Budgeting Financing Strategy for the Seattle Commons Term Paper

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Budgeting

Financing Strategy for the Seattle Commons

The purpose of this memo is to determine the best way to secure financing for the Seattle Commons urban renewal project.

The Seattle Commons project requires funding of $218 million to proceed. We estimate receiving $100 million in private donations, with the remainder secured via several different methods of public funding. We propose $5m from a REET for the housing portion; $25m in federal transport funds for the street improvements and Mercer St. artery; $5m in grant money from each of the county and the state for greenspace development; $20 in LID financing; and $60 in a voter-approved special levy. We believe the levy should be taken to vote as soon as possible, before opponents to the Commons have a chance to organize, and if the vote is successful that the other funding will fall into line.

Background/Discussion:

The Seattle Commons project has been gaining momentum for two years now. The project involves creating new park space on in the South Lake Union area. With this park, a continuous chain of green space would be created from Lake Union to downtown. In addition to the park, the project includes street improvements, arterial connections to Mercer St., and the preservation of 60 low and medium income housing units..

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As a result of this project, several spinoff benefits would accrue to the city. These are the ultimate goals of the Seattle Commons project. The Seattle Commons would spawn a new neighborhood adjacent to downtown, and linking to several other of the city's neighborhoods. Lake Union would be cleaned up. Traffic in the area around the park would be lessened in light of the street improvements.

Both economic and residential development would be encouraged by the presence of the park.

Several things are required to make the Seattle Commons project a reality: land acquisition, business relocation, building demolition, site remediation, park utility work and development, street improvements, and housing preservation. The estimated cost of these combined is $218 million.

Term Paper on Budgeting Financing Strategy for the Seattle Commons Assignment

There are several funding options available to help fund this project. In conjunction with analyzing the relative merits of the different funding options, we need to determine how many different funding options we wish to use.

The complexity of the funding formula is considered to be one of the issues in need of addressing. It has been argued that the project stands the best chance to succeed if the funding formula is simple. Given that we must present the proposal to the city council, it may be easier for them to approve if they can understand the formula. However, the best possible formula may not be a simple one. There are many different components to the project and some of these components may qualify under various county, state and federal funding programs.

Another significant issue we need to consider when deciding on the ideal funding formula is that of time frame. Members of the Executive Committee are split on the ideal time frame, but their views on the issue are related to their views on which sources of funding we intend to rely upon. As well, there is call for an environmental assessment, which could take upwards of one year to complete.

One of the more likely sources of financing is voted-approved debt. To acquire funds in this manner, we will need to hold a referendum and win 60% voter support. Another option is a voter-approved special levy, which requires 50% voter support. There are strategic considerations with regards to winning a referendum of this nature. While some Committee members feel that the best chance for success is to continue to build momentum for the project, others feel that the best opportunity is in the very near future, before opposition to the project can become organized. If we decide against seeking voter-approved debt, the issue of time frame will be of less strategic importance.

One last issue with regards to our funding formula recommendation is that of competing interests. As always, the bodies whom we will ask for funding are faced with many such requests, and will need to weigh each request carefully, considering opportunity cost. For example, funding is going to be required for capital projects with the Seattle School District, with regards to roadway repair, and there is a backlog of hundreds of millions of dollars for the city's own facilities. These interests and several others will be taken into consideration by city councilors when we present our proposal to them.

We have previously outlined ten different funding sources that we may use to reach our funding objective of $218 million. The estimated total available from these sources combined is $566 million.

The first element of our funding formula is going to be private donations. Our Committee and city council have strong ties to the corporate community. We have already received donations from citizens who are in support of this project. Moreover, there are many very successful entrepreneurs in the region who have yet to make their philanthropical mark. For example, we have Paul Allen as one of our key supporters. We estimate that we will be able to generate $100 million in private funding. This brings the total required from public sources to $118 million.

The public sources available to us include the following: tax increment financing (TIF); Non-voted debt; voter-approved debt; voter-approved special levy; real estate excise tax funds (REET), local improvement district, business improvement area, federal transportation funds, and county and state grants.

Tax increment financing has the potential to yield us $100 million. It is a bond floated that will be paid for by increases in property values in the zone of improvement. This is an attractive option for the potential yield, but it is legally suspect. For TIF to be used in a project of this size will undoubtedly attract the attention of legislators, who will be forced to settle the issue concerning TIF's legality. This represents significant risk.

Non-voted debt has a theoretical capacity of $100 million, which is the city's remaining capacity by law. The law may be changing in the near future. Given the attractiveness of this option, it would be beneficial to use our contacts in Olympia to ascertain the likelihood of the city's limits being increased. If the limits are not increased, the city is unlikely to use any of this capacity for the Seattle Commons project. They need to maintain a certain buffer in terms of the amount of non-voted debt they issue, and furthermore we would likely find ourselves in competition for this money with the School Board and the roadworks. The public, and therefore council, is unlikely to favor a new park over schools and roads.

The two voter-approved options hold promise, both structurally and historically. In 1986 King County voters approved bonds to improve the Woodlands Park Zoo. The debt issue has nearly limitless capacity, but needs a 60% clearance. Members of the Committee are in disagreement as to whether this clearance is attainable and if so, at what point in time. The similar voter-approved special levy has a lower clearance at 50% approval. Both would result in an increase in property taxes. There is $90 million available via this option.

The REET has a maximum value of just $6 million. This option could be easily utilized, but that amount of money is unlikely to be the deciding factor in the project. This is also true of the business improvement area option, which has a maximum estimated yield of just $5 million.

State, county and federal monies are available for greenspace and transportation projects. The total potential is significant - $45 million. Acquiring funding from different levels of government for certain aspects of the project will not only appeal to council but will also help to convince them that the project has merit, and strong support from other quarters.

A last option is to create a local improvement district. This generates money from increases in local property taxes. The risk, however, is that it can be stopped within 30 days if 60% of those property owners affected challenge it. The maximum financing possible from this $20 million. This amount is not enough to make or break the project. The risk of using the LID is that it will give the opportunity and cause to galvanize the project's opponents, which could ultimately be disastrous if there is a pending referendum on the issue.

Recommendations:

The funding decision should be broken down into two components. The core financing will come from private donations of $100 and another of the alternatives. Only three of the main funding alternatives are sufficient to proceed with the project. The TIF has been rejected because of the concerns surrounding its legality. If we used TIF for a project of this magnitude and visibility, we would likely force Olympia's hand in dealing with the TIF question. This could result in our funding being pulled out from under us in the middle of the project. As a result, it is… [END OF PREVIEW] . . . READ MORE

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