to do so with the added result of breathing in more emissions. The public health aspect is real, and placing so much public housing for low-income folks in such a car-centric corridor would have amounted to deciding that the poors get to live with bad health outcomes.

  3. There Are Other (Better) Opportunities
    With the adoption of updated disposition policies that include the 80% rule for sale of properties, the sale of this parcel could fund the building of more homes throughout the city, including contributing to mixed-income developments as part of an RFP on other city-owned sites, such as the North Precinct (assuming a new precinct, or two precincts, is built and frees up the site) or the 8th and Roy parcel (more on that below).

These are REALLY GOOD adds to the deal!!!

These are REALLY GOOD adds to the deal!!!

To me, while I could see this site as an attractive opportunity for housing, I view it more as an attractive opportunity to fund a boatload more housing. And, frankly, the deal with Alexandria Partners negotiated by the Mayor’s office is a good deal (see that, folks - I have given praise to this administration). The extension of the Mercer cycletrack, the addition of the community center, additional pedestrian improvements, the “marble” housing (including 60% AMI, 80% AMI, and market rate housing on the Copiers Northwest site) - these are all really great. Mayor Durkan, et al., deserve praise for this component of the deal.

But…

Where my ears perk up, and I have concerns, is the proposed plan (or, really, outline of a plan) for what to do with the money. In particular, the why given by Budget Director Ben Noble on how certain revenue generated is anticipated to be spent.

Let’s Go Back to 2018

The 2018 City Light Disposition Policy Amendments

In case you weren’t aware, I used to work for Seattle City Councilmember Teresa Mosqueda, who chairs the Housing, Health, Energy, and Workers’ Rights Committee (HHEWR). As we were preparing for the year in 2018, we had meetings with departments that reported to her committee (Office of Housing, Seattle City Light, Office of Labor Standards, Human Services). During one of those meetings in January, we were excited to hear that Seattle City Light had three surplus properties they were ready to dispose of, two through Office of Housing for permanently affordable homes, and one directly to a provider to build permanently affordable homes.

Fun fact: it’s been over a year and a half and the legislation to dispose of these parcels and get those homes built still is held up on the Executive side.

Initially, the plan was to sell the properties at assessed value to give a deal for the affordable housing developers. For whatever reason, the plan stalled. In the interim, the State Legislature passed SHB 2382, which explicitly allowed for transfer of surplus and/or use of underutilized properties for affordable housing purposes, explicitly authorizing transfer of properties by municipal jurisdictions - including utility properties - all the way to $0. Anticipating passage, CM Mosqeuda’s office began working on amending the City’s disposition policies, starting with the City Light Disposition Policies in order to kickstart action on these three parcels, and get these homes built. On July 30, 2018, the updated policies for Seattle City Light parcels were unanimously adopted by the City Council, and the Mayor signed the same on August 3, 2018. A year later, and those three parcels have not been transferred, and those homes have not begun construction.

The “Land Bank” Bill

During this time, there was also a situation wherein the Office of Housing wanted to purchase a parcel of property and hold it as part of a broader redevelopment plan for a site that would include affordable homeownership opportunities in the form of condos. A new area for the department, this would have moved the homeownership program with permanently affordable land-trust style homes away from the traditional single-family and townhouse model to a more urban model. However, there were restrictions in the process that would have disallowed the department to procure the property.

As a result, in collaboration with our office, we were able to (relatively) quickly amend the policies, providing an avenue by which the department could procure properties from the market when opportunities arose, execute near-final documents, and obtain Council approval prior to the final transfer of funds. This created a pathway for the department to act more nimbly, and where it made sense, procure properties that may not be ready for development, but are otherwise prime opportunities once the funding lasagna is ready to develop permanently affordable homes. We referred to it in CM Mosqueda’s office as the “land bank” bill, even though that’s not really what it was, and Traci really didn’t like us using a park term for housing. (sorry Traci!)

Resolution 31837

All of the above was the build-up to Resolution 31837, which overhauled the City’s surplus land disposition policies, first adopted in 1998. This was probably the most visible wonk-fest that CM Mosqueda’s office did around housing in 2018, and was crafted with significant community engagement, collaboration with other offices, and work with affordable housing developers.

