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HomeMy WebLinkAboutCOW 2016-11-28 Item 4D - Resolution - Landscape Conversation and Local Infrastructure Program (LCLIP)COUNCIL AGENDA SYNOPSIS Initials 1Vteeiin Date P ',area' by Mayor' i i ew ', rcd/ reuieu' 11/28/16 idfi ar ' 12/05/16 LM rights (TDR) as part of a Program ( LCLIP) ion 11/28/16 Motion Date ❑ Ordinance MIg Date Award ❑ Public Hearing AN Date ❑ Other Mtg Date CA'T'EGORY ti Disscxws • 11 Resolution ITEM INFORMATION ITEM No. 4.D. 129 STAN, SPONSOR: LYNN MIRANDA ORIGINAL AGENDA DATE: 11/28/16 AGENDA ITEM TITLE Resolution Landscape in support Conservation of regional and Local transfer of Infrastructure development rights (TDR) as part of a Program ( LCLIP) ion 11/28/16 Motion Date ❑ Ordinance MIg Date Award ❑ Public Hearing AN Date ❑ Other Mtg Date CA'T'EGORY ti Disscxws • 11 Resolution 1 Bid Mtg Date tg A4tg Date 12/5/16 M g Date SPONSOR ❑ Council ❑ Mayor ❑ HR 11 DCI7 ❑ Finance • Fire • TS ❑ P &R • Police ❑ Pr SPONSOR'S The resolution expresses Council support for TDRs and their willingness to consider, at the SUMMARY appropriate time, developing an interlocal agreement with King County to establish a Land Conservation and Local Infrastructure Program. Approving the resolution does not commit the City to implementing a LCLIP, but provides King County with a signal of the City's interest and initiates the 180 -day notice required before the City could adopt a LCLIP program. REVIEWED BY L] COW Mtg. Z CA &P Cmte ❑ F &S Cmte ❑ Transportation Cmte ❑ Utilities Cmte ❑ Arts Comm. n Parks Comm. H Planning Comm. DATE: 11/14/16 COMIVIITTEE CHAIR: QUINN RECOMMENDATIONS: SPONsoR /ADMIN. COMMITI Department of Community Development Affairs and Parks IiI: Community COST IMPACT / FUND SOURCE EXPEND! l'URE REQUIRED AMOUNT BUDGETED APPROPRIATION REQUIRED so $o _ so Fund Source: Comments: MTG. DATE RECORD OF COUNCIL ACTION 11/28/16 C 12/5/16 MTG. DATE ATTACHMENTS 11/28/16 Informational Memorandum dated 11/08/16 Resolution (Minor wording change to page 1 of Resolution after CAP) Minutes from the Community Affairs and Park meeting of 11/14/16 12/5/16 129 130 TO: FROM BY City of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM Community Affairs and Parks Committee Jack Pace, Community Development Director Lynn Miranda, Senior Planner CC: Mayor Ekberg DATE' November 8, 2016 SUBJECT' Resolution in support of regional transfer of development rights (TDR) as part of a Landscape Conservation and Local Infrastructure Program (LCLIP) ISSUE Should the Council adopt a resolution expressing support for regional Transfer of Development Rights (TDRs) and their willingness to consider, at the appropriate time, developing an interlocal agreement with King County to establish a Landscape Conservation and Local Infrastructure Program (LCLIP) that includes TDR policies? BACKGROUND H istory 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 their 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 must then use this revenue to fund infrastructure improvements that support infill growth and redevelopment. The consultant team of Forterra, ECONorthwest, and Heartland were hired to prepare the LCLIP feasibility analysis. The City Council received a full briefing on the results of the 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. The LCLIP discussion was continued at the August 8, 2016 CAP meeting, where the Committee supported moving forward with the process of establishing a LCLIP. Findings of LCLIP Feasibility Analyses Two studies evaluated the feasibility of implementing a LCLIP program — one in 2015 funded by a grant 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' 1) allowing developers to use a Multifamily Property Tax Exemption (METE) only when purchasing TOR credits; and 2) requiring developers to purchase TDR credits when asking for special dispensations through a Developer Agreement. 