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A city divided

A tale of two measures - 3-269 and 3-273 - and what they mean to Lake Oswego's future
by: Vern Uyetake, The symbol of the contentious feelings in Lake Oswego is the West End Building, formerly known as the Safeco Building. Its purchase by the city eventually led to the Ask Lake Oswegans group forming and getting enough signatures to place a ballot measure –  3-269 – on the Nov. 6 ballot. If passed, the charter amendment would require, in most cases, voter approval on property purchase of more than $2 million. In response, the city has placed its own measure – 3-273 – on the ballot, which is an advisory vote on whether to keep or sell the West End Building.

The city's purchase of the Safeco building in July 2006 set off a chain reaction of events that few could have predicted.

Almost a year and a half later, in the Nov. 6 election, Lake Oswego voters will find two ballot measures that are a result of the Safeco purchase.

The first is Measure 3-273, which asks voters whether they want to keep or sell the building that the city has renamed the West End Building.

The second is Measure 3-269, which proposes a charter amendment that would require, in most cases, the city to ask voters to approve property purchases of more than $2 million. Each year, that figure would be adjusted to inflation determined by the consumer price index.

If measure 3-269 passes, voters would be able to decide in March 2008 whether to keep or sell the Safeco building, which is located at 4101 Kruse Way. But it's possible that the city will have already begun the selling process, if voters shoot down Measure 3-273.

Although Measure 3-273 does not technically force the city to sell the Safeco building, Lake Oswego Mayor Judie Hammerstad said if residents want the city to sell the building, then the city will move forward with the sale.

Of Measure 3-273, she said 'If it fails, we'll sell it.'

What your votes mean

A yes vote means the city should keep the building, and a no vote directs the city to sell it.

The Safeco building and the city's plans to use it for a community center or a number of other city services, have proven to be a divisive issue in Lake Oswego.

Two groups claim to have the city's best interests in mind. And both sides believe they have the better vision for the city's future.

Backing the retention of the Safeco building is Our City, Our Future.

Backing Measure 3-269 is Ask Lake Oswegans, a group that formed last spring to bring the charter amendment idea before voters.

'We are the visionaries,' said Mary Olson, a member of Ask Lake Oswegans. The pro-Safeco building contingent, Olson said, is 'loading us up with debt.'

'I see this as a downward spiral for this town,' said Olson, who said the city is already too expensive for young families to move to and will be even further out of reach if property taxes increase.

'This community is always extremely supportive of measures,' said Hammerstad, pointing out the $85 million Lake Oswego School District bond measure passed in 2000. 'We typically pass everything,' she said. 'If people take time to read this measure, they will understand it.'

With the purchase of the $20 million Safeco building behind it, the city estimates the annual property tax would be $105 per $300,000 of assessed value of a property.

BOORA Architects, hired by the city to come up with a plan for a community center, estimated the remodel cost of the the 89,000-square-foot-building Safeco building would be $60 million. Possible features would include adding two pools, a two-court gym, a fitness center, an indoor track and meeting rooms.

The $60 million would cost $315 a year per $300,000 assessed value. However, the city would not likely put such a bond measure before voters until 2010. And city officials point out that they could enter a public/private partnership with a company to help fund the renovations.

Developing the site four years after the city purchased it may not have been what city officials originally envisioned. Hammerstad said former City Manager Douglas Schmitz brought to the council the idea of buying the property to possibly use as a community center.

'We knew we had other needs too,' said Hammerstad.

Included in those other possible uses are moving the library from First Addition to the Safeco building, moving city hall into the building and moving the police and 9-1-1 call center there, as well.

Survey says?

The city initially pursued the community center idea and found a luke-warm response from citizens. A February 2005 poll of Lake Oswego residents found that only 36 percent of respondents liked the idea of a new community center. Nineteen percent were very supportive of the idea and 17 percent were mildly supportive.

At that time, the respondents were asked if they would be in favor of spending $27 million for the center. The survey question did not include the $20 million purchase price for Safeco.

Opponents of the Safeco purchase use the February 2005 survey as evidence that Oswegans aren't behind building a new community center.

Debbie Craig, co-chair of Our City, Our Future, said 36 percent is actually a good showing for an initial poll and people would warm up to the idea.

But, as city officials pursued the idea of purchasing the Safeco building, another big-ticket item took precedent: The $100 million lake interceptor project. Required by the state Department of Environmental Quality, the new sewer line became a necessity in early 2006.

The design portion of the under-the-lake project has begun. The line will likely be paid for through a series of increases in sewer fees to Lake Oswego residents. Those increases will cost about $400 for utility customers during the next 10 years.

