Almost every week this is the "What's on the city council's plate this week" review. I don't cover everything, so if you want the full rundown, read the packet and agenda yourself.

The biggest thing the council will be talking about this week (at least in my eyes) will be how they're going to pay for the new city hall downtown.

Will they build it and pay for it themselves? Will they turn the project over to a private contractor? Something in the middle?

Essentially, the way the staff would like the city to go benefits the city because it can keep its hands clean during the construction process and only take over the building when the construction is complete. It also involves something called "63.20 financing" which I'm not really clear on (read all about 63-20 here ) But, you can read more below.

I've also posted the original pdfs from the packet for your further reading.

From the staff report:

THE DEVELOPMENT APPROACHES

There are two development options available to construct a City Hall office building:

1. A lease purchase arrangement where the developer administers the City Hall project using a design-build process; or
2. The City manages the project using the traditional public works process.

...

THE FINANCING METHODS
Assuming the City will pay for the project with a combination of debt (or lease payments) and cash, there are several ways to finance the construction of the City Hall Project:

1. Under the lease purchase arrangement, a nonprofit corporation may issue lease revenue obligations on behalf of the City to finance the project. These bonds will be 63-20 bonds.

2. Under the lease purchase arrangement, a bank or other financial institution may issue Certificates of Participation (COP) backed by the lease payments.

3. If the City builds the project, financing could be provided through a combination of available cash and issuing limited tax general obligation (LTGO) bonds.

And, what does the staff suggest the city do?

Staff is recommending the use of 63.20 financing for the City Hall project. There is a potential for efficiency in project scheduling, and the use or tax exempt financing during the construction phase which could in turn improve project pricing. Staff cannot assure the Council 63.20 financing alone will result in the lowest possible overall cost but after our review of the options we believe this to be the best option for City Hall. We do believe the 63.20 approach has the greatest chance of achieving an accelerated completion date.

Here is some more info on the staff's preffered altenative:

Under the lease purchase arrangement, the nonprofit corporation would issue bonds on behalf of the City to finance the project. The nonprofit would be able to finance the project with tax-exempt debt. The financing would be repaid from lease payments to be made by the City.

A big advantage of the lease purchase financing arrangement would be the assumption of all risk private developer during construction. As stated earlier, under the Municipal Leasing Act, the City cannot be obligated to pay any part of the construction costs and therefore would not be obligated to make any lease payments until occupancy of the building.

A disadvantage of the lease purchase option and the use of 63-20 financing is the cost. The transaction is more complex and therefore the cost of issuance is more expensive than City issued LTGO bonds. The interest costs may be higher for the 63-20 bonds or COPs than the LTGO bonds because lease revenue obligations carry a lower credit rating than general obligation bonds backed by the City.

Another disadvantage of the lease purchase transaction is the treatment of cash. The City hopes to have $10 - $12 million (plus accumulated interest) of available cash to dedicate to this project. In a lease purchase option, you may not “buy down” the lease. However, some items are considered non-construction related costs. The City may choose to pay for the costs with its existing cash, such as frontage improvements, construction of the new street, public art, and City project management costs. The remaining cash can be invested without yield restrictions and the interest used to make lease payments. This is a significant advantage. Given that investment rates are currently low, they will only increase over the next 30 years.

second financing method for the lease purchase process it the issuance of COPs by a financial institution. The COP’s would be issued after the completion of construction and thus the construction financing would be more expensive than using a 63.20.

Several years ago, the state appointed a committee to comprehensively review 63.20 financing. The State Advisory Committee (four state legislators, staff from Office of Financial Management, and a representative from the construction industry) concluded the pros and cons of 63.20 financing cannot be evaluated without reviewing the linkage between financing, construction maintenance, and ownership. The Advisory Committee letter is attached to the staff report. To review the State Treasurer’s report on 63.20 financing, please refer to the website. www.tre.wa.gov