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Home My WebLink AboutCAP 2016-08-08 COMPLETE AGENDA PACKETCity of Tukwila Comm unity Affairs & Parks Committee O De'Sean Quinn, Chair O Kathy Hougardy O Thomas McLeod AGENDA Distribution: Recommended Action D. Quinn C. O'Flaherty K. Hougardy R. Turpin T. McLeod L. Humphrey J. Duffle R. Eaton D. Robertson J. Pace Mayor Ekberg D. Cline Robert Eaton, Parks & Recreation Manager MONDAY, AUGUST 8, 2016 — 5:30 PM HAZELNUT CONFERENCE ROOM (formerly known as CR #3) at east entrance of City Hall Item Recommended Action Page 1. PRESENTATION(S) 2. BUSINESS AGENDA a. Discussion on Foster Golf Course 2017 -2018 a. Committee consideration. Pg.1 budget (continued from 7 -25 -16 meeting). Robert Eaton, Parks & Recreation Manager b. An update on landscaping and tree codes. b. Committee discussion. Pg.9 Jack Pace, Community Development Director c. A discussion regarding the Landscape c. Committee consideration. Pg.13 Conservation and Local Infrastructure Program (LC LIP) (continued from 7 -25 -16 meeting). Jack Pace, Community Development Director 3. ANNOUNCEMENTS 4. MISCELLANEOUS Next Scheduled Meeting: Monday, August22, 2016 SThe City of Tukwila strives to accommodate those with disabilities. Please contact the City Clerk's Office at 206 - 433 -1800 ( TukwilaCityClerk @TukwilaWA.gov) for assistance. City of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Community Affairs and Parks Committee FROM: Rick Still, Parks and Recreation Director CC: Mayor Ekberg DATE: July 20, 2016 SUBJECT: Preliminary Review of Foster Golf Links 2017 -18 Budget ISSUE This is the first look at the preliminary 2017 -18 Budget for the Foster Golf Links. BACKGROUND As a part of the revised budget review schedule to allow the City Council more dialogue regarding the budgets, the enterprise funds are going to council committee first. Attached you will find the pages directly related to the 2017 -18 operating budget for Foster Golf Links. DISCUSSION The budget process has included the departments completing the revenue and expenditure line items that they have control over. Then, the Finance Department completed the budget by filling in staff salaries and benefits, the costs from Public Works fleet, indirect cost allocation and public utilities. The budget will be adjusted to balance as revenue and expenditures are reviewed at more in -depth by staff. A few items will be brought to the Community Affairs and Parks Committee meeting on Monday for discussion to help everyone better understand the Foster Golf Links budget: GASB -68, depreciation adjustment, equipment rental replacement and O &M, Surface Water fees, Admission Tax, golf cart replacement program, indirect cost allocation, the 20 -year golf capital improvement plan and Attachment G. ATTACHMENT Foster Golf Links Preliminary 2017 -18 Budget 2 Foster Golf Links Preliminary 2017 -18 Budget, July 25, 2016 DEPARTMENT: Parks & Recreation FUND: Golf Course FUND NUMBER: 411 RESPONSIBLE MANAGER: Rick Still POSITION: Director Description The mission of Foster Golf Links (FGL) is to provide a quality golfing experience for those that live, work, and play in Tukwila. The golf course is operated as an enterprise fund with revenues covering all maintenance, pro shop services, and capital costs. 2015 -2016 Accomplishments ♦ Developed and implemented a Reward's Card Program to acknowledge customer loyalty and strengthen our core customer base. Strategic Goals 3 & 4. PROS Plan Goal 5. ♦ Strengthened our player engagement program by promoting PGA of America's "Get Golf Ready" Program. Strategic Goals 2, 3, & 4. PROS Plan Goals 2, 3, 4, & 5. ♦ Implemented new Junior Golf Program by holding junior camps, private instruction, and participated in the Jr. PGA Golf program. Strategic Goals 2 & 4. PROS Plan Goals 2, 3, 4, & 5. ♦ Expand partnership with restaurant concessionaire to meet the needs of the customers and community and extend agreement for seven years. Strategic Goals 2, 3, & 4. PROS Plan Goals 3 & 4. ♦ Implemented Cart Replacement Plan. Strategic Goal 4. PROS Plan Goals 3 & 5. 2017 -2018 Outcome Goals ♦ Continue with Cart Replacement Plan. Strategic Goal 4. PROS Plan Goals 3 & 5. ♦ Improve operational efficiency and sustainability, and develop maintenance management plan. Strategic Goal 1, 4, &5. PROS Plan Goals 4 & 5. ♦ Continue implementing deep tine aerification program. Strategic Goal 4 & 5. PROS Plan Goals 4 & 5. ♦ Perform capital improvements at the course for playability and sustainability. Strategic Goal 4 & 5. PROS Plan Goals 4 & 5. ♦ Continue to expand our player engagement program to increase access to FGL. Strategic Goals 2, 3, & 4. PROS Plan Goals 2, 3, 4, & 5. 2017 -2018 Indicators of Success ♦ Increased rounds of play. ♦ Additional new customers. ♦ Improved satisfaction with equipment. ♦ Better drainage on course, reduced soft spots, and healthier turf. ♦ Increased use of carts on course (not regulated to cart path only) during shoulder months. 3 Foster Golf Links Preliminary 2017 -18 Budget, July 25, 2016 Revenue and Expense Summary Foster. Golf Course Find Reconcilaiton to Financial Statements 2014 2015 2016 2017 2018 2016 -2017 2017 -2018 Networking capital (Fund Balance) Actual Actual Budget Budget Budget '%o Change '%" Change Operating Revenue 7,217,532 6,132,364 5,904,327 5,686,629 5,478,801 -3.69% -3.65% Charges for Services 7,932,071 $ 6,273,982 $ 6,044,296 $ 5,815,367 $ 5,608,889 - 3.79% - 3.55`%, Green Fees, Instruction 961,495 1,021,705 1,065,000 1,095,650 1,145,650 2.88% 4.56% Sales of Merchandise 159,686 150,247 155,000 151,000 151,000 - 2.58% 0.00% Rents and Concessions 282,228 299,547 288,000 306,000 309,000 6.25% 0.98% Total Charges for Services 1,403,410 1,471,499 1,508,000 1,552,650 1,605,650 2.96% 3.41% Miscellaneous Revenue Excise Taxes 3,151 3,927 2,617 3,900 3,900 49.03% 0.00% Investment Earnings 392 952 1,130 1,000 1,000 - 11.50% 0.00% Sale of Capital Assets - (455) - - - 0.00% 0.00% Other Misc Revenue (513) 6,365 - 7,000 7,000 0.00% 0.00% Total Miscellaneous Revenue 3,030 10,789 3,747 11,900 11,900 217.59% 0.00% Transfers In 600,000 300,000 300,000 300,000 300,000 0.00% 0.00% Total Operating Revenue 2,006,440 1,782,288 1,811,747 1,864,550 1,917,550 2.91% 2.84% Operating Expenses Salaries & Wages 698,112 706,164 706,489 720,017 738,149 1.91% 2.52% Personnel Benefits 241,978 225,993 256,075 306,699 328,596 19.77% 7.14% Supplies 194,344 275,840 259,335 203,415 203,415 - 21.56% 0.00% Services 252,795 310,253 297,744 348,351 345,123 17.00% -0.93% Intergov't Services & Taxes 63,051 67,190 66,400 66,400 66,400 0.00% 0.00% Total Operating Expenses 1,450,281 1,585,439 1,586,043 1,644,882 1,681,683 3.71% 2.24% Capital Expenses Capital Outlay 47,967 - 50,000 50,000 50,000 0.00% 0.00% Total Capital Expenses 47,967 - 50,000 50,000 50,000 0.00% 0.00% Indirect cost allocation 197,486 173,909 177,352 180,899 184,517 2.00% 2.00% Total Expenses 1,695,734 1,759,348 1,813,395 1,875,781 1,916,200 3.44% 2.15 " /o Change in Fund Balance 310,705 22,941 (1,648) (11,231) 1,350 581.52% - 112.02% Adjustments to working capital Operatin Prior Period Adjustment (206,154) (596,317) - - - 0.00% 0.00% Networking capital (Fund Balance) 714,539 141,617 139,969 128,738 130,088 - 8.02% 1.05% Reconcilaiton to Financial Statements Networking capital (Fund Balance) 714,539 141,617 139,969 128,738 130,088 Net Investment in Capital Assets 7,217,532 6,132,364 5,904,327 5,686,629 5,478,801 -3.69% -3.65% Total Net Position $ 7,932,071 $ 6,273,982 $ 6,044,296 $ 5,815,367 $ 5,608,889 - 3.79% - 3.55`%, Non -Cash Adjustments to Capital Assets Capital Prior Period Adjustment - 757,473 - - - 0.00% 0.00% Depreciation 298,023 327,238 278,037 267,698 257,828 - 3.72% -3.69% 0 Foster Golf Links Preliminary 2017 -18 Budget, July 25, 2016 Expenditure Detail - Salaries and Benefits Salaries for budgeted positions are based on actual costs for existing positions and include a cost of living adjustment per contract agreements. Foster Golf Course Position Description 2016 FTE 2017 FTE 2017 Budget Salaries Benefits 2018 FTE 2018 Budget Salaries Benefits Director of Instruction - Golf 1 1 $ 81,744 $ 42,598 1 $ 83,760 $ 45,880 Golf Maintenance Supervisor 1 1 81,744 39,318 1 83,760 42,338 Lead Maintenance Specialist - Golf 1 1 76,800 38,322 1 78,900 41,315 Fleet Technician Golf 1 1 72,480 25,145 1 74,232 27,044 Admin Support Technician - Golf 2 2.5 146,820 71,540 2.5 150,861 77,013 Maintenance Specialist Golf 2.25 2.25 146,389 61,011 2.25 152,596 66,240 Extra Labor 112,000 21,302 112,000 21,302 Overtime 2,040 156 2,040 156 Unemployement - 6,120 - 6,120 Clothing Allowance - 1,187 - 1,187 Department Total 8.25 8.75 $ 720,017 $ 306,699 8.75 $ 738,149 $ 328,596 5 Foster Golf Links Preliminary 2017 -18 Budget, July 25, 2016 Expenditure Detail - Supplies, Services, and Other Supplies include irrigation, fertilizers, etc. for grounds maintenance and small tools. Services include security, utilities, rental of equipment, insurance, repairs & maintenance for course equipment, rental and maintenance charges, and memberships, among others. Intergovernmental includes admission taxes paid to the City. Capital includes upgrades to tees and greens. Foster Golf Course - Operations i 2014 2015 2016 2017 2018 Account Number Purpose Actual Actual Budget Budget Budget Supplies 411.00.576.680.31.00 Supplies - Office & Operating $ 268 $ 2,461 $ - $ 2,400 $ 2,400 411.00.576.680.31.02 Supplies - Grounds Maintenance 26,776 36,401 52,530 40,000 40,000 411.00.576.680.31.03 Supplies - Irrigation 1,896 7,052 7,140 7,000 7,000 411.00.576.680.31.04 Supplies - Fertilizers & Misc. Chemicals 46,900 44,205 42,840 45,000 45,000 411.00.576.680.35.00 Small Tools & Minor Equipment - Tools 3,520 1,951 66,810 4,000 4,000 for course Total Supplies 79,360 92,069 169,320 98,400 98,400 Services 411.00.576.680.41.00 Prof Svcs - Geese control 3,848 10,969 3,672 5,000 5,000 411.00.576.680.42.00 Communication - Phones, alarms and 440 1,563 1,377 1,521 1,521 monitoring 411.00.576.680.43.00 Travel - Meals, mileage, parking for 626 - 765 300 300 professional development travel 411.00.576.680.44.00 Advertising 299 - - - - 411.00.576.680.45.00 Rental - Bottled water, portable toilet 1,708 1,001 2,448 2,448 2,448 rentals, short term rental equipment 411.00.576.680.45.94 Rental - Equipment Replacement Fund 55,689 80,751 87,729 105,616 100,226 411.00.576.680.45.95 Rental - Equipment O & M 38,370 45,203 60,456 50,845 50,610 411.00.576.680.46.00 Insurance - WCIA 16,464 1,217 19,465 - - 411.00.576.680.46.01 Insurance - WCIA - - - 23,971 26,368 411.00.576.800.46.04 Insurance - Flood - 18,538 - - - 411.00.576.680.47.00 Public Utility - Puget Sd Energy - pump 9,017 - 10,200 - - stations, water - course restrms, maintenance shed 411.00.576.680.47.21 Electric - 11,338 - 12,000 12,000 411.00.576.680.47.22 Gas - 604 - 700 700 411.00.576.680.47.25 Water /Sewer - 6,083 - 6,200 6,200 411.00.576.680.47.26 Surface Water - 28,649 - 31,000 31,000 411.00.576.680.47.01 Public Utility - SSWM charges 23,875 - 21,209 - - 411.00.576.680.47.09 Public Utility - Puget Sound Energy, City 7,545 3,727 5,610 4,000 4,000 water -wash bay and maintenance bldg 411.00.576.680.48.00 R &M -Contracted parking lot 12,701 6,636 7,140 10,000 10,000 maintenance, fire alarm test, misc. repairs 411.00.576.680.48.01 R &M - Professional Tree Removal - - - 6,000 6,000 411.00.576.680.48.03 R &M - Pump station and river pump, 9th 821 2,828 2,448 3,000 3,000 fairway pump station 411.00.576.680.49.00 Misc - Memberships, uniform cleaning, 2,347 1,891 2,244 2,000 2,000 prof dev, WWGCSA mem, WSDA cert. 411.00.576.680.49.01 Misc - - - 255 - - Total Services 173,750 1 220,999 1 225,018 1 264,601 261,373 i Foster Golf Links Preliminary 2017 -18 Budget, July 25, 2016 Expenditure Detail - Supplies, Services, and Other, Continued Foster Golf Course - 'Operations, Con't Intergovernmental 411.00.576.680.54.01 Intergovernmental - Admission Taxes 56,917 60,491 60,000 60,000 60,000 Total Intergovernmental 56,917 60,491 60,000 60,000 60,000 Other 411.00.594.760.63.05 411.00.594.760.64.00 Capital - Tees & Greens Capital - 47,967 - - 50,000 - 50,000 - 50,000 r - Total Other 47,967 - 50,000 50,000 50,000 Total Supplies, Services and Other $ 357,994 1 $ 373,558 $ 504,338 $ 473,001 $ 469,773 7 Foster Golf Links Preliminary 2017 -18 Budget, July 25, 2016 Services for the Pro Shop include supplies for the shop and resale items. Services include annual required testing, advertising, utilities, rental of equipment, repair & maintenance, and memberships, among others. Intergovernmental includes excise tax paid on revenue earned. Foster Golf Course - Pro Shov 59 Ell 2014 2015 2016 2017 2018 Account Number Purpose Actual Actual Budget Budget Budget Supplies 411.00.576.681.31.00 Supplies -Office & Operating $ 4,441 $ 6,102 $ 2,040 $ 6,415 $ 6,415 411.00.576.681.31.01 Supplies - Building 3,384 1,514 4,080 - - 411.00.576.681.31.02 Supplies - Rental 491 1,113 255 500 500 411.00.576.681.31.04 Supplies - Repair 2,133 2,356 2,040 1,500 1,500 411.00.576.681.34.01 Supplies - Pro Shop (Resale) 104,536 109,128 81,600 66,000 66,000 411.00.576.681.34.02 Supplies - Concessions - - - 15,600 15,600 411.00.576.681.34.03 Supplies - Special Order (Resale) - - - 15,000 15,000 411.00.576.681.35.00 Tools /Small Equip - Golf Carts - 63,557 - - - Total Supplies 114,984 183,771 90,015 105,015 105,015 Services 411.00.576.681.41.00 Prof Svcs - SZEN annual support - Online 6,471 5,334 6,120 4,400 4,400 Tee Reservation, Advertising and artwork, Orbit: Webpage 411.00.576.681.42.00 Communication - Phone, cable and alarm 3,285 1,871 3,876 4,150 4,150 monitoring 411.00.576.681.43.00 Travel - Meals, mileage, parking for 176 78 - 200 200 professional development related travel 411.00.576.681.44.00 Advertising - Misc advertising expenses 1,481 8,232 4,080 4,000 4,000 411.00.576.681.45.00 Rental - Special event fleet rental and 3,603 5,816 1,020 5,000 5,000 portable toilet rentals 411.00.576.681.47.00 Public Utility - City Light, Puget Sound 12,701 (27,685) 8,160 (32,000) (32,000) Energy, Sound Security 411.00.576.681.47.21 Electric - 39,360 - 40,000 40,000 411.00.576.681.47.22 Gas - 1,444 - 1,500 1,500 411.00.576.681.48.00 R &M - Cart maintenance and repair, 22,836 22,052 10,200 20,000 20,000 Clubhouse oil separator, building repair & window washing, HVAC maintenance 411.00.576.681.49.00 Misc - Memberships - Nat'l Golf 7,255 9,145 8,670 8,500 8,500 Foundation, PGA, PNGA, UAGA, Cintas mat /laundry svc, professional development, misc. 411.00.576.681.49.01 Misc - Printing of score cards, brochures, 958 - 3,060 3,000 3,000 forms 411.00.576.681.49.08 Misc - PPI credit card fees 20,278 1 23,608 27,540 25,000 25,000 Total Services 79,045 89,254 72,726 83,750 83,750 Other 411.00.576.681.53.00 Intergovernmental - Excise tax 6,134 6,699 6,400 6,400 6,400 Total Other 6,134 6,699 6,400 6,400 6,400 Total Supplies, Services and Other $ 85,179 $ 95,954 $ 79,126 $ 90,150 $ 90,150 59 Ell City of Tukwila Allan Ekberg, Mayor To: Mayor Ekberg Community Affairs and Parks Committee From: Jack Pace, Director, Dept. of Community Development By: Carol Lumb, Senior Plannq,4)-,-- Date: July 25, 2016 Subject: Update of Landscaping and Tree Codes — TMC 18.52 and TMC 18.54- Schedule Update ISSUE Update the Community Affairs and Parks Committee on the status of the 2016 -2017 DCD work program task to revise the landscaping and tree regulations to incorporate new Comprehensive Plan goals and policies guidance and recommendations from Tree and Environment Advisory Committee. BACKGROUND The current landscaping regulations were adopted 17 years ago in 1999 and the current tree regulations were adopted 21 years ago in 1995, with minor revisions to each section of the Zoning Code in recent years. Both chapters were adopted either at the time the 1995 Comprehensive Plan was adopted or soon thereafter. Recognizing the sensitive nature of the policy decisions to balance