HomeMy WebLinkAbout2004-04-19 City Council (8)City of Palo Alto
C ty Manager’s Report
TO:
FROM:
DATE:
SUBJECT:
HONORABLE CITY COUNCIL
CITY MANAGER
APRIL 19, 2004
DEPARTMENT: PUBLIC WORKS
CMR:214:04
FINANCE COMMITTEE RECOMMENDATION REGARDING USE
OF DOWNTOWN PARKING STRUCTURE SURPLUS
CONSTRUCTION FUNDS
9
RECOMMENDATION
Pending the final determination of available surplus funds from the construction of the
downtown parking structures, the Finance Committee recommends that the City Council
approve the following guidelines for use of the funds:
1. Retire approximately $3.0 million of bonds as soon as feasible;
2. Offset debt service by approximately $1 million over the next 2 year ($0.62
¯million in 2004-05 and $0.38 million in 2005-06);
Retain $0.5 million in a new Maintenance Fund to fund long-term capital
improvements to the Lot R (High/Alma South) and Lot S/L (Bryant/Lytton)
garages.
COMMITTEE REVIEW AND RECOMMENDATIONS
The Committee voted unanimously to accept staff’s recommendation.
ATTACHMENTS
Attachment 1: CMR: 181:04
PREPARED BY:
KAREN BENGARD
Senior Engineer
JOE ~Ct~IO
Deput~gDirector of Administrative Services
CMR:XXX:04 Page 1 of 2
DEPARTMENT HEAD:
GLENN S. ROBERTS
Director of Public Works
C!TY MANAGER APPROVAL:
Director of Ad~iim’strative Services "
Assistant City Manager
CMR:XXX:04 Page 2 of 2
TO:
ATTACHMENT A
City of Palo Alto
City Manager’s Report
HONORABLE CITY COUNCIL
ATTN:FINANCE COMMITTEE
FROM:CITY MANAGER
DATE:MARCH 16, 2004 CMR:181:04
DEPARTMENT:PUBLIC WORKS
SUBJECT:USE OF DOWNTOWN PARKING STRUCTURE SURPLUS
CONSTRUCTION FUNDS
RECOMMENDATION
Pending the final determination of available surplus funds from the construction of the
downtown parking structures, staffrecommends that the Finance Committee recommend that
the City Council approve the following guidelines for use of the funds:
Retire approximately $3.0 million of bonds as soon as feasible;
Offset debt service by approximately $1. million over the next 2 years ($0.62
million in 2004-05 and $0.38 million in 2005-06);
Retain $0.5 million in a new Maintenance Fund to fund long-term capital
improvements to the Lot R (High/Alma South) and Lot S/L (Bryant/Lytton)
garages.
BACKGROUND
On March 19, 200.1, the City Council adopted a "Resolution Adopting Engineer’s Report,
Confirming the Assessment, Ordering the Work and Directing Actions with Respect Thereto"
for the new University Avenue Area Off-Street Parking Assessment District (Assessment
District). The Assessment Dis~ct was formed to finance the design and construction of two
parking garages downtown. The Lot R (High!Alma South) garage was opened September 23,
2003 and the Lot S and L garage (Bryant/Lytton) was opened on November 26, 2003, both
ahead of schedule. The new garages provide over 900 parking spaces, an increase of 700
spaces over what were previously available on these sites.
DISCUSSION
The Assessment District issued $44.6 million in bonds which were budgeted in Capital
Improvement Project (CIP) 19530/PE95030. With construction of the garages completed,
staff estimates, at this time, that there will be approximately $4.0 - $4.5 million of unspent
funds. Because of the weak economy, the City received favorable bids from contractors
resulting in lower construction costs than anticipated. Although minor construction items on
CMR:181:04 Page 1 of 5
the garages are still in progress and will affect the final amount of surplus funds, staff is
seeking Council direction on the fmaluse of these funds. There are several options available
in disbursing the surplus including:
1.Retiring outstanding bonds
2.Offsetting annual debt service
~.Funding a "Maintenance Fund"
improvements
which can be used for future capital
These options can be used in combination or alone. For example, the entire surplus can be
used to retire bonds or to. offset annual debt service. Another example would be to distribute
the surplus using all three options as discussed be!ow in staff’s recommendation.
Since funding for the garages came from property owners within the Assessment District, the
surplus must be used to benefit the District. Given the weak loca! economy, staff
recommends using most of the surplus to provide relief to property owners and merchants in
the downtown area in the form of lower assessments. There are two vehicles to accomplish
this:
Retire outstanding bonds, thereby reducing principal and interest payments over the
remaining life of the bonds. Legally, the City is required to evenly retire bonds over
the next 27 years. The City cannot chooses to retire bonds selectively at the
beginning or end of the amortization period. If the City chooses to retire $4.0 million
in bonds, staff estimates that the originally anticipated annual assessment of $1.35 per
square foot (i.e. the assessment if there were no surplus funds) would be reduced to
~ n- : . ,. ~1 ~,, _~" *~* is ~portant to note t~hat by retiring bonds,ap~_! ox~-na,.e_,y pel square :oo,..
interest costs to property owners are permanently reduced over the next 27 years.
Staff estimates that $3.1 million in interest cost would be eliminated.
