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HomeMy WebLinkAboutApproved Minutes - 2009-10-27 Specialu■L o'wf o CITY COUNCIL SPECIAL MEETING MINUTES October 27, 2009 a� Mayor Jack Hoffman called the special City Council meeting to order at 6:34 p.m. on October 27, 2009, in the City Council Chambers, 380 A Avenue. Present: Mayor Hoffman, Councilors Jordan, Hennagin, Moncrieff, Olson, Tierney, and Johnson. Staff Present: Alex McIntyre, City Manager; David Powell, City Attorney; Robyn Christie, City Recorder; Elizabeth Papadopoulos, Maintenance Services Director; Joel Komarek, LOIS Project Director; Johanna Hastay, Associate Planner; Denise Frisbee, Director of Planning and Building Services; Kim Gilmer, Parks S Recreation Director; David Donaldson, Assistant City Manager 3. STUDY SESSION 3.1 Draft Clean Streams Plan Ms. Papadopoulos introduced Tim Kraft from OTAK. She described the Clean Streams Plan as an update to the 1992 Surface Water Master Plan that would provide guidance for managing the utility over the next 10 to 15 years. She mentioned the extensive public outreach conducted by staff to identify community concerns. She reported that they did not find a united consensus but rather a variety of issues of concern, such as water quality improvements or local flooding issues. She observed that the City wanted the public on board for any new utility initiatives because they would cost ratepayer dollars. She recalled that upon finding a lack of compelling direction from the public, coupled with a concern about raising wastewater fees, staff recommended to the Council that the plan take the moderate course presented in this draft plan. She mentioned that the prior Council had hoped to finish the plan in December 2008, but bad weather cancelled that meeting, and the plan rolled over to the new year. Per Council direction at the January goal -setting meeting, staff then took the draft plan to the Sustainability and Natural Resources Advisory Boards for input in April and May. She reported that the Boards liked the plan overall but they did suggest different emphases, more cohesive writing, and making sure that the City had a good outreach and education program. She indicated that while the plan presented tonight reflected those recommended changes, it was substantially the same plan as the previous version with no changes to the capital program, the funding program, the methods, or the recommended actions. She described this draft as stronger and clearer. She emphasized that this was a moderate plan, which did not preclude the Council from doing more if it so wished. She described it as successfully balancing public concerns and the things that the City needed to do. She mentioned that staff did its best to stay abreast of the constantly changing technology of surface water management. Mr. Kraft gave a PowerPoint presentation of an overview of the plan. He used the table of contents to describe the plan's restructuring. He explained that the first five sections laid the foundation for storm water management by the City, as suggested by NRAB. These sections included the regulatory requirements, other City environmental programs addressing water quality and storm water, and the character of the city with respect to storm water management. City Council Special Meeting Minutes Page 1 of 15 October 27, 2009 He indicated that Section 6 through 8 contained the plans, the capital projects, the public educational program, and a discussion about coordinating projects with other infrastructure improvements. He said that Section 9 through 11 reviewed the City's regulatory and maintenance programs as well as the Lake Oswego Code. Section 12 dealt with the financial aspects of the plan. COUNCIL QUESTIONS Councilor Hennagin asked staff to explain to the audience how the Clean Streams Plan and the Sensitive Lands Plan worked in not overlapping on the protection of riparian areas, and why the City did not merge the two plans. Ms. Papadopoulos explained that the Clean Streams Plan was a planning document, not a regulatory document like the Sensitive Lands Program. The Plan provided staff with guidance on how to manage the utility in broader, less specific terms than the regulatory program used. Councilor Hennagin asked for staff's opinion of the Lake Corporation report, Healthy Streams & Watersheds. Mr. Kraft indicated that the City's plan was a broader document that addressed a wide variety of topics. Based on his skimming of the Lake Corporation report after receiving it this afternoon, he described that report as taking a watershed approach that looked specifically at actions impacting streams. Councilor Hennagin asked if the Lake Corporation report related more to the Sensitive Lands Ordinance. Ms. Papadopoulos commented that the Clean Streams Plan took a moderate course but there were always more things that the City could do. She described the Lake Corporation report as 'the more that one could do." She mentioned the question of whether the City at some point wanted to have a watershed -based program that went above and beyond the Clean Streams Plan. Councilor Jordan commented that she read the Lake Corporation report as recommending that the City require developments to handle storm water runoff on site, rather than the City upsizing pipes to take a higher volume of water from redeveloped properties. She indicated that she did not see why adopting the Clean Streams Plan would prevent the City from moving in that direction as well. Ms. Papadopoulos pointed out that while the Plan's primary focus was not on larger pipes, it did recommend them in a few locations for reasons other than upsizing. Mr. Kraft spoke of the change over the last 20 years from the curb and gutter systems that turned out to damage streams to low impact development that tried to disperse the water into the ground. He indicated that the Plan focused on low impact development projects. He explained that the project referenced by the Councilor did propose a more traditional pipe upsizing because that particular area had a high water table and they needed to get the water out of the area; essentially, the ground could not take it. He emphasized that this was a planning level document with opportunities in the process to re-evaluate the project in light of the ever -improving storm water technologies available to deal with runoff. Councilor Moncrieff commented that she thought that the most important distinction made by staff tonight was that this was a planning level document intended to guide the City, as opposed to a regulatory document. She mentioned that the Council has learned from the sensitive lands conversation that if the City went too far in regulating private properties before the citizens were ready for it, then the citizens pushed back. She agreed with the recommendation that education and outreach would be the keys in developing practices that kept storm water management and water quality in mind, and that looked at low impact development. She noted the two grant -funded programs encouraging