environmental quality, property rights, aesthetics and natural functions the Council developed a three phase process to update these codes as follows: Phase 1: Tree and Environment Advisory Committee: team of Tukwila residents, business and professional experts, and Planning Commission and City Council representatives appointed to guide development of goals and policies on the natural environment and urban forestry. Committee met from September, 2012 to May, 2013 and provided recommendations to the Planning Commission. Phase 2: Update of the Natural Environment Element of the Comprehensive Plan incorporating the new policy direction from the Advisory Committee: Planning Commission and City Council review and adoption of the revised Natural Environment Element, June to December, 2013. Phase 3: Revise landscape and tree regulations in the Zoning Code to implement the Comprehensive Plan — current effort February, 2016 — April, 2017. In addition, the City has embarked on a Green Cities Partnership to develop a 20 -year plan for stewardship of public parks and natural open spaces throughout the City. The landscape and tree code updates will be coordinated with recommendations from the Green Cities plan, which is due to Council in early August, 2016 for review and adoption. At the time we presented information to the Community Affairs and Parks Committee in February, 2016 on the code updates, we expected to bring the proposed code updates to the Committee of the Whole in February, 2017. CL Page 1 of 3 7/25/2016 2:57 PM W:\ \Long Range Projects \2016 Landscaping -Tree Code Update \8 -08 -16 CAP Info Memo 9 INFORMATIONAL MEMO July 25, 2016 DISCUSSION The majority of the code update work will still take place in 2016 with final review by the City Council taking place beginning the first quarter of 2017. The revised schedule below now shows the proposed code revisions reaching the Council in March, 2017. SCHEDULE DCD WORK PROGRAM PUBLIC, PC & COUNCIL REVIEW February- Review Tukwila Tree and CAP Briefing February 22, 2016 August, 2016 Environment Advisory Committee regulation recommendations; Additional CAP briefing August 8, Comprehensive Plan goals/policies; 2016- update on schedule. research other jurisdictions landscaping & tree regulations; recruit interdepartmental City Department Stakeholder Committee SCHEDULE DCD WORK PROGRAM PUBLIC, PC & COUNCIL REVIEW July-- Meet with City Department September Stakeholders individually 2016 periodically for technical guidance prior to meeting with Advisory Committee May-August, Develop draft ordinances 2016 Spring, 2016 — Public outreach — general public, Winter, 2017 businesses, stakeholders (utilities) articles in Hazelnut, Tukwila Reporter, attend community meetings to present information on proposed regulations, obtain feedback, develop interested parties email list. Week of Reconvene Tukwila Tree and September Draft Landscaping and Tree Code Environment Advisory Committee for 3- 12-16; ordinances ready for Advisory 4 targeted meetings to review and Committee review. proposed regulations. First meeting in October 10- September to go over proposed 13, 2016 landscaping code; second meeting in October — tree code October, 2016 Revise proposed ordinances per Depending on Green City direction of Advisory Committee and recommendations, request input from integrate any relevant Green City Advisory Committee recommendations October, 2016 Check back with City Department Stakeholders on Advisory Committee recommended revisions October2016 SEPA Environmental Review Required public notice Fall, 2016 On-going Technical guidance from Additional outreach to interested individual City Department — parties CL Page 2 of 3 7/25/2016 2:57 PM W:\\Long Range Projects\2016 Landscaping-Tree Code Update\8-08-16 CAP Info Memo 10 INFORMATIONAL MEMO July 25, 2016 RECOMMENDATION Information Only. ATTACHMENT None. CL Page 3 of 3 7/25/2016 2:57 PM W:\ \Long Range Projects\2016 Landscaping -Tree Code Update \8 -08 -16 CAP Info Memo 11 Stakeholders November 10, Planning Commission review of 2016 proposed landscaping & tree ordinance — public hearing & deliberations March - April, Council review and adoption of 2017 proposed ordinances — public hearings & deliberations RECOMMENDATION Information Only. ATTACHMENT None. CL Page 3 of 3 7/25/2016 2:57 PM W:\ \Long Range Projects\2016 Landscaping -Tree Code Update \8 -08 -16 CAP Info Memo 11 12 City of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Community Affairs and Parks Committee FROM: Jack Pace, Community Development Director BY: Lynn Miranda, Senior Planner CC: Mayor Ekberg DATE: August 2, 2016 SUBJECT: Land Conservation and Local Infrastructure Program (LCLIP) Feasibility Analysis Findings ISSUE To facilitate CAP discussion on the feasibility of implementing a Land Conservation and Local Infrastructure Program (LCLIP) in Tukwila, present findings from the feasibility analysis completed in 2015 and a subsequent evaluation in 2016. BACKGROUND In 2014, Tukwila received a $42,060 grant to evaluate the viability of implementing LCLIP within the City. LCLIP is a state program offering cities access to a portion of the County's property tax revenue from new development for up to 25 years in return for acceptance and purchase of a certain number of development rights transferred from regional farms and forests. Cities may then use this revenue to fund infrastructure improvements that support infill growth and redevelopment. The Council received a full briefing on the results of the LCLIP feasibility analysis at its May 26, 2015 Committee of the Whole meeting. At their July 25, 2016 meeting, the Community Affairs and Parks Committee requested a subsequent briefing from Forterra, who gave an abbreviated version of the presentation made in 2015, and encouraged the City to adopt a LCLIP program. Due to time constraints, CAP requested the LCLIP discussion be continued at a future CAP meeting. DISCUSSION There have been two studies evaluating the feasibility of implementing a LCLIP program — one in 2015 and a more recent one in 2016 (Attachments A &B). A summary of the findings follows: 2015 Report The consultants' final report, Tukwila LCLIP: Findings and Recommendations, discussed the two most promising opportunities for the City to pursue for "placing" TDR credits — allowing developers access to Multifamily Property Tax Exemption (MFTE) if purchasing TDR credits; and requiring developers to purchase TDR credits when asking for special dispensations through a Developer Agreement. In the MFTE approach, developers would purchase TDR credits as a means to access 8 years of property tax exemption, which is attractive to developers. Using Developer Agreements, the City could negotiate TDR acquisition by developers in projects typically of a larger scale. The advantage of both approaches is that TDR credits are placed through the private market. However, there are tradeoffs that make these approaches less attractive for the City: 1) it is uncertain how many projects would actually use 13 MFTEs; and, 2) the need for developer agreements in the future is uncertain, and because there is no fixed process (like an exchange rate) for establishing the amount of credits a project would acquire, TDR credit utilization is subject to negotiation. The report's recommended approach for the City was to pursue a TDR credit placement strategy that combines private market mechanisms (i.e., MFTE and Developer Agreements) augmented by the City using public funds to purchase some of the specified credits, if necessary, to reach the performance milestones needed to continue the LCLIP program. The report's findings show that growth, even when projected conservatively, may be sufficient to warrant participation in the LCLIP program. The report also added a note of caution, emphasizing that the amount of future growth or development is an important factor in the viability of a LCLIP program. To retire enough TDR credits for the program to be financially feasible, the City would need to realize significantly more growth over the 25 -year study period than it has historically experienced. In addition to the amount of growth needed, success will depend on a high utilization of the MFTE program by multi - family residential development projects. 1 At that time, considering the uncertainty regarding the amount and timing of future growth, combined with the potential risk of requiring City funds to cover a potential gap in the purchase of TDR credits, it did not seem feasible to move forward with adoption of the program. 2016 Evaluation In February 2016, the City contracted with ECONorthwest to refine the 2015 LCLIP assessment by evaluating the impact of the potential construction of the multi -use arena in the Southcenter area. This project presented a unique opportunity to possibly negotiate the acquisition of TDR credits by the developer through the Developer Agreement that would have been prepared for the project. The arena project would have made LCLIP adoption more feasible and attractive since it would have allowed the City to retire a significant portion of its TDR credit commitment in one single, large project. The evaluation showed that using LCLIP as part of the development mitigation for the project would possibly generate between $22 and $26 million in infrastructure funding from King County. In June 2016 the City terminated the contract with ECONorthwest, as the arena construction was uncertain. FINANCIAL IMPACT None at this time. If a LCLIP is adopted in the future, the financial impact to the City will vary based on the specific policies and mechanism the City crafts to implement the program. RECOMMENDATION Staff supports the concept of implementing a LCLIP in the City of Tukwila. However, staff is not recommending LCLIP implementation at this time because of the uncertainty around the amount and timing of future development and the need to avoid potential financial risks for the City. In summary, the 2015 LCLIP implementation feasibility report showed potential risk to City finances if the City participates in a LCLIP. To capture revenue from the program, the City would need to agree to accept and sell a specified number of TDR credits to developers over a certain period of time as new projects are proposed in the City. Because the City cannot predict the Tukwila LCLIP:Findings and Recommendations, 5.3.5 Summary, pg. 31 WA2016 Info Memos\LCLIP.doc 14 INFORMATIONAL MEMO Page 3 amount and timing of new development, the City may not be able to sell all the credits and instead need to purchase unsold credits using General Fund monies to continue participating in the program. Even if development does occur, the City has few incentives /benefits available to offer developers at this time in exchange for purchasing TDR credits, making it more difficult to sell the credits. In order to put the City in the best possible financial position, staff recommends reassessing LCLIP implementation at a later date when more significant amounts of growth are anticipated - for example, when developers begin to respond to increasing multifamily housing demand in the Southcenter area, or when a new significantly sized development project (similar to an arena) is proposed. Doing so would provide more certainty regarding the timing and amount of new development and less risk for the City General Fund monies. ATTACHMENTS A. Final Report — Tukwila LCLIP: Findings and Recommendations. May 19, 2015 B. Memo from Morgan Shook, ECONorthwest to Lynn Miranda. July 25, 2016 WA2016 Info MemoslCLIP.doc 15 16 IN Matt Hoffman, Nick Bratton Morgan Shook, and Erik Rundell prepared this report. Heartland LLC gratefully acknowledges the substantial assistance provided by staff at Forterra and ECONorthwest. Since forming the firm in 1984, Heartland's real estate advisory practice has been rooted in a deep understanding of the fundamental drivers of real estate economics. With experience across both the public and private realm, we offer a unique ability to blend the needs of the private sector developer /user with public sector processes and initiatives. For more information about Heartland, visit our website at www.heartlandllc.com. For more information about this report, please contact: Matt Hoffman Heartland LLC 1301 15Y Avenue, Suite 200 Seattle, WA 98101 206.682.2500 mhoffman @htland.com Tukwila LCLIP: Findings and Recommendations , e This page intentionally left blank. Tukwila LCLIP: Findings and Recommendations 20 ExecutiveSummary ....................................................................................................... ES1 1 Project Overview .......................................................................................................... 1 11 Why Use TDR and LCUPinTuhwi|e ........................................................................... 1 12 Key Questions ............................................................................................................. 2 13 Report Oirganizeton.................................................................................................... 3 2 LCL|P Program Review ............................................................................................... 5 2.1 PnogiramOveniew....................................................................................................... 5 2.2 Use ofLCL|P Funds ..................................................................................................... 5 23 DetenminentsofLCUP Revenues .............................................................................. G 2.4 PnogiramFiremeworhforLCUP ................................................................................... B 3 Study Area Assessment and Growth Estimates ................................................... 11 5.1 Study AnaeContext ._________________________________11 4 TDR Bonus Provisions and Placement Approach ................................................. 21 4.1 Existing and potentie|deve|opmentbonua provisions ........................................... 21 4.2 Approach for the phvetep|ecementofTDRcnadhs ............................................... 22 5 LCL|P Revenue Testing - Scenarios ....................................................................... 25 5.1 DeflningeUPA.......................................................................................................... 25 5.2 The| impact ofDeve|opmentVeheb|es .................................................................... 2G 53 Assumptions and Revenues ..................................................................................... 26 G LCL|P Program Findings and Recommendations ................................................ 33 0.1 SummeryofFilndings ................................................................................................ 33 0.2 Recommendetio iris .................................................................................................... 34 7 Implementation Road Map ...................................................................................... 37 UEANTiA, O ---- TukwilaLCUP: Findings and Recommendations This page intentionally left blank. Tukwila LCLIP: Findings and Recommendations 22 1.1.1 Why is the City of Tukwila undertaking this study? The City of Tukwila (City) is exploring the viability of the Landscape Conservation and Local Infrastructure Program (LCLIP) for the Tukwila Urban Center (TUC) and Tukwila International Boulevard (TIB) District, collectively referred to herein as the Study Areas. The City has created a compelling vision for the Study Areas through recent planning efforts that anticipates higher levels of activity through mixed -use, high- density development. The growth and development envisioned for the Study Areas can support the City in achieving its broader community goals, such as economic development, fiscal sustainability, environmental conservation, and higher quality of life for its current and future residents. To catalyze and support growth in the Study Areas, the City will need to make substantial investments in infrastructure. While funding for these capital needs will come from a variety of sources, the City will likely need to contemplate pursuing innovative funding tools beyond those already identified to address potential funding gaps. One funding tool the City is exploring the use of is LCLIP, a form of tax increment financing. 