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Officials wonder if it's time to dangle money for developers

By ERICA HALL

The Mirror

Federal Way officials are working through a proposal to create a downtown economic development fund to help pay the city’s share of a future potential public-private partnership agreement.

But City Council members are torn between those who think creation of a fund is premature and those who think it’s a key element of competitiveness.

Councilman Eric Faison said an economic development fund could be key to encouraging developers to choose Federal Way for their bigger, tax-revenue-generating projects. But Councilman Jim Ferrell said the creation of such a fund is premature and could hurt the city’s ability to negotiate later.

Still, all city officials agree with a consultant’s assessment the city “can’t do nothing.”

“It’s pretty clear from the Leland study that for the city to remain competitive, we need to do something,” Faison said. “We can’t do nothing. All of our competitor cities are taking an aggressive role in economic development. We need to look at what sorts of strategies we’re going to do to make things happen.”

Faison said the questions facing the council include how much the city should contribute to a downtown economic development fund, what revenue sources would be available and appropriate for the fund and what criteria the city should use to identify fund-eligible projects.

But Ferrell said he wants to see the Leland Group’s final report before the council starts talking about moving money around.

At this point, he said, he doesn’t support creating a special fund at all.

The city hired the Leland Group, a consulting firm, last year to conduct a lifestyle center retail market analysis and provide strategies to encourage growth downtown. City economic development staff are hoping to see the final report by the end of this summer.

“I can’t help but feel like we’ve skipped the test-driving and picking out the car and just went straight in to talk about financing,” Ferrell said. “The first thing we need is the final, complete Leland report. Then we need a discussion about scope and location. I want to make sure I have all the ideas and scope before I start talking about financing.”

He said having money available in the general fund that could be used for economic development is fine, but he expressed concern about creating a specific fund, saying the city might miss out on development that would have happened without an investment of public funds.

“It presupposes the money in that account will be spent,” Ferrell said. “As soon as money goes into that account, that money’s been spent.”

Still, Faison noted that with the right guidelines in place, such a fund might help attractive projects pencil out for the city and for developers.

“If you establish criteria that’s very explicit, they can calculate,” Faison said. “The more certainty we can give a developer, the better.”

Touching on Ferrell’s concerns, city manager David Moseley confirmed that city officials don’t know what any potential public-private partnership might be like or how much money would be needed, “but we wouldn’t spend a dime until we see a design plan. We want to send a message to developers to encourage development in the downtown core.”

Patrick Doherty, the city’s economic development director, said it would be a good idea if Federal Way at least had a policy in place so if a developer seeks a partnership for a particular project, the city has an established game plan.

“You can hope people come, and if they come and ask for money, you can scramble around,” he said. “Or, you could talk about it in advance and decide if the city’s willing to have the strategy to create a fund and then market.”

At the council’s Finance, Economic Development and Regional Affairs Committee meeting last Tuesday, city finance director Iwen Wang outlined several revenue options that could be used to create a fund if the council decides to do it.

Excess real estate excise tax (REET) revenue, which has come in 66 percent higher than last year, could be directed to a downtown economic development fund, but Wang pointed out the higher-than-normal REET money won’t be a sustainable, long-term source of revenue.

Also, directing excess REET to the fund would divert it from other capital projects, like paying off the new City Hall mortgage, she noted.

Some of the utility tax will be freed up over the next seven years as the city pays off street overlay, parks and public safety facility bonds, according to officials. The available utility tax would generate about $5 million by 2012, but Wang noted using utility tax revenue for a downtown redevelopment fund would delay or cancel some of the projects for which those dollars were earmarked.

The city also could require future developments themselves to pay into a downtown economic development fund, Wang said, and the city could create city-funded revolving accounts by charging latecomers fees or creating a local improvement district.

Officials last month considered using money from the sale of the old City Hall building for a downtown economic development fund, but ultimately decided to direct that money into paying the mortgage on the new facility instead.

Staff writer Erica Hall: 925-5565, ehall@fedwaymirror.com

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