131 INFORMATIONAL MEMO Page 2 In the MFTE approach, developers would purchase TDR credits as a means to access 8 years of property tax exemptions, which is attractive to developers. In the Developer Agreement approach, the City could negotiate TDR purchase by developers for projects of a larger scale. The advantage of both approaches is that TDR credits are placed through the private market. However, there are issues that make these approaches less attractive for the City: 1) it is uncertain how many projects would buy credits for access to the MFTE program; 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 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 TDR credits, if necessary, to reach the performance milestones needed to continue the LCLIP program and to continue receiving a portion of the County's property tax revenue from new development. The report's findings show that the anticipated amount of new 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 actual 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. ' At that time, considering the uncertainty regarding the amount and timing of future growth, combined with the potential risk of needing to use 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 potential construction of a very large project - 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. DISCUSSION Resolution Passage of the attached Resolution would be the first step in establishing a TDR/LCLIP program in Tukwila. Approval of the Resolution would notify King County of the City Council's support for regional Transfer of Development Rights (TDR) and their willingness to consider at the appropriate time, as determined by criteria established collaboratively by the City and the County, establishing a Transfer of Development Rights (TDR) Landscape Conservation and Local Infrastructure Program (LCLIP) through which developers in the City would receive development incentives in exchange for the purchase of 1 Tukwila LCLIP: Findings and Recommendations, 5.3.5 Summary, pg. 31 132 INFORMATIONAL MEMO Page 3 Transferable Development Rights originating from rural and resource areas, and the City would receive funding for infrastructure. This resolution would also serve as notice from the City to the County that, after 180 days of the effective date, the City may hold a public hearing to consider the adoption of LCLIP, pursuant to ROW 39.108.120(1)(a). Next Steps If the City Council approves the Resolution, there are several actions that are required by ROW Chapter 39.108 that must take place for the Council to implement LCLIP. These actions include the following: 1) executing an interlocal agreement with King County agreeing to terms for the TDR and infrastructure funding programs; 2) adopting an ordinance accepting an allocation of regional TOR credits to be obtained through the Regional TDR program and adopting a plan for development of public infrastructure to be financed by the infrastructure funding program; and 3) adopting an ordinance identifying the Local Infrastructure Project Area which designates the area in which property tax revenues are generated and allows the Regional TDR and infrastructure funding programs to commence. It should be noted that the King County Council must also determine that the details of any interlocal agreement with Tukwila is in their best interest and achieves their goals for resource and preservation, since they will be relinquishing their property tax revenue to the City. 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 in partnership with King County to implement the program. RECOMMENDATION Staff recommends forwarding the attached Resolution to the Council of the Whole Meeting on November 28, 2016 for discussion, then to the Regular Meeting on December 5, 2016 for approval or denial. Approval of the Resolution does not commit the City to implementing a LCLIP in the future, but provides the County with the indication of the City's interest and initiates the 180 -day notice required before the City could adopt an LCLIP. ATTACHMENTS A. Draft Resolution B. Final Report — Tukwila LCLIP: Findings and Recommendations. May 19, 2015 C. Memo from Morgan Shook, ECONorthwest to Lynn Miranda. July 25, 2016 133 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, EXPRESSING THE CITY COUNCIL'S SUPPORT FOR REGIONAL TRANSFER OF DEVELOPMENT RIGHTS AND THE CITY COUNCIL'S WILLINGNESS TO CONSIDER, AT THE APPROPRIATE TIME, DEVELOPING AN INTERLOCAL AGREEMENT WITH KING COUNTY TO ESTABLISH A LANDSCAPE CONSERVATION AND LOCAL INFRASTRUCTURE PROGRAM THAT INCLUDES TRANSFER OF DEVELOPMENT RIGHTS POLICIES. WHEREAS, the Tukwila Comprehensive Plan contains goals to implement regional growth management strategies to help reduce sprawl, including goals that support the preservation of open space, encourage coordination with other jurisdictions, and support incentive programs to achieve these goals; and WHEREAS, the Washington State Growth Management Act ( "GMA "'), RCW 36.70A, establishes a policy of directing development density into urban areas and discouraging development of rural land; and WHEREAS, the GMA encourages the conservation of productive forest and agricultural