Title
Recommendation to Authorize the City Manager to Execute a Water Infrastructure Agreement for Alameda Point with East Bay Municipal Utility District (EBMUD) to: (1) Address the Implementation of New Water Infrastructure in the Reuse Area; and (2) Extend the Existing Short-Term Maintenance and Operations Agreement for the Existing Water System and (3) Accept Credits in System Capacity and Wastewater Capacity Fees from EBMUD. (Base Reuse 819099)
Body
To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Recommendation to Authorize the City Manager to Execute a Water Infrastructure Agreement for Alameda Point with East Bay Municipal Utility District (EBMUD) to: (1) Address the Implementation of New Water Infrastructure in the Reuse Area; and (2) Extend the Existing Short-Term Maintenance and Operations Agreement for the Existing Water System and (3) Accept Credits in System Capacity and Wastewater Capacity Fees from EBMUD
BACKGROUND
Prior to closure of the former Naval Air Station Alameda (NAS Alameda), commonly referred to as Alameda Point, the United States Navy (Navy) designed, owned and operated the potable water system at Alameda Point (Navy Water System). Water was supplied to the Navy Water System by East Bay Municipal Utility District (EBMUD) through three master meters located on the perimeter of NAS Alameda. The Navy Water System was neither built, nor maintained to the standards of EBMUD.
In anticipation of the base closure, on May 2, 1997, EBMUD and the City entered into a Joint Exercise of Powers Agreement (JPA) under which EBMUD agreed to provide specified services to assist the City in meeting its potable water system related custodial responsibilities at Alameda Point in anticipation of the Navy Water System being upgraded and conveyed to EBMUD. Through a series of modifications and extensions the JPA was continued through March 31, 2017. On April 26, 2017, the City and EBMUD entered into a short-term services and operations agreement for six months until the issues surrounding implementing new infrastructure in the adaptive reuse areas at Alameda Point could be resolved, which is the topic of this evening’s item. Throughout the term of the JPA and short-term agreement, the City remained EBMUD’s customer, receiving water to Alameda Point through the same three master meters as the Navy.
On June 6, 2013, the Navy transferred approximately 509 acres of land and the Navy Water System to the City, subject to the Navy’s creation of a nationally registered historic district on Alameda Point (NAS Alameda Historic District), which limits the City’s ability to completely demolish and redevelop the buildings and streets within the NAS Alameda Historic District. The Navy conveyed subsequent property to the City in 2016 and 2017, resulting in the City’s ownership of a total of 551 acres at Alameda Point, and will transfer approximately 327 acres to the City as part of future conveyances.
On February 4, 2014, upon acquisition of major portions of Alameda Point from the Navy, the City Council approved the necessary planning documents for redevelopment of Alameda Point, including the Master Infrastructure Plan for Alameda Point (MIP). The approved MIP provides the master plan for the phased replacement of all of the Navy’s outdated and substandard utility infrastructure, including water, sewer, storm drain, electrical, gas, telecommunications, and surface street improvements at Alameda Point (New Infrastructure) prepared in concert with all of the outside utility providers, including EBMUD. The New Infrastructure includes construction of new EBMUD owned and operated water mains for potable water and fire protection systems compliant with EBMUD specifications and consistent with the MIP (Water System Replacements).
Pursuant to the MIP, New Infrastructure will be implemented differently in the Reuse Area than in the Development Areas as depicted in Exhibit 1, to address the specific infrastructure requirements needed to preserve the NAS Alameda Historic District in the Reuse Area. Due to the fact that the Reuse Area is comprised of the NAS Alameda Historic District that constrains the new development process, the buildings within the Reuse Area are planned to be sold and reused incrementally by private property owners on a parcel-by-parcel basis prior to New Infrastructure being constructed. Upon receipt of funds from the sale of the properties within the Reuse Area, the City will oversee the logical implementation of the New Infrastructure in the Reuse Area. The Development Area, such as areas like Site A, will be sold and developed by master developers that will construct New Infrastructure, including Water System Replacements, similar to other large-scale land development projects outside of Alameda Point and EBMUD’s mainline extension projects.
