Commentary: Time to build a new City Hall, but what’s the cost?

There appears to be gathering momentum in the process to construct some sort of new City Hall complex for Mountlake Terrace. The city is recruiting a consulting agency to interact with the newly organized City Hall Advisory Committee, which has been created to provide some sort of guidance in this extensive, almost-decade-long process.

A new City Hall should have been operational years ago, but attempts to successfully pass a bond issue have repeatedly failed. As a result, erecting a new City Hall has been dogged with years of delay and the city is no closer to constructing a new City Hall than it was in 2009 when this process was initiated. After three failed bond issues of between $25 million and $37.5 million, the process is once again under way.

A consumer can readily obtain comparative information on just about any purchase they wish to make for their own personal consumption. Not so simple when it comes to determining the cost of constructing a new City Hall complex. Research reveals various city hall projects throughout the United States that have been either recently completed, are in the process of being built, or are in the planning and budgeting stages. It is instructive to compare the project costs with the populations of the cities in question to determine if proposed past and future costs for a city hall for Mountlake Terrace are comparable with ongoing city hall projects in the Northwest and beyond.

What has been recently transpiring in the arena of new city hall construction projects?

The following table lists various cities, the number of residents and the cost of their recent projects that were just completed, are under construction, or in the planning stages. Various methods of analyzing potential expenses such as costs per square foot have been visited in the past, thus a different method of observing and comparing costs is presented here. That is the cost per resident in the city where a new city hall has either been recently constructed, or is in the building or active planning stage. This method provides another useful analytical tool in analyzing where Mountlake Terrace’s planning strategy is within the greater city hall construction cosmos. In addition, one can determine if Mountlake Terrace’s proposed expenditures are comparable with other cities, or an overpriced outlier that must be reviewed with heightened scrutiny and concern.

All figures provided below are approximate (as costs and population figures fluctuate) and accumulated from ongoing projects approaching or recently completed. Figures have been rounded off in the cost per resident.

Name of City                       Population         Budget       Cost Per Resident

Shakopee, Minnesota               39,677         $8,500,000          $214
Coral Springs, Florida            127,952        $38,000,000          $297
Richland, Washington              53,019        $18,000,000          $339
Spokane Valley, Washington      91,113       $14,150,000          $155
Eugene, Oregon                     159,190       $27,450,000          $172
Deer Park, Texas                      33,000         $5,530,000          $177
Muskego, Wisconsin                 24,621         $6,500,000          $264
Mitchell, South Dakota             15,539         $3,200,000          $206
Fargo, North Dakota               115,863        $30,400,000         $262
Concord, North Carolina           85,000        $20,000,000          $235
Wentzville, Missouri                 47,000        $13,300,000          $283
Homestead, Florida                  65,524        $25,560,000         $390

Of interest is that some of the above projects were accompanied with complaints of excessive initial expense and/or concerns regarding cost overruns.

The average construction expenditure for a new city hall complex per resident for the cited city hall construction projects ranged in overall costs from $155 dollars per resident in Spokane Valley, Washington to $390 per resident in Homestead, Florida. The total average was approximately $249 dollars per resident for all the projects listed above.

As a comparison. if any of the previous Mountlake Terrace bond issues to construct a new city hall were enacted by the voters, a city of 21,000 residents, the cost per resident to build a new city hall complex would have been as follows:

If a $37,500,000 measure passed, the cost to build a new City Hall would have been $1,785 per resident. If a $25,000,000 measure passed, the cost to build a new City Hall would have been $1,190 per resident.

Or viewed in an alternative manner, if the $37,500,000 project had been approved, it would have cost the average resident of Mountlake Terrace 7.16 times more than the average cost per resident for the above listed city hall projects in other communities

If the $25,000,000 project had been approved, it would have cost the average resident of Mountlake Terrace 4.77 times more than the average cost per resident for the above listed city hall projects in other communities.

Assuming the average amount of the cost of all the city halls quoted above is a reasonable amount to be expended for a new city hall project, the amount for a new City Hall complex for Mountlake Terrace should be approximately $5,229,000, (21,000 population times $249 per each resident), a significantly lower amount than requested in the last three bond issue elections.

Assuming Mountlake Terrace expends an amount equal to the most expensive project listed above (Homestead, Florida) on a per-resident cost basis, the cost of the project should be approximately $8,19,000 ($390 times 21,000 population).

A number of the above listed city hall projects were or going to be fully or partially funded with existing city funds. Apparently, the entire amount for a new Mountlake Terrace city hall must be financed with borrowed money. Or, in other words, it will be demonstrated that the average cost to each resident in Mountlake Terrace will be significantly greater than the face amount of what will eventually be requested, because property owners must also pay for the underlying financing.

Financing costs for undertakings such as these are substantial. Even the costs for financing a modest single family residence can accumulate.

As an example, a new arrival has purchased a beautiful new home in Mountlake Terrace for $350,000 with 20 percent down payment and has financed the remaining 80 percent with a 30-year fixed rate mortgage. Even with historically low interest rates, it will require a much higher amount to ultimately purchase that house than the $350,000 sales price. It will, in fact, cost the following, not accounting for various calculations such as tax credits, closing costs, pre payments, inflation, the loss of investment opportunities by applying the down payment towards the residence, etc:

$350,000 purchase price for residence
$70,000 – 20 percent down payment
$280,000 financed at 4 percent interest = $481,234 principal and interest payments for a thirty year loan.

That brings the total to $551,234 paid for a house that was purchased for a price of $350,000 dollars.

Or in other words, to borrow $280,000 at the low interest rate of 4 percent over thirty years, one must pay $201,234 in interest in order finance the 80 percent loan.