Though faced with the interceptor project, the city went ahead with the purchase of Safeco for $20 million. The city officially bought the property July 10, 2006. As part of the purchase agreement, the city allowed Safeco to continue using the building for about five months after the deal closed.

For Hammerstad, Schmitz and members of Our City, Our Future, purchasing Safeco was a no-brainer.

'Kruse Way has the hottest property in the Portland area,' said Craig. 'While we're holding that building, it's making a lot of money.'

She said the property in recent years, on average, has increased about 12 percent a year.

Operating costs

The city is paying about $1 million a year in interest, at a current rate of about 5 percent. Because the property is appreciating at about 12 percent - 7 percent more than the interest rate - the value of the property 'is outstripping' the cost of the interest rate, according to Hammerstad.

However, the city is spending about $300,000 annually to operate and maintain Safeco, and it has spent $213,000 in renovations for the Parks and Recreation Department, as well as $342,000 for design consulting. It has also spent $104,000 in additional upgrades. In addition, the city is losing about $50,000 in tax revenues annually, which is what Safeco paid to the city in its last year in the building.

John Surrett, spokesperson for Ask Lake Oswegans, said, to date, he estimates the city has spent about $22.5 million on the building. City Finance Director Richard Seals said that figure is accurate.

Craig and Hammerstad are assuming commercial real estate values will continue to trend upward, despite the recent downturn in the residential market.

Hammerstad said she believes that, if the city were to sell the property today, it could fetch $25 million.

Surrett said he believes the city would take a loss of several million below the $20 million purchase price, if the property had to be sold now. 'The city would be lucky to get $20 million,' he said.

Because of the property's location and size, Craig said the purchase was a 'once-in-a-lifetime opportunity' She compared the Safeco site to Vancouver B.C.'s Stanley Park, in terms of a city purchasing a strategic site.

'It would be a tragedy to lose the Safeco site.'

But, because of the sewer interceptor project, the city has elected to shelve any immediate plans to use the building as a community center. The soonest that the city would bring the idea to voters, in the form of a bond measure to fund a community center, would be 2010.

If voters pass this November's measure to keep the property, the city would next ask voters if they will approve general obligation bonds to buy it.

If it is not used for a community center, Hammerstad said the building has other potential uses: A police and 9-1-1 center, a library book drop-off area or possibly a therapy pool, in a partnership with a local hospital. The city has also looked into the idea of moving the library in First Addition to the site, as well as city hall.

'There's lots of possibilities,' said Hammerstad. Meanwhile, she added, 'The community center is offline.'

Already, the city's Parks and Recreation Department has moved 13 full-time employees into Safeco. The city has spent $213,000 on renovations in order to host Parks and Rec programs, including dance and art, and a teen lounge area.

For Surrett and his group, the Safeco purchase is too heavy a financial burden to load on Lake Oswego taxpayers.

He said the more pressing project is the $100 million interceptor line.

'The process used to make the Safeco (purchase) decision was horrible,' said Surrett.

'When I talk to people, they say 'I can't afford it anymore,'' said Mary Olson of Ask Lake Oswegans. 'The people who say they have a vision don't care what the costs are and how it will affect people. It's very elitist.'

Onerous amendment?

It is the process of the Safeco purchase that motivated Surrett and 140 volunteer petition gatherers to request Measure 3-269 make the November ballot.

'We want to affect change through public policy,' he said.

Measure 3-269 is seen by proponents as a way to keep the city accountable for its land purchases, and by opponents as a way to limit the power of government.

'This has to do with limiting councilors' abilities to govern effectively,' Craig said. 'The charter amendment will have a detrimental effect on the city now and forever.'

'I don't think we'll ever buy another piece of property,' if the city passes the charter amendment, Hammerstad said. 'This is about tying the hands of government.'

Former Lake Oswego Mayor Alice Schlenker said she is for the charter amendment. She said a 'guiding principle' in Lake Oswego government is to ask voters to approve expenditures like Safeco before buying them.

'The city council did something extraordinary,' said Schlenker. 'The council indebted us without coming to the public. I feel that we need to hold the city council accountable.'

The measure would make the city go to voters for approval of property purchases of more than $2 million. There would be two exceptions: Property purchases for public health and safety, such as property for a fire station, and property purchases that are part of a voter-approved urban renewal plan.

It would also be retroactive to the Safeco purchase, meaning that voters would have a chance to say yes or no to the purchase in March of next year.

Craig said the charter amendment would force the city to wait for an election to put property purchases before voters, which could hamper the price-negotiation process.

