Saturday, September 29, 2007

Waterfront Redevelopment: Economic Development on Steroids

'It's never over, until its over.' - Casey Stengel
Back in September of 2006, I decided to e-mail County Council member Ward Nelson, hoping to build a dialogue with him to help lead to the County's support of the Local Infrastructure Financing Tool [LIFT] State legislation that had just been sponsored by Representative Kelli Linville, and passed to include Bellingham as one of its initial Pilot Projects.

This new bill to include Bellingham in what amounts to 'tax-increment financing' was seen as a real boon, happening just at the time when financing help - at least the enabling of it - was most needed, as the Port and City proceeded in a good faith effort to redevelop our degraded industrial waterfront.
Please give me a call at my home phone xxx before noon tomorrow, or over the weekend at xxx, if convenient.
Otherwise, I'll be back next Monday, Sep 25, for our next City Council meeting.

I asked Ward to call me to discuss LIFT and how the might agree to use that tool to support the ambitious waterfront redevelopment effort being undertaken to stimulate economic development, clean up a polluted industrial area and provide better public access to Bellingham Bay.

I had been very encouraged by reading the Economics section of the County's Comprehensive Plan [at the URL shown below] because the Waterfront Redevelopment seemed to be tailor-made to qualify for substantial Economic Development Incentives [EDI]. Because of the enormous potential for assisting the entire region, I also thought there was a good chance the County would agree to use its LIFT potential, just as the City and the Port of Bellingham had quickly decided to do.

Unfortunately, it turned out I was wrong in this assumption.
And, I was also wrong about the County making available any EDI funds either.
Neither has happened -at least up to now- despite the fact that the Waterfront Redevelopment project clearly qualifies for strong financial assistance by the County's own Comp Plan!
But at the time, I wanted to ask, at least to get an explanation.
The County seems so far ahead of the City in defining its role in economic development, if for no other reason than it has its own written and approved Comp Plan Element specific to Economic Development.
It has been my goal for a few years to have the City develop such an ED Element, which would ideally fit into and support the County's overall vision.
Fortunately, there is now sufficient City Council support for this idea to make this happen, and draft Strategic Guidelines are now being developed.
But, the waterfront redevelopment effort can't wait for that to happen.

If you read the County's Comp Plan, Chapter 7 on Economics, plus the supporting information in Appendix 'C' regarding vision statements on the 14 GMA goals, including the Economic Development Action Plan, these ideas and goals strongly support a major redevelopment just like the waterfront project, which the Port of Bellingham and the City have committed to make happen.

It certainly sounded that way enough to allow the County to support the Market Depot Square project with over $200 k inEDI funding last year.
That was a big help, and the success of that venture has paid off from the moment the facility was opened!

In similar fashion the County's commitment to the Public Facilities District over 5 years ago has greatly assisted that effort,
Unlike the PFD rebates of a portion of sales taxes already paid, a LIFT commitment doesn't identify existing County funds, because that money is never available UNLESS the actually development occurs.
The tax increment in question is associated only with new development within the geographic boundary defined as part of Waterfront Redevelopment
No development, no new taxes.
It's that simple.

Maybe it was a problem to get support for the new, innovative LIFT funding promises because the concept was so new it wasn't understood sufficiently.
Or, maybe becasuse the Waterfront Redevelopment is so much bigger [by orders of magnitude], takes much more time to occur. and seems so much less certain, that the County was hesistant for these reasons?

But, maybe because the Waterfront Redevelopment is so ambitious, and so strongly supports the concept of sustainability by cleaning up a contaminated urban site to a higher than industrial standard, and requires such a large clean-up of a blighted area to become the valuable magnet for business, recreation and residential use, that it requires a whole new way of evaluating its potential than the County is currently able to do.

If that is the case, then maybe we ought to try a different approach, with fresh eyes and ideas, with new dialogue?

In an exercise last year, 75 community leaders focused on the concept of looking at this redevelopment as essentially designing an entire new neighborhood, and concluded it was a cinch to achieve the highest LEED standards, without much extra effort!

What a boon to Whatcom County that would be!
Just the improved public access to the Bay would be a major attraction.
But that's just the topping on the sundae.
Cleaning up the Whatcom Waterway, the former G-P site -including the ASB-, remediating 2 or 3 former City Landfills, plus other industrial property is a huge beneficial accomplishment!
Cleaning it up to a higher standard than usual just adds multiple bonuses to it.
Using the cleaned up areas for institutions of higher learning, water-dependent uses, businesses and housing not only helps the economics, but it helps the City and County fulfill their Growth Management goals.

Now, that suite of desirable outcomes certainly deserves some very special consideration in my book.
And it also reemphasizes that we really need the County to help us make this happen!

The beauty of the new LIFT legislation is that Bellingham has the absolute inside track to be the first city in the State of Washington that is ready to take advantage of it.
A few larger Cities have used LIFT type financing for special projects before, and with success.
Now that this instrument has been made available to smaller municipalities for qualified projects, it behooves us to take full advantage of it.

Opportunities to become a guinea pig like this are rare, although the potential LIFT pay-off of up to $1 million per year for 25 years is even more rare.
Now, $25 million is a lot of money, but it is only a fraction of what the Port and City will need to invest to make the redevelopment happen over the next 5 years.

But, once it does happen, the pay-off to County, Port and City will be enormous!
And it will be ongoing, literally for many, many year into the future.