1.1.2 What is LCLIP? LCLIP is a form of tax increment financing enacted in 2011. The program offers cities access to tax increment financing in return for their acceptance of development rights transferred from regional farms and forests. These transfers are typically conducted as private real estate transactions, but can also be conducted by cities. In exchange for the placement of development rights in LCLIP districts, the jurisdictional county (in this case King County) agrees to contribute a portion of its regular property tax to the sponsoring city for use for a defined period (up to 25 years). Cities may use this revenue to fund infrastructure improvements that support infill growth and redevelopment. The program is only available to select cities in the central Puget Sound counties of King, Pierce, and Snohomish. 1.1.3 What did the study find? . � . The analysis shows a range of situations in which LCLIP would be beneficial to the City. Even in a scenario assuming conservative growth, LCLIP could generate net revenue of $2.5 million (net present value, or $5.4 million in nominal terms) for infrastructure in Tukwila. Should the City meet its growth targets, the net revenue would increase to $5.1 million (net present value, or $10.3 million in nominal terms). Should the City exceed its growth targets, net revenue would increase to $9.5 million (net present value, or $18.2 million in nominal terms). The TUC can play a central role in the city meeting its growth targets. Following a recent rezone it has the capacity to accommodate considerable population and employment growth. The City has identified Tukwila LCLIP: Findings and Recommendations ES1 23 a range of infrastructure improvements, many involving improved access to transit, where LCLIP can finance investments that will support redevelopment. . • . .... zffnm Conditions in Tukwila at present would support use of the tool. This analysis shows that growth, even when projected conservatively, is sufficient to make LCLIP a success. At minimum the City would receive new revenue for infrastructure that it otherwise could not access and at best that revenue would exceed $41 million over the life of the program. Under such a growth scenario, the Study Areas could support approximately 13 new office projects, 11 retail projects, 18 multifamily projects, and 8 more hotels over a 25 year period. 1.1.4 What is the path forward for LCLIP? Redevelopment of the TUC with more intensive mixed use development represents a departure from historical growth patterns for Tukwila. Primarily an area centered on commerce, the new zoning reflects plans for mixed use residential growth, especially of a transit - oriented nature near the rail station. This expansion of uses represents a timely opportunity for the City to benefit from a widening market for growth to finance infrastructure investments that will support redevelopment and help the City achieve its growth targets. Meanwhile, the aggregation of properties along Tukwila International Boulevard creates another area in the City that could both support the City's use of LCLIP (either through incentive zoning or developer agreements) and also benefit from public improvements. Finally, while uncertain, the build out of Tukwila South or the emergence of a single large project could result in revenues for the City at or beyond the upper end of the ranges projected in the analysis. There are three approaches the consultant team identified for proceeding with LCLIP, of which the most promising paths forward involve adoption of a LCLIP program. The current analysis shows that while (1) even with conservative growth estimates the City may net $2.5 million (NPV, or $5.4 million nominal) in new revenue, and (2) a simple and desirable market mechanism can drive the use of TDR, uncertainty remains around what demand for redevelopment will be in the Study Areas. The risk of taking no action in the near term, however, is that the City misses the opportunity to capture value from redevelopment until after the process has already started, thereby passing up revenue from LCLIP. Tukwila LCLIP: Findings and Recommendations ES2 24 i' In 2014 the City of Tukwila applied for and won a grant through the Environmental Protection Agency's National Estuary Program, administered by the Washington State Department of Commerce. This grant funded a study exploring the viability of the Landscape Conservation and Local Infrastructure Program (LCLIP) for the Tukwila Urban Center (TUC) and Tukwila International Boulevard (TIB) District, collectively referred to herein as the Study Areas. The City has created a compelling vision for the Study Areas through recent planning efforts that envisions higher levels of activity through mixed -use, high- density development. The growth and development envisioned for the Study Areas can support the City in achieving its broader community goals, such as economic development, fiscal sustainability, environmental conservation, and higher quality of life for its current and future residents. In order to catalyze and support growth in these areas, the City will need to make substantial investments in infrastructure. While funding for these capital needs will come from a variety of sources, the City will likely need to contemplate other innovative funding tools to address potential funding gaps. The City is exploring the use of the LCLIP, a form of tax increment financing (TIF) enacted in 2011 (RCW 39.108). This program allows cities to access incremental county property tax revenues to fund and finance public improvements within designated LCLIP districts of their choosing. In exchange for receiving a portion of county revenues, cities agree to accept a number of regional development rights of their choosing. This program creates a new revenue stream for cities to help pay for infrastructure and is designed to be flexible to suit a wide range of city needs and objectives. This report provides a series of findings and recommendations for a potential LCLIP program for the City based on: • LCLIP legislation and program features. • The City's incentive zoning and TDR code. • Historical development trends, projections on future growth and estimates of TDR use. • Estimates of LCLIP funding potential. 1.1 Why Use TDR and LCLIP in Tukwila The Puget Sound Regional Council's (PSRC) Vision 2040 is the region's strategy for accommodating growth through 2040. The strategy focuses on concentrating population and employment growth in regional growth centers, such as the Study Areas, that are best suited for growth through more efficient land use patterns. Individual cities implement the goals of Vision 2040 through their comprehensive plans and zoning regulations in accordance with the Growth Management Act (GMA).1 1 Washington State Department of Commerce. Website accessed March 2015. Tukwila LCLIP: Findings and Recommendations 1 25 The GMA encourages "innovative land use management techniques" such as transfer of development rights (TDR) to help local governments achieve their planning goals.z TDR programs are a tool for implementing growth and planning goals that goes beyond traditional zoning by giving landowners other real estate options, by protecting resource lands from development in perpetuity, and by engaging the market to generate private funding for land conservation. As mandated by VISION 2040 and by the King County Population and Employment Allocations the City has adopted population and employment planning targets as part of its comprehensive plan, and must act to accommodate that growth within the City over the next 20 years. In addition, the comprehensive plan envisions approximately half of this new growth being directed to the TUC and the TIB District. The Study Areas are anticipated to play a central role in accommodating new growth. These areas have the capacity to accommodate a large amount of population and employment; however, each is in need of infrastructure improvements. The City has limited capacity to pay for all the desired projects through the general fund. As an alternative, LCLIP could help support future growth in accordance with the City's comprehensive plan by generating revenue to fund improvements that are needed to accommodate that growth and realize the City's vision. 1.2 Key Questions This report outlines a series of considerations relating to the use of LCLIP to help inform the City's decisions on program participation. These considerations will also help the City to understand how to optimize use of the tool in a way that best advances its infrastructure, growth, and conservation objectives. The key questions for this analysis cover: • What is the policy basis for using LCLIP and broader community goals? • What are the key LCLIP program issues for how the city may construct its LCLIP program? • What is the structure of the City's incentive zoning program and how would implementing a TDR program fit within that structure? • Under current market and development conditions, how might development projects use TDR to access additional building capacity? • What are a range of LCLIP revenues that might be possible? • Based on the cumulative understanding of the questions above, how might the city think about moving forward with an LCLIP program? z RCW 36.70A.090 Tukwila LCLIP: Findings and Recommendations 2 26 1.3 Report Organization The report is organized into six sections that provide an analysis of the feasibility of LCLIP in the Study Areas and recommendations for moving forward with a Landscape Conservation and Local Infrastructure Program. The main sections of the report are: • LCLIP Review: This section reviews the LCLIP legislation and identifies a framework for thinking about incentive zoning, TDR, and LCLIP program choices. • Incentive Zoning and TDR Policy Review: This section reviews the City's incentive zoning within the Study Areas. • Incentive Zoning and TDR Assessment: This section summarizes the capacity for development in the Study Areas and provides an assessment of the feasibility of TDR under current development economics and offers some insight on its potential use. • LCLIP Revenue Assessment: This section reviews development trends in the Study Area and projected development over the next 25 years. This section then assesses the revenue potential of an LCLIP program under a different growth and TDR absorption scenarios. • Program Findings and Recommendations: This section summarizes the key findings from previous sections and provides recommendations for establishing a LCLIP program based on those findings. • Implementation Road Map: Lastly, this section outlines the steps necessary should the City decide to establish a TDR mechanism and adopt LCLIP. Tukwila LCLIP: Findings and Recommendations 3 27 This page intentionally left blank. Tukwila LCLIP: Findings and Recommendations W. r. This section presents an overview of the LCLIP enabling legislation and key features of the program that are relevant to program assessment and strategy. 2.1 Program Overview LCLIP is a form of tax increment financing enacted in 2011. The Washington State legislature created the LCLIP program based on its finding that: The state and its residents benefit from investment in public infrastructure that is associated with urban growth facilitated by the transfer of development from agricultural and forest lands of long -term commercial significance. These activities advance multiple state growth management goals and benefit the state and local economies. It is in the public interest to enable local governments to finance such infrastructure investments and to incentivize development right transfer in the central Puget Sound through this chapter. The program offers the City a new funding source: a portion of the jurisdictional county's regular property tax in return for 1) mechanisms to place development rights and 2) the acceptance of a specified amount of regional development rights. In exchange for the placement of rural development rights in LCLIP districts, the jurisdictional county (King County for the City) agrees to contribute a portion of its regular property tax revenue to the sponsoring city for use for a defined period. The program is only available to select cities in the central Puget Sound counties of King, Pierce, and Snohomish. LCLIP targets only a portion of the incremental property taxes generated from new development. This is not a new tax to residents or businesses. The remaining portion of the property tax still accrues to the sponsoring city and to the jurisdictional county. Existing and incremental revenues flowing from sales, business and occupation, and utility taxes still accrue to the City, as well as other capital restricted revenues. 2.2 Use of LCLIP Funds Under the LCLIP program cities can use LCLIP- generated funds to pay for public improvements in the LCLIP district as follows: • Street, road, bridge, and rail construction and maintenance; • Water and sewer system construction and improvements; • Sidewalks, streetlights, landscaping, and streetscaping; • Parking, terminal, and dock facilities; • Park and ride facilities of a transit authority and other facilities that support transit - oriented development; Tukwila LCLIP: Findings and Recommendations 5 Ie • Park facilities, recreational areas, bicycle paths, and environmental remediation; • Storm water and drainage management systems; • Electric, gas, fiber, and other utility infrastructures; • Expenditures for facilities and improvements that support affordable housing as defined by WA law; • Providing maintenance and security for common or public areas; and • Historic preservation activities authorized under WA law. LCLIP is different from previous versions of TIF in Washington in that it provides more flexibility on how the funds can be used. Specifically, LCLIP enables funding for more than just capital improvements and can support some operational activities related to the maintenance and security of public areas. 2.3 Determinants of LCLIP Revenues 2.3.1 LCLIP District Revenue Calculation The tax basis of LCLIP originates from new construction so it excludes existing buildings and revaluation. LCLIP revenues are derived from the allocation of a portion of the city's and county's regular property tax (e.g. current expense levy) to the LCLIP district. Once a district has been created by a city, 75% of the assessed value of new construction — multiplied by a city's sponsoring ratio (explained below) — is allocated to the LCLIP district and used as the tax basis to distribute revenues from the regular property tax using the current year's regular property tax rate. For example, suppose a newly constructed building generates $1,000 in regular property tax revenues on a property tax rate of $1.00. If this same building is valued at $1,000,000 for the purposes of new construction, then 75% (multiplied by the Sponsoring City Ratio, explained below) of the new construction would place $750,000 in the LCLIP assessed value base and lead to the distribution of $750 of the $1,000 paid in regular property tax to the LCLIP area. The remaining $250 would still go to the jurisdiction's general fund. As noted, the Sponsoring City Ratio acts to pro -rate how much of the 75% of new construction is added to the LCLIP district assessed value base. The example above assumes a ratio of 1.0. Alternatively, a ratio 0.50 would reduce that $750 revenue apportionment to $375. The calculation of LCLIP district assessed value basis starts at the time that the district(s) is created. The dedication of city and county property tax revenues to the district commence the second year after the district is established. The program can run for a maximum of 25 years on the condition that cities meet performance milestones (explained below). 