Bad news for highway caps

A memo from the city's top finance officials appears to dash hopes of building deck parks over I-35 without a hefty contribution from property taxpayers.

The memo from Deputy CFO Kimberly Olivares, shared with City Council on Saturday, shits all over the alternative revenue streams proposed by a group of Council members, deeming them illegal, infeasible or both.

The biggest chunk of non-property tax revenue that the pro-cap group put forward was $171 million from the Convention Center expansion. They essentially proposed making the proposed cap between Cesar Chavez and 4th St part of the Convention Center expansion, thereby making it eligible for the city's pot of hotel tax revenue that, per state law, can only be used to build a new convention center.

In blunt terms, staff warned against digging for money in the Convention Center budget, pointing out that the $1.6 billion expansion project has already been "refined" to fit within "available resources." Bumping the budget up by another $171 million "would compromise the project's financial viability," said staff.

The Council members had suggested financing the bigger budget by increasing the debt repayment schedule for the convention center expansion from 30 to 40 years. Staff replies that the juice is most definitely not worth the squeeze.

Increasing bond repayments from 30-years to 40-years modestly enhances bonding capacity from $1.25 to $1.3 billion....

....It is also important to note that increasing the repayment period by 10 years and principal amount by $50 million also increases the total interest expense from $1.44 billion to $2.235 billion.

Yikes.

Staff was similarly dismissive of using the rental car tax, which the Council members suggested could generate $100M for the caps. The tax is currently dedicated to paying off debt associated with the Palmer Events Center until at least 2029 and the PEC has a bunch of planned repairs and maintenance that need to be funded, particularly because it will be taking on some of the Convention Center business while the new CC is being built over the next few years.

Staff also cast doubt on the use of street impact fees, which by state law can only be used on projects that increase roadway (car) capacity. And it strongly advised against reallocating funding designated for replacing the Redbud Trail Bridge, noting that it could prompt legal risks since the project was included in the "contract with the voters" approved as part of the 2018 bond.

Is staff being real?

The law department and the financial services department are both notoriously conservative. They are extremely risk-averse and assign very little value to doing new stuff, whether that's police oversight or new infrastructure.

So there's definitely going to be some grumbling from caps supporters that this is just another example of staff's lack of imagination. The thing is, staff is probably right. Getting money from the Convention Center was probably too good to be true.

It only makes sense to disregard staff's advice and pursue these alternative funding sources if you're comfortable with the very likely outcome that it won't work out and the property taxpayers will ultimately be on the hook for these projects.

So what now?

The city does not have to commit to funding the decks themselves right now. However, if it wants to keep open the option of building them, it must commit on Thursday to at least funding the structural elements.

There appears to still be five Council members who support funding the structural elements for five of the caps. But they need a sixth vote to make a majority.

They're holding a rally in front of City Hall at 1 pm tomorrow:

Neither Alter or Vela, who have been leading the campaign for the caps, responded to requests for comment today.

The vote tomorrow authorizes the city to issue up to $265 million of debt for the caps, but that is the (estimated) figure needed to support structural elements for all eight of the potential caps and stitches below. But nobody is considering 1, 2, or 8 anymore, so that chops the total down to $203M.

Only 3, 4, 5, 6 and 7 are still under serious consideration. The five Council members above support funding the structural elements for all of those while city staff has recommended simply moving ahead on 3 & 5: a cap between Cesar Chavez & 4th St and another at 11th & 12th St.

To be clear, the vote will authorize the city to issue the debt but the city won't actually do so immediately. The caps supporters will still hold out hope that some other funding source becomes available.

But there simply hasn't been any encouraging news on alternative funding sources. There are no billionaires or foundations that have even hinted that they'll help out.

I doubt there is another member of Council who will support funding the structural elements for the two northern caps. But there are almost certainly six votes for some caps. Will it be for staff's recommendation or something else?

I think some would prefer doing a big cap from Cesar to 7th instead of two smaller ones from CC-4th and 11th & 12th. And there may be some who want to do all three.

There will be additional pressure to do the 11th & 12th cap because it coincides with the African American Cultural Heritage District and thus most closely aligns with the idea of the caps healing generations of racial division.

Where's Watson?

The one Council member who has not commented on the caps at all is Mayor Kirk Watson. That is very on brand for the mayor, who prefers to hash things out behind the scenes. Ultimately, he will have to take a position and whatever it is, it will make someone angry.

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