OHSU CALLS UPON CITY TO CONTINUE TRAM CONSTRUCTION, DELIVERS DEFAULT NOTICE TO CITY
A legal analysis concludes that the city has a clear legal obligation to finish the tram and fund all costs above $40 million; OHSU notice of default preserves option for potential legal action
Oregon Health & Science University called upon Portland city commissioners Tuesday to authorize additional construction on the Portland Aerial Tram, and to approve a funding agreement that shares cost overruns of the city-managed project among the city and its development partners.
Also on Tuesday OHSU delivered a notice of default to the city of Portland under the South Waterfront Central District Development Agreement (DA) to preserve OHSU’s option to go to court to compel the city to keep tram construction moving forward.
"The City Council has a clear choice: approve a funding proposal that meets the affordable housing, greenway and other needs of the South Waterfront District in addition to the tram, or incur the high financial and other costs associated with attempting to shut down the tram construction," said Steve Stadum, OHSU chief administrative officer.
"Our intent is to work out a mutually satisfactory funding arrangement that gets the tram built, not to go to court," Stadum said. "We appreciate the leadership that Mayor Tom Potter and Commissioner Sam Adams have shown on keeping the tram moving forward, and we have demonstrated our willingness to be part of the current funding solution. No one wants litigation. That doesn’t serve anyone’s purpose. But the city has an obligation to finish this project."
OHSU delivered the notice of default as a result of statements of city officers and employees declaring the city’s refusal to complete construction of the tram. The notice does not mean that OHSU is suing the city, but under the DA, it is a step that OHSU must take now in order to preserve its option to do so. Having given notice, if the city does not cure the default, OHSU can then go to court to compel the city to keep tram construction moving forward.
Negotiations still are under way over a proposal for filling the current funding gap put forward March 16 by the Portland Development Commission. Under that proposal, OHSU would increase its tram funding by $7.5 million to $38.2 million. "OHSU has stepped up – again – and offered to provide a substantial share of the new funding even though we aren’t legally obligated to do so and even though this project is completely under city management," Stadum said.
OHSU delivered the default notice after an outside legal analysis conducted by David B. Markowitz of the Portland law firm of Markowitz Herbold Glade & Mehlhaf PC, on behalf of OHSU, concluded that the City is legally obligated to deliver the tram, and is liable for any tram construction expenses above $40 million.
The analysis was delivered to City Attorney Linda Meng on March 31.
After reviewing the DA, its amendments and related documents, as well as the various City Council resolutions approving the agreement and amendments, the law firm concluded that:
- The city of Portland has the legal obligation to deliver the tram;
- That obligation is not conditioned upon the tram being fully funded and in fact the city is responsible for any shortfall in the project budget above $40 million; and
- The City Attorney’s opinion to the contrary is not well founded.
Markowitz in his letter concluded that "… the DA places the risk of cost overruns squarely on the city’s shoulders." He wrote: "We believe that the city’s construction of selected portions of the DA language fails to take into consideration the structure of the DA as a whole, the role played by the related IGA’s (intergovernmental agreements) and other agreements, and the performance of those agreements so far."
Markowitz added: "The city is not in a position to now back away from the obligations it has repeatedly acknowledged and on which others have relied in committing many millions of dollars."