water quality -friendly practices and restoring riparian areas and flood plains. She commented that while she thought the document did a good job in guiding policy, it lacked quantifiable, measurable data that identified the current baseline systems status and provided for City Council Special Meeting Minutes Page 2 of 15 October 27, 2009 measuring progress. Ms. Papadopoulos explained that the ongoing dilemma in storm water management was knowing that technologies and techniques were effective but not having the ability to demonstrate how effective they were. Councilor Johnson pointed out that the inability to demonstrate a clear link between actions taken and benefits received was also a problem in other services that the City managed. She agreed that education clearly provided a benefit, yet it was not quantifiable. She asked if staff knew of anything the City could use to provide some quantifiable data. Mr. Kraft explained that the City already did water quality monitoring as part of its NPDS permit from the State to discharge storm water into streams. He said that the State was working with all jurisdictions to find a way to measure the results quantifiably, which would provide evidence and direction for needed changes. He reiterated that science could not link any given action with a lowering of pollutant levels in the water, but everyone was trying to find a way to do that. Councilor Tierney asked how staff obtained direction without having a beginning point of baseline data and a finish line of expected results. Mr. Kraft added the question of how to know where to spend money without quantifiable results. He reiterated that every community was grappling with this issue. He indicated that the City would start implementing programs but staff did not address the question in the plan because there were no good solid answers. Ms. Papadopoulos explained that there was overlapping into the regulatory world and decisions about what was acceptable and what was not acceptable. She indicated that right now, those definitions came through the State from the Environmental Protection Agency. She said that the program closest to quantifiable data would be total daily maximum loads (TDMLs). The State informed jurisdictions when their TDMLs for a water body were over the limit, and told them to find activities to reduce the load but not how to do so. She speculated that over time, they would first see the development of more detailed data -driven pieces in the permit regulatory piece. Councilor Tierney argued that an adopted plan should give direction regarding what the City would be doing, as opposed to only providing operations or utility management guidance. He said that despite spending a significant amount of time on the Plan, he could not find specific recommendations for action or a correlation between the current science and what the City was doing. He noted that the CIP did not have a project criterion of the flow in a water body, which he thought was an important element to include. He mentioned that there was nothing in the plan about best management practices and what was good for Lake Oswego. He questioned how staff could get any direction from the document. He indicated that he was troubled in terms of voting for the document when he found it challenging to understand it. Ms. Papadopoulos mentioned that she did try to outline in the last briefing paper what recommendations there were in the Plan. Councilor Tierney described a recommendation as something specific enough to know what one was doing, which he reiterated these recommendations were not. Councilor Tierney mentioned another point that the report focused on new development and redevelopment when he thought that most of the problems extant today came from existing development. He complimented the public outreach program, although he did find it playing to the willing, as opposed to educating and involving those people unaware of the issue. He reiterated that without a starting point, they could not know what their direction was. He spoke of the TMDLs and phosphorous levels as critical baseline data points against which to evaluate future progress. He said that he was challenged to link the report contents to what the City would do. Ms. Papadopoulos pointed out that staff had an awareness level of storm water management interpretations not shared by non -staff because of their daily interaction and expert knowledge of the utility. She explained that because this involved guidance, it relied to a certain extent on what City Council Special Meeting Minutes Page 3 of 15 October 27, 2009 staff already knew to do, as opposed to spelling things out at a level of detail helpful to non -staff but not to staff. Councilor Tierney questioned whether the Council needed to adopt the plan then, if staff already knew what to do. Ms. Papadopoulos observed that it was a funny balance, in that the process of putting the document together did a lot of the shaping and developing of the information. She indicated that some of the information confirmed what staff has been doing and some of it suggested that staff needed to shift things a bit. She emphasized that this document would provide staff with the guidance they needed for the next 10 years or until the science changed drastically. Mayor Hoffman asked how the plan directed staff to do what. Ms. Papadopoulos discussed how the capital program (Section 8) provided guidance for capital improvements and system maintenance. Mr. Kraft clarified that Section 7 discussed a public education program, Section 8 listed the capital projects, which would go through the capital improvement program process for implementation, and Section 10.6 (p.130) proposed recommendations for code changes. He noted that the Maintenance section also listed recommendations to improve the maintenance program. He mentioned that both Advisory Boards had recommended beefing up the executive summary. Mayor Hoffman summarized the improvements listed in each section. Councilor Jordan pointed out that the capital projects list (p. 79) was a planning list that listed the projects that staff knew where out there to be done, rather than a soon to be implemented list. She suggested that when a project came forward, staff gather the baseline data regarding toxin, sediment levels, TDMLs, etc., for comparison with resulting levels after the completion of the project. Councilor Tierney commented that the broader, watershed approach had merit. Councilor Moncrieff suggested utilizing partnerships with the measuring stations around the lake already put in place by the Lake Corporation, such as the one at Hallinan Elementary School. Ms. Papadopoulos reiterated that the City did have a data -gathering program in place that followed certain protocols in order to provide consistent and quality data. She indicated that staff was interested in accessing similar quality data gathered by other organizations. Councilor Johnson asked if Mr. Kraft saw areas identified in the plan where the City was failing, and needed to make a sharp turn to achieve the program goal of cost effective implementation and maintenance of a sustainable drainage system. Mr. Kraft mentioned that the development standards and regulations were very out of date and the current guidance manual no longer relevant with respect to science and technology. He indicated to the Councilor that the plan included a project to update the manual. Ms. Papadopoulos commented that staff recognized that the manual was out of date and needed updating. In the meantime, staff looked to other communities' documents for guidance. Councilor Olson asked for an analysis from Ms. Papadopoulos and Mr. Kraft of the Lake Corporation packet received tonight. She commented that a beefed up executive summary with clear recommendations spelled out along with the costs was a good idea. She agreed that they needed to do something different with their data collection and reporting. 