lands and the retention of open space to conserve fish and wildlife habitat and enhance recreational opportunities; and WHEREAS, the GMA requires counties to adopt county -wide planning policies in cooperation with cities; and WHEREAS,l agreement, King County ( "County ") and the City of Tukwila ("City") adopted and- ratified the Countywide Planning Policies for the County; and WHEREAS, the Countywide Planning Policies call for programs and regulations to protect and maintain the rural character of farm and forest lands and direct growth to cities and urban centers; and W:\Word Processing\Resolutions \Support for TOR and LCLEP 11 -16 -16 NG:bjs Page l of 3 135 WHEREAS, the City recognizes the importance of working with the County to reduce sprawl and protect lands important to salmon habitat, farmlands, and forestlands and other rural open space by encouraging development in designated urban centers, while funding and creating urban infrastructure necessary to foster livability in growing urban communities; and WHEREAS, inter - jurisdictional Transfer of Development Rights ( "TDR') is an important tool that can help the City and the County achieve these goals; and WHEREAS, in 2011, the Washington State Legislature approved, and the Governor signed, ESSB 5253, also called the Landscape Conservation and Local Infrastructure Program ( "LCLIP ", RCW 39.108); and WHEREAS, LCLIP is a new tool for cities and counties to partner on a program that links regional TDR with local infrastructure financing; and WHEREAS, under LCLIP, in exchange for the City receiving TDR credits from rural and resource lands for increased urban development, the County would partner with the City to help fund City infrastructure investments and public improvements to support the new growth by sharing a portion of the County's property tax revenue with the City; and WHEREAS, the City collaborated with the County on a National Estuaries Program grant to pay for consultant studies to evaluate implementing regional TDR and the economic feasibility of LCLIP and other financing tools to fund infrastructure needed to support growth in Southcenter, Tukwila's designated urban center, and the Tukwila International Boulevard District and Tukwila Valley South areas; and WHEREAS, the consultant analyses indicated that the LCLIP tool may be useful to generate additional revenue for such infrastructure and amenities, and that the projected benefits of the LCLIP tool depend on a variety of factors and choices; and WHEREAS, any future TDR / LCLIP interlocal agreement between the City and the County should include funding from the County for . public amenities in the City's neighborhoods that accept rural development rights for greater development; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY RESOLVES AS FOLLOWS: Section 1. The City Council supports the concept of regional Transfer of Development Rights (TDR). Section 2. The City Council supports considering, at the appropriate time as determined by criteria established collaboratively by the City and the County, establishment of a Transfer of Development Rights (TDR) Landscape Conservation and Local Infrastructure Program ( LCLIP) through which developers in the City would receive development incentives in exchange for the purchase of Transferable Development Rights originating from rural and resource areas, and the City would receive funding for infrastructure. The terms of the TDR LCLIP would be specified in an interlocal agreement W:Word Processing \Resalutions\Suppart for TDR and LCLIP 11 -16 -16 NG:bjs 136 Page 2 of 3 between the City and the County, which could be executed by the City and the County prior to the commencement of the LCLIP program so LCLIP could begin promptly at the appropriate time as determined through established criteria. Section 3. This resolution serves as notice from the City to the County that, after 180 days of the effective date, the City may hold a public hearing to consider the adoption of LCLIP, pursuant to RCW 39.108.120(1)(a). PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, a a Regular Meeting thereof this day of , 2016. ATTEST /AUTHENTICATED: Christy O'Flaherty, MMC, City Clerk Joe Duffle, Council President APPROVED AS TO FORM BY: Rachel B. Turpin, City Attorney W:4Word Processing \ Resolutions \Support for TDR and LCLIP 11 -16 -16 NG:bjs Filed with the City Clerk: Passed by the City Council: Resolution Number: Page 3 of 3 137 0 Tukwila International Blvd (TIB) Tukwila Urban Center (TUC) Tukwila LCLIP Findings and