Budget Office Warns City Could Lose $2.5 Million Next Year on MOHAI Deal
Mayor Mike McGinn's budget director, Beth Goldberg, followed up on a letter warning city council members that they could lose $6 million on a land deal with the Museum of History and Industry last week with another letter to council budget chair Tim Burgess, saying the city could stand to lose $2.5 million next year alone, depending on the council's interpretation of a law setting up the payment arrangement.
Some background: Back in 2010, MOHAI, which sits on land owned by the city, agreed to sell its land and building to the state Department of Transportation (WSDOT) to make way for the new 520 bridge. At the time, WSDOT bought MOHAI's building for about $40 million, $20 million more than MOHAI had expected, agreed to buy the land at some later date for a price of about $18 million.
The city, which was facing a budget shortfall of about $60 million, worked out a deal with MOHAI—a deal McGinn opposed, because he wanted MOHAI to give the city $7 million outright—under which MOHAI would loan the city $8.5 million from its $20 million windfall. Once the land sold, MOHAI would get either $7 million or 40 percent of the proceeds, whatever was less; the city would get the balance, and pay MOHAI back from the difference.
Fast-forward to this year. WSDOT did its own appraisal of the land, and concluded that it was worth only about $4 million, or $14 million less than MOHAI's original estimate. If the land sold for that little, the city would be out a little more than $6 million—money that would have to be made up from other city funds.
In her latest letter, Goldberg warns the council that the city may owe MOHAI $2.5 million as of February 1, 2013—the date the city agreed to start paying back the loan—depending on how the council interprets the legislation in which the city adopted the terms of repayment to MOHAI. (Basically, one provision says the city will pay MOHAI the amount of payments it has received for MOHAI's land or $8.5 million, whichever is less; the other says payment is required regardless of whether the city has received payments for the land).
Goldberg suggests that the council may have to come up with an alternative funding source, such as the city's general fund, to pay back the loan. "I am assuming that Council will wish to repay the MOHAI loan with a new funding mechanism chosen by Council, given that the original funding source may prove to be unreliable."
Council staffers say there's no contradiction, that the legislation makes it clear that the city won't have to pay MOHAI back until the land is sold, even if that's after the February "deadline," and that negotiations between MOHAI and WSDOT are ongoing. Just because WSDOT wants to pay less for the land than MOHAI wants it to, in other words, that doesn't mean it will.
Staffers for the mayor—who, again, has a political interest in making the council's decision to push through legislation he strongly opposed look like a bad move—disagree.
McGinn spokesman Aaron Pickus says, "The issue here is that council made a budget decision based on what they thought the land is worth, which was in the $15 to $18 million range. We have an interest in preserving our budget. ... Knowing what we know now, that WSDOT may significantly reduce its offer on the land, we’re asking for guidance of how to proceed."
Burgess, the recipient of the letter, tells PubliCola, "The MOHAI situation is under review. There is disagreement on the contradiction the Bbudget office has identified and I haven’t looked at that specific part yet."