2.3.2 LCLIP Sponsoring City Ratio In adopting an LCLIP program, the city must select a specific number of TDR credits to accept based on a regional allocation set by PSRC. These allocations are generally proportional to a city's growth targets; Seattle's allocation is 3,440 credits while Everett's is 1,491 and Tacoma's is 1,843. Tukwila's allocation from PSRC is 405 TDR credits. The "Sponsoring City Ratio" reflects the proportion of development rights a city has chosen to accept (the specific number above) relative to the city's allocated share, as Tukwila LCLIP: Findings and Recommendations 6 30 determined by PSRC. The resulting ratio of "specified portion" to "allocated share" (anywhere from 0 to 1) acts to pro -rate the amount of new construction value that can accumulate to a LCLIP district. A city must set its sponsoring city specified portion that is equal to or greater than 20% of its allocation. For Tukwila, that amount is 81 development rights or higher. Accepting the full allocated share would maximize potential LCLIP revenues while taking something less than the full allocated share reduces the potential value of the program to a city. For example, Tukwila's allocation is 405 rights; supposing it chooses to accept 101 of them (specified portion), its resulting sponsoring city ratio is 0.25 (101 divided by 405). The City would receive 25% of the county's portion of property tax revenue over the course of the program. If the City accepted 405 credits it would receive 100% of the county's portion. In choosing its ratio, the city is trying to select an amount of credits it expects to be able to place over a 20 -year period to meet the threshold requirements (discussed below) and extend the program (and revenues) to the full 25 years. In doing so, the city is balancing the feasibility /likelihood of TDR being used by development against the amount of revenue LCLIP can generate. Ideally the private market for growth will place the credits, but as the analysis shows, even in a situation where Tukwila would need to use public funds to purchase some of the specified credits the resulting revenue stream may be large enough to result in net positive earnings for the city. 2.3.3 LCLIP Performance: Credit Placement Thresholds While the LCLIP program can run for a maximum of 25 years, the legislation requires participating cities to demonstrate performance on the use of credits within their Local Improvement Project Area (LIPA). Cities using the LCLIP tool must meet a series of performance thresholds pegged to their specified portion and are given a choice in regards to permitting or acquisition of development rights if they want to start and extend the program revenues. These thresholds are as follows: • Threshold #1: Placement of 25% of the specified portion of TDR credits is required to start the revenue stream. This is not a time -based milestone, but rather a performance -based milestone. • Threshold #2: Placement of 50% of the specified portion of TDR credits is required by year 10 to extend it by 5 years. • Threshold #3: Placement of 75% of the specified portion of TDR credits is required by year 15 to extend it by 5 years. • Threshold #4: Placement of 100% of the specified portion of TDR credits is required by year 20 to extend it by 5 years to its conclusion. In previous examples of LCLIP implementation, there has been some difference in interpretation from program partners as to what is required to start an LCLIP program. Briefly, the difference in interpretation is whether the placement of 25% of the specified portion is required to start the program or whether the creation of the LCLIP program through ordinance is the trigger. Should Tukwila adopt LCLIP, this question of timing will be resolved through an interlocal agreement with King County. Tukwila LCLIP: Findings and Recommendations 7 31 Program revenue is a function of three central factors: • Specified portion (City TDR credit commitment). Higher commitment = higher revenue • New construction activity. More construction = higher revenue • Market participation vs. City credit acquisition. More market activity = more revenue Exhibit 1 below illustrates the relationships between city TDR commitment, growth, and revenue. M5 a, c a� cu a U Growth (New Construction) Source: Forterra, 2015 It vent tment 2.3.4 LIPA(s) District Formation A LIPA or LCLIP district is the designated area in which: • TDR credits will be placed by market transfers and measured for performance monitoring. • Infrastructure projects will be constructed and funding will be used. • The calculation of the new construction as the tax basis for LCLIP revenues will be based. A city may have multiple and non - contiguous LIPA(s) as long as the area(s) meet the requirement of containing less than 25% of the city's assessed value. While a city may create multiple LIPA(s), LCLIP works on a cumulative citywide basis and not an independent district basis — meaning the same program parameters apply to all LIPA(s) regardless of start date and configuration. Therefore if a city is Tukwila LCLIP: Findings and Recommendations 8 32 considering multiple LIPAs, it is advantageous to establish them all at the program launch rather than adding them incrementally over time, which would result in foregone revenue. 2.4 Program Framework for LCLIP A strong LCLIP program for the City of Tukwila must position the City to maximize LCLIP revenues through structuring the following program parameters: • LIPA geography. The City will want to create a LIPA(s) that meets the nexus requirements stated above. However, creating a district(s) that contain areas where development is expected will help create a large new construction tax base used as the basis of the revenue calculation. The larger the tax base, the more funding leverage the City will have. • TDR code provisions. The number of TDR credits used is a function of several factors: • The size and structure of the incentive zoning capacity increment. The city must determine how much demand there may be for building projects that will utilize TDR. The amount of incentive zoning is fixed and the placement of TDR within the structure of the incentive zone factors in how it may be accessed by developers. For example, TDR may be among a menu of options that developers can choose from, or TDR may be tiered with other options requiring developers to sequence options that may place TDR first or last in that sequence. • The nature of the incentive associated with TDR. Typical TDR incentives offer additional FAR or height; however, TDR can be connected with any variety of opportunities associated with development ( "conversion commodities "). Other examples include connecting TDR with reduced setbacks, structured parking requirements, or impervious surface limitations. • The "exchange rate" for TDR. The amount of incentive a developer receives per TDR credit used in large part determines the extent to which a TDR consumes the incentive zoning available. The incentive created by the TDR exchange rate must be equal to (or exceed) a developer's willingness- and ability -to -pay, otherwise TDR will not be used. • City specified portion and program timing. In order to optimize the flow of LCLIP revenues, the City has an incentive to meet all four performance thresholds. Doing so means the city must select a specified portion that is targeted at some expected use of incentive zoning and the absorption of TDR credits over the horizon of the program. This element of LCLIP is the most difficult technical aspect that the city must consider. Forecasting future development is challenging, much less determining the rate at which that development will access incentives that use TDR. Tukwila LCLIP: Findings and Recommendations 9 33 This page intentionally left blank. Tukwila LCLIP: Findings and Recommendations 10 34 Study ' , Assessment and Growth Estimates The City does not currently have a TDR program; however, it has in place other development incentives including incentive zoning and the employment of developer agreements. This section provides an overview of the Study Area context and current development bonus offerings. 3.1 Study Area Context The Study Areas are TUC and the TIB District. The TUC has recently been rezoned into five unique districts that permit a variety of intense residential and commercial uses. For this report commercial use is broadly defined as multifamily, office, retail, Exhibit 2: Overview of the Study Areas industrial hospitality, and Iff senior housing. The TIB District is a truly international �,(t neighborhood with a mix of ukwwdta g lower intensity residential and1�� t �i�omo�iri�oiu1 TIBSaLOCYyAra ro y MINJIJI M, 'TUC Study Area commercial uses. This is a �!1� 'LO41MdCk'MAw SIT LINK tiIGHT RAIL Route Station neighborhood the City has wrrwauNG wAANSot So,wuuiuu.M TmaAnN identified as one that may (k1z ' Route Station accommodate future growth. Exhibit 2 depicts the Study Areas. The TUC was rezoned in 2014 to allow for increased residential and mixed uses. The TIB District offers a number of redevelopment opportunities; however, based on the current land use code, this portion of the Study Area does not have the development capacity of the TUC. The City's vision for redevelopment along the Boulevard includes demolition of derelict motels to enhance safety and neighborhood perception while encouraging y�y kr ,� � 'M'• L Gov TO t Inn rn ►can l , IV a� I R STS Txw�uau L� Cr T4TO 405 ILA ON t Urban k ` I Center (TUC) DORIC a t )10), r a J P/i ,r Tukwila LCLIP: Findings and Recommendations 11 35 new mixed -use development comprising multifamily residential, senior housing, service - providing office space, and retail. The City created an Urban Renewal Overlay near the center of the TIB District that expands the flexibility of the land use code to promote redevelopment of this area. One goal for the City in the Urban Renewal Overlay is to aggregate properties in preparation for new projects. Infrastructure needs that Tukwila has identified for the neighborhood include streetscaping and traffic safety improvements with potential long term goals ranging from a potential "street diet" to slow traffic, right of way development to reshape the street grid, and transportation enhancements such as a circulator to help move transit riders from the TIB Light Rail Station north along the boulevard. Tukwila South is another area that was examined in some aspects of the analysis, but was not part of the Study Areas. This area is located south of the TUC and has considerable potential for commercial and office development. Certain revenue scenarios include the assumption that the property will be developed during the LCLIP performance period. In its current state the Tukwila South area has a very low assessed value, making it ideal for including in a LIPA since development has the potential to generate substantial revenue for the City, as discussed in later sections. 3.1.1 Regional Context The City totals approximately 30.5 million square feet of industrial, office, retail, multifamily, and hospitality developments. Of this total, nearly 3.0 million square feet or roughly 10% of the City's total commercial inventory has been built since 2000. By comparison, the rest of South King County3 had approximately 20% of its current commercial inventory constructed since 2000, and the area comprised of Seattle, the Eastside, and North King County had 30% of its current inventory constructed since 2000. This comparison reveals that development activity in the City has been slow relative to other areas in the county. The chart in Exhibit 3 illustrates the City's commercial inventory relative to the rest of South King County. The City's total commercial square footage represents approximately 13% of South King County's total (Kent totals roughly 30% and Renton is 17% for reference). However, since 2000 the City's commercial development has represented only 7% of South King County's total during this period Overall 2000+ AU.13ON A. 11 "/o DIVA.'...... 1 AUBURN 1111111INJIM 15% AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA 24 % BLACK DIAMOND 0% a% BURIEN AAAAAAAAAA 4% AIAAIA 2% COVIV'4CTON VIII 1% 3% DES MOINES 2 °/a AAAA 2% ENU.UMCLdM1W 1% AAAI1% FEDERAL WA AAAAAAAAAAAAAAAAAAAAAAAA''..... 10% AAAAaAAAAaAAAAIMAM 12% KENT INAPLIE:MALLEY 1% 2% MOU."VON 0% A 1% NORMANDY PA RK p a% l0% PACIFIC 10% l0% REN1fON 17% 20% BF.,A -TAC AAAAAAAAAAA 5% UM 5 % 0M 20M 40M'... 60M 80M 0M .roM Ii 0M C;¢anrrakemd r1uH¢9mg Gimss Square Feet Corns ercW Budding 6 »mss ,15Mmrs Feet 3 South King County is defined in this report as the incorporated municipalities of King County locate south of Seattle. For reference, the northern most cities in South King County are Burien, SeaTac, Tukwila, and Renton. 36 Tukwila LCLIP: Findings and Recommendations 12 Development in the rest of South King County since 2000 has been concentrated in Auburn (24% of South King County's total), Renton (20 %), Kent (20 %), and Federal Way (12 %). This context illustrates that historically Tukwila has been an important part of South King County's commercial real estate composition; however in the recent past the focus has been on other areas such as Auburn, Kent, and Renton. The TUC is a Regional Growth Center (RGC), as designated by the PSRC. A designated RGC is an area that has been identified for housing and employment growth, as well as an area that is prioritized for regional funding. The PSRC and the cities with RGCs are in the process of updating the population and employment growth targets for Vision 2040; however, the development trends and urban form help frame the TUC's position (referred to in the exhibits below as Tukwila) compared to other RGCs in the county. Exhibit 4, like Exhibit 3, compares the commercial inventory in RGCs most similar to the TUC. This reveals that the TUC has the most commercial square footage at 26% of the total square footage in these seven RGCs; however, since 2000 development in the TUC represents only 9% of the commercial space that was built all of these RGCs. While roughly 835,000 square feet has been built in 14 projects since 2000, relative to its total inventory development activity in the TUC has been the lowest among these seven areas. Overall pp2000+ umten ��! 6% 4% Kent Downtown 4% 8% Noot h ate 1IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIM 15% IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII 26 °r� Rentors 32% eaTac III�IIIII�IIIII�IIIII�IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII�II�III�III�I�� 16% � IIIIIIIIIIIIIIIIIIIIIIIIIIIIIII�IIIIIIIIIIIIIIII 14% Totem Lake 9VV�V�V�V�V�V�V�V�V�V�V 14 °!o VVVVVVVVVVVVVVVVV 8% Tutawiga 126% ' 9 °fa 0M Std 101St 15M 0M IM 2M 3M Cornrrreycu al BLAdli x5 Gross Square Feet t `onnrner�cW BuMing Gvoss S qusuu Feat Source: King County Assessor, Heartland 2015 Exhibit 5 summarizes how the TUC's urban form compares with that of the other six similar RCGs. This chart shows that the TUC is more like SeaTac and Totem Lake with its urban form than it is with Burien, Kent, Northgate, or Renton. The TUC comprises roughly 850 acres, or 14% of the City's total land area with an average parcel size of 3 acres and a very large average block size of nearly 23 acres. These large blocks present both a challenge and an opportunity for redevelopment. To create a more walkable urban environment that encourages both jobs and housing the blocks will likely need to be divided. One key hurdle for redevelopment is the cost to split the blocks up and the market fundamentals that currently are challenged to support urban form multifamily development and taller office projects. However, the opportunity is with patient developers that may do a phased development on a single block or portion of a block once the market fundamentals support such investment. Tukwila LCLIP: Findings and Recommendations 13 :911 As the City attempts to evolve the Study Areas into a places where a more urban form of commercial development is attractive to developers and investors the market will need to "prove" itself with projects that perform financially in a location where office, and particularly, multifamily have not thrived. A successful LCLIP program can be a potentially powerful tool to support this process. 