On July 5, 2014, the City of Alameda adopted the Alameda Point Development Impact Fee Ordinance (DIF) consistent with the MIP, which created a required mechanism for financing the New Infrastructure for Alameda Point based on the costs estimated in the MIP and escalated annually. The total cost of New Infrastructure is approximately $600 million or $1 million per acre. All new development and property transfers to private property owners require the payment of the DIF to fund New Infrastructure. The DIF payments, and any additional proceeds from the sale of land and buildings in the Reuse Area are required by the Navy to be reinvested back into Alameda Point, to implement the New Infrastructure (Reuse Proceeds).
Property owners within EBMUD’s service area must be EBMUD’s customers consistent with EBMUD’s regulations. In order to be a customer of EBMUD, a property owner must have direct access to Water System Replacements. The phased approach to financing and implementing the New Infrastructure contemplates the City selling parcels to private property owners within the Reuse Area (Reuse Parcels) before direct access to the Water System Replacements is constructed, which is inconsistent with EBMUD’s regulations.
Until direct access to Water System Replacements can be provided to the Reuse Parcels, the City will continue to provide water to the new owners through the Navy Water System. Thus, the City would remain the customer of record with EBMUD, would receive water from EBMUD through its master meters, and provide water to the Reuse Parcels within Alameda Point through its own water infrastructure until the Water System Replacements are constructed. At that time, property owners would then become EBMUD’s customers upon satisfaction of all payments and compliance with then existing EBMUD regulations and ordinances. EBMUD recognizes that it is in the City’s and EBMUD’s mutual interest to work together in implementing the MIP and New Infrastructure, including the Water System Replacements, for Alameda Point. The Water Infrastructure Agreement (Exhibit 2) is intended to set forth the process of the City and EBMUD working together and the detailed steps that the City will follow to finance and construct Water System Replacements in the Reuse Area and obtain compliance with EBMUD’s regulations.
DISCUSSION
As described above, the Water Infrastructure Agreement provides the detailed steps that the City will follow to implement the Water System Replacements in the Reuse Area to obtain compliance with EBMUD regulations. The following provides a summary of the key terms of the proposed agreement:
• Phasing Plan. The City, in consultation with its civil engineering consultants, have prepared a logical and cohesive plan for phasing the infrastructure in the Reuse Area (Phasing Plan) to address upgrades to infrastructure for the parcels with existing leases that include options to purchase. See Exhibit C of the Water Infrastructure Agreement for the Phasing Plan, which includes three phases, and indicates the buildings with purchase options. The Phasing Plan is not dependent on the infrastructure from Site A or the Department of Veteran’s Affairs outpatient clinic project (VA Project), although if these projects occur there could be improved infrastructure and cost efficiencies with implementing this Phasing Plan. All of the Water System Replacements must be a looped system that tie back to an EBMUD mainline in order to satisfy EBMUD specifications and regulations. This Phasing Plan is the City’s current plan for phasing of infrastructure in the Reuse Area based on available information and existing lease and sale agreements in the Reuse Area. The Water Infrastructure Agreement allows for other phasing plans to occur as long as they implement improvements that include a looped water system that tie back to an EBMUD mainline and a feasibility study is prepared and approved by EBMUD (see below).
• Feasibility Study. The City is required to demonstrate to EBMUD that sufficient Reuse Proceeds exist to implement the Water System Replacements through a feasibility study (Feasibility Study). The Feasibility Study is already prepared and approved by EBMUD for the Phasing Plan and is attached to the Water Infrastructure Agreement as Exhibit D. The Feasibility Study shows that through the sale of the buildings with purchase options more than sufficient Reuse Proceeds exist to implement the cost of the Water System Replacements in the Reuse Area, which cost approximately $14.4 million ($5.5 million for Phase 1, $5.9 million for Phase 2, and $3.0 million for Phase 3). That said, City staff may attempt to implement some or all of the New Infrastructure, including other wet and dry utilities and surface street reconstruction at the same time as the Water System Replacements to economize on trenching costs, if sufficient Reuse Proceeds exist. This may not be possible given the significant cost of the complete New Infrastructure estimated at $70 million for all phases within the Reuse Area ($18.4 million for Phase 1, $32 million for Phase 2, and $19.4 million for Phase 3) and the agreed upon timeline for complying with this agreement, as described in greater detail below. If the Water System Replacements are implemented separately from the other utilities and improvements, there is a marginal premium that the City will be paying, which is estimated at approximately $2 million or three percent of the total cost of New Infrastructure for these three phases.
