Let's Make a Deal

illustration byy Doug Potter

Sometimes it's what doesn'thappen that counts. In fact, what didn't come up at last Thursday's council meeting will lay the groundwork for the future of Austin's downtown and the lasting legacy of this city council. Two giant steps in the council's ambitious plan for downtown revitalization made it to the agenda, but only one was able to limp out alive. And although quite a bit of flesh-pressing and backroom finessing was required to get the plans up for a vote in the first place, by all accounts their survival depends on a little something called the art of the deal.

When the council announced its plans for downtown on November 6, each councilmember stood by his or her own token resolution in what has become known as the "downtown package." The package set up various commissions to oversee and advise the council, and announced the undertaking of three large projects: the construction of two different apartment complexes built on leased-out, city-owned lots by private developers, and the construction of a tunnel along Waller Creek to rescue valuable downtown property from the 100-year flood plain. Since November, the council has met with considerable criticism for announcing at that same time its intent to begin negotiations on the apartment construction with the private developers of its choice - AMLI Residential Properties Trust and Post Properties - without the benefit of the bidding process which normally accompanies city projects. The council defends this action by pointing out that because the city is leasing, not selling, the land, bidding is not required by law. Those assurances have not yet served to quell a rising tide of doubt throughout the community, however, about what appears to be a prime example of Mayor Kirk Watson's inaugural promise to be impatient in his ambitions for Austin's future. It seems that Watson's council is more concerned about the danger of its downtown vision getting bogged down in "the process," than with the questionable propriety of making overly expedient sweetheart deals.

The first order of Thursday's business was passage on the consent agenda of a "letter of intent" to begin negotiations on developing the city's lot at Second Street and Colorado. The city has entered into a sort of loose partnership with a landowner called Third and Colorado - headed by Schlotzky's owner John C. Wooley and his brother Jeff Wooley - to allow AMLI and the local Bonner Carrington Corporation (BCC) to join in developing twin apartment complexes directly across Colorado Street from one another (one owned by the city and one by the Wooleys). The letter of intent would ensure that none of the parties named would initiate negotiations with any other party on that land for 120 days.

But problems arose when, along with that assurance, the letter went on to detail all the terms of the city's proposed agreement with AMLI and BCC - that the city is expecting a base rent of $175,000 a year from AMLI, the terms of the "back end" profit-sharing on the property, and the city's intent to model its deal with AMLI on the deal that Wooley made with AMLI. So, what's the problem with the city mirroring Wooley's deal if the two are developing twin complexes which most residents won't even be able to tell apart?

For Councilmember Beverly Griffith, the problem is that the city's land is a public trust, and should be developed with less risk than a private land deal. Griffith, a real estate agent, says that letters of intent never include contractual terms, and insisted that all reference to a future deal be dropped out of the letter - chopping three pages from the final version and leaving only the agreement that no parties would negotiate on the property for 120 days. The request to revise the letter met with little resistance from the mayor's office. "It didn't take me 10 seconds to say `Okay, that's not part of it,'" says Watson, who points out that the letter was never a binding contract. "I have no hesitation in dropping something out because it's not part of the deal." Griffith says, however, that binding contract or no, the letter's wording explicitly says "it is the current expectation of all parties" that the terms laid out in the letter are how the deal will go down. Therefore, any future negotiation would have been very unlikely to diverge from the terms outlined. The city staffer who brokered the deal, Assistant City Manager Jim Smith, concedes that the final deal would "most likely be in the ballpark" outlined in the letter of intent.

According to Bob Albright, Vice-President of Real Estate for Bonner Carrington, it was originally Watson's idea to model the city's deal on the Wooley/AMLI/BCC deal, so that the city could take advantage of the prevailing market's wisdom. After all, Albright says, since his company relies on profits, it always strives to hammer out deals that maximize the benefits. The city would not be foolish to follow Bonner's lead, he says. "We weren't stupid about this [deal]. We're private," says Albright. But he does concede that the council has greater obligations for fiscal responsibility. "If we're wrong, it's just our own money. If the city's wrong, it's not Beverly Griffith's money, it's not Kirk Watson's money, it's the city's money."

More than outlining contractual terms in a letter of intent, however, Griffith is concerned that no appraisal or marketing study has been undertaken on the city's land to evaluate its market value. Instead, the letter explicitly states that the $175,000 base rent was arrived at by simply adding $25,000 to Wooley's $150,000 base rent as an estimate of the increased value of the city's land due to its lakefront vantage. "Do we really want to delegate to [Wooley] the responsibility the public has delegated to the city council?" she asks. Griffith thinks $175,000 is lowballing the value of that property, which her real estate instincts suspect could be worth $225,000 or more.

