Title
Recommendation to Approve Allocation of Fee Credits for East Bay Municipal Utility District System Capacity Charges (SCC) and Wastewater Capacity Fees (WCF) at Alameda Point for City Facilities, Existing Tenants and Upcoming Transactions and Provide Direction on Criteria for Allocation of Fee Credits for Future Projects. (Base Reuse 819099)
Body
To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Recommendation to Approve Allocation of Fee Credits for East Bay Municipal Utility District System Capacity Charges and Wastewater Capacity Fees at Alameda Point for City Facilities, Existing Tenants and Upcoming Transactions and Provide Direction on Criteria for Allocation of Fee Credits for Future Projects
BACKGROUND
On June 6, 2017, the City Council approved a Water Infrastructure Agreement for Alameda Point with East Bay Municipal Utility District (EBMUD), which would implement New Water Infrastructure in the Reuse Area consistent with EBMUD regulations and specifications. The transition to the New Water Infrastructure in the Reuse Area will be implemented in phases as properties are sold to private owners and the sales proceeds contribute to the design and construction of the New Water Infrastructure. Exhibit 1 depicts the Phasing Plan for New Water Infrastructure in the Reuse Area.
As part of the New Water Infrastructure 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 New Water Infrastructure are implemented (whichever is earlier) all of the tenants and owners who front or will front the New Water Infrastructure 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.
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, which occurred on June 14, 2017, instead of at the later date when the master meters are actually eliminated. 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 City facilities, existing and future tenants and transactions in the Reuse Area and new projects in the Development Area at the City Council’s discretion. Exhibits 2 and 3 describe how the SCC and WCF credits and payments are implemented as outlined in Water Infrastructure Agreement.
DISCUSSION
By approving this staff recommendation, the City Council is authorizing the allocation of SCC and WCF credits to: (1) all City facilities; (2) all existing tenanted buildings affected by the Phasing Plan; (3) all buildings with purchase options affected by the Phasing Plan; and (4) 35 percent of SCC and WCF charges for the Phase 1 development for Site A. Additionally, this staff report recommends criteria for how the City should allocate remaining SCC and WCF credits to future users and transactions. The following table summarizes staff’s recommendation:
The detailed calculation of these credits by tenant and transaction and the water infrastructure assumptions are provided in Exhibit 4. The estimates for meter size are based on consultation with a civil engineering consultant and EMBUD’s most recent fee schedule, and include a 20 percent contingency. The following provides a brief description of the recommended credits by type of building and transaction and staff’s justification for the percent allocation.
I. City Facilities
The City should ensure that there are sufficient credits to offset the SCC and WCF to be charged to the City for all existing City facilities throughout Alameda Point. As a result, the SCC and WCF was estimated for all existing public irrigation meters and meters for existing and future City facilities in the Reuse Area. These facilities include City Hall West, the Alameda Point Gym, O’Club, City facilities in Building 2, and a reserve for other potential City facilities in the Reuse Area, such as an upgraded Fire Station in Building 6. The SCC and WCF for City facilities in the Development Areas will be paid for by developers as part of a master development. This results in an estimated credit of approximately $3 million in SCC and $1 million for WCF (Exhibit 4).
II. Existing Tenanted Buildings
Consistent with economic development practice, City staff recommends that the City then use the credits to prioritize the retention of its base of existing tenants. The existing tenants affected by the New Water Infrastructure in the Phasing Plan generate significant annual revenue to the City of approximately $2.2 million, and employ approximately 1,500 people. Additionally, many of them have been long-term tenants at Alameda Point that have taken risks by investing in a former Navy base with deteriorating infrastructure. Existing tenants potentially affected by these payments include Rockwall Winery, Saildrone, Proximo Spirts, Faction Brewery, Delphi Productions, CoachWorks, Pacific Fine Foods, Wonky Kitchen, and Alameda Point Collaborative, among several others.
Cultivating these existing tenants is one of the City’s key strategies for the expansion and attraction of new employment generating uses, and the unexpected payment of significant SCC and WCF could adversely affect them. While the City’s leases require tenants to pay any required fees, the existing tenants are not currently anticipating having to pay these charges and may not have the financial ability to do so. As a result, City staff is recommending that the City allocate sufficient credits to all of the existing tenants affected by the implementation of the New Water Infrastructure in the Phasing Plan. This results in an estimated credit of approximately $3.5 million in SCC and $2.5 million for WCF (Exhibit 4).
All unoccupied buildings in the Reuse Area leased in the future will be explicitly required to pay their SCC and WCF at the time of occupancy so that the payment expectation will be built into the transaction upfront. Depending on the use and nature of the transaction, there could be the potential for the City Council to allocate remaining credits to these future transactions according to the guidelines presented below and at the City Council’s discretion.