3.2 Wastewater Utility Rate Analysis Mr. Komarek indicated to Mayor Hoffman that he did not yet know the timing of the revenue bond that the City would have to go out for. He re -introduced Angie Sanchez-Virnoche, FCS Group Sr. Project Manager. He reviewed the funding mechanisms used so far to pay for the $110 million sewer replacement project (p.27). He recalled that the same evening on which the Council authorized $60 million in full faith and credit bonds to fund the work through June 2010, it also approved a 30% rate increase to the sewer utility rates to pay for the first year's interest costs. City Council Special Meeting Minutes Page 4 of 15 October 27, 2009 He referenced the financial analysis done by former Finance Director Darin Rouhier, which established the probable future rate increases. He explained that Ms. Sanchez-Virnoche and her group have worked to confirm the accuracy of those early financial forecasts, which they found were pretty close to the mark. Ms. Sanchez-Virnoche gave a PowerPoint presentation. She identified the key components they looked at in evaluating the earlier financial forecasts (p.28, Slide 1). She discussed the key factors considered in a 10 -year funding plan (p.28, Slide 2), which were operating and maintenance costs, capital projects costs, and annual debt service costs. She explained that the $119.7 million in capital funding obligations included not only the Lake Oswego Interceptor Sewer (LOIS) project, but also the City's other wastewater infrastructure capital projects needed to maintain the existing system. She reviewed a color -coded chart summarizing the revenue needs over 10 years. She noted that the operations and maintenance costs stayed consistent over time while the existing debt service increased dramatically in 2013 when both interest and principle payments were due. She commented that the City would likely have to go out for a revenue bond to pay for the new debt service that would begin in FY 2010/2011. She explained that while the recommended rate increases from the previous analysis would cover the City's expenses, the now identified cash flow issues meant that the City needed to think about implementing additional rate increases to cover bond requirements and bond payments. She indicated to Councilor Olson that Mr. Rouhier's recommended rate increases were 30% in FY 2009/2010, 30% in FY 2010/2011, 27% in 2011/201, and 13% in 2012/2013 followed by inflationary increases. She mentioned that the report included a technical appendix for those who wished to examine the numbers. She noted that their recommended rate increases were now 30% in FY 2010/2011, 30% in FY 2011/2012, and 14% in FY 2012/2013, also followed by inflationary increases (p.29, Slide 1). She indicated that this translated to $1.75 to $2.40 more per month on a typical residential bill. She discussed the key action as monitoring expenses. She held that these figures were close to where they needed to be, depending on the levels required by the bond rating agencies for City reserves and debt service coverage, when the City went out to the bond market, and the amount of the principal and interest payments She explained that these rate increases provided a 2.0 coverage, which was favorable with respect to the bond market. She mentioned the assumption that this would be a revenue bond and not a full faith and credit bond, which meant more stringent requirements for sufficient sewer revenue to support all the obligations. She discussed what these increases meant to a customer bill. She noted the current fixed and variable charges (p.29, Slide 2). She noted the variable charge of $1.68 per 100 cubic feet for all customer categories. She presented the two rate alternatives they developed (p. 29, Slide 3). She explained that the first approach applied the 30% increase equally across the board to both the fixed and variable components. This allowed the City to collect 67% of its revenues through the fixed charge and the remaining 33% through the variable charge. She indicated that they developed the second alternative to provide more revenue stability for the City in light of its increasing debt. The second option applied the full increase to the fixed charge only in order to collect 82% of the needed revenue. This left 18% revenues collected through the variable charge. She noted that the question was how much of its revenue did the City want to leave variable. She discussed in detail the impact to the customer of the two rate alternatives (p. 30, Slide 1). She described how the difference between the two alternatives came out to be only a slight difference. City Council Special Meeting Minutes Page 5 of 15 October 27, 2009 She explained that the second alternative appeared to favor higher levels of water usage because of the economies of scale in spreading out the higher fixed charge over more units of water. She confirmed to Mayor Hoffman that the second option rate increase was 40% because it increased the rate only on one of the two components, the fixed charge. The variable charge remained at $1.68 per CCF. She clarified to Councilor Tierney that the 82% and 18% did not represent the rate increase amount but rather 100% of the revenues that the City needed to collect. The second option collected 82% of those revenues from the fixed charge through a rate increase amount needed to reach that percentage of the revenues. That rate increase was more than the 30% recommended in the first option. The variable charge remained at the current $1.68 per CCF and collected 18% of the needed revenue. She confirmed that the second option put 100% of the change on the fixed charge. She reiterated that the reason behind that was that the City was incurring more fixed costs on the system. She presented a chart showing the proposed rates for the average winter water usage categories (p.30, Slide 2). She confirmed that the average usage was eight CCF ($38). She pointed out that the change under Option 1 for someone using two CCF was $8.65, while the change under Option 2 was $11.47 for most of the categories because everybody paid the same fixed charge, regardless of how much water