August 22, 2013 Print
    

If Federal Way Builds It, the citizens will pay

The City Council in Federal Way finds itself at a crossroads where they must decide whether to build a new Center for Performing Arts, as well as a little conference center. This decision should be made very carefully, and there are ample cautionary tales from around Washington State that should serve as serious warnings for the citizens of Federal Way. The Federal Way City Council does not yet have a history of financially suicidal votes like Seattle, Olympia, or Bellingham, and there is no reason for Federal Way to go down a financially risky path

There is a large group of vocal citizens who want the Performing Arts Convention Center (PACC) in their neighborhood. There is even a website dedicated to the effort. People love these public facilities in our communities. However, that support should be tempered with some caution. There always will be a large group of vocal citizens who want any new project, particularly if they can use other people's money to make it happen. This group of citizens want everyone else – particularly future generations - to pay the price for their project. Some local citizens have written letters about this project to the local Federal Way newspaper, The Mirror. (You can find them here and here.) 

PACC Building Concept
Photo Credit: City of Federal Way
Cool Building - FWPACC concept

As a former Thomas Jefferson Raider (class of ’89), who proudly wore the red and gold uniform as I ran high school track and cross country, I feel a strong attachment to Federal Way. I want to see Federal Way grow to be a prosperous community and avoid the predictable political mistakes that will be financial disasters in the future. What I do not want to see is future generations bearing the cost of today’s political decisions.

To the City Council’s credit, they have been vocal about not using debt financing to support the PACC project. This decision could help them avoid the City of Wenatchee’s classic Convention Center debacle last year when the City of Wenatchee defaulted on their $42 million bond payments for a Convention Center that didn’t meet their “realistic” growth projections. Although the legislature voted to bailout Wenatchee for their mistake, the moral hazard aspect of this choice prevented the state Senate from taking the same stance. The local citizens of Wenatchee and the surrounding communities ultimately voted to accept a higher sales tax rate last year to pay for this mistake.  Future generations of Wenatchee citizens will continue to pay this price.

To be fair, very few convention centers pay for themselves, and operating in the black is rare. To quote from an article in the Puget Sound Business Journal from last year when they interviewed Rob Henson, interim director of the Tacoma public assembly facilities department:

“There are very, very few convention centers out there across the nation that are profitable.”

Despite plenty of evidence that a convention center won’t be profitable, the City of Federal Way plans to add a small one to the Performing Arts Center in an effort to make the project pencil out. Neither project is going to operate in the black. Just like two wrongs don’t make a right, two money-losing ventures will not make money just because they are combined. Even the city’s own optimistic projections do not show this to be a money maker.  

Regardless of how the Council achieves financing, nobody who has been around the block more than once really believes this venture will be profitable. The Federal Way City Council has a decision to make: how much local taxpayer subsidy will the Federal Way City Council support for this project? 

Local government already subsidizes local facilities

Celebration Park - Federal Way

Before the City Council commits to an amount, they can look at two other notable taxpayer-subsidized projects in Federal Way that lose money every year: Celebration Park and the King County Aquatic Center. The fact they are subsidized does not make these bad projects. Many local residents view these facilities with pride and are happy to have them in their community. However, it is worth noting true costs for just these two projects in Federal Way already:

Celebration Park – Citizens pay about $200,000 per year for this beautiful 83-acre facility (after tournament fees are collected). 

Weyerhaeuser King County Aquatic Center – This world-class aquatic  King County Aquatic Center - Federal Waycenter was originally built in 1990 for the Goodwill Games, and even with the Weyerhaeuser name, the residents of King County pay approximately $800,000 per year to keep this facility functioning. To the Federal Way City Council’s credit and good sense, they have never taken financial responsibility for this facility.They have recognized the substantial operating costs they would incur on an annual basis.  However, the citizens of King County do pay, and when the whole facility needs a major overhaul in 15 or 20 years, the taxpayers of King County will pay a lot more.

