[BoulderCouncilHotline] Re: CU South

[Wallach, Mark]

Phil, I have not previously thanked you for the very prompt response to my previous HOTLINE post and I would like to do so now. As I said at the Council meeting, I am very impressed with the degree of progress that has been made on any number of thorny issues relating to CU South, as well as the fact that the resolution of so many issues has been responsive to community concerns and interests. However, I do want to make a couple of comments regarding your response to me, as follows:

  1.  I am not disputing that our estimated project costs are at an appropriate level for this stage of the project’s development, I am simply stating that those estimates are not particularly meaningful, and that we must be prepared for final numbers that are substantially larger than those estimates. It is exceedingly rare for final construction costs, based on approved, biddable plans to come in equal to or less than conceptual estimates, and I would be surprised if that were the case here. Could it happen? Certainly. Would I care to bet on it? Not with real money.
  2.  You misunderstood my comment about obtaining an opinion of counsel regarding whether the cost of fill could be part of a bond financing for the entire project. I know we have bond counsel and advisers for the issuance of bonds. I was merely suggesting that we consult them now, rather than after we have agreed to a substantial expense for providing fill, only to find that that expense may not be included in a bond issuance, and must therefore come out of the General Fund. That would not be a welcome surprise. Of course, the best solution would be the elimination of that requirement entirely, which would also reduce the overall cost of the project, and make it more likely that the final cost would be within the $66MM estimate.
  3.  Finally, I do not think that your estimate of revenue the City foregoes by having CU develop 1,100 housing units as a tax exempt entity is  the right way to look at it. Your calculation (which I am sure is accurate), does not add back in the lost tax revenue for the Boulder County School District, which is 4x the amount of the real property tax revenue that goes directly to the City. So if the City is foregoing $200,000/year in direct tax revenue, the schools are foregoing $800,000/year, for a total of $1MM/year in lost funding, or $20MM over 20 years. I think that funding for schools is as important a use for tax revenues as any other purpose.  And let us not forget the additional taxes that will be foregone relating to the non-residential buildings. So when CU says that they do not  want to enter into a PILOT program to mitigate our lost tax revenue, but instead offers us 2 acres for a fire station, it is not hard to view that as less than  an equitable exchange.
But of course, all of these comments are made from the comfort of the cheap seats, not the actual negotiating table. Please do not let them obscure my admiration for the job the negotiating team is doing on this enormously complex project. The work to date has been outstanding, and is greatly appreciated. Have a great weekend.


From: "Kleisler, Philip" <KleislerP at bouldercolorado.gov>
Date: Tuesday, April 20, 2021 at 4:47 PM
To: "Wallach, Mark" <WallachM at bouldercolorado.gov>, HOTLINE <HOTLINE at bouldercolorado.gov>
Subject: RE: CU South


Good afternoon,



Thank you for your comments and questions on the potential annexation of CU South in advance of the tonight’s meeting. Below is some information from our team. We are looking forward to the discussion soon.



1) Costs, bond payments, and rate increases:

Estimated project costs are at an appropriate level of development for the stage of the project and includes a significant allowance for contingencies. Costs will be refined as the design is further detailed and the built-in contingency of roughly $10M associated with flood features is included to account for future unknowns. The $66M estimate includes an estimated $41M expenditure for flood features and $25M for earthfill and impacted structures. The earthfill cost estimate is more refined as earthfill placement is simpler to design and construct and has fewer unknows.



As a point of reference, the current Stormwater and Flood Utility fee for the average Boulder residence is $20 per month. This average fee could potentially increase to $28 per month over the next handful of years if council were to approve the proposed CIP rate increases of 12 percent per year to cover bonding costs.



Staff has estimated the project cost in accordance with industry standards for this level of design. There is also a significant contingency at this stage of design to account for future unknowns.



2) Earthfill obligations and conditions:

As it stands today, the developable portion of existing land is not in the floodplain. The flood project includes earthfill as a means to maintain existing floodplain extents on the developable portion of the CU South property. The earthfill is included in the annexation negotiations as a component of overall costs, which is one of the primary/overarching negotiation points.



The city has bond counsel that opines on the legality of the use of enterprise funds expenditures and any applicable regulations as a part of the process of completing the city’s debt issuance. Often, the city also uses disclosure counsel that reviews the bond documentation from the perspective of protecting the interests of the investor that purchases the bonds. Such review includes project expenses, such as the earthfill expenditure. Mitigating the impacts of a project are typical expenses associated with utility projects.