used. Councilor Tierney asked staff to bring back the dispersion chart showing where the population fell into the usage categories. Ms. Sanchez-Virnoche showed a comparison of the proposed rates with neighboring utilities' rates (p.30, Slide 3). She noted that other providers might increase their rates by the time that Lake Oswego increased its rates. She discussed rate design considerations (p.31, Slide 1). She commented that staff felt more comfortable in terms of revenue stability in putting more on the fixed charge because of the potential impact of conservation programs on the amount collected through the variable charge. She commented that the increasing system fixed costs with the additional debt requirements correlated to increasing the fixed charge. She noted that bond -rating agencies preferred revenue stability, such as the second option provided. She reiterated that a drawback of the second option was the perception that those with higher water usage received more of a benefit. She discussed considerations and next steps (p.31, Slide 2). She asked for Council feedback on the proposed rate increases and the rate design alternatives. She mentioned the planned solicitation of public input in November and December. She spoke of recommending a rate option at the December public hearing on the Master Fees and Charges schedule. COUNCIL QUESTIONS Mr. Komarek indicated to Councilor Tierney that he doubted that this was sufficient revenue to maintain the system but staff would know more after embarking on the strategic asset management program. He commented that based on what he has heard from other communities, Lake Oswego was playing catch up. He mentioned an upcoming discussion about managing the wastewater utility, especially as it concerned the parts of the utility on private property and how that related to system costs. He clarified to Councilor Olson that an important piece of the overall wastewater system was the lateral pipes on private property connecting to the sewer lines in the streets. He observed that Council has not discussed policies on spending public dollars on private property, yet staff knew that those laterals were a significant source of inflow and infiltration into the system. This affected the amount of water treatment needed, for which everyone paid. Mayor Hoffman spoke of holding that conversation next year. City Council Special Meeting Minutes Page 6 of 15 October 27, 2009 Mr. Komarek confirmed to Councilor Tierney that the City maintaining its infrastructure early was cheaper than having to fix it later. He referenced a question that he asked in the staff report about what level of capital expenditures the community was willing to support through its rates to address the long standing issues. Councilor Tierney asked for a staff memo discussing Lake Oswego's relationship with the Portland's Tryon Sewage Treatment Plant, given that 50% of the City's expenses related to treatment. Mr. Komarek mentioned that Portland staff told him at a meeting on the Foothills area that they were planning to update their facilities plan. He said that the Portland staff would look very hard at the amount of water that Portland was treating that it might not have to treat if Lake Oswego's inflow and infiltration situation was under better control. Mr. Komarek indicated to Councilor Hennagin that the City replaced old pipes with plastic pipes due to their resistance to corrosion. He mentioned that there was a mishmash of existing pipe materials, from cast iron to clay to waxed cardboard to concrete. Councilor Hennagin asked if the City replaced pipes identified as defective or if it had an ongoing replacement program to replace old pipes. Mr. Komarek indicated that that question related to the strategic asset management plan. He said that they used the data gathered by the wastewater maintenance department in their ongoing pipe cleaning and inspection program to help develop the annual rehabilitation program in the CIP. Ms. Sanchez-Virnoche indicated to Mayor Hoffman that the technical appendix in the packet included some of the numbers from the FCS technical analysis that supported the proposed rate increases. Mayor Hoffman asked for Council feedback on the rate design alternatives, the across the board increases (A) or the alternative rate option (B). Councilor Moncrieff commented that while she liked the certainty of collecting 82% of the needed revenue, she also liked the incentive to conserve water inherent in a tiered rate usage program. She commented that the community using less water in the long term seemed the best way to save on the utilities. Councilor Olson pointed out that the incentive to conserve remained in the tiered rates of the water portion of the bill. Mr. Komarek confirmed to the Mayor that winter use was home use. He indicated that staff expected to see water usage trend downwards over time as the City's conservation program took effect through education and more efficient plumbing fixtures. He concurred that revenue stability was a concern if the City based its rate more on the volume piece than on the fixed piece. Ms. Sanchez-Virnoche indicated to Councilor Hennagin that there were a multitude of options available, depending on the overall objective. She noted that the objective in this program was revenue generation to pay for revenue bonds. Since 82% of the system costs would be fixed, staff thought that generating the revenue primarily through the fixed charge was a good alternative. She mentioned that what people wanted was some type of choice in controlling their bill, which was why having a volume charge was important. She concurred with Councilor Hennagin that staff was attempting to predict what the future debt and maintenance costs would be and what the City would need to fund those, both of which were somewhat unpredictable. Mr. Komarek agreed that it was a forecast. Anything beyond today was uncertain. Mr. Komarek indicated to Councilor Tierney that Portland charged a volume -based fee for wastewater treatment. Councilor Tierney observed that the treatment cost component was tied to the variable total. Councilor Jordan expressed her preference for Alternative B, and making sure that the City had the fixed portions of its system costs covered in order to insure that the system was working adequately and efficiently. She mentioned her concern about equity, in that all households paid the same fixed fee, regardless of whether one person lived there or five people. She commented City Council Special Meeting Minutes Page 7 of 15 October 27, 2009 that it would be nice to find a way to help those living on fixed incomes and not price people out of their homes. Mr. Komarek concurred that equity for individual homes was a tough issue. Councilor Tierney spoke in support of Alternative B. He noted that the Council could adjust the rates every year. Councilor Moncrieff acknowledged the staff recommendation of Alternative B for financial reasons, but reiterated that she wanted to continue with the City's conservation efforts. Ms. Sanchez-Virnoche indicated to Mayor Hoffman that staff recommended Alternative B because of revenue stability. Mayor Hoffman indicated that they would discuss Mr. Komarek's questions regarding the level of capital expenditures, the capital contingency fund, and the enterprise fund early in 2010 during the strategic asset management discussion. Mr. Komarek indicated that a fourth question that came up last week in a discussion with Chip Pierce was how the debt service coverage and the ratios played into the rates. 