With the goal of being completely transparent, Mayor Jim Ferrell sat at his desk Tuesday afternoon and revealed two uncertainties for the future of Federal Way’s downtown.

The city did not receive any bids from developers for the Town Center 3 project, Ferrell said. While two developers were interested, neither one submitted an application.

“So, yes, the first thing again, transparency,” he said. “Now, it actually makes sense because on one level, a couple of different levels, we actually are not due for final approval on the [Performing Arts and Events Center] until Oct. 6.”

Ferrell said the Performing Arts and Events Center is the “linchpin” of the city’s downtown, and without that yet in place, developers were uncertain about the project.

The city bought Town Center 3, the 7.5 acre former-Target site, for $8.2 million in November 2014 in an effort to turn around the city’s “blight.”

Another concern, the potential developers expressed, centered around the location and orientation of the hotel that will be on the arts center’s property.

That concern, Ferrell said, will likely be resolved after a $10,000 hotel study is complete in September. Once complete, the hotel study will be marketed to the six to seven hoteliers interested in the hotel site.

“What happens to Town Center 3 is completely dependent on the [events center,]” Ferrell said, adding that the city will focus on completing the remodel of Town Square Park, finishing the hotel study as well as the events center before they reopen the bidding process for Town Center 3.

“We’re confident but we’ve got to remove the uncertainty from this process, so we think it’s a matter of timing,” he continued. “With that being said, the second piece of information that we just received was in regard to New Markets Tax Credits.”

Since the Mayor’s Blue Ribbon Panel members delivered their findings on the Performing Arts and Events Center in May 2014, federal funds from New Markets Tax Credit allocations were thought of as a risky way to help fund at least $7 million of a $5-9 million shortfall of the approximate $32 million project cost estimate.

Yet, city officials remained optimistic even after funding for the project was passed over last summer and, again, in the first wave of allocations this summer.

“When the allocations were made in June and they were issued, there was a stipulation that we were not aware of … I believe it was 80 percent of the allocations had to go to 10 underserved states,” Ferrell said, noting Wells Fargo received $75 million in New Markets Tax Credit allocations but only $15 million was available for all western states.

Further, there was a preference for rural areas — of which Federal Way is not.

And, as previously reported, the Community Development Financial Institution Clearinghouse, of which Economic and Development Director Tim Johnson is a board member, got nothing.

“Doug Bystry, with the [Community Development Financial Institution] Clearinghouse, he said if he got an allocation, it would nearly guarantee us,” Ferrell said. “So, they didn’t get it for a second year in a row, which, that’s disappointing.”

But the city was told not to lose hope — there’s a second wave of federal allocations coming.

Projects will fall out of the pipeline as the entities get into underwriting, Ferrell said.

As projects are matched to community development entities (who received the allocations from the U.S. Department of Treasury in June), some aren’t awarded funds because they end up not qualifying for various reasons, such as a lack of a leverage loan or they aren’t “shovel ready.”

Next steps

Ferrell said the city will adopt a new approach for this second wave, which is coming in September.

After hiring Roeder and Associates out of Portland for their “extensive experience” with the New Markets Tax Credit program, Ferrell learned the city would have a higher chance of getting funds if they chopped their funding request by half.

Initially requesting $30 million and hoping for $7 million, the city will now request $15 million in total credit allocations, which will put them at $3-4 million of actual funding.

“There are 26 community development entities that we have identified, approached and communicated with,” Ferrell said. “Now, I have personally written letters, myself and my staff, I’ve personally picked up the phone, written letters to different [entities].”

Johnson has even dedicated a white board in his office to this project.

“We’ve turned over every rock, at least in this first wave, but now it’s time to pivot, and it’s important for us to explain to the public why we’re pivoting and that we’re looking for the second wave,” Ferrell said.

But, what if the second year’s second wave of trying leaves the city nothing?

City officials presented their recent findings at Tuesday’s City Council meeting and council members were encouraging.

“Having done these low-income housing tax credits, if you don’t succeed the first time, you try again,” said Councilwoman Dini Duclos. “The more shovel ready our project is, the more inclined they are to put the money in because they want — people are claiming taxes on these dollars — so they want these dollars spent as quickly as possible.”