3.1.2 Study Area Land Use Summary The two Study Areas differ from one another in many ways including land use patterns and development trends. The table in Exhibit 6 illustrates how the land area, building intensity, and land use in each Study Area compare. Land % of City Avg Parcel Avg Block Sidewalk 508 Acres Land Area Acres Acres Comp Burien 354 6% 0.3 4.9 48% Kent Downtown ° 292 2/° 0.5 3.6 Avg Bldg NSF Overall Northgate 409 1% 0.9 9.6 42,867 Renton 606 4% 0.7 6.8 1969 SeaTac �� ry �Illlllllll�� 13.6 41% Totem Lake �� 1��1�1�1�1�1��1�� % 2.2� 10.6 % Tukwila Source: PSRC 2014 As the City attempts to evolve the Study Areas into a places where a more urban form of commercial development is attractive to developers and investors the market will need to "prove" itself with projects that perform financially in a location where office, and particularly, multifamily have not thrived. A successful LCLIP program can be a potentially powerful tool to support this process. 3.1.2 Study Area Land Use Summary The two Study Areas differ from one another in many ways including land use patterns and development trends. The table in Exhibit 6 illustrates how the land area, building intensity, and land use in each Study Area compare. These two areas have historically served different purposes. The TUC is a regional center for retail and industrial due in large part to its location at the confluence of 1 -5 to the west and 1 -405 to the north. This area began development in earnest in the 1960s with the introduction of the Westfield Shopping Center and a total of nearly 2.4 million square feet of auto - oriented commercial space. Industrial development was prevalent in the 1960s with over 1.2 million of square feet developed; however, the 1970s were a boom decade for industrial development in the TUC with 3.4 million square feet delivered. These two decades combined to account for 75% of the total square footage that is in the TUC today. The location of this Study Area within the region along with a land use code that has encouraged this development pattern are the significant factors in contributing to the building stock that exists in the TUC today. In comparison, the TIB District is primarily residential in nature with 68 % of the building square footage being single family or multifamily. This residentially used land is oriented east and west of the Tukwila International Boulevard, which is the Study Area's main arterial. The remaining 32% is a relatively evenly distributed mix of office, retail, industrial, and lodging uses (13 %, 9 %, 7% and 3 %, respectively). The age of the building stock, like the TUC, has primarily been built prior to 1980. While 63% of the square footage has been built pre 1980, 29% of the inventory was built in prior to 1960 in comparison to the Tukwila LCLIP: Findings and Recommendations i 14 "Fie TUC Net Acres* 508 802 Building Count 1,.232 265 Pct Commercial 1.3% 99% Bldg Net Sq Ft 4,1.57,993 11,232 „516 Pct Commercial 32° 100% Avg Bldg NSF Overall 3,375 42,387 Avg Commecial Bldg NSF 8,432 42,867 Avg yr Built Cont mercl all 1969 1978 Residential 1956 1946 ' Net of rV1,i "Ets of way 6arer6"rv, but Volr`Q uda6Y,F, Park land Source: King County Assessor, Heartland, 2014 These two areas have historically served different purposes. The TUC is a regional center for retail and industrial due in large part to its location at the confluence of 1 -5 to the west and 1 -405 to the north. This area began development in earnest in the 1960s with the introduction of the Westfield Shopping Center and a total of nearly 2.4 million square feet of auto - oriented commercial space. Industrial development was prevalent in the 1960s with over 1.2 million of square feet developed; however, the 1970s were a boom decade for industrial development in the TUC with 3.4 million square feet delivered. These two decades combined to account for 75% of the total square footage that is in the TUC today. The location of this Study Area within the region along with a land use code that has encouraged this development pattern are the significant factors in contributing to the building stock that exists in the TUC today. In comparison, the TIB District is primarily residential in nature with 68 % of the building square footage being single family or multifamily. This residentially used land is oriented east and west of the Tukwila International Boulevard, which is the Study Area's main arterial. The remaining 32% is a relatively evenly distributed mix of office, retail, industrial, and lodging uses (13 %, 9 %, 7% and 3 %, respectively). The age of the building stock, like the TUC, has primarily been built prior to 1980. While 63% of the square footage has been built pre 1980, 29% of the inventory was built in prior to 1960 in comparison to the Tukwila LCLIP: Findings and Recommendations i 14 TUC where almost none of the current building stock was built prior to 1960. The TIB District's development patterns have also largely been a function of King County's land use code, which applied until the City annexed the area in 1990. Exhibit 6 illustrates the development patterns by decade and by land use type in the Study Areas. SM 800K - 4M1 5 600K 2M 200K GK OM P..-N950 1950. 1960. 1970. MO. 'M90. 2000. 2MO -14 Paa -1950 Rv Uffl 4 ?'16 01 11, 1, 110 N2 C, N111 l(� ,'11 NO 4 , . ✓ ,:,n1& Ftrott, 44 MF ;'9,;5' 7 219 8;2 (71. 4"1 4 r 4i ^,'40, 993 319) rxf . S;ki'firt- :S,4 YF 17,485 @F,'f 92 22,7110 1"A 809 2511,09a ft.gpd.Ny H-JAWky 12 Vs 28 MB 68 753 46,197 4,du.um,W ,r,,. klRRipAlw4"W 9w1e 6PUe T*ta9 697169 845.938 %2.593 185.584 737.8731 521,432 431.82! 24.288 iMa7 1,260 3.1.3 Existing zoning and Development capacity PoM1A604 fl9k'0m 26 28 001 052 1516 6N 3,655,556 4,782,633 an 053804 22�1 311 71,6817 264 777,334 11y95� J, 435 J 9 1,432.857 zaaao 579004 2010 44 A D f J0 "J''u7 I W:3 435.532 162.728 The land use code in both Study Areas offer a wide range of uses. While the existing uses in the TIB District generally reflect the intent of the current code4, the land uses in the TUC are intended to evolve over time from auto - oriented low rise commercial to mid -rise and high -rise commercial development that includes multi - family is most of the zoning districts. A detailed summary of the land use code for each zoning district is provided in Appendix 1. To analyze the future development opportunities in the Study Areas a two -step process was employed. First a buildable lands assessment was conducted and then a capacity analysis to estimate the maximum total quantity of building square footage that may be developed in the Study Areas. The buildable lands were identified using the assessed value approach where propertiess with a building where the improvements assessed value to the property's total value was less than 50% were flagged as potential redevelopable. Those properties where the improvement to total ratio is less than 25% are considered likely to redevelop in the next 25 years while those properties with a ratio between 25% and 50% were considered potentially redevelopable (or noted as "Maybe" in Exhibit 7). Parks and greenbelts, cemeteries, essential public services, and rights of way were excluded. The table in Exhibit 7 summarizes the buildable lands for each zoning district in the Study Areas. 4 The existing land use code for the TIB District may be revised in the future as a result of the Comprehensive Plan Update for this neighborhood that is underway. 5 Properties may consist of one or more parcels. A review of existing ownerships was conducted and adjacent parcels with common owners were combined to be classified as a single property. Tukwila LCLIP: Findings and Recommendations 15 2W Source: Heartland, King County Assessor, 2014 Next, a capacity analysis was conducted. The first step in this process was to interpret the land use code for each zoning district to estimate a typical floor area ratio (FAR), or the ratio of total potential building square footage to land area .6 The next step involves projecting how the market will utilize the land. Future land use is a key variable because different land uses will result in different FARS due to the form based code and parking requirements. For example, in the TUC - Transit Oriented Development (TOD) zoning district multifamily uses could support a FAR of 2.1 while an office use may result in a FAR up to 1.8. Finally, to estimate the capacity for a zoning district and the Study Areas cumulatively the total square footage of likely or maybe redevelopable land is _ - , 0M, multiplied by the blended FAR based on the land use 20,000,000 distribution for that zone. Using this approach the total ) 60,000,000 iiiiiiii Hospitaltity capacity on potentially red 50,000,000 Retail evelopable properties in the � Multifamily TUC is illustrated in Exhibit 8. If the potentially 4Q'Q0Q'Q00 111111111 oiuuu Office 30,000,000 redevelopable properties in the TUC are fully built out to � 20000000 the maximum FAR it would total roughly 63 million 10,000,000 square feet for an average FAR of 4.1 and the TIB District o could support roughly 6.5 million square feet for an TUC (4.2 FAR) TIB (0.6 FAR) Source: Heartland, King County Assessor, 2015 average FAR of 0.6. 6 Floor area ratio is calculated by dividing the total building square footage, typically excluding parking square footage, by the land area. For example, a 50,000 square foot parcel with a FAR of 2.0 could support up to a 100,000 square foot building while a FAR of 0.5 would result in a 25,000 square foot building. nil Tukwila LCLIP: Findings and Recommendations 16 Count of Properties ILand Acre Summary by Redevelopment Potential Redevelopable Property Use and Size Likely or Avg Maybe Pipeline Likely Maybe Unlikely % Existing Zone Total Redevelopable Projects Redevelopable Redevelopable Redevelopable Unlikely FAR Avg Lot SF Min Lot SF Max Lot SF Tukwila International Boulevard District TIB- Urban Renewal 21 19 1 10.9 9.7 8.7 29% 0.2 47,246.8 9,546 217,268 RC 50 36 0 40.3 18.0 9.6 14% 0.2 70,613 5,398 669,910 NCC 21 9 1 3.2 0.8 4.6 48% 0.1 19,404 4,389 47,378 MUD 12 6 0 4.7 0.5 2.0 28% 0.1 38,114 6,000 148,540 HDR 99 21 0 3.4 9.2 59.8 83% 0.1 26,069 10,261 80,491 MDR 49 22 0 4.2 3.5 32.5 81% 0.1 15,257 5,848 38,687 LDR 815 478 0 42.4 103.5 107.0 42% 0.1 13,300 4,568 473,693 CLI 4 2 0 6.2 1.4 13.2 63% 0.0 165,761 61,419 270,102 MIC /H 1 1 0 6.1 0.0 0.0 0% 0.0 263,966 263,966 263,966 0 4 0 0 0.0 0.0 2.6 100% 0.0 0 0 0 TOTAL 11,076 594 2 1121.4 146.7 240.0 47% 0.1 19,662 0 669,910 Tukwila Urban Center TUC -CC 20 8 0 11.1 19.2 71.5 70% 0.2 164,861.3 38,080 433,727 TUC -P 5 2 0 1.4 1.0 40.8 94% 0.1 52,546 42,495 62,596 TUC -P 150 8 4 0 27.6 14.2 26.0 38% 0.4 455,673 309,494 850,726 TUC -RC 8 2 0 0.0 5.6 55.4 91% 0.2 121,119 30,000 212,237 TUC -RC 300 3 1 0 0.0 46.2 5.2 10% 0.2 2,013,548 2,013,548 2,013,548 TUC -TOD 86 32 5 31.1 28.3 161.3 71% 0.3 80,886 10,518 469,291 TUC -WP 53 17 0 1.4 91.5 74.2 44% 0.4 237,945 12,258 801,777 TUC -WP River 11 8 0 8.1 65.7 14.6 17% 0.3 401,834 79,264 792,702 TOTAL 194 74 5 80.7 271.7 449.0 56% 0.3 207,440 10,518 2,013,548 Source: Heartland, King County Assessor, 2014 Next, a capacity analysis was conducted. The first step in this process was to interpret the land use code for each zoning district to estimate a typical floor area ratio (FAR), or the ratio of total potential building square footage to land area .6 The next step involves projecting how the market will utilize the land. Future land use is a key variable because different land uses will result in different FARS due to the form based code and parking requirements. For example, in the TUC - Transit Oriented Development (TOD) zoning district multifamily uses could support a FAR of 2.1 while an office use may result in a FAR up to 1.8. Finally, to estimate the capacity for a zoning district and the Study Areas cumulatively the total square footage of likely or maybe redevelopable land is _ - , 0M, multiplied by the blended FAR based on the land use 20,000,000 distribution for that zone. Using this approach the total ) 60,000,000 iiiiiiii Hospitaltity capacity on potentially red 50,000,000 Retail evelopable properties in the � Multifamily TUC is illustrated in Exhibit 8. If the potentially 4Q'Q0Q'Q00 111111111 oiuuu Office 30,000,000 redevelopable properties in the TUC are fully built out to � 20000000 the maximum FAR it would total roughly 63 million 10,000,000 square feet for an average FAR of 4.1 and the TIB District o could support roughly 6.5 million square feet for an TUC (4.2 FAR) TIB (0.6 FAR) Source: Heartland, King County Assessor, 2015 average FAR of 0.6. 6 Floor area ratio is calculated by dividing the total building square footage, typically excluding parking square footage, by the land area. For example, a 50,000 square foot parcel with a FAR of 2.0 could support up to a 100,000 square foot building while a FAR of 0.5 would result in a 25,000 square foot building. nil Tukwila LCLIP: Findings and Recommendations 16 3.1.4 Growth Scenarios Once a full build -out capacity is estimated the next step is to determine how much development may occur over the next 20 to 30 years. A common approach to estimating future growth is to use past development trends as a proxy for future growth. Development in the Study Areas since 1990 has been relatively slow and the type of product developed in terms of use and density is not like what is envisioned for the future of the Study Areas. The TUC is intended to support mid -rise and high -rise buildings with a mix of office and multifamily products integrated into the area replacing underutilized existing industrial and retail uses. The TIB District has not been rezoned, but the vision is for an urban corridor with a mix of uses and building heights replacing the low -rise development that is currently in place. Growth projections used in the LCLIP revenue model were based around the PSRC growth targets for the City and the Study Areas. Another approach that could have been utilized would be to base future growth on past development trends; however, because the past development patterns in the Study Areas will not likely be the same as the future the PSRC estimates were relied on. The table in Exhibit 9 summarizes the resulting total gross building square footage for three future growth scenarios. As this table reveals, there is ample capacity to support growth in the Study Areas.' Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,119,045 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,923,213 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,200000 , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Growth Target 830,000 6,060,000 11,070,000 % of Capacity 39% 14% 73% Conservative 620,000 2,490,000 8,960,000 % of Capacity 29% 6% 59% High Growth 620,000 8,570,000 11,070,000 % of Capacity 29% 20% 73% Source: Heartland LLC, 2015 The Growth Target scenario is based on estimates provided by PSRC for the Study Areas. The distribution of uses was scaled so that the total amount of gross building square footage delivered over the next 25 years could achieve the growth targets. The Conservative scenario is a scaled back version of the Growth Target scenario. This scenario was developed because the output of projects that could result from the modeled development would exceed historical trends in the City as well as in South King County. The High Growth scenario was developed to estimate the impact of the LCLIP program if developers found the Study Areas to be attractive areas due to a shift in market dynamics. A catalyst project or major employer electing to locate in this area could help spur development to achieve the Growth Target or High Growth scenarios. 