The Federal Way City Council needs to answer a significant question: how much can Federal Way citizens pay to build, maintain, and manage a Performing Arts Center and a Convention Center in their city? 

The City of Olympia  currently spends about $4-$6 million (the final total is still unknown, but this link shows it was originally estimated at $3.4 million) to do some basic repair to the Washington Center for the Performing Arts. The facility, built in 1985, attracts about 110,000 visitors a year and, like most Performing Arts Centers, it does not make a profit. For some reason, Federal Way City Council ignored this example in the 2011 Webb Management report. In theory, a local nonprofit is to run the WCPA and fundraise to support the Center. But when the fundraising falls short, the City of Olympia picks up the tab. 

The odd aspect to the Webb Management report is that, while the Federal Way City Council ignored some nearby Performing Arts Centers like in Olympia, they did review facilities in New York, California, Texas, and Arizona.  These were interesting and educational examples, but the City of Olympia’s experience is probably closer to the outcome Federal Way can expect – if everything goes well.

Another part of the Council’s research process is that two examples of Performing Arts Centers that “run in the black” have been cited to justify the Federal Way project. One from Edmonds and one from Mt. Vernon have appeared to survive without too much additional taxpayer subsidy. The problem with both of these examples is that they are  on Community College property and were primarily renovations of existing structures. Unless Federal Way plans to add a college campus to this location, these examples are not very good predictors of the future for Federal Way.

The Webb report did reference the closer IKEA Performing Arts Center in Renton, but the Renton School District, which was the entity tasked with the subsidy to keep it running, has had to significantly scale back the program. It wasn’t affordable to the local community as promised. This is another example of optimistic projections not panning out. They never do.

Bad Land Investments & Remorse Amortization

Federal Way City Council is under a lot of time pressure because an earlier city council accepted a $5 million state grant to purchase the four acres where the proposed FWPACC would be located. This was a poor investment by the State Legislature, for the land is now estimated to be worth about $2 million. Like all “free money,” there are strings attached to this grant. Federal Way will have to pay back the money to the state if a  Performing Arts Center is not built on this land within a few short years. The clock started ticking in 2011. 

So now the City of Federal Way has what amounts to a $5 million loan with a balloon payment to Washington State on a piece of property worth 40% of the original purchase price. Even if the City of Federal Way sold the land today, they would still owe Washington State $3 million. The city could do the equivalent of a mail-in foreclosure and send the title to the land back to the State of Washington. (Congratulations, you bought a $2 million piece of property for $5 million!) However, that would take some real political backbone. Most elected officials don’t revel in that type of conflict.

Instead, there is a desire to amortize the remorse of past poor decisions. These past decisions didn’t seem like bad ideas at the time. Today, with the clarity of hindsight, they don’t seem so good. Federal Way's current City Council can’t change the past. 

Build it and they will comeWhere is everyone

The final justification for a subsidized Performing Arts/Convention Center is that the center of Federal way needs revitalization. The real estate bubble has burst. Local businesses are having a hard time. Empty commercial buildings pepper the area. Let's call it “blight,” some have decided, so we can get Federal block grant dollars to help. Local government needs to do something!

I’m sympathetic to this feeling of needing to do something. In fact, this is why we elect local government leaders to help resolve tough decisions at the local level. However, jumping into the land development business is not the likely path to success for Federal Way’s taxpayers or for the community’s financial health. Right now, Federal Way needs a realistic and unemotional response to the facts as they exist. 

These types of publicly-funded projects tend to have egos involved. That's human nature, and politicians are no exception. Unfortunately, consultants, developers, and others have learned how to stroke elected officials’  egos, and politicians are easily convinced to make future generations pay dearly to see their names on a brass plaque on the big building. It might be called a “public/private partnership,” but this usually means the public pays and the private partner profits. 

