This IS The Right Time!

One of the common reactions to the proposed new Central Library for the Madison Public Library system is:

"I support this project, but think it should be delayed for a few years until the economy recovers."

This would seem to be a reasonable, but to further delay action will be costly.

Why? ... Because we have a rare opportunity as a community to build a new library for a small fraction of its usual cost due to a unique confluence of factors:

1. Historically low interest rates. Just as if you were buying a new house, the City will borrow the capital to fund this construction and repay it over time. (Because Madison is so fiscally conservative, it plans to pay this "mortgage" back in only 10 years.) Interest rates on municipal debt are now lower than they've been since Lyndon Johnson was in the White House.

These rates are not expected to remain this low for long.

2. Federal subsidy is currently available under the New Markets Tax Credit program that is expected to range from $6 - 8 million. The City funding commitment is only $17 million - out of a total budget cost of $37 million.

The New Markets Tax Credit program is currently set to expire after 2010.

3. Construction prices are currently depressed. The estimated cost to build the library is $6 million lower today than it was one year ago. However, material costs are already beginning to move upward.

In short, there has never been - nor may ever be - a better opportunity in our lifetimes to make this much needed investment in the Madison Public Library system.

The Mayor's office has estimated that the cost on the average Madison home will average $17 per year starting in 2011. And when the debt is paid off after 10 years, the City will continue to enjoy new tax revenues from the redevelopment of Block 66 for decades to come thereafter.

This investment is worth it. And we owe it to future generations to act wisely now.

A Conservative Economic Analysis

One of the important factors that weighed in Mayor Cieslewicz's decision to support the new Central Library is the impact analysis performed by Andrew Statz, his Fiscal Efficiency Auditor. He described this analysis in a powerpoint presentation to the Common Council on August 27, 2009.

Everyone acknowledges that significant new tax revenues will flow to the City from redevelopment of the existing library site. Indeed, our team estimated that these new revenues could exceed $100 million over a 50-year horizon, including just the City portion of property taxes and room taxes. However, before putting this project in his 2010 capital budget request, Mayor Cieslewicz wanted to take a look at this from a very cautious and conservative perspective.

Statz did this in his comparison of the costs and benefits of the proposed project with those of the remodeling alternative. His conclusion was that in a worst case scenario the net cost to taxpayers over a 15-year horizon would be no greater for the new library than the remodel. Under expected conditions, the new library will actually be $8 millions less.

What makes his assumptions conservative?

1. A 15-year analysis period was used. This timeframe covers repayment of all City debt and results in four years where the tax revenues exceed the debt service costs. However, tax base created by the Phase II development will generate revenues to the City for decades thereafter.

2. Debt service costs were estimated assuming a 5% interest rate. Current ten year rates for municipal bonds are 3.3% - and federal "recovery zone" subsidies could reduce this rate even further.

3. Property tax rates and assessments are projected to decline every year during the analysis period. In contrast, Fiore-Irgens projections reflected a 2.5% average increase in property taxes.

4. The "status quo" value of Block 66 is escalated by 4% annually to determine the increased property taxes. On the other hand, the value of the fully-improved Block 66 is assumed to increase by only 2%.

We are cautious investors ourselves, and generally approve this approach. After all, if a project still makes sense when the assumptions are stacked against it, you know you have a good one!

Briefing Memorandum

At the request of the Madison Common Council, we prepared a brief that addresses many "frequently asked questions." Topics covered include:

• Public Library Role
• Central Library Role / Issues
• New Library Development
• Design Questions
• Economic Benefits
• Timing / Funding Concerns
• Rehab of Existing Building Alternative

If you are interested, you can download a copy here.

Should Madison simply remodel the existing library building?

At a minimum, the existing building requires mechanical and structural repairs in excess of $8 million. These expenditures would be funded exclusively by City of Madison taxpayers, and these maintenance expenditures will not make any improvement to the interior or exterior appearance, nor improve the functionality, of the library.

We’ve seen several proposals over the past decade that promised significant improvements to the existing building. Fiore-Irgens estimates that a comprehensive budget for renovation of the library would cost at least $30 million, and this estimate is consistent with the findings from two prior renovation studies by the Madison Public Library, which both estimated renovation costs at $28 - $30 million.

But when comparing options it is important to compare both costs and benefits. Even with $30 million of improvement, the renovated library would perpetuate the following deficiencies:

o Lack of natural day lighting. The entire rear elevation of the existing library is without windows and 40% of building area is below grade.

o Low ceiling heights. The two public floors of the existing library are 14 ft high from floor to floor, which yields a finished ceiling around 9’. This ceiling height is inadequate for effective utilization of natural daylight, will consume more energy for lighting and will still present a dark, institutional environment. It will also continue a displeasing sense of proportion in the space. Larger floor areas demand higher ceiling heights.

o Compromised Functionality and Less Public Space. The remodeled library would consist of two and a half floors (75,000 SF) above-grade including a new third floor addition. The remaining area (23,000 SF) is very low quality storage/mechanical space located in the basement level. A substantial portion of the collection will remain inaccessible to the public in this area.

o Limited Meeting Space. The remodeled library allows just 4,200 SF of meeting space, which is only a modest increase from the existing facility.

o Lack of Parking. The lack of connected parking at the existing Central Library diminishes its ability to serve as a community-wide destination.

o Limited Visibility and Exposure. The building itself is out of scale with surrounding uses, and the Mifflin Street location provides poor visibility within the community.

Most significantly, a remodel "compromise" would cement the existing under-utilized condition of this site for one or more generations and foreclose the opportunity for the City to realize the “highest and best use” of the entire block. This would be a tragic lost opportunity for Madison taxpayers. Based on the City Assessor’s estimates, building a new Central Library on West Washington Avenue will unlock future City of Madison tax revenues on Block 66 to the tune of $25 million over the twenty year period that follows construction.