7 The Capacity and growth scenarios shown in these tables do not represent the entire Study Area, but rather just the parcels that have been identified as parcels likely to be located in the LIPA. This includes all of the TUC with the exception the properties located in the Commercial Corridor zoning district, property in the Urban Renewal Overlay of the TIB District, and all of Tukwila South. Note that the modeled scenarios for Tukwila South's have the share of its capacity at 73% for the Growth Target scenario and the High Growth scenario. This is based on an opinion that this area will not likely build out to its full capacity. Tukwila LCLIP: Findings and Recommendations 17 41 The table in Exhibit 10 shows the total estimated amount of square footage by use type that was modeled for each scenario as well as how many projects that building area may support. This helps to contextualize the scale of these scenarios. The average office project estimated to be 300,000 square feet and between 5 and 8 stories. The typical multifamily and hospitality project would be a 5 to 7 story project with 120 units. A portion of the retail modeled was ground floor commercial space in office and multifamily projects, but an assumption was made that developers will still see this area as strong retail location and improve some of the land with new retail projects. These were the assumed averages; some buildings developed in the TUC may take advantage of the bonus incentives and build tall structures. For reference, there have not been any multifamily projects built in Tukwila that have been over 3 stories since 1990 and in all of South King County there have only been 25 built. Square Feet Total Study Area TIB District I Tukwila South Land Use Delivered Projects Projects TUC Projects I Projects Growth Target Scenario '. Office 5,045,066 5 0 5 12 Multifamily 3,248,454 22 7 15 ; 6 Retail 2,175,581 0 16 Hospitality 3,321,559 2 2 13 Conservative Scenario I Office 3,354,643 2 0 2 9 Multifamily 2,023,976 12 5 7 6 Retail 1,707,633 0 0 0 13 Hospitality 2,490,451 1 1 10 High Growth Scenario Office 5,770,299 8 0 8 ; 11 Multifamily 3,719,455 25 5 20 7 Retail 2,190,872 0 16 Hospitality 3,498,791 3 3 13 Source: Heartland LLC, 2015 One final reference point for the estimates used in the model is how each compares to the most current PSRC growth targets. PSRC projects the City should be able to support approximately 23,350 new jobs and 10,680 new people between 2010 and 20358. The table in Exhibit 11 estimates the number of jobs and people estimated to be supported by new development in the Study Areas and compares that total to the City -wide growth targets. Both this table and the table in Exhibit 10 show that if the Tukwila South project is built out per its development agreement the City will easily meet its growth targets. 8 PSRC Land Use Targets. Release Date: 4/14/2014 Tukwila LCLIP: Findings and Recommendations 18 42 Study Area Land Use Total % of Tukwila Growth Targets TIB District TUC Tukwila South Growth Target Scenario Jobs 9,462 Households 3,709 41% 35% 361 1,048 9,101 2,661 28,031 1,042 Conservative Scenario Jobs 3,737 Households 1,991 16% 19% 271 786 3,467 1,205 22,425 958 High Growth Scenario I Jobs 13,434 Households 4,431 58% 41% 271 786 13,164 3,645 28,031 ! 1,042 Source: Heartland LLC, 2015 Tukwila LCLIP: Findings and Recommendations 19 43 This page intentionally left blank. Tukwila LCLIP: Findings and Recommendations 20 ii This section reviews the feasibility of TDR placement within the Study Area. The section summarizes the range of bonus provisions that may be employed to utilize TDR credits and evaluates the recommended approach for the private placement of TDR credits. 4.1 Existing and potential development bonus provisions The absence of TDR policy is not an obstacle to the success of LCLIP in the City. The LCLIP program is flexible and allows for multiple approaches to achieve market -based credit placement. Options the City might consider include the expansion of incentive zoning in the TUC or the introduction of incentive zoning in the TIB District, private placement via a multi - family tax exemption incentive, development agreements, public acquisition of credits, or a combination of approaches to create a portfolio of mechanisms to place TDR credits and meet LCLIP performance milestones. Incentive Zoning The City has incentive zoning in the TUC in place; however, the incentives involve affordable housing and the provision of design elements to access bonus heights. The TIB District may present an opportunity for the use of incentive zoning. The City desires considerable land use in the TIB District to encourage a more dense mix of uses relative to historical patterns. There is an opportunity to include provisions for bonus incentives that would use TDR in a TIB District rezone. Even with this opportunity, the capacity and demand for growth in that area is comparatively small and other mechanisms may generate more demand for TDR placement, such as a multifamily tax exemption (MFTE) incentive. Private Placement Recently the City implemented a short -term MFTE program for one year with objectives around incentivizing projects in a specific area within the TUC. The concept of MFTE is simple: developers receive an 8 -year exemption from property taxes for constructing multifamily residential projects that provide a public benefit. The City could generate demand for TDR by allowing developers to access the property tax relief offered via the MFTE through the purchase of TDR credits. Later sections detail this approach, along with costs and revenues associated with the mechanism. This approach would be considerably simpler from a policy and regulatory standpoint to implement than incentive zoning that includes TDR, and could potentially reduce uncertainty in implementation of LCLIP by providing a more streamlined and valuable bonus to developers. Development Agreements Another avenue by which the City can generate demand for TDR credit placement from private development is with development agreements. This approach is more opportunistic than MFTE or incentive zoning, and is more variable in its ability to absorb credits. When a developer proposes a Tukwila LCLIP: Findings and Recommendations 21 45 large project to the City and requests special dispensations to facilitate its construction the City has an opportunity to negotiate the acquisition of TDR credits by the developer into the agreement. There is no formula or guideline for this, and since the pipeline of projects that could potentially place credits is uncertain the viability of this approach is difficult to predict with certainty. A single large project, however, could result in the placement of a substantial portion of the City's TDR commitment. Public Acquisition While not likely the first choice for the City as a means to meet performance milestones in LCLIP the use of public funds to acquire credits needed to continue the program is another option. Any public money that the City expends to buy credits to achieve milestones reduces the net revenue that would accrue to the City. That being said, it is important to keep as a backstop to close any gap left by the private market. The City could negotiate pricing agreements with King County or other flexible terms as part of an interlocal agreement implementing LCLIP. The revenue projections for the City are such that even if public acquisition became necessary the City would still come out ahead financially — possibly far ahead — given the prospects for the program. 4.2 Approach for the private placement of TDR credits In the absence of a more common TDR program based on incentive zoning, the City will need to create a mechanism by which private developers can use TDR to gain a benefit. The two most promising opportunities to achieve private placement is by using TDR to allow developers access to a MFTE and through the use of a Development Agreement for projects of significance. The Development Agreement opportunity is opportunistic and the number of credits that a project may utilize will be negotiated between the City and the developer. In regards to the MFTE opportunity, under RCW 84.36 a city may grant a developer an 8 -year exemption on property taxes if a multi - family project provides some public benefit. This mechanism has traditionally been used to incentivize the construction of affordable housing and can also apply to TDR and the LCLIP program, which clearly provides multiple public benefits. Under this approach, the bonus that the developer would gain is access to operational cost savings through the 8 -year tax exemption. In order to access this, the developer would buy TDR credits. The number of credits needed to access the MFTE would be calibrated such that the net savings to the developer is still sufficiently high to justify the credit purchase. Analysis of developer willingness to pay suggests that a prototypical 120 -unit project could place approximately 30 credits. This model results in an exchange rate of 1.3 credits per 5 units in the project or a fee in lieu of $28 per net square foot assuming an average unit size of 900 square feet and the average TDR credit costs $20,000 today. By participating in this program the owner of this prototypical project could realize a tax savings of nearly $355,000 in nominal terms over the 8 -year exemption for very little effort. This assumes that 65% of the benefit goes toward TDR acquisition and the remainder to the project owner. The City would need to amend its development regulations to define the terms and Tukwila LCLIP: Findings and Recommendations 22 M. create the mechanism for developers to access MFTE through purchase of TDR credits. The table in Exhibit 12 on the following page details the inputs used to estimate TDR utilization. Exhibit 12: DIR Credits to Access MIFTE Program Annual Tax A Split TDR Cost: $20,000 1% 1 65% Inflation:2% MFTE TDR Project Tax TDR Credits Year Benefit Contribution Savings Afforded 1. 2015 $122,400 $79,560 $42,840 3.9 2 2016 $123,624 $80,356 $43,268 3.9 2017 $124,860 $81,159 $43,701 3.8 4 2018 $126,109 $81,971 $44,138 3.8 5 2019 $127,370 $82,790 $44,579 3.7 6 2020 $128,644 $83,618 $45,025 3.7 C 2021 $129,930 $84,455 $45,476 3.7 S 2022 $131,229 $85,299 $45,930 3.6 Total $1,014,166 $659,208 $354,958 30.2 NPV $725,598 $471,639 $253,959 Total credits over 8 year period for a 120 project 30.2 Exchange Rate 1: TDR credits needed per 5 units 1.3 Exchange Rate 2: Fee in lieu per net square feet $28 Source: Heartland, 2015 Blending the MFTE program with LCLIP in this manner allows a developer to access a portion of the tax savings for eight years, but with a cost of TDR acquisition. In the model above the developer would realize approximately 35% of the total tax savings benefit while placing roughly 30 TDR credits. The MFTE program does come with an opportunity cost for the City in the form of lost tax revenue on these units for 8 years. Further analysis may be warranted to study the fiscal impacts of this program relative to the benefits of added units and LCLIP revenue. Tukwila LCLIP: Findings and Recommendations 23 EYA This page intentionally left blank. Tukwila LCLIP: Findings and Recommendations 24 Ml Using a LCLIP revenue model developed for the City, the analysis tested the three different scenarios to assess the number of TDR credits potentially placed and revenues generated through the LCLIP program. Each scenario assumes different levels of growth and TDR use to test how sensitive the revenues are to the assumed amount of growth and the TDR mechanism used. The mechanism used to retire TDR credits for all scenarios in this analysis is an eight -year multi - family tax exemption program. The analysis uses a number of common assumptions for all scenarios. The analysis assumes that the LCLIP program would start in 2016 and run for 25 years. All scenarios assume the price of TDR credits is $20,000 and increase to $36,000 (in 2015 dollars) at year 15. The analysis also assumes all TDR credits are first purchased by the private market, and the City only purchases credits to meet the program placement thresholds to continue the program going if needed. The LCLIP revenue assessment identifies a LIPA study area and develops a forecast of future development amounts. Using these inputs, several LCLIP parameters are tested to better understand the impact of different TDR use and development growth variables as drivers of potential LCLIP revenues. 5.1 Defining a LIPA For the revenue analysis, it is assumed that the areas inclusive of the Urban Renewal Overlay of the TIB District, the TUC Study Area excluding the Commercial Corridor zoning district, and Tukwila South would comprise LIPAs for the City. The TUC's Commercial Corridor zoning district was excluded from this analysis in order for these LIPAs to meet the legislative requirement of containing less than 25% of the City's current assessed value. The City may choose to draw the LIPA(s) differently to optimize where new development may occur prior to proposing the LCLIP legislation. Additionally, if the City waits to adopt LCLIP the assessed values may rise, thereby necessitating a re- evaluation of LIPAs. The current valuation supports the pursuit of LCLIP sooner rather than later. Tukwila LCLIP: Findings and Recommendations 25 i The table in Exhibit 15 summarizes the 2014 assessed value for the areas that are modeled to be included in the LIPA for purposes of this analysis. Source: King County Assessors, Heartland 5.2 The Impact of Development Variables The following scenarios assessed LCLIP revenue based on assumptions about the timing, scale, and quality of development. Outside of the LCLIP program parameters, the three main development -based determinants of revenue impact are: • Scale and Mix of Development. The revenue impact is likely to change as developers contemplate differing types and amounts of residential and commercial development. • Value of Development. While the baseline assumptions around development value (normalized on a square footage basis) were drawn from reliable data, it is difficult to predict future development value with great certainty. • Timing of Development. The timing of construction can either accelerate or delay the onset of LCLIP revenues. Delay reduces the revenues under the LCLIP time window by pushing out the impacts into the future, resulting in reduced years of benefits that are discounted more heavily. The opposite is true in a situation where development happens earlier. It should be noted that changes to any of these (whether driven by future policy or market dynamics) can have a significant impact on the amount of LCLIP revenue generated. A difficult issue to disentangle from the analysis is the degree in which potential LCLIP- driven infrastructure improvements may facilitate (i.e. lower the overcall cost or feasibility) development by solving critical site and /or access issues. 