The initial idea was simple enough: let’s prioritize surplus properties for affordable housing development and additional assets that ensure we’re not just building buildings, but we are building thriving communities. Looking at displacement maps, and hearing stories from small business owners, communities most impacted by displacement, and more, these were crafted in such a way to prioritize engagement with communities most impacted by displacement, reinvestment in parts of the city that have experienced disinvestment, and where a property is unsuitable for affordable housing development, prioritizing investment of net revenue in affordable housing through 2023 (explicitly stating that 80% of net revenue must be invested in affordable homes, unless otherwise authorized by Council). At one point, we were asked why we were “rushing” these policies instead of giving it another year of process, and the Mercer Mega Block was part of our reasoning (the other: the crisis cannot wait for another year to try to perfect the policies).

On October 1, 2018, the City Council unanimously approved these policies, and the Mayor signed on in support on October 5, 2018.

What Does This Have to Do with the Mega Block Disposition?

Throughout all of the work that CM Mosqueda’s office did on disposition policies, there was constant work I was doing to ensure that our efforts were not going to be thrown out in court. Going all of the way back to the moratorium on rent-bidding applications, I prided myself on efforts to ensure we weren’t just grabbing headlines, but passing laws that could withstand legal challenges. While press conferences and speeches are pretty great, if the resulting legislation is unconstitutional, they don’t mean a damn thing to folks priced out of the city, or priced into homelessness.

As we began our work on disposition policies, I was keenly aware of the legal limitations associated with surplus property dispositions in Washington State, specifically for property purchased using “restricted funds.” While there is latitude for jurisdictions to determine for themselves what constitutes the “best deal” for a jurisdiction for disposition of a parcel - be that purely the money, or whether public benefits plus money, or public benefits alone - that latitude is limited when the invested funds include restricted funds.

Restricted Funds?

Probably the most well-known “restricted fund” is the Motor Vehicle Fund (MVF). Essentially funded with gas tax dollars, the State Constitution is explicit that money that goes into the MVF must be spent on highway purposes. There is also utility funds, specifically revenue generated through rates. Because they serve a proprietary function (to deliver the service), revenue generated through rates may only be spent to provide that function. Absent express authority from the Legislature, the utility may only do work that advances its designated purpose.

I could go on (and on) about the legal arguments here, but I already wrote a memo about it for City Light Dispositions, and for dispositions for properties that may have MVF dollars in them.

And?

During a presentation before the Sustainability and Transportation Committee on August 16, City of Seattle Budget Director Ben Noble cited “legal restriction[s]” for why $52 million from the sale of the Mega Block is slated to go toward transportation projects (whether loan repayments or new investments). Later during the meeting, Councilmember O’Brien brought up that a decade ago, the thought was this parcel would bring in $40 million, suggesting that it was originally purchased for a hell of a lot less.

The orange “restricted” language? NOOOOOPE

The orange “restricted” language? NOOOOOPE

How much? That seems to be unclear. During the budget cycle in 2018, CM Mosqueda’s office asked multiple times how much the parcels were purchased for, and how much of that was with MVF dollars. Not once did the Seattle Department of Transportation or Budget Office answer the question. The feeling among central staff: they don’t know, and don’t have records to show what the investment from MVF was. A quick perusal of the Assessor’s office website suggested that the amount paid was around $3 million. Three million is a lot less than $52 million.

So why is the argument being made that there is a “legal restriction” on less than $3 million in MVF dollars? That I cannot say. Instead, the public is left to just take Director Noble at his word.

But He Is Wrong

At least, in my view of relevant case law, he is wrong. The inference is that because of the MVF dollars, that a certain amount must go to transportation projects. Based on his calculations, the determination by this administration is that the percentage of MVF funds in the property must be same coming out of the property. Put another way, they are suggesting that the gain on investment must be repaid or re-purposed for transportation (not transit, but car-centered transportation) purposes.

But that is not at all what the State Supreme Court has said. This issue is one we looked into at length when crafting the disposition policies because of the impact it could have on City Light parcels. The relevant case (for the Mega Block) is also the closest case on the concept for City Light: Freeman v. State of Washington, 178 Wn.2d 387 309 P.3d 437 (2013). It all comes down to how you interpret the plain language used by the Court:

The appellants contend, however, that even if WSDOT could lease the center lanes, the MVF is not property reimbursed through the lease. Specifically, the appellants argue the appraisal failed to include maintenance and replacement costs. The appellants do not cite authority demonstrating the valuation method applied was improper, or provide evidence to support their claim that millions of MVF dollars were spent on maintenance…Because article II, section 40 concerns only “[a]ll fees collected by the State of Washington,” WSDOT need only provide consideration for the cost to the MVF for constructing the center lanes to comply with the Constitution. Thus, article II, section 40 is not violated.