That prospect excites me, but it also presents a huge challenge that cannot be escaped.

As you & I know, investments with higher risks are necessary to earn higher returns and rewards.
It does take money to make money, even if the investors are public entities.

As the principal entity under State Law, the County has a major responsibility to consider this redevelopment effort as much a County priority as it is a Port or City priority.
The major difference is the County's investment through LIFT is without the same order of risk as the City and Port will bear.

The Port's mission is focused almost totally on economic development, and they are out there and exposed on this major undertaking.
Fortunately, their pro forma calculations demonstrate their investment can be mad to pay-off in a reasonable length of time.

The City also appears highly leveraged at this point, but must provide some level of infrastructure, services and regulations to support this undertaking with the Port as partner.
The City's pro forma is currently less certain than the Port's, and can use whatever level of County support that can be provided.

These two jurisdictions are literally joined at the hip for the duration of this effort, and that's not all bad, because inter-jurisdictional cooperation is necessary to achieve regional goals.

The County's help could make the difference as to whether this ambitious undertaking will succeed or fail.
And be assured a failure would help no one!

It will take real, dedicated leadership from every jurisdiction to see this redevelopment through to completion.
I for one, believe the County is willing to help, provided a method can be found to satisfy its legitimate concerns.

So, I invite the County into a new dialogue about how we can best work together make this Waterfront Redevelopment happen with better equity and more certainty.
I've had some reflections on this present situation, and come to the conclusion the County's reasoning wasn't necessarily shortsighted or flawed.
Here's why:

The County has a history of being very careful about raising its taxes.
The last 12 years have seen no voluntary increase in property tax, and only two increases in sales tax that I recall.
One property tax increase occurred at the time I-695 passed, and helped the City restore substantial losses to its General Fund funding.
The other happened more recently and was focused on public safety and the criminal justice funding.
There may have been other County tax events that I have missed, but they have not been notable in comparison to the ones cited above.
This is a remarkable record of remaining fiscally prudent, despite some glaring needs in the County that remain unaddressed.

With this history in mind, I concluded the County is justified in thinking very carefully about committing ALL its potential property taxes for the Waterfront Redevelopment for the full 25 years, without further information.

For example, if the Waterfront Redevelopment succeeds far beyond expectations, that would leave the County ]with funding more than they estimated.
That possibility can be addressed and rectified.

Perhaps, a certain monetary amount over a shorter period of time is preferable for the County.
In that case EDI money might be easier to make available, perhaps even in installments.
If what we need is more certainty regarding the time value of money, then a table of present values could be prepared to allow some choices in amounts and their timing.
Any amount can be raised in many different ways to benefit this, or any other, project.

Recalling the projected cash flow charts the Port presented, it may be more beneficial to our purposes to have the County front-load its contributions and let this fund critical early work.
Like the famous EMILY's list. [Early Money Is Like Yeast]

The time value of early investment grows over time whether additional monies are added or not.
Recall that the County accepted City REET money to build the interim jail, then agreed to credit the City with over 3 times the present monetary value in credits toward the City's obligation in future operating costs.
That was a creative solution that benefited both parties.

Considering this method of calculating value to the redevelopment costs would be extremely helpful to the City in this instance.
Early money would really help -out of proportion to later contributions- because of the several years time lag required for the clean-up, planning and contractual commitments that must precede any substantial returns.
That same dynamic is at work with IRAs, pensions and other investments designed to achieve goals effectively.

The City could work up several scenarios of potential contributions over time and estimate their actual value to the redevelopment, then be ready to propose these in response to any financial offer the County may propose.
Let's don't argue about how the funding would be made available, or how much; just the net positive impact on the redevelopment cash flow.
That way the discussion becomes more of a negotiation of times and amounts that is inherently easier to understand, explain and act upon.

In many respects the County has the same concerns the City has; that the Port stands to gain more than the estimated returns from the redevelopment as it progresses.
Rewards and risks should probably be in the same proportion for all the players.
Only the City seems to be the most likely relative loser financially, in all scenarios, but especially in the short-term.

But, if the Waterfront Redevelopment substantially exceeds expectations, everyone wins, and no one should complain about that because the ultimate benefit accrues to everyone!
To date, no County money has yet been committed at all to my knowledge.
What is particularly troubling is that some County Officials have even engaged in efforts to thwart the Waterfront Redevelopment, itself, from happening!
What is that about?

A cynic might think that some folks have figured along the following lines:

If the Waterfront Redevelopment should fail, the County could say 'I told you so!'

If the Waterfront Redevelopment succeeds, the County will receive the entire tax benefits, but without taking any risk!

I hope that type of cynical thinking isn't rewarded!

I believe the real reason behind the County's reluctance to follow its own stated goals and help the Waterfront Redevelopment succeed lie in the hurried timing of the request, and the large amount of funding potentially involved.
Those things can be rectified, and done so much better in an atmosphere of collaboration and negotiation, but not with insufficient information or pressure tactics.

But, if cynicism is at work behind the County's reluctance to offer its valuable help, that is a different matter entirely.
I sincerely hope that isn't true, and that reasonable heads will prevail.
Accomplishing the Waterfront Redevelopment ought to be the sort of goal everyone can contribute to with vigor.
Our children will thank us for it one day!
"Management is doing things right. Leadership is doing the right thing." - Warren Bennis--