3.3 Institutional Use Lot Coverage Code Amendment Ms. Frisbee introduced Johanna Hastay, Associate Planner. Ms. Hastay gave a PowerPoint presentation on the proposed code amendments affecting lot coverage for institutional uses, primarily schools. She noted that the two primary objectives of the proposed code amendments were to insure equality in the application of development standards between public and private schools, and to insure compatibility between existing neighborhoods and new developments. She explained that Our Lady of the Lake Catholic Church, in submitting a development proposal, asked the Planning Commission why the Code allowed public schools 35% lot coverage when abutting residential neighborhoods but only allowed private schools in a similar location 25% lot coverage. At the Planning Commission's direction, staff looked into the issue, focusing on four questions (p.36). She encouraged the Council to review Exhibits D-2 and D-3, which covered those questions in greater detail. She noted that the Commission found a high level of community interest in this topic with a wide range of opinions. These opinions were well -captured in the written testimony (Exhibits G-1 to G- 98) and the oral testimony at the Planning Commission meetings (Exhibits C-1, C-2, and C-3). She indicated that the neighborhoods' primary concern centered on a fear about incompatible uses in residential zones, especially with respect to two large private schools impacting residential neighborhoods. She said that the neighborhoods believed that public and private schools were extremely different in their nature and uses. They also did not think that the conditional use process did enough to manage the impacts. She mentioned the Lake Oswego School District's concern with losing development flexibility for their schools in the future. She noted that private school representatives focused heavily on the equitable treatment of schools. Another concern was that 25% was too little lot coverage to provide adequate and comparable educational facilities, especially in mixed-use (church -school) scenarios. However, both the public and the private schools felt that the conditional use process adequately regulated the impacts. She stated the Planning Commission's finding at its August 10 public hearing that there were no compelling differences between public and private schools, and therefore, the lot coverage maximums should be equitable. She directed the Council to Exhibit D-3, which outlined the six options considered by the Commission to rectify the situation. She indicated that the Commission found no compelling evidence that public schools really needed the full 35% allowed in public function zones, as many public schools today only had 10% to 15% lot coverage. She noted the Commission's recommendation that the Council adopt Option 3, to lower the lot coverage allowed public schools in the public function zone to 25% in order to create equity between public and private schools. City Council Special Meeting Minutes Page 8 of 15 October 27, 2009 COUNCIL QUESTIONS Ms. Hastay indicated to Mayor Hoffman that staff had tentatively recommended just using the conditional use process, knowing that that process provided few boundaries for developers and neighborhoods. She indicated that the public testimony and the Commission deliberations confirmed that the result was not as firm when using only the conditional use process to establish lot coverage on a site -by -site basis. She indicated to Mayor Hoffman that institutional uses, even in a public function zone, were still conditional uses. She clarified that staff had recommended eliminating the lot coverage maximums in all residential zones and for schools in the public function zone, and going on a case-by-case basis when schools came in for development. She concurred with the Mayor that the question was what was the impact on the neighborhood and how did one mitigate that impact. Councilor Tierney asked if staff explored other options besides a code amendment to deal with Our Lady of the Lake's request. Ms. Hastay explained that Our Lady of the Lake originally proposed Class 2 variances to achieve greater lot coverage, but they could not meet the hardship criterion. Councilor Tierney mentioned attending a meeting where Our Lady of the Lake presented its development proposal, to which the Evergreen Neighborhood did not object. Ms. Hastay indicated that the Our Lady of the Lake development proposal as made met the 25% lot coverage requirement. That proposal would still comply with code if the changes passed. Ms. Hastay indicated to Councilor Hennagin that in her research, she could not find a reason for the different allowances, other than some discussion about providing institutional buildings with more development flexibility. She confirmed that the Code did not consider private schools or churches as public uses because they were not government-owned. Councilor Hennagin commented that he had a problem with conditional uses and variances if the Code could be more specific. He observed that those elements left so much room for discretion and dispute. He stated his preference to go with specific criteria that established a similar rule. He indicated that he also could not find a reason to treat a private school differently than a public school in terms of land use decisions, and therefore, the Code should treat all schools the same. Councilor Olson speculated that the Planning Commission followed Councilor Hennagin's thought in setting specific criteria in the code as opposed to relying on the conditional use process. Ms. Hastay confirmed to Councilor Olson that Our Lady of the Lake's proposed development plan, which included a combined parish hall and school, met the 25% lot coverage requirement. Councilor Olson asked if the Commission had made a different recommendation, how staff would have teased out the school use from the church use with respect to the lot coverage. Ms. Hastay explained that the Code dealt with all structures in residential zones and did not distinguish between uses. She indicated that because one of the buildings on the church site was more than 22 feet in height, all the structures on the lot were subject to the 25% lot coverage requirement. Ms. Hastay clarified to the Council that the Code change made public schools in the public function zone subject to 25% lot coverage but not public buildings in general. She indicated to Councilor Tierney that one way to read the situation was that the School District lost some