Use the surplus to offset annual debt. service payments and, therefore, the annual
~s~~°~’" "÷ ÷~ propert:y o’~_ers over ,*_he ~-~ ~ ~ ye~ ~*’*~’~ City....¯ .-~.~-, ;-~ ......chose to use $4.0
million to pay down debt service during the next 3 years, the annual assessment per
square foot is estimated to drop sharply to $0.77. After the three-year period,
however, the assessment would rise to $1.35 per square foot. Use of this option
would not eliminate interest costs as inn .thhe case of bond retirement, but would lessen
the assessment during this period and provide considerable short-term relief to
property owners and merchants. This scenario may cause property owners and
merchants "sticker-shock" in t_he fourth year when assessments vise to the final level.
In addition to lowering assessments there is a need to place some of the surplus funds in a
maintenance fund to be ased for capital repairs that will likely be necessary in the future.
The type of materials used in the construction of the garages (e.g., stone cladding, glass
elevators) will be more expensive than more basic construction materials to replace or repair
when they are damaged or reach the end of their life cycle. A reserve fund will enable
CMP.:181:04 Page 2 of 5
substantial repairs to be done without imposing another parking assessment in the future.
These funds would not be used for typical maintenance work such as re-striping, painting,
cleaning, replacing li~#hts, and other daily functions that are currently funded with parking
permit fees.
City staff met with major downtown property owners to discuss the above options. There
was not a unanimous view of how to use the funds. One property owner recommended using
all funds to retire bonds, while two others were in favor of offsetting the annual assessment
over the next 3 years. A fourth favored funding a maintenance fund given experience with
deterioration of garages and the need for substantial repairs over time.
Based on the feedback from these downtown property owners and from merchants, as well as
the ostensible need to provide significant financial relief, staff has developed the
recolnmendations below for use of the sulplus. These recommendations represent guidelines
that must be free-tuned pending determination of the final amount of the surplns:
1. Retire approximately $3.0 million of bonds as soon as feasible
2. Offset debt service by approximately $1 million over the next 2 years ($0.62
million in 2004-05 and $0.38 million in 2005-06)
3.Place $500,000 in a maintenance fund for future capital improvements to the two
garages
The combined effects of these recommendations would be to provide considerable financial
relief in the next few years while mitigating assessments and interest costs over the next 27
years. !n addition, by creaOmg a maintenance fund, propeW ovmers and merchants are
ensured that adequate funds are available for future capital repairs. The current 2003-04
assessment is $1.16 per square foot. Based on the recommendations above, it is estimated
that the armual per square foot assessment in the futm-e would be as follows:
2004~05
2005-06
20O6-07
$0.97 per square foot
$1.08 per square, foot
$1.24 per square foot
These recommendations provide a reasonable mixture of immediate and long-term relief
from the expected annual assessment to construct the garages. Naturally, a variety of
scenarios can be constructed for use of the surplus funds and staffis seeking Council Finance
Committee direction to either move forward with its recommendations or pursue different
scenarios.
It should be noted that to provide relief to merchants, it is the responsibility of landlords to
pass through the savings identified above. Since assessments are paid via the property tax
bill, it is through the landowner’s agreement with the tenant that savings would be passed
through. Finally, in addition to the garage construction surplus funds, the City has surplus
funds from constructing the non-parking or commercial/retail area adjacent to the S/L garage.
CMR:181:04 Page 3 of 5
At this time, a surplus of $!.0 million is anticipated. Staff wi!l return to the Finance
Committee with a recommendation on the use of these funds as the budget issues for 2004-05
become clearer.
RESOURCE IMPACT
Funding for the design and construction was provided through the issuance of $44.6 million
by the University Avenue Off-Street Assessment District. As a consequence of lower than
expected construction bids, surplus funds estimated at between $4.0 to $4.5 million will be
available. Based on the recommendations in this report, it is estimated that the armual, $1.35
per square foot assessment originally anticipated can be reduced to $0.97 per square foot in
2004-05, $1.08 in 2005-06, and $1.24 from 2006 through 2030. In addition, a maintenance
fund of $500,000 would be established for future capital repairs to the garages.
POLICY IIWPLICATIONS
There are no established Council policies regarding the distribution of surplus funds for an
Assessment District. Staff has discussed use of the surplus funds with Bond Counsel and the
uses described in this report are permitted by the bond documents.
In order to reduce the 2004-05 assessment to downtown property owners, it is necessary to
finalize a plan on the surplus funds by June 1, 2004.
ENVIRONMENTAL ASSESSMENT
No en_v~ommental clearance is required for financial actions..am Envirommemal Lrnpact
Report was prepared for the garages as part of the PC zoning application and was certified by
Council on December 20, 1999.
ATTACHMENTS
None
PREPARED BY:
ICa~REN BENG~X~,D
Senior Engineer
DEPARTMENT HEAD:
s cc o
/ /D~putyt ,,~irec~)~ A ,dn}~nistrative Services
GLENN S. ROBERTS
Director of Public Works
CMR:181:04 Page 4 of 5
DEPARTMENT HEAD:
~ervices
CITY MANAGER APPROVAL:
E~’~? HARPdSON
Assistant City Manager
C!x/IN: 181:04 Page 5 of 5