• Detailed Implementation Process. The Water Infrastructure Agreement outlines a detailed process that the City must follow to implement the Water System Replacements within the Reuse Area triggered by the first sale of any property from the City to a private entity in a given phase. As shown in Exhibit D of the Water Infrastructure Agreement, the City expects the first parcels to sell to be Building 9 and 91 within Phase 1 of the Phasing Plan. Once the first sale occurs, the City is obligated to commence the design and engineering process for the Water System Replacements for Phase 1. This design and engineering process is estimated to take approximately 30 months before coming to the City Council with an award of construction contract and then another 18 to 24 months to complete construction for a total of over four years from commencement of design to completion of construction. As part of the design and engineering process, City staff will evaluate whether sufficient Reuse Proceeds exist to complete not just the Water System Replacements, but all or some portion of the New Infrastructure and be part of any subsequent recommendation to the City Council.
While the first sale of any of the parcels will generate sufficient Reuse Proceeds to complete the design and engineering process for any phase, and the Feasibility Study demonstrates that sufficient Reuse Proceeds should exist to complete the Water System Replacements for each of the phases in the Phasing Plan, there is a risk under certain instances that there may not be sufficient Reuse Proceeds to construct all of the Water System Replacements in a given phase, if subsequent sales of property do not occur. For instance, if the Building 91 sale of $3 million occurred first and no other sale occurred within the 30-month timeframe, there would be insufficient Reuse Proceeds to complete the full $5.5 million Phase 1 Water System Replacements or a $2.5 million funding gap. While it is likely other buildings will sell and additional sales proceeds will be available, it is a risk that other funds from the Lease Revenue Fund would be needed to pay any remaining gap in cost or else the City would be in violation of the Water Infrastructure Agreement. Lastly, all future property owners will be notified in a letter from the City, and required to acknowledge in writing, the water infrastructure situation in the Reuse Area and the Water Infrastructure Agreement. The sample letter is provided in Exhibit F of the Water Infrastructure Agreement.
• Service Agreement. On April 23, 2017, EBMUD and the City entered into a short-term six-month agreement (Short Term Agreement) for EBMUD to provide specific maintenance services for the Navy Water System at Alameda Point (Exhibit 3). The Water Infrastructure Agreement contemplates that if the City transfers fee title to a private owner in the Reuse Area prior to the expiration of the Short Term Agreement (October 23, 2017), the term of the Short Term Agreement will be extended for five years and EBMUD will continue to maintain and operate the Navy Water System and then will be extended for an additional five years if the City initiates a subsequent phase in the Reuse Area. EBMUD does not want to continue to operate the Navy Water System. After the ten-year period EBMUD will cease to provide maintenance services at Alameda Point and, if required, the City would retain a private contractor to provide maintenance services for the Navy Water System. City staff have already retained outside water experts to advise the City in the process and approach to privately contracting these services.
• System Capacity Charges and Credits for Water and Wastewater Use. As part of the Water System Replacement work, the City is required to connect all domestic and fire services to parcels fronting streets that contain the new EBMUD water system to the new EBMUD water main and facilitate owners and tenants becoming EBMUD customers in accordance with EBMUD’s regulations. At the time of sale or at the time the Water System Replacements are implemented (whichever is earlier) all of the tenants and owners who front or will front the Water System Replacements must pay all applicable fees, including the System Capacity Charges (SCC) and the Wastewater Capacity Fees (WCF), which are typically due when a business obtains water service before they open their business. The existing businesses at Alameda Point did not have to pay these charges prior to opening their businesses, which in many cases has been for years, unlike other businesses in the rest of Alameda.
