The City Council’s Tim Burgess, who leads the Government Performance and Finance Committee, explains that they’ve put the brakes on the $55-million sale of the Pacific Place parking garage to the Pine Street Group: “It was not an easy or simple decision, so I thought it would be good to explain the Council’s review process in greater detail.” There’s a great deal of number-crunching involved, but the upshot is that analyst John McCoy found “the true costs of selling the garage now would leave the City nearly $21 million in the red in net present value.” (See pdf.)
In discussing the potential sale in February, the Council’s Jean Godden said operating the parking garage — which since 2008 has failed to cover the rise in its debt service — was “obviously not our forte.” Now it seems the Council can add “negotiating bond agreements and remembering what was negotiated” to that list of weaknesses.
Burgess admits that a belated discovery means it’s not so simple for city to get out from under Pacific Place: “For various reasons, our garage debt cannot be paid off directly — or ‘called’ in the language of the bond market — until late in 2017. That leaves us paying the bonds’ 5 percent interest rate in the meantime.” The city could keep the $55 million in escrow until 2017, but with interest rates lagging bond interest rates by about 4 percent, they might as well set the money on fire and use it to heat City Hall.
Now that everyone has taken the time to read the original agreement, taking advantage of a specified window for sale (between 2018 and 2028) pencils out better. Then, the city is allowed to make Pine Street Group an offer they can’t refuse: “for the lesser of $50 million or the amount required to make the City whole on its original investment (paying off outstanding debt principal plus accumulated losses with interest).”
UPDATE: An aide to Tim Burgess writes that I’m censuring the wrong branch in the following paragraph, noting that “the deal was formed by the executive side of the house – the Council was simply playing the role of legislative reviewer. Unfortunately, the executive didn’t account for the defeasance numbers in their original accounting, but after Council staff dug into it and we got updated numbers, the committee was able to make the decision that it did.” Mea culpa.
This council’s bungling of its attempted fire sale is dwarfed by that of the latter-day council that set up the original agreement. At the same moment they were agreeing to debt service that increased a set three percent each year, they demanded that if the garage made profit in any given year, the next year its rates should be reduced to no more than 80 percent of the market rate. “In practice,” notes McCoy drily, “this structure implies that the Garage Fund will have a hard time making a profit more than one year in a row.”
Further, a later Council approved a commercial parking tax in mid-2007, the year before the garage’s revenue started to falter as the recession set in. Now at 12. 5 percent, the tax sucks revenue out of the Garage Fund (dedicated to paying operating costs and debt service) and into the city’s general transportation fund. A quick glance at the graph below shows that this expense alone (in green) accounts for much of the shortfalls between 2008 and 2012 at the “money-losing” garage.