Recommendations Prepared for: City ofTukwila May 19, 2015 FORT&RRA ECONorthwest ECONOMICS • FINANCE • PLANNING 13 10 Contact Information 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 1SY Avenue, Suite 200 Seattle, WA 98101 206.682.2500 mhoffman @htland.com H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 141 This page intentionally left blank. H E A R T L A N D 142 Tukwila LCLIP: Findings and Recommendations Table of Contents Executive Summary ES1 1 Project Overview 1 1.1 Why Use TDR and LCLIP in Tukwila 1 1.2 Key Questions 2 1.3 Report Organization 3 2 LCLIP Program Review 5 2.1 Program Overview 5 2.2 Use of LCLIP Funds 5 2.3 Determinants of LCLIP Revenues 6 2.4 Program Framework for LCLIP 9 3 Study Area Assessment and Growth Estimates 11 3.1 Study Area Context 11 4 TDR Bonus Provisions and Placement Approach 21 4.1 Existing and potential development bonus provisions 21 4.2 Approach for the private placement of TDR credits 22 5 LCLIP Revenue Testing - Scenarios 25 5.1 Defining a LIPA 25 5.2 The Impact of Development Variables 26 5.3 Assumptions and Revenues 26 6 LCLIP Program Findings and Recommendations 33 6.1 Summary of Findings 33 6.2 Recommendations 34 7 Implementation Road Map 37 H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 143 This page intentionally left blank. H E A R T L A N D 144 Tukwila LCLIP: Findings and Recommendations Executive Summary 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? There is strong policy case for LCLIP in Tukwila. 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 H E A R T L A N D Tukwila LCLIP: Findings and Recommendations ES1 145 a range of infrastructure improvements, many involving improved access to transit, where LCLIP can finance investments that will support redevelopment. LCLIP will likely be a successful proposition under current conditions. 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. H E A R T L A N D 146 Tukwila LCLIP: Findings and Recommendations ES2 1 Project Overview 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 1 147 The GMA encourages "innovative land use management techniques" such as transfer of development rights (TDR) to help local governments achieve their planning goals.2 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? 1 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? 2 RCW 36.70A.090 H E A R T L A N D 148 Tukwila LCLIP: Findings and Recommendations 2 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 3 149 This page intentionally left blank. H E A R T L A N D 150 Tukwila LCLIP: Findings and Recommendations 4 2 LCLIP Program Review 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; H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 5 151 ❑ 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 H E A R T L A N D 152 Tukwila LCLIP: Findings and Recommendations 6 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 7 153 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. Error! Reference source not found.Exhibit 1: Conceptual LCLIP Revenue Scenarios LCLIP Revenue ($) 1 100% Commitment -5O% Commitment Growth (New Construction) Source: Forterra, 2015 20% Commitment 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 H E A R T L A N D 154 Tukwila LCLIP: Findings and Recommendations 8 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: o 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. o 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. o 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 9 155 This page intentionally left blank. H E A R T L A N D 156 Tukwila LCLIP: Findings and Recommendations 10 3 Study Area 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, industrial, hospitality, and senior housing. The TIB District is a truly international neighborhood with a mix of lower intensity residential and commercial uses. This is a neighborhood the City has identified as one that may 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 Exhibit 2: Overview of the Study Areas 518 ►z CJ y� F7 City of Tukwila TIB Study Area TUC Study Area Nhar, .1N 111 SOUND TRANSIT LINK LIGHT RAIL • - • Route © Station SOUND TRANSIT SOUNDER TRAIN ■•• Route 0 Station Tukwila International Blvd (TIB) TUKWILA INTERNATIONAL BLVD STATION 1 .'0TUKWILA STATION 405 Tukwila Urban Center (TUC) H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 11 157 Exhibit 3: Commercial Development in South King County 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 ALGONA 1 1% AUBURN 11- BLACK DtAMDND 10% BURIEN - 4% COVINGTON 11% DES MOINES ■ 2% ENUMCLAW ,1% FEDERAL WAY 11- KENT MAPLE VALLEY' 1% MILTON 10% NORMANDY PARK I O% PACIFIC 10% RENTON 11- SEA-TAC - 5% 10% 15% 17% 29% 2000+ 10% 2% MI 3% II 2% 11% - 5% 12% 20% 20% 24% OM 20M 40M 00M 80M OM 5M 10M Commercial Building Gross Square Feet Commercial Building Gross Square Feet s 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. H E A R T L A N D 158 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. Exhibit 4: TUC Regional Growth Center Comparison — Commercial Development Overall Burien _ 6% Kent Downtown - 4% Northgate Renton SeaTac Totem Lake 15% 2000+ 4% 25% —8 %a 14% 32% OM 5M 10M 15M Commercial Building Gross Square Feet Source: King County Assessor, Heartland 2015 OM 1M 2M 3M Commercial Building Gross Square Feet 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 13 159 Exhibit 5: TUC Regional Growth Center Comparison — Urban Form Burien Kent Downtown Northgate Renton SeaTac Totem Lake Tukwila Source: PSRC 2014 Land % of City Avg Parcel Avg Block Sidewalk Acres Land Area Acres Acres Comp 354 292 409 606 885 860 847 0.3 0.5 0.9 0.7 3.3 2.2 3.0 4.9 3.6 9.6 6.8 13.6 10.6 22.7 48% 83% 100% 94% 41% 88% 91% 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. Exhibit 6: Study Area Land Use Summary Net Acres* Building Count Pct Commercial Bldg Net Sq Ft Pct Commercial Avg Bldg NSF Overall Avg Commecial Bldg NSF Avg Yr Built Commercial Residential TIB 508 1,232 13% 4,157,993 32% 3,375 8,432 TUC 802 265 99% 11,232,516 100% 42,387 42,867 1969 1978 1956 1946 ' Net of rights of way and rivers, but including 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 H E A R T L A N D 160 Tukwila LCLIP: Findings and Recommendations 14 1 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. Exhibit 6 Study Area Development Patterns by Use IB District e0i 800K 660K a 4000K 0 200K '9 OK Poe -1950 1950s 1980s 1970s 1980s 19960 2000s 2010 -14 Retail 49,294 69,965 27732 40,852 16,996 60.153 21,949 2,418 MF 21.317 25872 695,253 46,556 540,919 3.460 Office 3.458 17.488 8,192 22740 38.809 254.098 Hospitality 12.075 28,768 68,753 46787 Industrial 7,7,7 SFR Total 697,469 345,938 922,593 195,584 737,031 521 432 431.922 24,258 UC Oro?9 Square Feel 5M 4M 3M 2M OM 1 ■MEM Pre-1950 19698 1970s 1960s 19908 20805 2010 -14 Retell 2.383.725 558,276 223.134 945.681 419.879 55,079 Office 26,728 510,852 206,817 16.653 Hospitality 196,879 264,719 435,329 Industrial 1 245. 191 2 307 726 55 67.1 1 ".K1? .07645 SFR Total 1.260 3.655,556 4.782,833 777,334 1,432,857 436,532 182122 3.1.3 Existing zoning and Development capacity 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 properties5 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 15 161 Exhibit 7: Buildable Lands Assessment Summary Zone Count of Properties Land Acre Summary by Redevelopment Potential Likely or Maybe Pipeline Total Redevelopable Projects Likely Maybe Unlikely Redevelopable Redevelopable Redevelopable Unlikely Tukwila International Boulevard District TIB- Urban Renewal RC NCC MUO HDR MDR LDR CLI MIC/H 0 TOTAL 21 50 21 12 99 49 815 4 1 4 19 1 36 0 9 1 6 0 21 0 22 0 478 0 2 0 1 0 0 0 10.9 40.3 3.2 4.7 3.4 4.2 42.4 6.2 6.1 0.0 9.7 18.0 0.8 0.5 9.2 3.5 103.5 1.4 0.0 0.0 8.7 9.6 4.6 2.0 59.8 32.5 107.0 13.2 0.0 2.6 29% 14% 48% 28% 83% 81% 42% 63% 0% 100% 1,076 594 2 121.4 146.7 Redevelopable Property Use and Size Avg Existing FAR Avg Lot SF Min Lot SF Max Lot SF 0.2 47,246.8 9,546 217,268 0.2 70,613 5,398 669,910 0.1 19,404 4,389 47,378 0.1 38,114 6,000 148,540 0.1 26,069 10,261 80,491 0.1 15,257 5,848 38,687 0.1 13,300 4,568 473,693 0.0 165,761 61,419 270,102 0.0 263,966 263,966 263,966 0.0 0 0 0 240.0 47% 0.1 19,662 0 669,910 Tukwila Urban Center TUC -CC TUC -P TUC -P 150 TUC -RC TUC -RC 300 TUC -TOD TUC-WP TUC -WP River 20 8 0 5 2 0 8 4 0 8 2 0 3 1 0 86 32 5 53 17 0 11 8 0 11.1 1.4 27.6 0.0 0.0 31.1 1.4 8.1 19.2 1.0 14.2 5.6 46.2 28.3 91.5 65.7 71.5 40.8 26.0 55.4 5.2 161.3 74.2 14.6 70% 94% 38% 91% 10% 71% 44% 17% 0.2 164,861.3 38,080 433,727 0.1 52,546 42,495 62,596 0.4 455,673 309,494 850,726 0.2 121,119 30,000 212,237 0.2 2,013,548 2,013,548 2,013,548 0.3 80,886 10,518 469,291 0.4 237,945 12,258 801,777 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 multiplied by the blended FAR based on the land use distribution for that zone. Using this approach the total capacity on potentially redevelopable properties in the TUC is illustrated in Exhibit 8. If the potentially redevelopable properties in the TUC are fully built out to the maximum FAR it would total roughly 63 million square feet for an average FAR of 4.1 and