City Hall

Council Proposes Language "Indemnifying" City from Tunnel Cost Overruns

By Erica C. Barnett July 19, 2010

This post has been updated with information and quotes from today's city council meeting.

The city council's viaduct oversight committee discussed a series of agreements with the state this afternoon related to street vacations, utility relocations associated with the construction of the deep-bore tunnel. The agreement include numerous provisions intended to protect, or indemnify, the city from responsibility for any cost overruns on the project. And, as council members Sally Bagshaw and Tom Rasmussen noted repeatedly, the city is not a party to the contract between the state and the contractor that ultimately builds the tunnel, which is a state highway project.

However, the language in the proposed agreements still conflicts with language in state law that says "Seattle-area property owners" will be responsible for any cost overruns on the tunnel. This gets technical, but one read of the two provisions, taken together, is that while the state has agreed to pay all costs, including cost overruns, associated with the tunnel, nothing in either document specifies where the state would get that money.

In theory, then, although the city as a corporate entity might be protected from paying for overruns, the state could decide to seek that money from Seattle-area property owners. (That would require a long legislative process, and probably litigation, but there's no legal reason that process and litigation couldn't happen). Although it's unclear whether the language will actually allow the city to stop the tunnel in the future, it could enable the city to at least build the case that it city property owners aren't responsible for paying for overruns.

In response to a question from council member Nick Licata about the responsibility for cost overruns (one of many nearly identical such questions during this afternoon's lengthy meeting), council central staff director Ben Noble responded, "The state legislation says, again, that if the budget [for the tunnel] exceeds $2.8 billion, the state will seek additional funding," which could come "from property owners that benefit" from the project.

Council member Mike O'Brien, an opponent of the tunnel, followed up: "Is there any language in here that binds the state legislature" from putting Seattle taxpayers on the hook for overruns? "There is no language nor could there be," Noble responded. He added: "Even if the state legislature removed the language [in the tunnel legislation], they could come back next year, or the same year, and impose whatever revenue source they want. You can't make a deal with a legislative body that says [the deal] can't change over time."

Although many of those in the room had hoped the council would vote on legislation to adopt agreements with the state today, they decided, in light of the fact that Mayor Mike McGinn's consultant just released a report critical of the tunnel late last week, to hold off at least another week.

The summary of the agreements stipulates that, among other things, that the city isn't responsible for paying cost overruns because of delays, outside lawsuits, or environmental issues; that the state has to pay for all environmental remediation; that the state has to monitor the project for physical settling and deformation; and that the tunnel is a state project, and the state is responsible for paying all the costs for its share of the project.

The summary also notes that the agreements include numerous provisions to protect the city, including a provision stating that the state "shall provide necessary funding for all project costs as referenced in this Agreement without reimbursement from the City of Seattle" except for the cost of new waterfront open space and the cost of moving city utilities; and that the city is "not waiving its position that the city and/or its citizens and property owners cannot be held responsible for any or all cost overruns related to the portions of the project for which the state is responsible."

The agreement also includes a provision, supported by council member Nick Licata, intended to ensure that the state has to spend its entire $380 commitment to tear down the viaduct, rebuild waterfront streets, and rebuild the street grid in South Lake Union, among other things, to pay for other parts of the project or cost overruns.

O'Brien plans to propose amendments to the legislation that would halt several agreements between the city and the state unless state legislators remove a provision in state law that says the city must pay for any overruns on the tunnel project; if the Port of Seattle doesn't come up with $300 million it has pledged to spend on the project, if the city and state can't agree on an environmental mitigation plan to deal with extra traffic on the waterfront; or if the council decides it is uncomfortable with the contract between the state and the contractor that's ultimately selected to build the tunnel.

At today's meeting, O'Brien noted that although the Port has said it will pay $300 million toward the project, it has not identified any source for that funding; "that commitment is a soft commitment," O'Brien said.
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