flexibility. Councilor Jordan commented that she found it interesting that the Commission recommended reducing the lot coverage for public schools rather than splitting the difference and setting both private and public schools at 30% lot coverage. She referenced the community's interest in green building practices, while arguing that including covered play structures and other school buildings in the 25% lot coverage was not the way to go. She observed that this school location fronting on A Avenue did not impact the neighborhood that much. She commented that it made more sense to her to encourage the church to use green City Council Special Meeting Minutes Page 9 of 15 October 27, 2009 building practices by allowing them the flexibility to use green designs for their playgrounds and play structures and not having those structures count towards the 25% lot coverage. She mentioned another concern about cutting back on lot coverage for public schools. She pointed out that when the community succeeded in attracting more families with school-age children, and the schools needed to expand, the schools would probably have to expand on their current sites, as she doubted that the District could purchase more land. She argued that the schools would need more flexibility in that scenario, citing the state law about not putting kindergartners and first graders on second stories. She spoke in support of giving the schools more flexibility and the ability to do the right thing for the kids over requiring less lot coverage in order to avoid neighborhood encroachment. Councilor Moncrieff asked for a written answer to the questions of what surfaces would be considered under lot coverage (i.e., asphalt, picnic tabletop), and what uses constituted a private school (i.e., daycare). Mayor Hoffman recessed the meeting at 8:21 p.m. for a break. He reconvened the meeting at 8:33 p.m. 3.4 West End Building Refinance Mr. McIntyre recalled that during the Council discussion last June that resulted in staff refinancing the West End Building at Council direction, staff raised the question of 'collaring,' or hedging the interest rate for the term of debt. He mentioned a second question about exploring a permanent debt program for the West End Building. He described collaring the debt as buying an insurance policy to set a cap on the interest rate for the $20 million debt. He discussed the graphic illustrating how the collaring would work, noting that the City would pay for the bank's guarantee that the rate would not go higher or lower than the caps set by the Council. He indicated that while currently the debt stood at 1.89% (although it has dropped in the last three months to 1.68%), he did not know what that percentage would be at the end of December. He explained that with collaring, the City lost the benefit of the rate going under whatever cap it set, such as a 2% low and a 4% high cap. He posed the risk question for the Council as whether the members believed that in the next 20 months left on the existing debt, the rate would exceed the cap by so much that it was worth paying the premium to purchase the cap. He recommended not collaring the debt. He clarified to Councilor Hennagin that the collar would apply only to the existing debt, and not to any future refinancing. He indicated that Wells Fargo had not been interested in discussing debt financing for a longer term than 24 months. Extending the debt meant renegotiating the loan with the bank. He speculated that the interest rates would not exceed any cap purchased by the City over the next 20 months. He referenced the attached chart of the LIBOR index over the last 20 years. Councilor Olson spoke in support of not buying the collar, as she also doubted that the rates would exceed the cap. She commented that she thought it was not wise to change the City's financial policies that radically at this time. Councilor Jordan commented that she did not see a benefit to collaring. The Council agreed by consensus not to purchase the collar. Mr. McIntyre discussed the question of a permanent debt program for the West End Building. He said that in a staff discussion with Mr. Pierce, Mr. Pierce mentioned that long-term tax-exempt interest rates were as low as they have been in a long time. He pointed out that the rates have probably changed since Mr. Donaldson wrote the memo in the packet. City Council Special Meeting Minutes Page 10 of 15 October 27, 2009 He explained that a window of opportunity opened to amortize fully the West End Building debt of $25 million (allowing for needed building improvements) against the full faith and credit of the City. He thought the opportunity worth the Council discussing it. He mentioned that they would have this same conversation again in 20 months, as no one knew what the rates would be at that time. He indicated to Councilor Tierney that the discussion in May had been slightly different in that Council directed staff to come up with a financing strategy to remove the burden of the West End Building from the general fund. This window of opportunity was one such strategy. Chip Pierce, Financial Consultant, indicated to Mayor Hoffman that he could not say how long the window would be open. He explained that they were so close to the holiday season that it was unlikely (although not impossible with immediate Council direction) to get this financing done before the end of the year. He indicated to Councilor Tierney that typical underwriter costs ranged from 4% to 7%, depending on a variety of factors. Additional costs were well fixed at between $75,000 to $100,000 roughly. Mr. McIntyre confirmed to the Mayor that this action would not preclude the City from selling the building in five years. Mr. Pierce noted that if the City sold tax-exempt debt, doing so assumed use of the building for tax-exempt purposes. If the City sold the building for private use five years after selling the bonds, then the law required it to payoff the tax-exempt bonds. He explained that if the City sold the bonds with a 10 -year call option, and received a significant amount of money in five years, it would have to put the money into an escrow account until the 10 years was up and it could pay off the bonds. He indicated that doing so was expensive at this time because the City's investment rate would be so much lower than its bond rate. He discussed a second option of putting an extraordinary call option on the bonds, which notified bondholders that if the City decided to sell the property in the next 10 years, it would use that money to pay off the bonds. He indicated that the bondholders would nick the City on the yield under this option. He observed that neither option was very good. He reviewed for Councilor Olson the annual rates for the various bond terms, as given on the graphic. Councilor Olson referenced the Council direction that the financing strategy needed not to use general fund revenues. She asked whether the statement that "the debt payments would need to be absorbed into the City's budget in the future use of the site" meant