the TIB District could support roughly 6.5 million square feet for an average FAR of 0.6. Exhibit 8: Study Area Development Capacity 70,000,000 60,000,000 9 50,000,000 40,000,000 P 30000,000 G 20,000,000 10, 000,000 0 r Hospitaltity Retail • Multifamily ■ Office TUC (4.2 FAR) TIB (0.6 FAR) Source: Heartland, King County Assessor, 2015 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. H E A R T L A N D 162 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.' Exhibit 9: Growth (Building Square Footage) Scenario Summary Scenario TIB District TUC Tukwila South Capacity 2,119,045 43,923,213 15,200,000 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. ' 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 17 163 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. Exhibit 10: Estimated Growth by Use Type Square Feet Land Use Delivered Total Study Area TIB District Tukwila South Projects Projects TUC Projects Projects Growth Target Scenario Office 5,045,066 Multifamily 3,248,454 Retail 2,175,581 Hospitality 3,321,559 Conservative Scenario 5 0 5 12 22 7 15 6 0 16 2 2 13 Office 3,354,643 2 0 2 i 9 Multifamily 2,023,976 12 5 7 6 Retail 1,707,633 0 0 0 I 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 H E A R T L A N D 164 Tukwila LCLIP: Findings and Recommendations 18 Exhibit 11: Jobs and Household Estimates by Growth Scenario Land Use Study Area % of Tukwila TIB Tukwila Total Growth Targets District TUC South Growth Target Scenario Jobs 9,462 41% 361 9,101 ; 28,031 Households 3,709 35% 1,048 2,661 1,042 Conservative Scenario Jobs 3,737 16% 271 3,467 22,425 Households 1,991 19% 786 1,205 958 High Growth Scenario Jobs 13,434 58% 271 13,164 28,031 Households 4,431 41% 786 3,645 ! 1,042 Source: Heartland LLC, 2015 H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 19 165 This page intentionally left blank. H E A R T L A N D 166 Tukwila LCLIP: Findings and Recommendations 20 4 TDR Bonus Provisions and Placement Approach 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 H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 21 167 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 H E A R T L A N D 168 Tukwila LCLIP: Findings and Recommendations 22 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: TDR Credits to Access MFTE Program Annual Tax A Split TDR Cost: $20,000 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 3 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 7 2021 $129,930 $84,455 $45,476 3.7 8 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 23 169 This page intentionally left blank. H E A R T L A N D 170 Tukwila LCLIP: Findings and Recommendations 24 5 LCLIP Revenue Testing - Scenarios 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. xhibit 14: Zoning Reference Map TUKWILA INTERNATIONAL BLVD ZONING DESIGNATIONS ■ Rpbnal Common LelfRCl ■ N.pkbo.bood Carww.clal Cent. INC( I ■ Mired U. LN6c. IMUOI ■ High D.mey R.sd4ntlet llgRI M.d..n Dom Ry Rese1.n141 IMP Low Density R. dental ILDRI Office 10) ■ ManWxtumyIMUthtW Cent. Mowry IMKMI ■ Mend mewing IMwldalC.nl.t!LI I,tCMKA1 ® Camxnlal/LpM Indust AM ICU) 0 urban R.r.e.e.I O..+I.y TUKWILA URBAN CENTER ZONING DESIGNATIONS ■ Cummedel Corridor ITUC-CC I ■ Pond {TUC R, • Rpbnal Centex lTlK-RCI ■ Transit Gemmed O.eelopmenc lTUCiTOD) ■ WetkpI ITIK WRI H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 25 171 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. Exhibit 15: Total Assessed Value by Zone Included in the LIPA Area Total Assessed Total Assessed Value Value ( %) TIB -UR TUC -P TUC -RC TUC -TOD TUC -WP $46,793,200 0.6% $317,337,100 4.1% $418,493,000 5.4% $551,411,000 7.1% $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. P1 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 H E A R T L A N D 172 Tukwila LCLIP: Findings and Recommendations 26 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 27 173 Exhibit 16. Scenario 1 Summary Total Square Feet of Growth TDR Credits Used Revenues 4.6 Million Square Feet 300 2015 Dollars (Inflation Adjusted) Nominal (Non - Inflation Adjusted) Total LCLIP Revenues City Allocation Revenues County Allocation Revenues City TDR Acquisition Cost City Net Revenue $22.3 Million $17.9 Million $4.4 Million -$1.9 Million $2.5 Million $42.1 Million $33.6 Million $8.4 Million -$3.0 Million $5.4 Million Source: ECONorthwest. Note all figures in 2015 dollars; 25 -year present value at 4% discount rate Exhibit 17. Scenario 1 Annual LCLIP Revenues $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 so • County Tax Revenue to LCLIP District (Nominal $) • County Tax Revenue to LCLIP District (2015$) yro 4% ti� y0 y0 yti yL y3 yb y� Lr° ti1 'L�b ,10 b0 �y "1, �3 iA 3y fir° b1 3� „,0 00 LO LO y0 LO ti0 LO LO ,LO ,LO ,LO ,LO ,LO ,t0 p ,LO ,LO ,LO p ,LO ,LO ,LO ,LO LO ,LO LO 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. H E A R T L A N D 174 Tukwila LCLIP: Findings and Recommendations 28 Exhibit 18. Scenario 2 Summary Total Square Feet of Growth TDR Credits Used Revenues 6.1 Million Square Feet 381 2015 Dollars (Inflation Adjusted) Nominal (Non - Inflation Adjusted) Total LCLIP Revenues City Allocation Revenues County Allocation Revenues City TDR Acquisition Cost City Net Revenue $30.0 Million $24.1 Million $5.9 Million -$0.8 Million $5.1 Million $56.6 Million $45.2 Million $11.3 Million -$1.1 Million $10.3 Million Source: ECONorthwest. Note all figures in 2015 dollars; 25 -year present value at 4% discount rate Exhibit 19. Scenario 2 Annual LCLIP Revenues $1,200,000 $1,000,000 • County Tax Revenue to LCLIP District (Nominal $) • County Tax Revenue to LCLIP District (2015$) $800,000 $600,000 - $400,000 . $200,000 so 6 yA � N• 'y0 yti A, L'' 'V yti 'V y1 1, L°' 30 3ti 3ti 3'' 3t yh ,y� ,1 1) �°' t• LO LO 'LO 1, LO 1, LO LO LO LO LO 1, 'LO 1, LO LO LO LO LO LO LO LO C;) 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 29 175 Exhibit 20. Scenario 3 Summary Total Square Feet of Growth TDR Credits Used Revenues 9.5 Million Square Feet 405 2015 Dollars (Inflation Adjusted) Nominal (Non - Inflation Adjusted) Total LCLIP Revenues $48.3 Million City Allocation Revenues $38.8 Million County Allocation Revenues $9.5 Million City TDR Acquisition Cost $0 City Net Revenue $9.5 Million $90.8 Million $72.7 Million $18.2 Million $0 $18.2 Million Source: ECONorthwest. Note all figures in 2015 dollars; 25 -year present value at 4% discount rate Exhibit 21. Scenario 3 Annual LCLIP Revenues $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $o • County Tax Revenue to LCLIP District (Nominal $) • County Tax Revenue to LCLIP District (2015$) milkk1IhiIiIIiII 6 y A 4 , c ) 0 N. y ti ' O. ti r w c i 0 V y 3 3 3 3 3 3 3 3 3 3 O. O O O O O O O O O O O O O O O O O O O O O O O 'LL L A , LLL LL 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. Exhibit 22. Scenario Comparison of Square Feet of Projected Development Scenario Square Feet of Development without Tukwila South Square Feet of Development including Tukwila South Conservative Growth Target Growth Target Forecast High Growth 4.6 Million 6.1 Million 9.5Million 14.6 Million 18.7 Million 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. H E A R T L A N D 176 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. Exhibit 23. Scenario Comparison of Net LCLIP Revenues Scenario Net to City without Tukwila South, NPV (Nominal) Net to City including Tukwila South, NPV (Nominal) Conservative Growth Target Growth Target Forecast High Growth $2.5 Million ($5.4 Million) $5.1 Million ($10.3 Million) $9.5Million ($18.2 Million) $16.4 Million ($32.2 Million) $20.8 Million ($40.9Million) $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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 31 177 This page intentionally left blank. H E A R T L A N D 178 Tukwila LCLIP: Findings and Recommendations 32 6 LCLIP Program Findings and Recommendations 6.1 Summary of Findings There is strong policy case for LCLIP in Tukwila. 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. A new approach to TDR placement will support a successful LCLIP program. 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. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 33 179 Tukwila should pursue multiple LCLIP districts (e.g. LIPA). 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. LCLIP will likely be a successful proposition under current conditions. 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. H E A R T L A N D 180 Tukwila LCLIP: Findings and Recommendations 34 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. No Action in the Immediate Future 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. Target Maximum Specified Portion 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). H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 35 181 Time and calibrate LCLIP program to a development /TDR milestone(s). 