$179 million DOT building project to be finalized tomorrow?

Well this is an interesting surprise, as the Legislature’s Joint Finance Committee is going to be called in tomorrow to vote on the proposed construction and sale of land at and around the Wisconsin Department of Transportation’s Hill Farms office building on the west side of Madison.

The DOT headquarters development would cost about $177 million, plus $2 million more to pay off debt on existing properties involved.

That's less than the original estimate of $197 million because of higher prices from the land sale and costs savings gleaned from the proposed building and garage, administration spokesman Cullen Werwie said. The new headquarters would have 600,000 square feet, house between 2,000 and 2,500 employees, and be built to last another 50 years….

If the budget panel approves the plan Thursday, work could start within weeks, with the ramp completed by late 2016 or early 2017 and the new building by early 2018, Werwie said. The new structures would be built on the current parking lot and land, so the DOT employees could remain in the existing Hill Farms building until their new offices are finished.

The new state office building at Hill Farms would be a behemoth nearly twice the size of the current Hill Farms buildings. And in addition to DOT, the following agencies would move into this complex.

Employee Trust Funds
Public Service Commission
Office of Commissioner of Insurance
Department of Financial Institutions
Wisconsin Economic Development Corporation
DOA (Division of Hearings and Appeals)

As for the prices the state will receive for its land, the state would receive just over $12 million for the nearly 14 acres that won’t be part of the new Hill Farms building- in line with an appraisal made on the property. In addition, the state would also sell the Badger Road Property that ETF’s headquarters is at for $1 million- well below the $2.845 million the appraiser set, but above the $522,700 that Smith Gilbane originally offered to pay.

The Legislative Fiscal Bureau says that the money from these sales would first go toward paying off any remaining expenses in the current state buildings, and the rest would basically be a down payment toward the new Hill Farms buildings (reducing further debt service costs), and would not be used to fill any future budget holes.

DOA indicates that the $2,054,000 is still owed on the Hill Farms and Badger Road properties.DOA indicates that the remaining proceeds after this debt is retired would be used to reduce the amount of debt issued to purchase the new Hill Farms state office facility and parking structure from the project developer, rather than to retire other outstanding debt obligations of the state.

The LFB paper also notes that there was a cost-benefit analysis done on the site which said that remodeling Hill Farms now and replacing it in 20 years would cost more than double the amount it costs to replace it today. And higher-paying tenants taking spots in the parking garage would offset more of these costs.

Under the analysis, two primary differences between the two sites are identified. Under the alternative to the proposed Hill Farms state office facility, the costs of replacing the DOT office facility in 2035 would inflate to an estimated net cost, after the sale of lands, of $400.7 million, compared to the $179.3 million in estimated costs for the facility in 2015 under the proposed site. Secondly, one of the primary differences in revenues between two alternatives involves the difference in parking revenue at the Hill Farms site under each alternative. The analysis projects that the new Hill Farms state office facility would have 1,700 stalls, with parking tenants paying a monthly rate of $100 per stall for total annual revenue of $2,040,000. Comparatively, it is projected that the existing DOT facility surface lot structure would generate only around $50,000 per year in the early years of the analysis and would grow to only $116,000 by 2035, the year in which the existing facility is to be replaced under that alternative.

Overall, over the 50-year period, the consultant's analysis indicates that the proposed Hill Farms state office facility development would generate sufficient rents to cover annual debt service costs on bonds issued for the facility. The analysis also indicates that the development would have a higher benefit to the state than the alternative scenario whereby the state remains in the existing DOT facility for 20 years and then replaces that facility.

Also noteworthy is that the DOA and its consultants say the new building at Hill Farms would improve the efficiency of several current state office spaces due to a new configuration which leads to a smaller footprint, as well as the “all-in-one-place” setup for those departments, instead of being spread across multiple sites. This would result in a projected annual savings of over $600,000 a year. The DOA also says another $1 million a year in savings could be realized due to improved energy measures and infrastructure.

I’ve had my questions about this development in the past, since the deal was largely done through private negotiations by the Walker Administration with the various bidders. Given this crew, that should set off red flags by itself, but the LFB analysis indicates much of this seems to have been on the up-and-up. From the state side of things, my only question is whether it should be selling off such prime land in a booming town like Madison, and not holding out until the new Hill Farms building is nearly up and the employees are working at the site, which may lead to a potentially better deal.

I also wonder why the City of Madison has been largely shut out of this deal, since the city will likely have to pay for impacts that might result from more traffic around University Avenue and Segoe Road (I’ll note that this part of University Ave. was just reconstructed a couple of years ago). On the flip side, as a Madison homeowner, adding hundreds of millions of dollars in tax base could be pretty helpful, and keep my property taxes in check a bit.

Of course, they’re planning to bring this Hill Farms sale up to the JFC on the same day that an Assembly Committee will try to vote on election finance deform reform, and when the state’s Annual Fiscal Report comes out. That’s another reason for concern, because it’s a classic WisGOP strategy to throw as much bullshit together at once so you can’t get them all, but at first glance, it looks like the state may end up doing OK with this new Hill Farms project. And while I'll skeptical of the way they went around doing it, I’m apt to say the project should be given the go-ahead tomorrow.