Freeman at 397 (emphasis added).

The Court has made clear that, where a use for an MVF funded project is changing, the MVF must be repaid for the cost of construction or investment. Not the cost plus gain, the dollar for dollar cost. Thus, with less than $3 million total invested in the site, the $20+ million repaying interfund loans for the Mercer Corridor project will more than repay the dollar-for-dollar investment from the MVF. Accordingly, everything beyond that - including the additional $25.9 million for transportation - is optional.

This doesn’t mean that with this specific parcel there shouldn’t be consideration given for other uses beyond housing, including transportation. The policies were written for just this type of consideration for each parcel. However, as was stated multiple times by CM Mosqueda, and echoed by colleagues, using the sale of surplus property to fill budget holes is poor governance. Further, what those transportation projects are is very important, and given the apparent interpretation by this administration, those would likely be car-centered, rather than expansion of pedestrian, bicycle, and transit infrastructure.

Why It Matters

Whether the proceeds from this sale go 78% housing, 22% other choices (the current max it could be), or the proposed 59% housing, 41% other choices, should be a policy decision made by policy makers. It’s about a $25 million difference for housing. Given the sheer amount of revenue from this parcel, this might be a good choice for how to allocate the funds. However, setting a precedent that this is a legal requirement not only relies on weak arguments, but also sets a terrible precedent.

You may recall the City Light properties I was mentioning above. If you agree with my reading of the closest thing to relevant case law on restricted fund repayment, then surplus City Light properties - or even under-utilized properties that could be leased while maintaining their current use (ie: surface street parking lots) - can be sold or leased below market value, potentially to as little as the original cost to purchase the parcel. This can shave 10-15% off of the cost of development for a fully rent-restricted unit, and also allows for more creative projects that build mixed-income housing.

Think, for instance, about the 8th and Roy property across from the Mega Block. Here we have a City Light surplus property that could readily hold two narrow towers of housing with first-floor amenities, within walking distance of a park, transit, and community center, near bike lanes, and more! Through a partnership, one tower could be rent restricted at 50-60% AMI, built to 85 feet, the other marbled market rate, 60%, and 80% at 100 feet, and some public space in-between, or a shared low-level rooftop balcony (three stories) from a connection between the buildings. Utilizing the disposition policies, the property itself could be purchased for below market value - say, $15-20 million - saving significant funds and helping such a project pencil out. Hell, money from the Mega Block could fund part of such a project. (of note: there has been a historic designation of the rundown building at the site, but as memory serves, it hasn’t gone through the entirety of the process, and Council could (and should) adopt Controls and Incentives legislation that effectively allows for the demolition of this god-awful storage facility)

Fun with MS Paint! 8th and Roy, just north of the Mega Block, and ready to be redeveloped!

Fun with MS Paint! 8th and Roy, just north of the Mega Block, and ready to be redeveloped!

However, if you believe that the gain must also be repaid, contrary to the plain language of Freeman, then at no time could a City Light parcel go below market value. Or a Public Utility parcel. And this would eliminate many properties throughout Seattle from fully realizing the potential of the disposition policies, and the authorization granted by the State.

Ultimately, it falls to the City Council to make that choice. Even if they choose to distribute funds on the percentage basis recommended by the Mayor’s office, including language in legislation that makes clear they are doing so under the 80% prong of the disposition policies, and continuing to push for the Executive branch to submit the three parcels that continue to be held up for as little as possible (with the clear guidance from Freeman) to ensure bad precedent is not set is crucial.

Now is not the time for continued dithering. Every opportunity that Council, as the policy-making body, has to reiterate its commitment to smart use of surplus and underutilized properties should be embraced. At the same time, it falls to them and us to put pressure on the Mayor’s office to be bold, and operate with the swiftness the affordability crisis demands. She said herself that she is an “impatient mayor.” I’m looking forward to seeing that impatience deliver on the promise of the disposition policies.

#TNCs

#TNCs

#Taxes

#Taxes