3) $200,000/year in property tax:

  *   The estimated foregone property tax calculation was based upon assumptions of 1,100 units with average market value ~$250,000/unit.
  *   The property tax amounts found on the Boulder MLS are the total taxes due on the property to all taxing jurisdictions, including the city. For most properties in the city, the total mill levy rate is 87.045 mills. The city’s mill levy is 11.981 or ~13.8% of the total ( ~84% of the total taxes go to Boulder County and Boulder Valley School District combined).
  *   For a $1,220 total tax bill, the city’s portion would be $168 and for a $1,890 total tax bill, the city’s portion would be $261.
  *   For residential property: every $100,000 of market value, property tax due to the city is $85.66 ($100,000 x 7.15% x .011981)
  *   Staff did not yet estimate forgone property tax revenue for potential commercial space as we are waiting for more specifics from a development plan. However, for commercial property:  every $100,000 of market value, property tax due to the city is $347.50 ($100,000 x 29% x .011981).



4) Viele Channel and other costs:

Proper functioning of the SBC flood project relies on continued maintenance of existing features such as Viele Channel. However, staff has a different perspective on incorporating related maintenance costs into overall project costs. Viele Channel is a major drainageway for the city and on-going maintenance is required regardless of SBC flood mitigation. As such, Viele Channel maintenance is built into department work plans and funding regardless. Moreover, the existing Viele channel conditions, versus some future improved state, were used in current flood project analyses and design.



5) Height limits and parapet or screening requirements:

We appreciate this perspective, and the team will work through the negotiations with this input in mind knowing that others may feel similarly. The city has existing screening requirements<https://gcc02.safelinks.protection.outlook.com/?url=https%3A%2F%2Flibrary.municode.com%2Fco%2Fboulder%2Fcodes%2Fmunicipal_code%3FnodeId%3DTIT9LAUSCO_CH7FOBUST_9-7-7BUHEAP&data=04%7C01%7CWallachM%40bouldercolorado.gov%7C02bd8240e3dc49cbf67408d9044e54af%7C0a7f94bb40af4edcafad2c1af27bc0f3%7C0%7C0%7C637545556739752584%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=mBdoYfu29vwq6Ysp%2FFQnjkJxMxP2%2B7i08wyxDcg1tuQ%3D&reserved=0> that could be applied to CU South if both parties can agree on the terms.



6) Sports facility capacity:

We are hearing this from council, the community and city boards. This will inform discussions with the university.



7) Guiding principles – view protection and enforcement:

Thus far, we have worked to address that guiding principle through specific building height limits (measurements, height ceiling), a “limited impact zone” and dark sky lighting standards. The Open Space Board of Trustees also recommended additional landscaping to screen portions of structures. Those standards should be simple to verify as development plans are prepared for the site.

Additionally, the university is proposing several design guidelines that discuss, at a high level, the use of materials and direct language from the guiding principles (briefing book page 66). These are more subjective and would allow the university some discretion.



Moving forward, we could identify additional standards to address viewshed protection (especially if there are things council is concerned about). The deal is currently being structured to allow the city an opportunity to review and comment on the CU South Master Plan and future development plans. The city’s comments would include a “compliance check” to verify the terms of the agreement like building height measurements. If the University violated any of these standards, the city would have contract remedies that could include damages or specific performance.



The agreement will also include a stated intent that the university would consider other discretionary comments from the city. While the university wouldn’t be required to comply with discretionary comments, they do provide an avenue for the city to state its interest publicly. The University will need to publicly state its reasons for disregarding city comments, which leads to more political pressure rather than legal challenges.



8) Housing unit goals on the site:

Noted. We will work through the negotiations with this input in mind knowing that others in the community and on council may feel similarly.



9) What happens if CU decides not to proceed with this project/decides to sell the property. ? What if they want to sell the property?

The annexation agreement will run with the land.  Any subsequent purchaser will need to either comply with the terms of the agreement or request that the city renegotiate and amend the agreement.  The City and CU are presently discussing terms related to a right of right of first refusal as well as terms related to negotiate a purchase in the event the University wishes to market the property.



Phil Kleisler, AICP
Senior Planner
[cid:image001.jpg at 01D73604.3E31A910]
303-441-4497
Comprehensive Planning Division
1739 Broadway | PO Box 791 | Boulder, CO 80306
Bouldercolorado.gov<https://gcc02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.bouldercolorado.gov%2F&data=04%7C01%7CWallachM%40bouldercolorado.gov%7C02bd8240e3dc49cbf67408d9044e54af%7C0a7f94bb40af4edcafad2c1af27bc0f3%7C0%7C0%7C637545556739762542%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=V0YCxnvqiSFaQDFHnOkjCo%2BifBlGRV1DRZXCUQQWAoM%3D&reserved=0>



From: Wallach, Mark <WallachM at bouldercolorado.gov>
Sent: Sunday, April 18, 2021 6:15 PM
To: HOTLINE <HOTLINE at bouldercolorado.gov>
Subject: [BoulderCouncilHotline] CU South

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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