[Ref: 11/22/10 Public Hearing on Assembly Square District Improvement Financing]

The meat of the evening was a public hearing on the question of creating an Assembly Improvement District.  It began with a presentation by Mayor Curtatone and continued with presentations by Monica Lamboy of the Office of Strategic Planning and Community Development (OSPCD) and by Don Briggs of Federal Realty (FRIT).

In a nutshell, the situation is this:

• Congress did not appropriate $23 M of the $25 M promised to fund the Assembly Square Orange Line T-Stop.
• IKEA will not be moving forward this year, which means (a) that the current $10 M in iCubed bonds are not backed by any new state tax revenue, and (b) we cannot issue bonds against the remaining $40 M in iCubed funding.

As a result, there is now a $63 M gap in infrastructure funding for Assembly Square.

The Mayor and others negotiated with state government and worked out the following financing scheme:

• $5 M in retargeted Federal Multi-Modal earmark.
• $18 M in retargeted State dollars for the Assembly Square T-Station.  The State will want this money paid back. If Congress doesn’t pass the T-stop funding next year, the City will have to pay this money back some other way.
• $15 M State iCubed program. The state will increase our total iCubed funding from $50 M to $ 58 M, and allow us to draw on it.

All this is provided Somerville commits to:

• $25 M Municipal DIF District in Assembly Square. This would allow Somerville to issue bonds against anticipated increases in tax revenue in the district.

The proposed district includes three of the eight major undeveloped blocks by the river and alongside the Orange Line tracks.  DIF bonds would be used to pay for  roads and sewers everywhere in FRIT’s holdings.  (The current work is mainly confined to Assembly Square Drive.) Development of the three blocks is apparently adequate to cover the current iCubed debt service.

[COMMENT: Debt service on DIF bonds is covered by city property taxes, whereas debt service on iCubed financing is covered by state income and sales taxes.]

FRIT has acquired a partner, Avalon Bay, to develop 400 residential units in the proposed DIF district, along with a hotel and ground floor retail.  Don Briggs said that the T-Stop has reached 100% design and is ready to go out to bid next year, to open in 2013. However, neither Avalon Bay nor FRIT will continue development if the T-Stop is not created.  Congressman Capuano will continue to push for the remaining $23 M for the T-Stop, but the consensus is that no one is going to fund the T-Stop if there is no major development in Assembly Square.

Public Comment Phase

Dahlbacka pointed out that no high-value office development is planned in the DIF area; the proposed Corporate Campus is in the late-phase end of Assembly Square, at the IKEA end of Assembly Square. It would be good to have some office space in the DIF district to make the DIF better than a break-even proposition.

Bestor pointed out that the DIF financing scheme doesn’t take into account city services, such as police, fire, school, etc., required by the residential development. If the tax revenues from the DIF area all go to service debt on infrastructure bonds, the rest of the city will end up paying for the DIF’s city services. She also pointed out that there was little time for citizen input, and that because of city politics, it would be well for the BOA to get its own financial advisor. Finally, implementing the DIF (or issuing DIF bonds) should be contingent on the T-stop being built, otherwise we will be incurring debt with no benefit.

Zamore said that he supports FRIT’s mix of uses and is grateful we are moving forward. However, he reminded the city that large projects cannot be finished in one business cycle. We have a tendency to develop based upon second-phase projects that never materialize. The original Mall was intended to lead to more valuable development, but it didn’t happen. The city has tended to view development as positive even if it results in new demands on city services that produce a net fiscal loss. The city should develop real measures of fiscal health that include not only increases in tax revenue due to new development but also increases in city costs due to the same development.

Zamore asked, who guarantees performance of infrastructure over the full buildout period? Right now, it looks like the state, the city, and the developer cover the T-stop and the City cover the remaining infrastructure (roads and sewers).

We should not pledge all future value growth to pay off iCubed and DIF obligations.  The rest of Assembly Square had better be developed as office and R&D, or something else with high tax revenue, or our bad fiscal situation will only get worse.

Mackey pointed out that this DIF is much smaller in scale than the previously proposed Somerville Avenue/Union Square DIF, and much better targeted. He believes we have to move forward with it to unlock Assembly Square’s potential.

Marrow was concerned about how fast this is happening. Not all of the Aldermen are here, it’s not on TV. [NOTE: it was being recorded.] It doesn’t seem to be understood very well by the Aldermen, yet they are supposed to vote on it in two weeks. The presentation did not mention the cost of police, fire, and school expenses. FRIT can pay more, and should. I say vote No.

[COMMENT: Unfortunately, there doesn't seem to be much wiggle room here. We can say that FRIT should pay for this infrastructure, but if they say "no", then what?]

The written comment period is open until November 29 (next Monday).

The BOA Finance Committee will discuss this matter at the November 30 meeting.

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The evening included a brief meeting of the BOA Finance Committee in which FinComm voted to create the Alpine Restaurant Stabilization Fund and seed it with a donation of $2500 from Alpine Restaurant. The remaining agenda item, accepting a Federal Justice Department grant of $39,000, was tabled because the Chief of Police was not present.