[BoulderCouncilHotline] CU South

[Wallach, Mark]

On April 20, Council will again be discussing progress on the potential annexation of CU South, and provide our views on progress to date as well as remaining issues. As an initial matter, I want to thank staff and the negotiating committee for the manner in which they have resolved a number of difficult issues, and have attempted to be responsive to concerns from the community with respect to the ultimate development of the property. Among these are the following:

   i) There has been great interest on the part of many members of the community for an exploration of upstream options for flood control as perhaps a superior alternative to the contemplated flood mitigation project. This analysis was done and the upstream alternative was demonstrated to be neither superior nor cost effective. I am grateful to the team for taking the time and effort to do the work necessary to get to this point.
   ii) Introducing and finding agreement on the concept of limited development on the sloping, southwest hillside and the creation of buffer zones on the western boundary nearest the adjoining  residential communities are both excellent; hats off for negotiating these provisions.
   iii) The concept of “de-annexation” in the event that the project is ultimately not approved by the many regulatory authorities is highly creative and appropriate, given the uncertain regulatory process required for full approvals.
   iv) The fact that we have proposed, and CU is considering, both a dog park and a track at the site is a welcome development.
   v) Incorporation of the March 2021 recommendations of the Open Space Board of Trustees into our negotiating position.
   vi) While CU does not yet agree to some form of Payment In Lieu of Taxes (PILOT payments) to compensate Boulder for the loss of real property tax income (as CU is exempt from payment of property taxes), even as Boulder will be required to provide municipal services to CU, I believe the continued discussion is important. I applaud staff for advocating for this.

Obviously, as this is a negotiation in progress, there are a number of unresolved issues still remaining. I am therefore taking the liberty of identifying several issues of concern to me, and expressing those concerns in a more detailed manner than would be possible at the Council meeting itself. These do not represent a comprehensive list of all issues remaining to be negotiated with respect to this project, merely the ones I find most substantial:

1) First, I believe that the concept of contingencies should be extended to a contingency that permits Boulder to opt out based on the overall cost of this project. We already know that the current estimates of cost are inaccurate because they were made in 2018,  and do not represent the costs of construction in 2023 or 2024. We also know that some of these costs represent open-ended commitments to CU and that such costs cannot yet be known. And, most significantly, even the cost estimators have disclaimed any reliance upon their estimate. We remain a long way from drawings that can be used for an actual construction bid for the project.

This lack of precision as to cost raises the following issue: What if the $66MM total cost should prove to be $85MM? $110MM? It is certainly possible for Council to take the position that, no matter the cost, the flood mitigation project is of such importance that it must be completed. If that is our view it should be clearly stated to the community. In response to my Hotline post of June, 2020, in which I raised the issue of our ability to bond this project in the face of rising cost, staff noted that “the city’s bonding capacity is limited by the city’s willingness to approve utility rate increases that result from bond debt payments.” This is correct, which leads me to ask: is there any limit to our willingness to approve utility rate increases? If the answer is no, end of discussion, and we move on.  If there are such limits, I suggest that we identify them and build into the agreement the right to walk away if the cost of the project requires rate increases above our tolerance. In addition, I think it is past time for a more precise estimate of the cost of this project. Reliance upon a cost estimate that may not remotely reflect the actual cost of the project is not transparent governance.

2) One of the more contentious issues to date has been the concept that Boulder should, at its expense, pay for fill to be deposited on land to be used by CU in order to take that acreage out of the flood plain. Unless I missed it, I did not see this obligation specifically incorporated into this most recent version of the briefing book, although it remains included in the project budget. If this obligation is no longer part of the conversation with CU I think that is excellent, but if it is, I would make the following two comments: If this obligation survives the negotiating process (and I certainly hope it would not) it should be subject to a “not to exceed” limitation in terms of cost.  In addition, if this obligation is ultimately incorporated into the agreement I would request that it be conditioned upon and subject to receipt of an opinion of bond counsel as well as an opinion from the issuer of our bonds that unequivocally states that this expense can be part of the bond to construct the project. At an estimated cost of $10 million (and perhaps higher), this expense would substantially impair our budget if it had to come out of the General Fund, which is already stretched to provide essential services. These opinions should be in writing and in a form that the City can legally rely upon.

3) I would like to better understand the calculation that leads to the statement that, because CU is a tax-exempt entity, we are foregoing approximately $200,000 per year in real property taxes. Using a value of $250,000/unit, the 1,100 units to be built would have a market value of $275,000,000. And we have not included any value for the 500,000 square feet of non-residential space. And all of this would generate only $200,000/year in real estate taxes? Put another way, the total estimated tax of $200,000 comes out to an annual tax burden of $182 for each residential unit. But if you go to the Boulder MLS, the average real estate tax for the 6 units on the market between $200-250,000 (4 of them part of our affordable housing program) is $1,220/year; between $250-300,000 the average tax jumps to $1,890/year, more than 10x our estimated tax per unit. The importance of this calculation ties back into the discussion concerning PILOT payments. Are we foregoing only $200,000/year or a much higher amount? The higher the amount of real estate taxes foregone, the more important is the need for some form of compensation from CU, whether it is called a PILOT payment or by some other name.