III. Existing Buildings with Purchase Options
There are currently seven existing leases with purchase options, including tenants such as, Bladium, Wrightspeed, Natel Energy, St. George Spirits, 651/707 West Tower Avenue, LLC, AP Building 91, LLC, and Alameda Point Redevelopers. With the exception of AP Building 91, LLC, which recently closed escrow, none of these tenants have closed on their purchase options, although Bladium has given its notice of exercising its option and expects to close in the next couple of months. These businesses and developers are the pioneers that have taken, and are taking, significant risk purchasing and investing millions of dollars in these properties at Alameda Point, risks such as escalating construction costs, dilapidated infrastructure and an uncertain economy. If they are not able to close and purchase their buildings or successfully implement their business plan, the City’s ability to upgrade infrastructure in the Reuse Area is jeopardized, as the City depends on the sales proceeds to implement the New Water Infrastructure. As a result, staff recommends allocating sufficient credits to cover all of the SCC and WCF for these transactions. By providing these credits, the City is supporting these projects for taking significant risks and increasing the probability that they will, indeed, close and the City will receive sales proceeds for infrastructure improvements that will advance future reuse and redevelopment of the Reuse Area. These projects and the New Water Infrastructure they help fund will attract other catalytic projects that can take advantage of the built infrastructure at greater market values and fund additional infrastructure improvements to the City’s benefit.
This results in an estimated credit of approximately $3.1 million in SCC and $2.2 million for WCF (Exhibit 4).
IV. Phase 1 Site A Development
As described in the staff report on July 5, 2017 for the recommended approval of an amendment to the Site A Disposition and Development Agreement (DDA), which was approved by the City Council, the Phase 1 Site A project achieves a break-even return on investment in its financial proforma. Due to these tight margins, it is possible that Site A does not obtain the financing necessary to close on the Phase 1 property. Additionally, the townhome buyer of Blocks 6 and 7 reduced its purchase price from $40 million to $36 million after finalizing their property due diligence. To make up for this reduction, Alameda Point Partners (APP) has reduced its contingency from 18% of hard infrastructure costs to 8%. As a result, APP is requesting, and staff is recommending that the City allocate $4 million in SCC and WCF credits (approximately 35% of total SCC and WCF for Phase 1 of Site A) to allow Site A to restore their contingency to 18%, which is a more prudent level, and to help improve the feasibility of the Phase 1 project and probability that the developer, APP, closes on the property and moves forward with the project. As discussed during the July 5th Council meeting, if Phase 1 of Site A does not move forward, all of the benefits and amenities included in Phase 1 will not be realized or at least delayed, including the 130-unit affordable project for low- and very-low income households, 8 acres of parks and open spaces, the $10 million funding for the Seaplane Lagoon Ferry Terminal, and major gateway and backbone utility improvements.
This results in an estimated credit of approximately $3 million in SCC and $1 million in WCF (Exhibit 4).
V. Criteria for Future Projects
Staff recommends that the remaining fee credits totaling $7,618,420 be used as a tool to leverage the value of the credits to achieve projects, leases and other transactions that provide public benefits to the City and the Alameda community. As staff negotiates future transactions, they will consider the following criteria to determine the amount of fee credits to allocate to a project:
• Number of high-paying jobs
• Amount of sales proceeds for infrastructure development
• Amount of in-kind infrastructure development
• Number of affordable and workforce housing
• Historic preservation
• Amount of sales tax generation
• Likelihood of attraction without incentives
To the extent possible, staff will leverage the value of the credit to obtain public benefits that it would not have obtained otherwise. For example, in exchange for a credit, the tenant or developer will provide a greater purchase price that could be used for infrastructure or provide more affordable housing than they would have without the credit. Staff would make a determination as part of the negotiation whether the project meets one or more of these public goals and criteria and provide its analysis as part of the staff report to City Council to approve the future transaction. Ultimately, the City Council will make the final determination as part of its approval of the transaction document.
FINANCIAL IMPACT
There is no impact to the General Fund as a result of this action. EBMUD processes the SCC and WCF credits based on the City’s request. The credits are valid for 20 years and any remaining credits at the end of the 20 years will be forfeited.
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 the allocation of credits.
RECOMMENDATION
Approve allocation of fee credits for East Bay Municipal Water District Wastewater Capacity Fees and System Capacity Charges at Alameda Point for city facilities, existing tenants and upcoming transactions and provide direction on criteria for allocation of fee credits for future projects
Respectfully submitted,
Jennifer Ott, Base Reuse & Transportation Planning Director
By,
Michelle Giles, Redevelopment Project Manager
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. New Water Infrastructure Phasing Plan
2. SCC Credit and Payment Policy
3. WCF Credit and Payment Policy
4. Recommended Allocation of SCC & WCF Credits