Mayor Skip Priest
Photo Credit: City of Federal Way
Mayor Skip Priest

Federal Way Mayor Skip Priest is certainly feeling the pressure of this situation, and he has experience with land use development from his private sector days at Burlington-Northern. If he made mistakes in the private sector, the public didn’t have to pay the price. If Federal Way’s City Council makes a mistake with this project, generations of taxpayers will be paying the price – long after they have forgotten the name of the politicans who stuck them with the bill. The price won’t just be higher taxes. Future Federal Way City Councils will need to decide how many police to lay off in order to pay the maintenance costs of the Performing Arts Convention Center. Future City Councils will look back on the current Council and attempt to make lemonade from the lemons they have inherited. Sometimes, it can be better to just stop the cycle now.

In the end, the buck stops at the Federal Way City Council

Local elected officials are put in office to make tough decisions, including those they have inherited. The Federal Way City Council has one to make now. Ultimately, there are three paths from which to choose, and uncertainty exists on every one:

1. Go ahead with the project roughly as planned. Millions of tax dollars will be spent. The citizens of the City of Federal Way will pick up the future operations costs. A beautiful facility will be built. A ribbon-cutting ceremony will be held. A brass plaque will be placed. Hard-earned tax dollars will be squandered since the most optimistic projections will be wrong (they always are). Current and future Federal Way citizens will absorb the short and long-term costs. Future City Councils will decide how many police they need to lay off or how much higher the taxes will grow.

2. Have a private entity take on the project. If it pencils out to them, they can fund it. If it is a non-profit, they can run the facility at a loss but support the shortfall with donations and fundraising. Succeed or fail, the citizens of Federal Way don’t have to lose police services to keep it running. Nobody like this has stepped forward, but if it is such a good idea with a clear path to success, someone could be found. If not, then somebody should be really wondering why. This option would save the City of Federal Way from being forced to repay Washington State $5 million. The Federal Way Council’s responsibility would be to get out of the way and make it easy to build.

3. Give Washington State the land they purchased. This would be playing hardball with the state, but it wouldn’t be the first time Washington State screwed up their grant dollars. It is a common occurrence. Perhaps Washington State will be more careful with how they hand out these grants, and it is likely that the land would be sold (and start generating property tax again) or converted to another use. Either way, this would be a net tax return to the City of Federal Way and perhaps  a way to avoid the $5 loan payment. I would share the Mayor’s concern about state-owned land in the middle of Federal Way, but this is what he has inherited.

This isn’t easy stuff to decide. 

Federal Way City Council
Photo Credit: City of Federal Way
Federal Way City Council

When I met with Federal Way Mayor Skip Priest last week, he told me , “…we are not stupid.”  He is correct.  Neither the Federal Way Mayor nor the Federal Way City Council is stupid. Neither were the elected officials in Wenatchee, Olympia, Seattle (at least sometimes), or in other places around Washington State who made decisions to build, manage, or control these projects that cost their local citizens dearly today. Stupidity is not required to make these mistakes. 

What is required for elected officials is to lose focus on the core functions of government like providing police/justice/jail services, filling potholes, managing a health department, and other basic functions. Government officials neglect these core responsibilities when they stray into Central Planning schemes or ego-driven projects. Some of these can be popular with some of the people, particularly those who financially benefit, but they become future burdens on the citizens at some point.

Unlike other cities, Federal Way can learn from others’ mistakes. They don’t have to believe “this time will be different” and make the same mistakes. Federal Way does not have to amortize the remorse of past mistakes. They do not need to compound the problem moving forward. Ultimately, it is up to the Federal Way City Council. 

A new school year is starting soon. I’d recommend the Federal Way City Council think about the 20,000 students in their school district and consider how much of a tax burden they want to place on those students' futures for a beautiful building. We elect them to make these decisions, resist special interests, and to navigate the difficult choices. Hopefully, they will make one so that the kids wearing TJ’s Red and Gold today will have a better future tomorrow and not have to pay a steep price to continue living in Federal Way.   

GO Raiders

Author

Glen Morgan

Property Rights Director

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