4) One more financial issue: to the extent that there are other work projects that we have identified as necessary to the successful completion of this project (such as work contemplated on Viele Channel), but that are not included in the cost estimate, it is appropriate that they be disclosed and incorporated into the total estimate cost of this project. What, if any, are these elements, and what is their cost?

5) In terms of height limits I urge a bit of caution with respect to unsightly rooftop mechanicals. It might be appropriate to require parapets or screening to soften the effect of their presence.

6) CU has proposed  a sports facility with a capacity of 3,000 be part of the campus. I urge that some consideration be given to the noise and traffic implications of a facility of this size. 3,000 attendees is a very substantial number, almost four times the size of the estimated number of participants in the recent disturbances on the Hill, and more than adequate to permit this facility to serve as a venue for small outdoor music concerts. I urge that the size be reduced, or significant operating restraints be placed on the facility in terms of types of uses and hours of use. An all-day Heavy Metal Music Festival would probably not be warmly received by the adjacent residential neighborhoods.

7) It is wonderful that one of the guiding principles of this project is that buildings will be sited in a manner that protects views. However, I am concerned as to the substance of this provision. What will constitute a breach of this principle? From what vantage point will protection be judged? If we attempt to enforce this provision, how will we demonstrate that it has been violated? What will be the remedy if we succeed? Deconstruction of the offending structure?

8) I would make a similar comment with respect to the “goal” of constructing 1,100 housing units on the site. I would think we would want something a bit more concrete and enforceable, such as a fixed obligation to provide no less than x and no more than y units. Either that, or a cap on the square footage to be developed in the project, with a requirement that residential development be no less than x% of the total. Goals change as circumstances change, but the City’s objectives should not, and, at the end of the day,  this project should be required to meet those objectives.

9) Finally, I applaud staff for addressing this critical issue: what happens if CU decides not to proceed with this project? What if they want to sell the property? The protective mechanism being discussed is a right of first refusal for the City to buy the property in the event that CU wishes to sell. I believe the motivation here is entirely correct, but I do not believe that this is a workable formula for us to adopt. Some of my concerns are as follows:
   i) Most rights of first refusal impose a fairly rigorous timetable on the party exercising that right: 60, 90, 120 days, etc. I am not convinced that Boulder could act so expeditiously on such a large transaction.
   ii) Sale of the property could well exceed $100MM. We do not have the funds to make the purchase, and are unlikely to match the resources of well-capitalized development companies with access to the public markets. And if we choose to enter into a mortgage or utilize our bonding capacity to make such a purchase, we will have extremely large debt service payments going forward, and limit our future capabilities to issue debt obligations.
   iii) Even if we were able to purchase the property, we would need to get our money out, and this would probably require us to sell or partner with private sector development companies that will require us to maximize the density of market rate rentals and condominiums, and who will not have the willingness of CU to commit to the development standards that have been agreed to.

This is an extremely sensitive piece of land. If the current owner was the Acme Development Company our annexation conversations would have been very different, and if we could not get the terms we wanted we would have the freedom to condemn the 44 acres required for the flood mitigation project and leave the rest unannexed and undeveloped.  The conversations now taking place are a reflection of the symbiotic relationship between CU and Boulder, and we are contemplating annexation both for the flood mitigation project and because of what CU intends to do with the property. We are doing this with CU and for CU. This is not a project in which we should confer value on presently valueless land, only to see it sold to a third party to generate capital.

In commercial lease transactions, for example, it is common for the tenant to agree to specific and limited uses of the space being leased. Any change in use is generally at the discretion of the landlord. Accordingly, the tenant operating a fine dining French restaurant is generally not free to change the use to that of a fast food hamburger joint. In addition, the tenant is not free to sell or assign  the lease to a third party, and even a change in control of the tenant through sales of stock or bringing in new partners is subject to the full discretion of the landlord. That is the type of concept that should be applicable here. A CU South campus can be a great addition to the community, and will address the housing problem for graduate students and faculty. There should be no circumstances in which a change of use can occur, whether or not Boulder is in a position to acquire the land. Perhaps the provisions of the annexation agreement can be structured as a covenant running with the land in order to prohibit any change in the terms, but whatever mechanism we employ, the agreements to which all parties agree must be permanent and particular to CU, our partner in this enterprise.

As noted earlier this list of concerns is not exhaustive. In an act of mercy towards those who have read this far, I will not even touch upon the various transportation issues that need to be considered and resolved (although a quick shout out for introducing the concept of the “trip cap” as a means of monitoring and controlling traffic impacts), or issues relating to the remedial work necessary to mitigate the environmental impacts of the flood mitigation project. I simply want to acknowledge the hard and difficult work being conducted by staff and the negotiating team, and to highlight what I believe to be some of my remaining concerns as we move forward. Thank you for your consideration of these comments.





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