5.3 Assumptions and Revenues The revenue analysis assumes that the primary mechanism used to place TDR credits is the eight -year MFTE program. Under this approach, developers of multi - family residential buildings in the LIPA would be eligible to purchase TDR credits and in exchange receive an eight -year property tax exemption on the residential improvements of their project. These scenarios are one approach to credit utilization that relies on market participation via an MFTE program. Alternatives could be developer agreements and Tukwila LCLIP: Findings and Recommendations 26 50 Total Assessed Total Assessed Area Value Value (%) TIB -UR $46,793,200 0.6% TUC -P $317,337,100 4.1% TUC -RC $418,493,000 5.4% TUC -TOD $551,411,000 7.1% TUC -WP $561,307,800 7.2% Tukwila South $45,790,200 0.6% Total $1,895,342,100 25.0% Source: King County Assessors, Heartland 5.2 The Impact of Development Variables The following scenarios assessed LCLIP revenue based on assumptions about the timing, scale, and quality of development. Outside of the LCLIP program parameters, the three main development -based determinants of revenue impact are: • Scale and Mix of Development. The revenue impact is likely to change as developers contemplate differing types and amounts of residential and commercial development. • Value of Development. While the baseline assumptions around development value (normalized on a square footage basis) were drawn from reliable data, it is difficult to predict future development value with great certainty. • Timing of Development. The timing of construction can either accelerate or delay the onset of LCLIP revenues. Delay reduces the revenues under the LCLIP time window by pushing out the impacts into the future, resulting in reduced years of benefits that are discounted more heavily. The opposite is true in a situation where development happens earlier. It should be noted that changes to any of these (whether driven by future policy or market dynamics) can have a significant impact on the amount of LCLIP revenue generated. A difficult issue to disentangle from the analysis is the degree in which potential LCLIP- driven infrastructure improvements may facilitate (i.e. lower the overcall cost or feasibility) development by solving critical site and /or access issues. 5.3 Assumptions and Revenues The revenue analysis assumes that the primary mechanism used to place TDR credits is the eight -year MFTE program. Under this approach, developers of multi - family residential buildings in the LIPA would be eligible to purchase TDR credits and in exchange receive an eight -year property tax exemption on the residential improvements of their project. These scenarios are one approach to credit utilization that relies on market participation via an MFTE program. Alternatives could be developer agreements and Tukwila LCLIP: Findings and Recommendations 26 50 city purchase, but for purposes of this analysis the focus was on private placement. Adding incentive zoning to portions of the TIB would be a way to encourage more private market absorption of TDR credits to augment the other mechanisms identified. Generally speaking, it is in the City's interest to establish an integrated approach to credit utilization that maximizes opportunities for market placement of credits and strengthens certainty around achieving program milestones to extend revenues. It is likely a large share of new multi - family residential development would use the MFTE program. If structured correctly, the MFTE would provide a small cost saving to the developer after purchasing the required development rights. The program is voluntary, but there is no financial advantage to not use the program for a developer. The MFTE program would delay the new construction value contributions to the LCLIP program for the City until the eight -year exemption expired. After the exemption expires the value would be added to the City's assessed value used in calculating how much revenue the City is receiving under the program. The delay in adding new construction value will somewhat reduce the amount of LCLIP revenues to the City, however this near -term impact should be viewed in context of the overall revenue projections of the program. 5.3.1 Scenario 1: Conservative Growth Target Forecast with MFTE Program This scenario assumes 4.6 million square feet of development by 2040. This level of growth is less than is needed for the City to meet its growth targets, but significantly more than the City has experienced historically. This scenario assumes an eight -year multi - family tax exemption (MFTE) program is established when the program begins and that 80% of multi - family residential development would utilize the program. This figure is derived based on utilization of the MFTE program in the City of Seattle. The scenario also assumes that the City accepts 100% of the 405 allocated credits to maximize revenue. Using these assumptions, over 1.0 million square feet of development would utilize the TDR incentive and the private market would place 300 of the City's 405 allocated credits over 25 years. However, the private market would not meet the first threshold of 203 credits after 10 years. As a result, the City would have to purchase the necessary credits to keep the program active at each performance threshold. The total costs to the City to make these gap purchases under this scenario would be $1.9 million. Even with the additional cost to the City, total County revenues to the City would be $4.4 million (net present value). Less the $1.9 million acquisition costs, net revenues to the city would be $2.5 million. This net amount equates to almost $300,000 in 2015 dollars annually by year 25 of the program. Exhibit 16 and 17 show the growth in annual revenues for inflation and non - inflation (nominal) adjusted dollars. Tukwila LCLIP: Findings and Recommendations 27 51 Total LCLIP Revenues $22.3 Million $42.1 Million City Allocation Revenues $17.9 Million $33.6 Million County Allocation Revenues $4.4 Million $8.4 Million City TDR Acquisition Cost -$1.9 Million -$3.0 Million City Net Revenue $2.5 Million $5.4 Million Source: ECONorthwest. Note all figures in 2015 dollars; 25 -year present value at 4% discount rate $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 y0 y1 y% y0 y0 yti y'L 1'' ya y0 y0 L1 y% y0 �0 3N 3ti �"I , ,�9 # '31 , ' 10 �° 'yo 'yo 'yo yo yo yo yo 'yo 'yo 'yo 'yo 'yo 'yo 'yo 'yo yo yo yo yo yo '0 yo yo yo 'yo Source: ECONorthwest. 5.3.2 Scenario 2: Growth Target Forecast with MFTE Program This scenario assumes 6.1 million square feet of development by 2040. This level of growth is what would be needed for the City to meet its growth targets, but significantly more than the City has experienced historically. This scenario assumes an eight -year MFTE program is established when the program begins and that 80% of multi - family residential development would utilize the program. The scenario also assumes that the City accepts 100% of the 405 allocated credits to maximize revenue. Using these assumptions, almost 1.3 million square feet of development would utilize the TDR incentive and the private market would place 381 of the City's 405 allocated credits over 25 years. The private market would not quite meet the first threshold of 203 credits after 10 years. As a result, the City would have to purchase the necessary credits to keep the program active at each performance threshold. The total costs to the City to make these gap purchases under this scenario would be $800,000. Even with the additional cost to the City, total County revenues to the City would be $5.9 million (net present value, $11.3 million nominal). Less the $800,000 acquisition costs, net revenues to the city would be $5.1 million ($10.3 million nominal). This net amount equates to almost $400,000 in 2015 dollar annually by year 25 of the program. Exhibit 18 and 19 show the growth in annual revenues for inflation and non - inflation (nominal) adjusted dollars. Tukwila LCLIP: Findings and Recommendations 52 28 Total LCLIP Revenues $30.0 Million $56.6 Million City Allocation Revenues $24.1 Million $45.2 Million County Allocation Revenues $5.9 Million $11.3 Million City TDR Acquisition Cost -$0.8 Million -$1.1 Million City Net Revenue $5.1 Million $10.3 Million Source: ECONorthwest. Note all figures in 2015 dollars; 25 -year present value at 4% discount rate $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 StO y1 yR� yA y0 yti yL y3 LR yti 16 1^ 1� y0 �O 3ti '�i1' '�3 . 3y 30 31 3% LO LO LO LO LO LO LO y0 y0 y0 y0 y0 y0 y0 'y0 y0 y0 y0 '10 o 'LO 'LO 'LO LO LO Source: ECONorthwest. Note all figures in 2015 dollars; 25 -year present value at 4% discount rate 5.3.3 Scenario 3: High Growth with MFTE Program The High Growth scenario tests the upside potential if the City realizes more development than planned for under the City's growth target. This scenario assumes the City realizes 9.5 million square feet of new development by 2040. This growth is significantly more development than historically experienced and about twice the 4.6 million square feet assumed in Scenario 1. Under these assumptions the LCLIP program would produce significant funding benefits to the city. The program would likely retire all 405 credits via the private market and the City would not have to purchase any credits. As a result, assuming 100% specified ratio, the program would generate a significant amount of new revenue for the City. Total revenue to the city from the County's contributions would be substantial at $9.5 million (net present value, $18.2 million nominal) over the 25 -year period and reach over $600,000 in 2015 dollar annually by year 25 of the program. Exhibit 20 and 21 show the growth in annual revenues for inflation and non - inflation (nominal) adjusted dollars. B,i F A I: F 6_ A `tiI D Tukwila LCLIP: Findings and Recommendations 29 53 Total LCLIP Revenues $48.3 Million $90.8 Million City Allocation Revenues $38.8 Million $72.7 Million County Allocation Revenues $9.5 Million $18.2 Million City TDR Acquisition Cost $0 $0 City Net Revenue $9.5 Million $18.2 Million Source: ECONorthwest. Note all figures in 2015 dollars; 25 -year present value at 4% discount rate $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 StO y1 yR� yA y0 yti yL y3 LR yti 16 1^ 1� y0 �O 3ti '�i1' '�3 . 3y 30 31 3% LO LO LO LO LO LO LO y0 y0 y0 y0 y0 y0 y0 l '10 '10 '10 '10 o 'LO 'LO 'LO LO LO Source: ECONorthwest 5.3.4 Addition of Tukwila South to LIPA The three scenarios assume that the Tukwila South subarea is not included in the LIPA and does not develop during the 25 -year study period. However, if Tukwila South was included in the LIPA, and the area did develop in a manner in line with the development agreement for the area, the City would realize sizably more development and revenue from the LCLIP program. Exhibit 22 compares the square feet of projected development for each scenario with and without Tukwila South in the LIPA. The development of Tukwila South adds about 10 million square feet of development or more to each scenario. Conservative Growth Target 4.6 Million 14.6 Million Growth Target Forecast 6.1 Million 18.7 Million High Growth 9.5Million 19.6 Million Source: Heartland LLC. Note: square footage in this table includes area of parking garages. While parking do not provide for jobs or housing it generates tax revenue through sales taxes. 54 Tukwila LCLIP: Findings and Recommendations 30 The additional new development generates considerably more revenues via the LCLIP program under all three scenarios. Exhibit compares the revenues for each scenario without and with Tukwila South developing. The additional new development generates considerably more revenues via the LCLIP program under all three scenarios. Conservative Growth Target $2.5 Million ($5.4 Million) $16.4 Million ($32.2 Million) Growth Target Forecast $5.1 Million ($10.3 Million) $20.8 Million ($40.9Million) High Growth $9.5Million ($18.2 Million) $22.2 Million ($41.9 Million) Source: ECONorthwest 5.3.5 Summary Overall, the amount of growth is an important factor in the viability of a LCLIP program. To retire enough TDR credits for the program to be financially feasible, the City will need to realize significantly more growth over the 25 -year study period than it has historically experienced. For Tukwila specifically, the development potential of the Tukwila South subarea represents a large opportunity to increase LCLIP revenues. In addition, to the amount of development, high utilization of the MFTE program by multi - family residential development in the LIPA is also needed. As a result, factors such as when the City starts the program and the sponsorship ratio the city chooses will be important in determining LCLIP success. Tukwila LCLIP: Findings and Recommendations 31 55 This page intentionally left blank. Tukwila LCLIP: Findings and Recommendations 32 56 r 6.1 Summary of Findings The analysis shows a range of situations in which LCLIP would be beneficial to the City. Even in a scenario assuming conservative growth, LCLIP could generate net revenue of $2.5 million (net present value, or $5.4 million in nominal terms) for infrastructure in Tukwila. Should the City meet its growth targets, the net revenue would increase to $5.1 million (net present value, or $10.3 million in nominal terms). Should the City exceed its growth targets, net revenue would increase to $9.5 million (net present value, or $18.2 million in nominal terms). The TUC can play a central role in the city meeting its growth targets. Following a recent rezone it has the capacity to accommodate considerable population and employment growth. The City has identified a range of infrastructure improvements, many involving improved access to transit, where LCLIP can finance investments that will support redevelopment. E. r . r r •'; . . . I= The City recently adopted a rezone of the TUC. The rezone did not include provisions for incentive zoning that could use TDR; however, there are other mechanisms by which growth would drive demand for TDR. The two most promising opportunities for the City are to pursue TDR utilization through development agreements and to offer TDR as a means for developers to access the 8 -year multifamily tax exemption (RCW 84.36). Development agreements are an opportunistic means by which the City can negotiate TDR acquisition by developers in projects of larger scale. The advantage of this approach is increased placement of credits through the private market (potentially a substantial portion of the City's allocation in the case of a single large project), however it also has tradeoffs. The need for these agreements in future projects is uncertain and because there is no fixed process (like an exchange rate) for establishing the amount of credits a project would acquire, utilization is subject to negotiation. Still, given the study's revenue projections and potential for this approach to place credits, the pursuit of development agreements by the City should remain a focus. In the multifamily tax exemption approach, developers would purchase TDR credits as a means to access 8 years of property tax exemption. Along Tukwila International Boulevard there is an opportunity to implement incentive zoning that would create demand for TDR (the use of development agreements to place credits in larger projects could generate further TDR utilization). Offering access to the MFTE program through TDR credits (or a fee in lieu) will be a simple way for developers to lower operating costs without much impact on the development pro forma. The value this approach creates for developers should make it attractive, however the certainty of projects using the tool is unclear. Tukwila LCLIP: Findings and Recommendations 33 MA State law limits cities to creating districts for using LCLIP that constitute a maximum of 25% of a participating city's total assessed value. To maximize revenues the City should create LCLIP districts that include as much assessed value as possible where growth will occur. Including portions of the TUC and the TIB District, as well as Tukwila South, the City can optimize the future increases in assessed value while staying beneath the 25% limit at the time of program creation. . .:• . r.r r . - III r . r Conditions in the City at present would support use of the tool. This analysis shows that growth, even when projected conservatively, is sufficient to make LCLIP a success. At minimum the City would receive new revenue for infrastructure that it otherwise could not access and at best that revenue would exceed $41 million over the life of the program. 