absorbed into the general fund. Mr. McIntyre clarified that the payments would be absorbed into whatever funds might be housed at the West End Building, including the utility funds picking up their individual pieces as part of shifting the debt away from the general fund. He noted that the parks & rec piece would still come from the general fund. He concurred with Councilor Olson that the idea of this action appeared to contradict the Council's adopted strategy. Councilor Olson expressed her concern with absorbing so much into the City's budget in FY2010/2011, including the upcoming funding for PERS. She pointed out the apparent contradiction in the report between the recommendation to maximize the use of the building, including leasing the vacant portion of it (presumably to private entities), and the need to maintain the tax-exempt status for the debt. Mr. McIntyre concurred that collecting leases would put the tax-exempt status in jeopardy. He spoke of using a pro -rated debt structure of taxable versus tax-exempt. Councilor Olson referenced the Council's Facilities Strategy, which included an item to develop a concept plan for the future redevelopment of the West End property. She said that the last time the bond measure failed that part of the reason attributed to that failure was that the Council did not have a plan for that building or the site. She suggested developing that concept plan before talking about the debt. City Council Special Meeting Minutes Page 11 of 15 October 27, 2009 She referenced Recommendation 2 in the staff report, asking about exploring a fully amortized debt scenario tied to future usage of the West End Building. She asked what staff meant by 'tied to future use." Mr. McIntyre indicated that one of his concerns was that if the Council intended to get rid of the West End Building, then it made no sense to do long-term debt financing for the building. He explained that the memo outlined the growing usage of the West End Building. He mentioned that at the behest of the Council strategy, he was exploring the idea of moving more City Hall functions out to the West End Building, such as Building, Planning, and Public Works/Engineering. He reported that staff has also had an initial conversation about possibly leasing a portion of the West End Building to a private entity. He emphasized that the way staff would set up the debt structure to amortize the debt fully violated the Council's strategy with respect to shifting the debt away from the general fund. He reiterated that they would be having this same conversation in 20 months. Councilor Olson spoke to working on the financial strategy now in order to meet the May 1 deadline. Councilor Jordan held that this window of opportunity represented a financial strategy. It did not take on new debt but rather considered changing it to permanent debt. She indicated that she would not necessarily say that it violated the Council's adopted strategy but she did agree that it did not follow it. Mr. McIntyre agreed that it was inconsistent. Mayor Hoffman described it as opportunistic. At the Mayor's request, Ms. Gilmer discussed the current and anticipated usage of the West End Building. She referenced the West End Building usage chart (pp. 55-57) in the staff report, which listed the City and external group uses. She mentioned that this fall, they had a very busy schedule for the use of the west side of the building. She pointed out that about two-thirds of the activities listed in the chart would not be available if the West End Building were not available. She noted the difficulty that external groups had in finding meeting space elsewhere in the community. She mentioned the new programs offered by Parks & Recreation because the facility space was now available, such as the teen program for which the junior highs no longer had room. She explained that only the part of the west side of the building alarmed for public assembly was available for public use at this time. She indicated that the large office spaces alarmed for office use were not available for public assembly. She mentioned the future possibility of using the entire building, depending on the Council's goal. She discussed a scenario of programming the space for revenue generation. She recalled that a citizen suggested to her that the City aggressively advertise the West End Building for meeting space, as the Kruse Way office buildings lacked large meeting spaces with catering kitchens. She acknowledged that they needed to upgrade the West End Building kitchen before doing so, but it would be a way to raise revenues easily. She discussed the possibility of non -profits renting office space on the west side of the building at a reduced rate. She said that Lake Oswego Together and the Soccer Club have expressed interest, and there were probably others out there. She mentioned an indoor soccer facility for younger kids as another possible use. She commented that the biggest issue was that no matter what staff proposed, it came with some level of cost associated with it. Therefore, it depended on how much the Council was willing to spend to generate activity or revenue. She indicated that staff could spend time developing proposals for Council consideration. Councilor Moncrieff indicated that she liked the idea of paying off principle and of locking in low interest rates. She asked how much having a tax-exempt bond would restrict the City's ability to use and develop the property, especially in relation to public/private partnerships. She asked if the 10% listed as purely space related included renting out meeting space. City Council Special Meeting Minutes Page 12 of 15 October 27, 2009 Mr. McIntyre commented that the question about public/private partnerships and tax-exempt bonds was a legal, IRS kind of question. He indicated that the general rule was that if they consistently stayed below 10% private use, the City would probably be okay. He doubted that leasing to non -profits would trigger the rule while leasing the downstairs to a private entity probably would. He noted that the City would pay a premium if the taxable status went anywhere from 100 to 200 basis points greater than the tax-exempt basis. He emphasized that the question of amortization was tied to building and/or site uses. He acknowledged to Councilor Moncrieff that the effect of amortization on development was another issue. He mentioned that he and Mr. Williams realized that if the building went into taxable status, then they needed to change the formula they were using to calculate return on investment because the City would be paying a premium interest rate instead of a low interest rate. Councilor Moncrieff indicated that she would be interested in pursuing the staff recommendation. Mr. Donaldson mentioned that the tax assessor's office would pro -rate property taxes for the leased portion of the building. He indicated that leasing one-quarter of the building meant roughly $40,000 in property taxes. Councilor Hennagin spoke in support of exploring this option, if it