Pierce County Executive Pat McCarthy has negotiated a development and lease agreement for a proposed general services building that would dramatically improve customer service while saving taxpayers millions of dollars.
If approved by the Pierce County Council, the $126.9 million project would consolidate 19 departments and divisions currently housed in 14 locations.
The project would be funded with existing resources, including the money currently spent on eight commercial office leases as well as significant staff savings through efficiencies created by the consolidation. It would be built on the county-owned 13-acre site of the former Puget Sound Hospital campus, located just up the hill from downtown Tacoma.
“We started this project with a ‘service first’ goal – that is, we analyzed how to align our programs and divisions in a way that provides the most efficient customer service in a one-stop shopping experience,” Executive McCarthy said. “Thousands of people from across Pierce County who use our services would be able to take care of business in one convenient location instead of driving all over the area.”
The Executive’s office presented the proposed development agreement to the Pierce County Council on Monday, Feb. 2. The Council, which has received regular briefings for months, is scheduled to vote Feb. 17 on whether to approve it.
The $126.9 million “guaranteed maximum price” from the developer includes:
- $103.8 million for total construction, including fixtures and furniture.
- $17.4 million for parking lots and structures.
- $3.9 million for building, parking and tenant contingencies.
Under the 63-20 financing model (named after the IRS code), the costs are guaranteed by the developer, Wright Runstad & Co., which would be responsible for any cost overruns. Incentives are built into the agreement to encourage the developer to come in under budget.
The project is also estimated to incur approximately $15.5 million in financing costs, including interest paid on the bonds during construction. It’s expected that up to $3 million of that amount will not be needed, but it’s required to be available.
All told, the annual lease payment would be approximately $8.6 million a year, depending on which of two financing options is selected.
No tax increases are necessary to cover the cost because the project will, in fact, save taxpayer money. Most of the lease payment would come from two sources:
- Getting out of eight commercial leases for 150,000 square feet, and spending that $3.2 million on the new building.
- Eliminating 38 county positions due to the consolidations, which reduces the need for redundant functions. That would save $4 million in 2017, which adds up to well over $120 million in savings over 30 years.
The remaining $1.16 million of the annual lease payment would be covered by the following sources: rent from the Tacoma Pierce County Department of Health, an independent agency that decided last summer to join the building as a tenant; savings from reducing the county fleet at least 10 percent thanks to the consolidations; and rent from retail space currently intended for a coffee shop and deli. Additional savings to be determined would come from lower utility bills and the eventual sale of the Pierce County Annex.
“There’s no question this consolidation makes good business sense,” Executive McCarthy said. “Without the new building, we will spend well over $300 million on leases, salaries for redundant positions, and maintenance and upgrades in outdated buildings over the same period of time. Consolidation in a lease-to-own scenario is the prudent choice.”
If approved, the project would align county services into two main campuses. General government services would be located on the new campus, and about 1,000 employees in the law and justice sectors would remain at the downtown campus just two miles away.
The project began in summer 2012 as county officials analyzed whether to continue to invest in the Pierce County Annex, a former discount department store that was built in the late 1950s and houses four departments. In summer 2013, the County Executive announced her proposal to realize economies of scale by consolidating services on the former hospital site. That fall, the County Council voted to spend $1 million to select a development team and design enough of the project to determine the amount of the fixed lease, which then must be approved by the Council before the project can continue.
If approved, construction would begin in March, with the building fully occupied by November 2016.