6.2 Recommendations There are various options the City can pursue to take an opportunistic approach to creating an LCLIP program. Before considering these strategies, there are ranges of policy actions that the City should contemplate. 6.2.1 Policy and Code Recommendations In the absence of a traditional TDR program based on incentive zoning, Tukwila will need to create a mechanism by which private developers can use TDR to gain a bonus. The best approach for the City to reduce uncertainty and maximize revenue over the duration of the program is to pursue a credit placement strategy that combines complementary private market mechanisms augmented, if necessary, by public purchases. The two most promising private market mechanisms for placing credits are through negotiating TDR acquisitions in development agreements and by offering TDR as a means for developers to access MFTE. Development agreements, while potentially able to place large numbers of credits in a relatively small number of projects, are also highly unpredictable and should be complemented with a mechanism that is more likely to place credits over time. By pursuing an approach of seeking to include a TDR component in every developer agreement, coupled with MFTE utilization, the city can mitigate the high variability of one tool with the smaller scale, but likely steadier demand of the other. While a development agreement for a sizable project may place upwards of 60 credits in a single transaction, this type of proposal may be few and far between. By contrast, offering MFTE could create sufficient savings for developers to use the tool more frequently in projects that would be more typical of redevelopment in the Study Areas. These MFTE projects might place fewer credits each, but more projects over the duration of the program would help maintain the City's progress towards the performance milestones. Tukwila LCLIP: Findings and Recommendations 34 i Even if the private market falls short of meeting the performance milestones at years 10, 15, and 20, the revenues projected are high enough that a purchase by the City of credits to achieve the thresholds would justify the public investment. Furthermore, terms of an interlocal agreement with King County might include flexibility around meeting milestones if the City is demonstrating significant progress towards those goals. Other ways to reduce City risk is to seek a price guarantee on county -owned credits from King County should the private market not reach credit placement goals. 6.2.2 Potential LCLIP Approaches The following section lays out three approaches to proceeding with LCLIP. �. . . The current analysis shows that while (1) even with conservative growth estimates the City will likely net $2.5 million (NPV, or $5.4 million nominal) in new revenue, and (2) a simple and desirable market mechanism can drive the use TDR, uncertainty remains around what demand for redevelopment will be in the study areas. The risk of taking no action in the near term, however, is that the City misses the opportunity to capture value from redevelopment until after the process has already started, thereby passing up revenue from LCLIP. 111124T WON This approach would establish LCLIP program targeted at placing all 405 credits allocated to the City. The program is structured to provide greater financial incentives for cities accepting higher numbers of credits. This would maximize revenue to the City but also carries increased risk. In a conservative growth scenario the City might need to purchase some TDR credits to meet performance milestones, however the result would still be net positive and King County has expressed a willingness to find ways to reduce the City's financial exposure. In this scenario the City would rely on the private market to place a considerable number of credits (381 under conservative assumptions) and the City could acquire the balance — over the course of the program - to reach the target of 405. In addition to using the MFTE incentive described the City should also pursue development agreements whenever the opportunity presents itself as a complementary mechanism to drive private market utilization of TDR. The opportunity to implement incentive zoning as a means to place TDR credits through redevelopment along Tukwila International Boulevard remains an option, however the analysis suggests that the number of credits placed would be small and the most promising opportunity for market based placement of credits remains the MFTE approach or the use of development agreements. That being said, every credit placed by the private market increases revenue and program certainty for the city, so pursuing an incentive zoning approach in TIB may be worthwhile. Under conservative growth estimates this approach could net Tukwila $2.5 million in revenue (NPV, $5.4 million over the course of the program), while growth that reaches the City's targets would increase revenue to $5.1 million (NPV, $10.3 million over the course of the program). The advent of a large project that could include a development agreement to place a large proportion of the City's credits would raise revenues to $9.5 million (NPV, $18.2 million over the course of the program). Tukwila LCLIP: Findings and Recommendations 35 +Ze f w 0 0` 0 M f# r• R The City can structure the start of the LCLIP program with either a single or multiple major developments, such as a project that utilizes TDR. Timing the program to the start of a known large - scale development within the growth center would allow Tukwila to capitalize on known demand and maximize the benefits to the City. This would help the City target the maximum number of credits and would reduce risk by achieving progress towards that goal at the launch of the program. Pegging the program to a known quantity of TDR use would allow the city to comfortably structure the LCLIP program to run for the full 25 years (i.e. meet performance thresholds). Solving the performance threshold a priori would allow the city more flexibility on the use of funds by allowing some public infrastructure costs to be financed with debt. 1. Commit to full allocation of 405 credits to maximize revenue potential. 2. Establish LIPA boundaries to include the Urban Renewal Overlay portion of the TIB District, portions of Tukwila Urban Center, and Tukwila South to maximize revenue potential and market opportunities for TDR credit placement. 3. Take a proactive approach to pursuing development agreements for projects that could absorb TDR credits as a supplemental market mechanism to the MFTE incentive. 4. Implement MFTE incentive as a private market mechanism to place TDR credits through multifamily residential and mixed -use projects in TUC and Tukwila International Boulevard at recommended exchange rates. 5. Negotiate a price guarantee on county -owned TDR credits through the ILA process as a backup measure should the City need to acquire credits to meet performance milestones. 6. Time the launch of the program with a known project that would place TDR credits. In moving forward the following conditions should be monitored: • Indications that confirm market interest in TDR, such as development applications that have been or are expected to be proposed that will need TDR credits in different zones. • Analysis of the expected use of TDR credits confirms a reasonably high likelihood of meeting threshold requirements for TDR use in the LCLIP district. • Infrastructure projects have been identified that qualify under the LCLIP program. • A LCLIP district can be created that maximizes the projected LCLIP revenue to pay for infrastructure projects while meeting the requirements of the LCLIP legislation. • As needed, a shared strategy approach with King County or another partner agency should be included in an approach to retiring TDR credits. Tukwila LCLIP: Findings and Recommendations 36 •8 • • TI M-0 Should the City choose to use LCLIP, the following next steps are necessary to implement the program: Step 1: Identify a specific geographic area(s) for increased density that will become a LIPA. The LIPA must: • Include contiguous land (no "islands "); • Not include more than 25% of the total assessed taxable property within the City; • Not overlap another LIPA; • In the aggregate, be of sufficient size to: • Use the City's "specified portion" of transferable development rights (unless the City has purchased the transferable development rights to reserve for future development); and • Not be larger than reasonably necessary. • Contain all public improvements to be financed within its boundaries. Step 2: Accept responsibility for all or a share (a "specified portion ") of the transferable development rights allocated from the Puget Sound Regional Council to the city. Consider whether to include any rights from another city through an interlocal agreement. Step 3: Adopt a plan for development of public infrastructure within the LIPA. The plan must: • Utilize at least 20% of the city's allocated share of transferable development rights; • Be developed in consultation with the Department of Transportation and the county where the LIPA is located; • Be consistent with any transfer of development rights policies or development regulations adopted by the City; • Specify the public improvements that will be financed; • Estimate the number of transferable development rights that will be used; and • Estimate the cost of the public improvements. Step 4: Adopt transfer of development rights policies or implement development regulations, or make a finding that the city will receive its specified portion within one or more LIPAs, or make a finding that the City will purchase its specified portion. Adoption of transfer of development rights policies or implementation of development regulations must: • Comply with the Growth Management Act; • Designate a receiving area(s); • Adopt developer incentives, which should be designed, at the City's election, to: • Achieve the densities or intensities in the City's plan; • Include streamlined permitting strategies; and • Include streamlined environmental review strategies. Tukwila LCLIP: Findings and Recommendations 37 61 • Establish an exchange rate, which should be designed to: • Create a marketplace where transferable development rights can be bought and sold; • Achieve the densities or intensities in the city's plan; • Provide for translation to commodities in addition to residential density (e.g., building height, commercial floor area, parking ratio, impervious surface, parkland and open space, setbacks and floor area ratio); • Allow for appropriate exemptions from land use and building requirements; • Require that the sale of the transferable development rights be evidenced by its permanent removal from the sending site (such as through a conservation easement on the sending site); and • Not be based on a downzone within the receiving area. The City may elect to adopt optional comprehensive plan element and optional development regulations that apply within the LIPA. Step 5: Hold a public hearing on the proposed formation of the LIPA. Notice must be provided to the county assessor, county treasurer, and county within the proposed LIPA of the City's intent to create the area. Notice must be provided at least 180 days in advance of the public hearing. Step 6: Adopt an ordinance or resolution creating the LIPA. The ordinance or resolution must: • Describe the proposed public improvements • Describe the boundaries of the proposed LIPA • Provide the date when the use of local property tax allocation revenues will commence and a list of the participating tax districts (the City and county) A certified copy of the adopted ordinance or resolution must be delivered to the county assessor, county treasurer and each participating tax district. Step 7: Provide a report along with the county to the Department of Commerce by March 15T of each year. A requirement of participating in the LCLIP program is for Counties in cooperation with cities, to provide the Department of Commerce with a report on March 15T of every other year. Should the City of Tukwila choose to participate, the City in cooperation with King County would compile a report containing the following information: • Number of cities within the county participating in LCLIP; • The number of TDR transactions that have occurred; • The number of acres conserved through the program, broken out by land type, agricultural, forest, or rural; • The number of TDR credits transferred; • The number of TDR credits transferred into the cities: • The total number of new residential units in the city; • The number of additional residential units allowed due to TDR credit transfers; • The amount of additional commercial space allowed due to TDR credit transfers; Tukwila LCLIP: Findings and Recommendations 38 62 • The amount of additional building height allowed due to TDR credit transfers; • The amount of structured parking spaces reduced due to TDR credit transfers; • The amount of additional parking spaces allowed due to TDR credit transfers; and • The amount of additional impervious surface allowed due to TDR credit transfers. • The amount of property tax revenues per city received from the county; • A list of public improvements paid for or financed by the received revenues; • The names of businesses locating within the district as a result of the public improvements: • The number of permanent jobs created in the district as a result of the public improvements; and • The average wages and benefits received by the employees. • The date at which any indebtedness issued for LCLIP financing is expected to be retired. Tukwila LCLIP: Findings and Recommendations 39 63 M., ECONorthwest ECONOMICS • FINANCE • PLANNING DATE: July 25, 2016 TO: Lynn Miranda FROM: Morgan Shook SUBJECT: LCLIP REVENUE REFINEMENT AND PROGRAM IMPLEMENTATION Additional LCLIP Revenue Assessment The City of Tukwila is building on a recently completed assessment of the Landscape Conservation Local Infrastructure Program (LCLIP) and would like to further refine their LCLIP assessment to explore an emerging opportunity to include a transfer of development rights provision. The city would like to refine some LCLIP projections to include opportunity and challenges assessment as part of potential LCLIP program. Previous LCLIP revenue forecasts assessed varying levels of new investment at different levels of development right absorption. Relying on new information that includes some valuation and timing of development relative to the scenarios, ECO revised its revenue forecast to account for the development of multiuse sports arena in downtown Tukwila. Assessment of an Downtown Multi -Use Arena ECONorthwest evaluated the impact of the near term construction of a multi -use sports arena in downtown Tukwila. The analysis shows only the anticipated revenue impact of using LCLIP as part of the development mitigation for that project would generate between $22 to $26 million (25 -year PV at 4% discount rate) in infrastructure funding from King County. The following terms were assumed: • The new construction value of the arena would be valued at $1 billion. • It was assumed that the arena would start construction in 2017 and open 2019. • The City would accept all of the allocated development rights. • The arena would be responsible for acquiring some large portion of development rights as part of negotiated development agreement to support needed infrastructure. ECONorthwest I Portland I Seattle I Eugene I Boise I econw.com 65