So why should the city allow itself to possibly be cheated of revenue? One possible explanation is that convincing real estate developers to do business with the city requires a bit of wheel-greasing. "AMLI was skeptical about the city's involvement in the beginning," admits Albright, pointing out that, like most real estate deals, AMLI's other developments in Austin have taken interminably long to secure permits and wend their way through the city's bureaucracy. One horrible memory AMLI may have is of its plan in the Eighties to redesign 30 blocks of downtown Austin by paving them over with a great many steel and glass buildings. The city dragged its collective feet every step of the way until AMLI simply faded away. (AMLI directed all comment for this story to Bonner Carrington, which has no previous history of co-development with AMLI.)

AMLI "remains impressed that [the deal] is moving like it is," says Albright. "[But] what could happen ultimately is the city's participation could come under such fire and scrutiny that the city gets mired in the process."

Griffith adamantly insists that she has no intention of killing the deal with AMLI; she says she only wants to apply safeguards appropriate for such a public project. A California firm, Keyser Marsten, is standing at the ready to oversee the many complexities of the public-private downtown projects, but somehow was not employed to look over the letter of intent. Assistant City Manager Smith says there was no reason for Keyser to step in yet, since the letter was not a contract. And as for the Downtown Commission that was formed to oversee such deals, it did not get a chance to look over the letter either.

Who, then, were in the meetings, drawing up the letter-of-intent and overseeing the proposed terms of the deal? The mayor and every councilmember denied any involvement, laying the responsibility at Smith's feet. When asked who attended the meetings crafting the letter of intent which will likely closely resemble the final deal on Second and Colorado, Smith would only say, "They're private meetings." (Is it just me, or is there some irony in the fact that the guy who, by his own admission, has long been considered the "development devil" by the same environmentalists who now people the council, is the one currently in charge in the backrooms?)

Waller We or Won't We?

Later Thursday afternoon, after the truncated letter of intent was approved, a chamber full of downtown businesspeople, eager to support the newest resolution regarding the Waller Creek Tunnel, had to be sent away when the council could not reach agreement off the dais over the tunnel's funding. Griffith has been pushing for months for a plan to collect 25% of the proposed tunnel's cost - about $5 million - from the private business owners along the creek, who, she says, will disproportionately benefit from its construction. Meanwhile Watson, with Councilmembers Jackie Goodman and Gus Garcia, has been pushing a resolution to fund the tunnel through a voter-approved increase in the bed tax, from 4.5% to 6.5%. Watson was backed by Smith, who gave the staff presentation on funding scenarios. Lumping Griffith's private-owner contribution in with the unlikeliest of options - robbing the general fund for the cash or raising an already steep drainage fee - Smith admits that he framed his proposal to sell the bed tax as a funding option. "Obviously I have an opinion on what's best," he says.

Proponents of the bed tax option say that collecting money from tourists instead of residents is the best possible scenario. Griffith says that recent public votes on similar tax increases in Dallas and Houston have barely squeaked by with approval, due to public doubt about subsidizing wealthy property owners. She says she had hoped to use the private contribution as a way to sell the tax increase to an even more cautious Austin public.

Griffith's major objection, however, is to a tax increment financing district (TIF), which Smith wants to sell as a way to build amenities along the creek once development is made possible by the tunnel. A TIF would freeze property taxes along the creek for a given amount of time, and channel those property taxes into a special fund benefiting only the narrow TIF region. Griffith's objections begin with an admitted overall skepticism about TIFs in general. In 1996, she and Councilmember Daryl Slusher both campaigned against a much broader TIF which would have covered the entire downtown area. The two TIF plans are similar, however, in that both lack specificity on how the money would be used, and both rely on a board to govern the collected dollars (by some estimates, the Waller TIF could collect $93 million by 2018). Slusher has not raised a peep on the TIF concept this time around, saying only that he believes this TIF "has some merit to it." Griffith also worries that TIFs are made up of property taxes which would otherwise go to the city's general fund which is used for parks, police, libraries, and other basics.

---

This Week in Council: There's no council meeting this week; when the council reconvenes on February 5, expect to see the two intervening weeks of wheeling, dealing, and cajoling with regards to both the downtown apartments and the Waller Creek tunnel reflected in the events of the day. Griffith will be proposing a six-point checklist for city ground leases, which specifies the need for things like bidding and appraisals before drawing up deals with private entities. And the downtown business owners will be back in the house to kowtow at the temple of the most effective pro-development council in years. Maybe by "Green Council" they meant greenbacks.