That said, EBMUD has agreed to give the City a credit for the future elimination of the three master meters of $19.5 million for SCC and $7 million for WCF at the time the Water Infrastructure Agreement is executed instead of at the later date when the master meters are actually eliminated (see Exhibit E of the Water Infrastructure Agreement). This provides a greater credit amount to the City because the credits are based on a 10-year historic average of water use, which is higher now than when the master meters will actually be eliminated, as water usage will gradually decrease over time as water improvements are constructed and there is lower usage of water flowing through the Navy’s former master meters. These credits could be used to offset the SCC and WCF for new projects in the Development Area and new businesses in the Reuse Areas at the City Council’s discretion. Specifically, new multi-family housing projects pay approximately $11,800 per unit and in the range of $6 per square foot for an industrial user with high water usage for both SCC and WCF. For example, a residential project of 800 multi-family housing units would pay approximately $9.4 million and an industrial project of 50,000 square feet would pay approximately $300,000 in SCC and WCF to EBMUD. City staff will bring a subsequent action item to the City Council to provide direction on how the City should allocate these SCC and WCF credits to future users.
The Water Infrastructure Agreement is crucial to moving forward with incremental property sales in the Reuse Area, which allows the City to finance New Infrastructure in this area and attract high intensity employment generating businesses. EBMUD has taken the position that if property sales were to occur in the Reuse Area prior to or without the Water Infrastructure Agreement being executed, then individual parcels would be out of compliance with EBMUD’s regulations and would be required to install expensive water main extensions, effectively rendering these projects infeasible or the City may face legal action by EBMUD.
FINANCIAL IMPACT
There is no impact to the General Fund as a result of this action. As described above, the first sale of any of the parcels will generate sufficient Reuse Proceeds to complete the design and engineering process for any phase, and the Feasibility Study demonstrates that sufficient Reuse Proceeds should exist to complete the Water System Replacements for each of the phases in the Phasing Plan. That said, there is a risk under certain instances that there may not be sufficient Reuse Proceeds to construct all of the Water System Replacements in a given phase, if subsequent sales of property do not occur before award of construction contract. For instance, if the Building 91 sale of $3 million occurred first and no other sale occurred within the 30-month timeframe, there would be insufficient Reuse Proceeds to complete the full $5.5 million Phase 1 Water System Replacements or a $2.5 million funding gap. While it is likely other buildings will sell and generate additional sale proceeds to cover the gap, it is a risk that monies from the Lease Revenue Fund would be needed to pay any remaining gap in cost or else the City would be in violation of the Water Infrastructure Agreement. All Reuse Proceeds from the Reuse Parcels will be deposited into a separate account and used to pay for the New Infrastructure, including the Water System Replacements.
The City will pay EBMUD for its actual costs to provide services as specified in the Short-Term Agreement. In addition, the routine maintenance costs will be limited to $10,000 per month or less. The emergency services will be subject to $40,000 per repair event, unless the City provides oral and then written approval to go over this amount.
ENVIRONMENTAL REVIEW
On February 4, 2014, the City of Alameda certified the Alameda Point Final EIR in compliance with the California Environmental Quality Act (CEQA). The Final EIR evaluated the environmental impacts of redevelopment and reuse of the lands at Alameda Point consistent with the Alameda Point Zoning Ordinance and MIP, which included the Reuse Area. No further review is required for this review of this agreement.
RECOMMENDATION
Authorize the City Manager to execute a Water Infrastructure Agreement for Alameda Point with East Bay Municipal Utility District to: (1) address the implementation of new water infrastructure in the Reuse Area; (2) extend the existing Short-Term Maintenance and Operations Agreement for the existing water system; and (3) accept credits in System Capacity Charges and Wastewater Capacity Fees from EBMUD.
Respectfully submitted,
Jennifer Ott, Base Reuse & Transportation Planning Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Map of Reuse and Development Areas
2. Ten-Year Water Infrastructure Agreement Between East Bay Municipal Utility District and City of Alameda Regarding Alameda Point
3. Short Term Agreement for Operations and Maintenance of Existing Water System at Alameda Point