Mayor Says: Assembly Square T-stop and Development in Jeopardy if Aldermen Do Not Act

Mayor Says: Assembly Square T-stop and Development in Jeopardy if Aldermen Do Not Act

The Board of Aldermen—and city residents—have more than a turkey dinner to digest this week.

On Monday, Mayor Curtatone told the Board that development at Assembly Square could halt if the Board does not vote by Dec. 2 to issue a $25 million bond and establish a DIF (District Improvement Financing plan) to help fund the project. But he faced hard questions at Monday night’s Finance Committee meeting, where both Aldermen and residents raised numerous concerns.

The T-stop and entire “urban campus” of offices, retail and housing is at stake

The Orange Line T-Station design is complete, and if put up for bid in 2011 as planned, the station could be built by 2013. Two developers are also set to break ground by fall 2011 on a waterfront “urban campus.” Ultimately, 2,100 residential units, 1.75 million square feet of office space, one-half million square feet of retail space, an IKEA store, a cinema and a hotel are planned for the area.

The first phase—which will include 400 housing units, the hotel, and more than 250,000 square feet of retail space—also includes a stormwater conduit that City planners say would serve the entire area and solve some current flooding issues.

But several recent developments have created what the Mayor and the developers see as a perfect storm that could derail the entire project.

Congress failed to deliver promised Orange Line funding; IKEA delayed

The lynchpin for the entire project is the Orange Line T-stop planned for Assembly Square. Without it, the developers say they will not build, and right now the station is in jeopardy.

“Despite the good efforts of our Congressman Capuano, we got only $2M of the $25M lined up for the T-stop,” said Mayor Curtatone earlier in the day. “So, today, as we speak, we do not have the funding.”

Now that Congress has reneged on its promise to provide that final $23 million, roughly one-half of the $50 million needed to build the T-station is missing—enough for the site developers to say they’ll walk without it. If the builders leave, it’s unlikely that Congress or the state would appropriate new funds in the future.

“These may not be his exact words, but as our Congressman Capuano once said, ‘We’re not gonna build a T-stop where there’s a whole bunch of nothing,'” said the Mayor as he explained the situation to the Board.

Meanwhile, IKEA recently announced it would slow its planned construction timeline by several years, a move that negatively impacts $40 million of a promised $65 million in state funding for the infrastructure needed for the project (roads, utilities, etc.). That funding was promised via the state’s I-Cubed program (the Infrastructure Investment Incentive Program).

“So what we’re left with is a roughly $63 million gap in public infrastructure funding,” said Curtatone. “Infrastructure is critical because … Federal Realty Investment Trust, the Assembly Square developer, has a deal with Avalon Bay to build the first 400 residential units and a movie theater, and to kick off the first portions of the development next year. But to do that, and to get down to the other things that we want to do, some things have to be in place. One is the T-station. Nothing happens without the T-station. Two is the infrastructure and road work.”

DIF, the sequel

So, in an 11th-hour move, the Mayor and the Mayor’s Office of Strategic Planning and Development crafted a new plan. Once again, they want to use a DIF. The state liked the idea. On Friday at 2 p.m., the City cut a new deal with the state. If the Board of Aldermen approves, the state will kick in more money and assume more risk and Somerville will set up a DIF for the 38-acre Assembly Square area. This DIF is similar to (but separate from) the DIF proposed for southeast Somerville and Union Square, which is on hold for now.

The new DIF would not include any of the controversial land takings by eminent domain that ignited a firestorm over the Union Square DIF proposal. (For more on how DIFs work, see below.) In short, the City would issue a $25 million dollar bond to pay for half the costs of the T-stop. That bond theoretically would be covered by the DIF funding plan, which would take future taxes collected on the new developments at Assembly Square to pay off the bond.

To make this all happen, the Mayor insisted at the meeting that the Aldermen must vote to approve the proposal by Dec. 2, so that the state can review and approve the plan by Dec. 21. Without that, the dominoes could start falling. One or both developers could walk. Then the state will pull funding. And finally federal stimulus funds already awarded would be withdrawn as well.

Aldermen-at-Large Bill White summed it up this way: “The developer, Federal Realty, needs or wants these assurances now or else Avalon Bay will walk, and if Avalon walks, Federal Realty will either sell or hold up their project, and if they do that, there will be no funding for the T-Stop,” said White. “The real problem is that if we don’t get a T-stop, the development will not be unlocked.”

But White did express his doubts. “But you never know. A lot of this is like a poker game to see if somebody is bluffing,” he said.

High Noon at City Hall

“I feel like you are putting a gun to our heads,” said Alderman White, who raised numerous questions as to whether the perceived deadline was real and what financial risks residents would bear. “Whatever bonds are floated, the tax payers have to make the interest payments regardless,” he warned.

Other members of the Board also expressed dismay at the rushed timeline, the lack of public notice, the millions of dollars at play and a presentation they said was long on complicated details and short on clarity.

“The DIF timeline is being shoved down our throats. This is a major issue of major concern for residents of Ten Hills and Winter Hill and they need to be informed,” said Ward 4 Alderman Walter Pero, suggesting that ResiStat make a call to all residents to inform them of the proposal.

“With the I-Cubed and the DIF, we’re expecting that the rate of growth increases over time to pay for these things,” said Alderman-at-Large Dennis Sullivan. “What happens in a tough economy if it doesn’t grow at the rate projected? … Does the state have to sign off on this? Is there anyone at the state to make sure the math is not fuzzy?”

Ward 2 Alderman Maryann Heuston, who chaired the meeting, summed up what’s to come. It’s going to be really important for the Board of Aldermen to go through this in a lot of detail,” she said. “None of us can predict these markets going forward.”