'It would be a bureaucratic nightmare,' she said. 'It is not as nimble and quick and it would allow developers to snap up properties.'

'It might be impossible to describe the property within the word limit' of a ballot title, she added.

20-word limit

In addition, opponents of the measure say that the $2 million figure is too low and the city would constantly need to go to voters for land purchases.

Craig based that claim on the assumption that land prices will increase 12 percent annually, as they have in the last decade.

She said that the measure would force the city to go to voters if two contiguous lots are purchased separately and amount to $2 million or more.

City Attorney David Powell said the charter amendment requires that the city explain in the ballot question the purchase price for the property, the description of the property, the total cost of anticipated debt service, the purpose of the purchase and the sources of the funds to purchase the property, as well as the administrative cost, legal expenses and closing costs.

Technically, he said, it would be impossible to squeeze that much information in the 20-word limit of a ballot question, as would be required in the charter amendment.

If the city were allowed to explain that information in the ballot summary statement, which allows up to 175 words, he said it would be possible.

The property might have to be taken off the market while the city and seller wait for the outcome of the vote, said Powell. The seller might charge the city 'for the privilege of not selling the property to someone else,' during that period, he said.

The city would have to put the matter before voters during one of the elections in March, May, September or November. The city would not have to pay for including the measure during a general election in an even-numbered year, but the cost for a special election could be $15,000 to $20,000.

City officials say no other city in Oregon has a law in effect as restrictive as 3-269.

Craig Prosser, city manager of Tigard, and a resident of Lake Oswego, said his city has 'nothing similar' to the proposed charter amendment.

But he added: 'We have a provision in the charter that requires a citywide vote to approve the use of tax increment financing in an urban renewal district.' The expenditure limitation is established by the urban renewal plan.

Jonathan Puskas, co-chair of Our City, Our Future, said the charter amendment strips the council of its decision-making authority.

'Our elected officials are elected to lead, not follow,' he said. 'That's the difference between democracy and anarchy.'

'This is not about the Safeco acquisition,' Puskas added. 'It's about how you allow our elected leaders to govern.'

Surrett and Olson said the city rarely makes land purchases of more than $2 million, so the charter amendment would rarely take effect.

In the last decade, the city has made two such purchases: The $2.26 million purchase in December 2001 of the U.S. Bank property on State Street, and the Millennium Plaza Park property for $2.2 million in September 1997.

'The voters need a chance to weigh in on these decisions,' said Surrett.

Olson said she doubts the city will need to make many property purchases of $2 million or more. 'This town is built-out,' she said. 'What are we going to buy? We already have wonderful parks.'

Because the city bought the property with the intention of using it for a community center, and because the community center proposal is off the table for at least two years, Surrett said it is wrong to hold on to the property.

'The city of Lake Oswego is not in the property-speculation business,' he said.

Schlenker, who was elected as mayor in 1989 and served through 1996, said the city has too many other infrastructure projects to also afford Safeco.

'I think you have to make some tough choices and I do not see how, as a homeowner, I can fully fund those projects,' she said. 'A community center is an alluring project, but not a necessity.'

Olson said she wants voters to have a voice in property purchases.

'I got involved in this camp because my sole interest is to give people a vote,' she said.

'Safeco is a once-in-a-lifetime opportunity,' Hammerstad said. 'You just don't get 14 acres in the middle of your population center.'

CITY BALLOT MEASURES

Measure 3-269

Requires elections for city real property purchases exceeding $2 million.

Question:

Should the Lake Oswego City Charter require elections for city property purchases exceeding $2 million, retroactive to April 1, 2006?

Summary:

Amends the Lake Oswego City Charter to prevent the city from purchasing real property interests for more than $2 million without voter approval. Exempts purchases made to address direct threats to health or safety.

Purchases could not exceed voter-approved costs, including price, administrative costs, legal expenses and closing costs. The city could not accept property awarded by courts in condemnation cases for more than 20 percent over voter-approved costs.

Requires property purchased after April 1, 2006 for more than $2 million to be submitted for voter approval at the first available election date. Purchases not approved at that election must be placed for public sale within 180 days.

Amounts paid for adjoining lots purchased separately during a two-year period would be combined to determine if $2 million is exceeded. Requires elections for adoption of, or changes to, urban renewal plans that permit property purchases exceeding $2 million. Otherwise applies city purchase restrictions, and election requirements, to any urban renewal agency.

Allows $2 million threshold to be increased per U.S. consumer price index.

Measure 3-273

Vote on retaining city ownership of the former Safeco property.