Councilman Bob Celski acknowledged that “all of us are disappointed in the allocation or the constraints Congress put on these funds” but that it seemed like the constraints would change annually.

“This year, a select number of states were selected and certain community development entities, nothing of course in Washingtion,” Celski said, “But next year, those constraints could completely change and maybe Washington or the Pacific Northwest or something else, something like that, takes priority.”

Chief of staff Brian Wilson agreed that allocation priorities could change.

The mayor said the city is analyzing whether they will reapply for next year’s New Markets Tax Credit program, but a decision hasn’t yet been made (the deadline to apply is also in September).

“We’re looking at the cost-benefit analysis in regard to what requirements are associated with New Markets Tax Credits and the possible lower amount, we’re sort of analyzing it,” he said. “But one of the things is, we’ve gone back to the board and we’ve really sharpened our pencils.”

Filling the gap

Those “sharpened pencils” produced a detailed plan, which was also presented in great detail at the council meeting.

As of right now, the city has $16 million of the estimated $32.7 million events center project. About $12 million of the funding in place is made up of utility tax, LIFT and real estate excise taxes, fundraising, a Building for Arts grant, interest and a $120,000 4Culture grant.

Ferrell said that $12 million is in the bank, “ready to go.” The remaining $4 million is from state capital funding, which will be used in a “have to spend it to get it” manner.

Finance Director Ade Ariwoola noted that $4 million will be some of the first funds the city uses.

Pending resources include: $3 million from a Community Development Block Grant, Section 108 loan, another $2 million grant from 4Culture, $1.5 million from the sale of the hotel site and at least $3.5 million in naming rights, for a total of $10 million pending.

Ferrell noted the money from naming rights and the sale of the hotel site are likely to take longer to acquire than the loan and grant, which are expected in the next few months.

“The gap becomes all important and that’s where the inter-fund loan comes in,” Ferrell said.

Last July, the council approved a $13 million inter-fund loan, with 1 percent interest, in their passing of Resolution 14-667. The money is good for three years from when the city withdraws from that source.

But Ferrell said, because the money is already secured, the city won’t likely touch the inter-fund loan until about one year from now.

And that gap could shrink significantly in that one year.

The Federal Way Coalition of the Performing Arts has raised a total of about $750,000 ($676,146 of which is represented in the funds the city already has), and are in the process of raising more through pledges and individual naming rights for items inside the Performing Arts and Events Center. Think $10,000 for an elevator, $100,000 for a grand piano and $75,000 for the foyer, which will bring that total to $998,146.

The organization also expects to raise at least $1.1 million on top of that by selling naming rights to the 700 seats ($1,000 a seat), dressing rooms, green rooms, patrons lounge and the orchestra shell.

“It’s been going like gangbusters the past couple of weeks,” the mayor said. “And it’s been kind of cool to watch this develop.”

And when the city decides to use whatever amount of money from that inter-fund loan, they will have three years before they need to pay it off through a 20-year bond, which will not include a special tax levy on citizens. City officials say that money would come from the capital budget and cost the city about $600,000 a year for a $9 million bond yielding 3 percent.

“Keep in mind, that the performing arts center, during that three year period of time, will have already opened,” said Community Outreach and Government Relations Coordinator Steve McNey. “So the fundraising will continue throughout. And by the time you get to a point where you’re going to have to bond anything, assuming we come in close to the fundraising goal, you’re getting that number to bond lower and lower and lower each time.”

The city need only hope for a bid that comes in or below the initial construction and development cost estimate of $32.7 million.

“We’re waiting on that to come in and that will be soon,” Ferrell said in response to whether he feared that price going up with bids.

After the bidding window opens on Aug. 19, developers will have until Sept. 16 to bid on the events center project. The City Council is then expected to give direction on whether to award the bid or not on Oct. 6.

If they give approval, the Performing Arts and Events Center will break ground as early as the third week of October. The city has already spent $3.8 million on land analysis, architects, a consulting firm, demolition, a director search, the director’s salary, a grand piano and more for the center. This doesn’t include <span class="n_ 1759