could save the City a substantial amount of money over using government obligation bonds. He asked if staff could predict what the savings would be over 25 years. He referenced the $1 million a year that the City has found in the general fund to pay the interest annually. He asked if the City could retire some of the principal each year by paying more than the minimum amount. He commented that one could save a substantial amount in interest by making extra principal payments from the beginning. Councilor Jordan commented that she found it interesting that if the bond measure had passed, the City would be paying out more money because the rate would have been higher than what it cost the City to keep figuring out which way to go. She recalled that many of those who did not vote for the bond measure had wanted to keep the building but not without a plan for its use. She asked, if the Council pursued financing the whole site with a full faith and credit bond measure paid over time, how would partitioning the property to build something else be handled. Mr. Donaldson reiterated that the City would have to pay off some portion of the tax exempt bonds if the use went to a non -tax exempt use. Councilor Jordan commented that if the City sold a portion of the property for profit, it could use that money to pay down the bond. Councilor Olson recalled Mr. Pierce's comments about losing money if they put that money in an escrow account. Mr. Pierce reviewed the two options facing the City if it sold the building before the bond term was up. It could use an extraordinary call option that allowed an early payoff but with a higher yield, or it could invest the sale money at a lower rate than the bond rate. He reiterated that neither option was optimal. Councilor Jordan commented that she did not expect the Council to figure out a plan to use the building and to hold a bond election with a new Council in 20 months. She expressed her preference for finding a way to keep the costs down over the long term. Councilor Tierney thanked staff for bringing this window of opportunity forward. He indicated that in his interpretation of the policy, the possibilities raised by Ms. Gilmer constituted maximizing the use, which he found consistent with the policy. He described the questions about the future use relative financing as a huge impediment. He asked where the City would find the $1 million to $1.5 million needed from the general fund. Mr. McIntyre said that he did not know yet. He commented that the Council might have to shift some of the policy decisions it made in the budget process this past year around how to handle this significant City asset. He indicated that the City might have to provide different kinds, qualities, and level of service than it presently did today in order to create the needed money. He confirmed to Councilor Ti rn y that they would not need to find the money if the City went out for a bond measure. City Council Special Meeting Minutes Page 13 of 15 October 27, 2009 He mentioned that this would be one of the challenging issues facing the new Finance Director. He commented that he was challenged to find a scenario other than a general obligation (GO) bond that satisfied the strategy. He remarked that he thought that it was partly understood when the Council agreed to the strategy that it presumed a GO bond issue. He indicated that staff could do the bond issue as the strategy, but the question remained on when to implement that strategy. Councilor Tierney observed that the policy (written the way it was) was the Council's policy. Since the Council could change the policy, the use of general fund or other monies to pay for the building needed to be part of the discussion. He commented that given the reluctance of the Council during the budget discussion to reduce service levels, he could see the potential of not being able to do anything with this City -owned building because the City could not afford to do anything with it. Councilor Olson concurred with Councilor Tierney's comments. She agreed that the Council had assumed a GO bond as the financial strategy. She recalled the strategy directing the development of a concept plan for the redevelopment of the site. She noted that she had not heard any more discussion about siting the police and emergency dispatch on the property. She speculated that if the City developed a strategy by May 1, then it could go out for a GO bond in the November general election. She pointed out that while the City did manage to scrape together $1 million a year, as Councilor Hennagin noted, they only did it for two years, thinking that the bond measure would pass or that they would sell the building. She stated that the City could not do that indefinitely. She held that the only way to find the money if they did not do a GO bond, and pay for the new PERS increases, would be to change the budget significantly. Mayor Hoffman concurred with Councilor Hennagin that they should work on paying off the principle and interest, as opposed to paying interest only. Councilor Hennagin pointed out that the property itself was not security for a full faith and credit bond. He asked why selling a part of it would affect the bonds. Mr. Donaldson explained that it was not a security issue determined by the bondholders but rather a use issue determined by the IRS in terms of the ability to issue tax-exempt debt. Councilor Jordan spoke to looking at the kinds of strategies that would keep the City from going into more debt in order to pay off the property. She pointed out that the market was not turning around, and that it would take longer than 20 months to realize money back from selling the property. Councilor Johnson asked for more information and Council discussion of the matter in the context of goal setting. She commented that while the Council might not make any real decisions, Councilor Tierney brought up an excellent point that the Council needed to figure out how this worked in relation to everything else that the City was doing and its plans as a City for what it housed at the building. Mayor Hoffman asked if the Council supported looking for a full faith and credit bond for the full value, which would pay the principal and interest. Mr. McIntyre clarified that he was not asking for Council direction tonight to renegotiate the financing to amortize the debt fully, as that would be premature. He said that he was asking whether the Council wanted him to spend the resources to further explore the matter and answer the questions raised by the Council regarding funding sources and use. The majority of the Council agreed by consensus to move forward with getting more information to answer the questions that had been raised. 4. ADJOURNMENT Mayor Hoffman adjourned the meeting at 9:20 p.m. City Council Special Meeting Minutes Page 14 of 15 October 27, 2009 Respectfully submitted, 111�4v,6, ) Robyn 6hristie City Recorder APPROVED BY THE CITY COUNCIL: ON January 5, 2009 Jack D. Ho an,ayo City Council Special Meeting Minutes Page 15 of 15 October 27, 2009