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Wednesday, September 21, 2011

Worst-Case Risk Scenario for Oregon Sustainability Center: Millions Bled from City Budget

Posted by Denis C. Theriault on Wed, Sep 21, 2011 at 11:29 AM

The latest, scaled-down rendering of the streetcar-pierced Oregon Sustainability Center.
  • The latest, scaled-down rendering of the streetcar-pierced Oregon Sustainability Center.
The Portland City Council has begun taking up Mayor Sam Adams' bid to throw in—formally, if not completely finally—for funding its portion of the $62 million Oregon Sustainability Center project planned near Portland State University.

There were some lofty words early about the would-be showpiece, in the form of a letter from Representative Earl Blumenauer ("this is an important project that will create significant economic opportunities") and in remarks from an aide to Governor John Kitzhaber ("the governor believes that an economy of innovation is in our reach"). And visits from businesses like Sanyo and Intel, which are committed to setting up shop in the center, and boosterish business advocates. But, still, questions and concerns about the project's still-murky finances (click here for a chart) came fast and furious. No vote yet, and I'll update when it comes.

First, the Office of Management and Finance indicated the project's current cost is only a "medium confidence estimate"—meaning it could go down once engineering work happens. But also that it could go up, requiring some of the building's niftier features to be shaved back. Again.

Then OMF dove into some of the hard truths about the city's financial risk, both from having the Bureau of Planning and Sustainability occupy and rent part of the building and also from agreeing to help fill any deficits if rents expected from other parts of the project fail to materialize. And the sums are pretty giant. As in millions of dollars that could potentially be diverted from other city priorities.

Update 12 PM: The project is moving forward—but not with the unanimous support Adams wanted to show his partners in Salem. Amanda Fritz and Nick Fish both voted no—declaring their support for the project's concept, but worried the financial risks, without further refinement, remain a lousy deal for Portland taxpayers.

"This is a sustainabilty building," Fish said, "but i have yet to conclude it is financially sustainable."

Check below for more details.

• Moving BPS could cost as much as $4.5 million with possibly $3 million of that related to replacing furniture that the city wouldn't be able to move from the bureau's current home in the 1900 Building. Why can't some of the furniture move? It either wouldn't fit the space in the OSC or it wouldn't be compatible with its super-awesome green technology.

"That's why we need to hire a space planner," the mayor offered helpfully when Commissioner Dan Saltzman started beefing, as promised, about that cost.

• Agreeing to share any deficits if rents from nonprofits and private outfits fail to deliver as promised could cost, at worst, $279,000 a year. Every year. For 30 years. That's enough to pay for handfuls of cops, park rangers, or housing inspectors. All told, it adds up to $8.37 million in that span.

"We don't get any benefit from sharing those risks," Commissioner Amanda Fritz said. "Where would that money come from?" The sentiment was echoed by Commissioner Nick Fish. (Randy Leonard, dialing in to the meeting, has been quiet so far.)

Saltzman, who said there's much in the project to be "excited about," but also that he's feeling "nervous" introduced a pair of amendments that aim to address some of those questions.

The first amendment would tie final council approval—something that wouldn't happen for several more months, after more planning and design work and a refinement of the city's deal with the Oregon University System—to a guaranteed final maximum project cost. The other would forbid the city from diverting any money, if Adams' stalled dream for an urban renewal area around PSU ever materializes, from that URA to the sustainability center.

Adams said he backed the amendments, but also noted earlier that the city has long assumed risk whenever deciding to invest in new buildings. Adams, of course, is trying to present as much council solidarity as he can muster when city staffers meet tomorrow with lawmakers to help coax the Legislature into moving forward on funding the state university system's half of the price tag.

"The city made assumptions about the retail space in those buildings as well," he noted, referring especially to the 1900 Building that the BPS would be leaving.

Update 12:30 PM: But in the end, despite Adams' gentle insistence, he couldn't bring Fish and Fritz on board. Fish was the bigger stickler, worrying that future councils and future taxpayers could be saddled with a sizable debt burden.

He asked whether private partners like Intel and Sanyo might be asked to share in the risk if rents aren't high enough—one way to better insulate Portland's general fund. He also asked whether there was any indication tenants would be willing to pay a rent that will be 15 percent higher than the city's current Class A rate at a time of high vacancies.

"People can sign long-term leases" Fish said, "but it's not unheard for people to break long-term leases."

Staffers told him the rate was "palatable," even though it would "push the market." But they also acknowledged there isn't actually any market studies exploring the question.

Then Fish wondered about the fate of the 1900 Building and said the two projects' fates should be more formally joined. And he brought up the fact that Portland was also going to spend $2 million in urban renewal dollars to re-route a streetcar through the building—a $4 million project that so far has not been added to the overall cost of the project.

"I want to support this project, and I want next year to come back and look at hard numbers that give me the confidence we got it right," Fish said. "I compliment the mayor for his persistence but my job is to do the best analysis."

Fritz was the first to announce her "no" vote, winding up with a long (looooong) list of reasons she likes the Oregon Sustainability Center (a commitment to minority and female contractors, it's green-tech showcase hopes, etc.) but quickly pivoted and reminded everyone of her controversial vote against rehabbing the former PGE Park for the Portland Timbers.

"I completely support the concept, but my concern is over the funding mechanism," Fritz said. "This is a great deal for the Oregon University System. My concern is that this isn't such a great deal for the citizens of Portland."

Adams, when it came time to speak his piece, seemed unbowed—not letting on that, behind the scenes over the past week or so, he'd been furiously trying to avoid the appearance of a divided vote, lest Salem skeptics get the wrong idea and pull back. The mayor acknowledged, however, that the remaining questions are difficult to ignore.

"I'm very pleased this is going to pass today," he said, adding that: "Due diligence is very important and scrutiny is absolutely called for."

But he offered a rebuke of his own, saying now was not the time to ease back on efforts to bring jobs to Portland.

"Our quality of life is not matched by the quality of our economy.... We have to invest in a smarter economy and that means taking smart risks."

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