The total expenditure when purchasing the $350,000 residence escalates substantially when factoring in the additional financing expense. It is understandable that there is currently a legal requirement to disclose the actual total costs of financing when obtaining a residential loan. That document is entitled the “Truth In Lending” disclosure statement and is reviewed and signed by every prospective mortgagor before they can close on their loan.

Assume the lesser amount of the failed bond issues, $25 million, had been approved by the voters. Unfortunately, there is no way to precisely determine in advance the total bond expenditure that property owners will be responsible for before the financing is instituted, as various factors must be configured before a bond issue is promoted by a governmental authority. Using a hypothetical and very conservative 3-percent figure to borrow money over a thirty year period, the more realistic total cost of the twenty five million dollar city hall would have actually been:

$25,000,000 at 3 percent over 30 years yields a total payment of $37,944,366. An additional $12,944,366 in interest payments alone over the life of the thirty year loan would have been paid by property owners above the initial $25,000,000 request.

And if the initial $37,500,00 request had passed, financing that amount at 3 percent over thirty years would have resulted in an astounding total of $56,916,544 to be paid by Mountlake Terrace property owners through higher property taxes. Financing that amount would have resulted in an additional $19,416,544 payments in interest to be paid by property owners above the initial $37,500,000 request.

Even a more modest $10,000,000 bond issue financed at 3 percent over 30 years would yield a total payment of $15,177,745, or additional $5,177,745 in interest payments that would be required to be paid by property owners.

If the city finances this project with bonds that are less than thirty years in length, the amount of interest to be paid for the financing will decrease, but the cost per year to all property owners may increase, depending on the length and interest rate of the loan. But regardless of the length of the financing – borrowing money is an expensive proposition and dramatically increases the overall expense of any project, and the corresponding amount that property owners must pay.

And best of luck obtaining 3 percent financing for a thirty year obligation in these days of rising interest rates and the possibility of tax reform by the new administration that may cause tax free bonds to be less attractive to prospective investors, which will result in higher interest rates needed to issue them.

One can readily recognize that the cost per resident for the prior failed measures is considerably higher than every other city hall project cited above. Mountlake Terrace is a typical modest, suburban, middle-class city, not a wealthy jurisdiction whose population can “afford” dramatic property tax increases. In addition, the city does not present any unique characteristics, challenges or increased staffing requirements that have been communicated in prior requests for funding that require a significantly higher expenditure for a city hall project as compared to the costs of city hall complexes in virtually all other jurisdictions that have successfully completed their projects.

It is strongly advocated that the newly organized citizens council, as well as the city itself, account for and disseminate actual total estimated expenditures for any proposed city hall funding before the next election on this matter. This data should be mandatory information that is provided to voters in order for those who ultimately decide (and also must pay the long term expenditures for this undertaking) to reach an informed decision. When a prospective mortgagor applies for a loan, the total amount of the loan – principal and interest is disclosed in a separate and clearly identified document so that the borrower can be presented with a crystal clear understanding of the actual costs of the loan he or she is undertaking. The same informational clarity should be applied in this matter on behalf of voters who will ultimately have to pay for this enterprise.

Renters encompass almost half the population of Mountlake Terrace. They believe they have little at stake in civic matters such as these. This is most unfortunate, because their escalating rents directly subsidize these projects through their landlord’s property tax assessments. Furthermore, in an era of affordable residential shortages, it is not difficult for the landlord to pass those increased property taxes on to the tenants in the form of ever-escalating rents. And presently, the landlord benefits from income tax policies through deductions for property taxes, while tenants obtain no such benefit. In addition the tenant may be long gone from the jurisdiction when the project that has been funded in part by his or her rent is finally completed.

While landlords are able to pass on real estate tax increases to their tenants, many homeowners persevere on limited fixed incomes or with salaries that have not kept apace with the overall increase of the cost of living. They will be required to pay an increasing amount for a variety of recently enacted property tax initiatives. Sound Transit 3 (which is “coming down the tracks” to a Snohomish County property tax assessment near you), as well as any new significant tax increases executed by Mountlake Terrace voters (such as any new obligation to fund a new city hall through property tax increases) will be assessed on the property of all owners for literally decades. Many individuals are currently having an increasingly difficult time meeting these escalating property tax obligations, and they, unlike landlords, have no one to pass those tax increases on to.

Some advocate that the strategic location of City Hall is a crucial landmark asset that will transform the city into a more desirable community. The foremost attestation of residential desirability – housing prices – have escalated dramatically over the past six years. During those steep residential price increases of 50 percent or more, the temporary City Hall has been located in leased offices within a commercial office building, and the prior city hall location remains but an unattractive empty lot. Apparently, those recent new home owners who have purchased in the city at significantly higher prices, as well as the new developers active in Mountlake Terrace don’t consider a handsome city hall complex or lack of one, to be a crucial determinate to locate or develop in Mountlake Terrace.

In the legendary movie “The Maltese Falcon”, protagonists dedicated years of their lives pursuing a statute that never did quite materialize. That elusive object was described as the “stuff that dreams are made of.” It is time to present to the voters a more realistic proposal for a new City Hall, one that is budgeted comparably with the overwhelming majority of city halls recently constructed both in the northwest as well as throughout the country so a new financial package can be overwhelmingly approved by city voters. What is required is a functional city hall complex that adequately meets the operational requirements for current and future residents of Mountlake Terrace. The project’s expense, predicated upon other city hall construction expenditures as documented in this article and elsewhere should realistically range between $5 to $10 million. A proposal within those financial parameters should garner overwhelming electoral support. This process has simply expended both excessive amounts of time and valuable resources as a result of focusing on the stuff that dreams are made of, rather than realistically budgeting for a new city hall within the constraints of a city the size and wealth of Mountlake Terrace.

–By Eric Soll, a former Mountlake Terrace resident who now resides in Edmonds

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