Residents raise concerns

Residents also raised issues regarding the plan. Some asked who would pay for fire, school, and street cleaning services for the new area. Others suggested it is a mistake to leave offices—the greatest generators of net city tax revenue—out of the first phase of development, which will only include housing and retail.

“I am concerned that our mix of land uses does not come close to covering our annual service costs,” said Wig Zamore, warning that the imbalance could “accelerate our fiscal problems.” Zamore is a member of the Mystic View Task Force, a citizens group that has addressed Assembly Square development since 1998.

“I’m disturbed that there is no office space contemplated in this area. As we all know, offices are the real revenue generator,” said David Dahlbacka, who is a citizen member of the Somerville Comprehensive Plan Steering Committee. “I think you should seriously consider that kind of development there if we can.”

Resident Jane Bestor, also of the Mystic View Task Force, spoke strongly against the plan and expressed concern about the “lack of information,” the validity of the “drop dead deadline,” and also suggested the Board hire an independent financial advisor to review the plan who has no risk of being swayed by the Mayor.

“I think it smacks of voodoo economics. There is no consideration of the tax burdens that will be generated by this project,” said Bestor, pointing out that the area will need fire, police, snow removal, street cleaning and schooling for children. “I have the greatest reservations about this,” she said.

Meanwhile, Stephen Mackey, President of the Somerville Chamber of Commerce, spoke strongly in favor of the proposal. “We hope the Assembly Square DIF prevails,” he said. “The new year will need a DIF to save the vision.”

Congress could still appropriate the missing $23 million

There is still a chance that Congress could approve the $23 million in missing funds as part of the Transportation Authorization Bill. However, the date of that vote is not set, and the City is concerned that if it takes place after the new Congress is sworn in, chances of approval will become even smaller.

“It’s something we can’t count on. It’s still hopeful that we’ll get it. But we can’t have everything resting on the federal government to get this built,” said City spokesperson Michael Meehan.

If that $23 million were to come through, the city and the state would split it and each take $11.5 million to pay off their bonds early. That would leave $13.5 million to be covered by the DIF.

“We would also have the option of taking that money and reinvesting in other infrastructure projects in other areas if we felt comfortable with what was happening with the DIF,” said Meehan. “Of course, the Board of Aldermen would have to approve that too.”

When Alderman White, pressed the Mayor and Federal Realty Senior Vice President Don Briggs as to why they insist the Board act now rather than waiting for the next Congressional vote, Briggs implied that Avalon Bay couldn’t wait and that his own company could no longer delay.

“It’s time to move forward or not,” said Briggs. “We can’t wait for 2011 or 2013 ….we’ve been here investing time and money, and we can’t stop and wait now.”

Next steps: Public comment, two meetings, one vote

As it now stands, a one-week period for public comment will close Nov. 29. But Alderman Heuston emphasized after the meeting that comments can be submitted even after the the 29th. The Finance Committee will reconvene on Nov. 30 to discuss the matter (the public may attend). The City has asked the Board of Aldermen to vote on the plan on Dec. 2. 

If approved by the Board, on Dec. 4 the plan will be submitted for a pre-meeting with the state Economic Assistance Coordinating Council and a final application will be submitted on Dec. 15 to the Council. On Dec. 21, the Council will vote on whether to approve the DIF.

By the Numbers

  • $50M – Cost of the T-stop

Under the new proposal, the federal government would pay $2M of the costs and the state will pick up $23M of the tab, which covers the $23M that Congress had promised but did not appropriate. That $23M will include $18M in state I-Cubed funds and $5M in Federal Multi-Modal Earmark funding that the state distributes. Somerville would cover the remaining $25M via the DIF, which would theoretically pay off a $25M municipal bond.

  • $25M – The proposed 30-year DIF

The DIF would be supported by a $25 million municipal bond, and paid off using the revenue generated by taxes on new developments in the DIF area. The DIF period could last up to 30 years, but could be shortened if revenues allow earlier repayment.

  • $2M – Projected yearly DIF taxes generated

According to the City, new tax revenues that will be captured from new developments in the DIF area projected to rise incrementally Years 2 to 5 from $465,000 to $1.8 million. After that, tax revenues should average roughly $2 million per year for Years 6 to 30 of the DIF. There will be no DIF generated taxes to capture in Year 1.

  • $63M – The funding gap

Currently there is a $63 million funding gap for the public infrastructure portions of the project (T-stop, utilities, sewer, etc.). To close the gap, the City and state have created a plan to use:

  1. $25M DIF funds
  2. $15M in State I-Cubed funds
  3. $18M in other state funds for the T-station
  4. $5M in Federal Multi-Modal Earmark funding
  • $247M – Overall public infrastructure investment 

The overall projected investment in infrastructure for the 38-acre Assembly Square area is $247M. This includes roads, water, sewer, lighting, build-out of utilities, and the T-stop. The new $25M investment, or roughly 10%, would come from the City via the DIF. The remaining funds would be supplied by state and federal government and private developers, as well as City spending that has already taken place (mainly to help fund park projects and Assembly Square Road).

WHAT’S A DIF?

District Improvement Financing is a method in use in 49 states that was created in the 1970s. It is a financing structure that reserves certain tax receipts for reinvestment in a designated DIF area. The idea is that as DIF projects raise property values and create new properties to tax, those new receipts—and only those new receipts—are reinvested in the DIF area creating even more new properties to tax, and so on.

For Assembly Square, the City would issue a $25 million municipal bond to get T-stop construction underway in the DIF area. Over time, as property taxes are generated by the new developments, that money would be used to pay interest on the bond and repay it, as well as to reinvest in the 38-acre DIF area.

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