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. Summary recommendations for path to LCLIP implementation 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. H E A R T L A N D 182 Tukwila LCLIP: Findings and Recommendations 36 7 Implementation Road Map 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: o 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 o 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: o Achieve the densities or intensities in the City's plan; o Include streamlined permitting strategies; and o Include streamlined environmental review strategies. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 37 183 ❑ Establish an exchange rate, which should be designed to: o Create a marketplace where transferable development rights can be bought and sold; o Achieve the densities or intensities in the city's plan; o 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); o Allow for appropriate exemptions from land use and building requirements; o 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 o 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 1st 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 1st 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: o The total number of new residential units in the city; o The number of additional residential units allowed due to TDR credit transfers; o The amount of additional commercial space allowed due to TDR credit transfers; H E A R T L A N D 184 Tukwila LCLIP: Findings and Recommendations 38 o The amount of additional building height allowed due to TDR credit transfers; o The amount of structured parking spaces reduced due to TDR credit transfers; o The amount of additional parking spaces allowed due to TDR credit transfers; and o 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: o The number of permanent jobs created in the district as a result of the public improvements; and o The average wages and benefits received by the employees. ❑ The date at which any indebtedness issued for LCLIP financing is expected to be retired. H E A R T L A N D Tukwila LCLIP: Findings and Recommendations 39 185 86 Community Affairs and Parks Committee Minutes November 14, 2016 C. Resolution: Study of the Landscape Conservation and Local Infrastructure Program (LCLIP) As directed by the Committee at its August 8, 2016 meeting, staff returned with a resolution that would initiate the process to implement LCLIP by formally expressing the City's interest. Adoption of the resolution will give direction to staff to continue conversations with Forterra and King County regarding LCLIP but does not commit the City to future implementation. UNANIMOUS APPROVAL. FORWARD TO NOVEMBER 28, 2016 COMMITTEE OF THE WHOLE. D. Affordable Housing Legislation Ordinance: Reducing Fees for Certain Affordable Housing Projects 7� Staff is seeking Council approval of an ordinance that would establish regulations to allow the DCD Director to reduce development and land use fees for certain affordable housing projects as follows: Unit Size Affordability Target Fee Reduction 2 or more bedrooms 80% King County Median 40% 2 or more bedrooms 60% King County Median 60% Any size 50% King County Median 80% The types of fees that could be reduced include design review, reasonable use exception, platting, planned residential development, SEPA, conditional use, and shoreline. Fee reductions will be pro -rated to accommodate mixed rate units or commercial tenant space. UNANIMOUS APPROVAL. FORWARD TO NOVEMBER 28, 2016 COMMITTEE OF THE WHOLE. Ordinance: Providing an Impact Fee Deferral Process for Single- Family Residential Construction Staff is seeking Council approval of an ordinance that would adopt a deferral system for the collection of impact fees for new single- family construction as required by state law. Upon developer request, payment of park, fire, and traffic impact fees would be delayed until final inspection, issuance of certificate of occupancy, or closing of the first sale. The ordinance would also establish fee reductions for affordable housing projects at the same ratios described above. UNANIMOUS APPROVAL. FORWARD TO NOVEMBER 28, 2016 COMMITTEE OF THE WHOLE. E. Discussion regarding Expansion of the Multi - Family Tax Exemption Program (MFTE) Staff is seeking Committee input into continuation, expansion, or revision of the city's Multi - Family Tax Exemption (MFTE) program. The existing program was adopted to incentivize residential development in the Southcenter District and will sunset on December 31, 2016. The Council should consider household income levels, household size, geographic areas, and built environment goals. The Committee requested that staff return in 2017 with a proposal for Council review. UNANIMOUS APPROVAL. FORWARD TO OCTOBER 17, 2016 REGULAR CONSENT AGENDA. 187