Question:

Should the former Safeco Insurance property, at 4101 Kruse Way, be retained in city ownership?

Summary:

On July 7, 2006, the city of Lake Oswego purchased the former Safeco Insurance property at 4101 Kruse Way, consisting of 14.08 acres with improvements including an 88,872 square foot office building.

The purchase price was $20 million. Closing costs and fees totaled $684. The final determination of how the property will be used has not yet occurred. Potential uses could include combined public and private uses.

If the purchase is refinanced through general obligation bonds (which would require voter approval at a future election), it is estimated that property taxes would increase by $105 per year for a home having the average 2006/2007 Lake Oswego assessed value (not market value) of $300,000. A 'yes' vote on this measure directs that the property should be retained by the city, rather than being sold. A 'yes' vote does not endorse any particular use for the property. A 'no' vote directs the Lake Oswego City Council to sell the property.

Safeco Building property profile:

Total acres: 14.2

Developable acreage for building and parking: 8.2

Wetlands, stream corridors and resource conservation property: 6 acres

Building square footage: 89,000

Square footage currently used by city: 30,000

Zoned: Commercial

- Source, city of Lake Oswego

Costs for Safeco Building:

Purchase price: $20 million

Community center renovation cost: $60 million

Annual interest on loan: $1 million

Annual maintenance cost: $300,000

Already completed renovation costs for Parks and Recreation Department: $213,000

Already completed one-time costs for upgrade: $104,000

Consultant costs for community center design work: $342,000

Lost annual tax revenue to city from Safeco owning building: $50,000

Potential annual revenue from leasing Safeco Building: $900,000.

- Source, city of Lake Oswego

Existing city debt:

General obligation bonds: $28 million

Revenue bonds: $8 million

Urban renewal bonds: $17 million

Line of credit: $20 million

Moody's Investors Service's rating to the city of Lake Oswego for water revenue bonds: Aa2

- Source, city of Lake Oswego

Upcoming projects:

Sewer interceptor: $100 million, an average of $16 a month for utility customers over next 10 years. After that, the cost would be about $33 a month for the remainder of the bond - five to 10 years.

Surface water projects: $5 million, $8 per year per customer

Water treatment plant improvements: $5 million, $3 per year per customer

- Source, city of Lake Oswego

Other possible projects:

Safeco site purchase: $20 million, or $105 annually per $300,000 assessed value

Community Center: $60 million, or $315 annually per $300,000 assessed value

Portland to Lake Oswego streetcar: $185 million, of which $23 million to $57 million would be shared by local municipalities and agencies. Project could start as early as 2013, and be paid for through tax increment financing or a local improvement district.

Upgrade of water treatment plant: $135 million, of which Lake Oswego would pay between $52 million and $78 million. Project could start as early as 2011 and may be paid for through utility rates.

Lake Grove Village Center Plan: Cost still undetermined. Could begin in 2009, and be paid for through an urban renewal district or tax increment financing.

- Source, city of Lake Oswego and Metro

Key Dates

Special Election: Nov.6

and bull; Friday, Sept. 21 -Ballots mailed to military / overseas voters.

and bull; Monday, Oct. 8 - Ballots sent out to out-of-state voters.

and bull; Wednesday to Friday, Oct. 10 to 12 - State voters' pamphlet mailed out (statewide measure information only).

and bull; Tuesday, Oct. 16 - Last day for voter registration for new Oregon Voters.

and bull; Friday, Oct. 19 - Ballots mailed out.

and bull; Tuesday, Nov. 6 - Election Day.

- Source, Clackamas County Election Web site.

Top contributors

Our City Our Future PAC

1. Charles O'Leary: $2,000

2. Barry Cain: $1,500

3. Erin O. Meadors: $1,093

4. 555 2nd St.: $1,000

5. Friends of Judie Hammerstad PAC: $1,000

6. Willamette Women Democrats: $600

7. Skip O'Neill: $500

8. Lake Oswego Chamber of Commerce: $450

9. Stephanie Wagner (Friends of Tryon Creek): $350

10. Friends of Lake Oswego Library Board: $300

Total: $8,793

Ask Me First PAC

1. Jay Woodworth: $ 1,210

2. Jacqueline Heydenrych: $1,000

3. J.A. Splidsboel: $850

4. John Bryan: $500

5. Brenda Hart: $500

6. Bill Mahorney: $500

7. Jeanne Hemphill: $500

8. Larry Zeigler: $450

9. Bob Harding: $350

10. Dick Johnson: $300

Total: $6,160

- Source, Oregon Secretary of State's Web site as of Tuesday.