June 22, 2010
Dear Council Member:
I urge you to postpone indefinitely action on ITEMS 17 AND 18 on this week’s Agenda—-a proposal to enter into a Master Development Agreement with private interests to redevelop 1.7 acres now occupied by the Energy Control Center (ECC).
The fundamental point is this. Regardless of whether you approve the concept of this project or not, there are significant questions about the nature of the deal itself that require council discussion and a public hearing—-and no public hearing has ever been held on this matter or the GWTP agreement. It deserves one.
—- Apart from doing the Developer a favor, there is no need to lock ourselves into this deal at this time. We gain nothing, and could lose money, by acting hastily. There is no need to sign a deal this year. Whatever this project’s merits or faults, there is ample time to study and consider the deal itself. The draft agreement’s own words make it clear that not a spade of earth will be turned for years—-perhaps not for over a half decade, depending on the economy and other factors.
—-The proposed Agreement does not contemplate a title transfer of the land until 2013.
The Developer states it does not anticipate even having a site plan “for several years.”
Further, the Agreement grants the Developer five years from the time of site plan approval before beginning construction. This is an unprecedented, unjustifiable extension of city rules. Such a timeline could potentially delay construction until 2018 or 2019, or even later. The city, on the other hand, will be committed on the front end to relocating, at great expense, the Energy Control Center.
—- The proposed Agreement explicitly states that this long timeline is designed to allow the Developer to wait out the recession and the decline of the condo market, perhaps for many years. That’s fine for them, but why tie the city’s hands while they wait? This deal is great for the prospective buyer and bad for the seller. No private sector corporation would sign such a contract. The current asking price of $14.5 million is based on a 2007 appraisal. Land prices will almost surely rise in the future. The city should wait and maximize its return. Someone might offer us a better deal. We might also want to consider improvements or alternatives to the project in the light of changing circumstances, since nothing may be built for years anyway.
—- The back ground documents given Council do not contain an estimate of total potential cost to the city: a) from added city infrastructure costs caused by and related to the new development; b) possible cost of substantial environmental remediation to the site (if such is required, this is to be paid solely by the city); c) any and all other associated city costs required by this project (none are listed, but they may be substantial given the size and scope of the project).
The Agreement requires the Developer to pay the city $1 million in “partial” compensation for city infrastructure costs. This money will be paid in advance if Council approves this agreement. Background materials given to Council make it seem that this is an act of generosity, almost a gift. However this is not free money. It is partial payment for city infrastructure costs that will be necessitated by the project itself. Further, those total “costs” are neither defined nor estimated. It seems foolish to sign a contract without knowing all the costs to the city. No private entity would sign such a contract.
—- Two years ago we were promised the city would make money—-millions in profits—-from the sale and unified development of the combined ECC/GWTP tracts. The phrase “counting our capital gains” was even used when describing the deal to the news media.
Today we know we will not make money on the land sale, and there will be no capital gains. Sale price for the ECC land is $14.5 million. Cost of the ECC replacement facility will be $67 million. The staff report says this will be “100% debt funded” and is affordable within current debt structure, but omits to add that this is nevertheless a $67 million increase in Austin Energy debt at a time of deficit, retrenchment, and significant potential rate increases due to the utility’s other obligations. Would it not be prudent to wait a couple of years until we have weathered the recession? A staff memo justifying the move implies that Austin Energy needs a modernized expanded facility; but the same memo states that the original reason for moving the ECC was “for the stated purpose of supporting downtown development,” not for the urgent needs of Austin Energy.
—-The worst thing about the deal, if I read Article 4 of the agreement correctly, is that the city is obligated to sell, but the Developer is not really obligated to buy. Upon signing, we lock ourselves into a deal, but the Developer does not. The city is obligating itself to spend millions in the short run to move a major city facility, to initiate expensive infrastructure preparation, and perhaps to pay for expensive environmental clean up—-with no guarantee that the Developer will even buy the land in the end.
In Article 4 the agreement states that if the “takedown,” or actual sale and title transfer, do not occur within a certain period of time, then the Agreement “will automatically terminate.” The Developer would presumably forfeit the one million dollars paid upfront to partially compensate the city for infrastructure work, but that is not a significant cost to a corporation the size of Trammel Crow. It would be easily discounted and written off, and would be considered a small price for a multi year option on a piece of land that might bring hundreds of millions in profits.
—-This proposed agreement also violates the city’s original goal of creating a binding comprehensive master plan—- with public review—- for the overall development of the Green Water Treatment Plant/ECC site. Instead, with no public discussion, it carves out a chunk of the area and enters into a new agreement to develop it separately before—or without—- the final approval of an overall conceptual or site plan for the entire area. It even declares there may never be such an overall plan.
The proposed ECC Master Development Agreement states:
“During the negotiations under the ENA (Exclusive Negotiating Agreement) for the development of the (ECC ) Property and GWTP, the City and the Developer discovered more detailed issue analysis and negotiations must take place with respect to GWTP, but not the property…The parties acknowledge that notwithstanding their agreements under this Agreement, the parties may not be able to reach an agreement under the ENA regarding the development of the GWTP.”
The negotiations are secret. One possibility, given the nature of the site, is that a problem that requires “more detailed issue analysis” may be environmental remediation. The city must clean up the site before it can be used. It may turn out that in the end GWTP cannot be made suitable for development, or that remediation will be so costly as to threaten the economics of the deal.
—-Whatever the reason, there is a possibility of no agreement on the GWTP. Therefore the ECC tract might now be a stand alone project. If so, it should be reconsidered in light of that fact. It certainly should not be finalized before there is a master agreement for the entire original project , or before we know whether there will be one at all. Without that original overall agreement this is just another condo deal using public land by the lake. Given that fact, the Council might in the future want to change the project’s parameters and its design.
—-The Developer and staff seem to regard the Developer’s two-year-old proposal for this property as final and subject to little or no alteration or review. This is the wrong way to proceed, and it violates the spirit of the planning process which the public was told would guide this project.
The project was announced in 2008 with fanfare and hoopla. It was presented to the public as a unified concept which would proceed under one unified Master Plan. The public and the Council were given to understand that the winning proposal was just that, a proposal, not the final plan, and that there would be opportunity for further review and changes in design and concept. (Indeed, it would be shocking if there were not significant design changes in a proposal for a complex, multi-building, six acre development scheme.) Now, however, the Developer has been quoted in the news media as planning to move ahead with two 500 foot high condo towers “as outlined in the bid proposal.” No changes. No public review. No public hearing. No discussion. No improvement. No public hearing. No consideration of other alternatives.
The Council and public should play a larger role in this ongoing process.
One reason we have time to rethink this agreement is that the glut of condo projects in the Austin pipeline is so great and potential future supply so large, that the market may be soft for years, potentially delaying the ECC project even more. Condo towers have risen throughout downtown, and there are another eight or ten very large projects that are already approved by the city but have been put on hold pending an improvement in the market. The private sector is adding a plethora of living units. It is no longer necessary for the city to jump start the process. In fact the scale of development in the private sector may make the city’s development plan riskier and less viable. The Developer has told the news media the market will come back strong. If so, why did the Developer request a potential five year extension before being required to start construction?
Sincerely,
Dean Rindy
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