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09/20/2011, SS3 - STUDY SESSION: REVIEW OF A PROPOSED DEVELOPMENT AGREEMENT CONCEPT BETWEEN THE CITY AND CHEVRON CORP
council M "°"` ,20 r 1 j Ac,Enda Report CITYOF SAN LUIS O B 1 S P 0 FROM: Michael Codron, Assistant City Manager SUBJECT: STUDY SESSION: REVIEW OF A PROPOSED DEVELOPMENT AGREEMENT CONCEPT BETWEEN THE CITY AND CHEVRON CORPORATION TO FACILITATE THE EARLY INSTALLATION OF INFRASTRUCTURE IN THE AIRPORT AREA RECOMMENDATION 1. Receive presentations from City staff and Chevron Corporation representatives regarding the installation of infrastructure in the Airport Area and the principles of a potential development agreement that would provide reimbursement to Chevron for infrastructure costs that exceed its fair share requirement. . 2. Direct staff to proceed with a more detailed analysis of the proposal. REPORT-IN-BRIEF In July 2008 the City of San Luis Obispo accepted a planning application submitted by Chevron Corporation for the SLO Tank Farm Project, a proposal to remediate, restore and develop portions of the former tank farm, located in the Airport Area, to the north and south of Tank Farm Road (Attachment 1, Vicinity Map). The total site area encompasses over 300 acres. Chevron is requesting a development agreement to outline the terms and conditions of reimbursements that will take place and to enable the early installation of infrastructure in the Airport Area associated with the SLO Tank Farm project. Chevron is proposing to install approximately $17.4 million of public infrastructure; $11.1 million of that infrastructure is beyond Chevron's fair share requirements. Consideration of the request for reimbursement is consistent with both the Municipal Code authorization for reimbursement agreements (SLOMC 17.94.010) and with Land Use Element Policy 1.13, Costs of Growth. The decision about whether or not to participate with Chevron in a development agreement is a policy and business decision for the City Council. The Council will have to decide if the infrastructure Chevron is proposing to build is the right place for the City to allocate its future resources. No recommendations about terms and conditions of the development agreement are being made at this time. Rather, staff is proposing to move forward with a more detailed analysis of the proposal. The purpose of the study session is to inform the Council about the status of the development agreement request, and to provide the Council with an opportunity to provide feedback on the process to develop a recommended course of action and the guiding principles of a potential development agreement. SS3 1 Chevron Development Agre.-.,ient Page 2 September 20, 2011 DISCUSSION SLO Tank Farm Project The SLO Tank Farm project is a proposal by Chevron Corporation to remediate, restore and develop portions of the former tank farm, located in the Airport Area to the north and south of Tank Farm Road. In July 2008 a planning application was submitted for the project. At about the same time, Chevron submitted a development application to the County based on the County's development standards. In May 2009 the City Council authorized the preparation of an Environmental Impact Report (EIR) to evaluate the project's environmental effects. For efficiency, both the City and County projects are being analyzed in the same EIR. The project is expected to fundamentally remake the Tank Farm Road corridor by remediating contamination, restoring natural features, and creating development areas to accommodate business park and service commercial development. The development option being evaluated using the City's standards includes the following components: • 27 acres with approximately 433,000 square feet of floor space for business park land; • 26 acres with approximately 370,000 square feet for Service and Manufacturing uses; o A total of 265 acres designated as open space or public facilities;; • 14 acres would be used for streets, sidewalks, and other frontage improvements; • The City of San Luis Obispo would provide water, sewer, and public services such as police and fire. The City has just completed installing a sewer trunk line in Tank Farm along the property's frontage. Chevron would extend the water main and utilities to the developable areas. The EIR is also evaluating a less intensive County development option that could be pursued by Chevron if it determines that annexation and development in the City is not desirable. Early Installation of Infrastructure Specific plans adopted by the Council for the southern area of the City include public facilities financing plans for implementation of major backbone infrastructure. Examples of backbone infrastructure include Tank Farm Road and Santa Fe Road in the Airport Area, Prado Road in the Margarita Area and Orcutt Road in the Orcutt Area. The financing plans include impact fee programs to ensure that each development pays its fair share towards infrastructure improvements that all development in the area benefits from. The impact fees paid to support area-wide infrastructure improvements in specific plan areas are referred to as "add-on" fee. This is somewhat different than other areas of the City where no specific plan exists. In these areas, subdivisions would be required to complete infrastructure improvements within their project boundary and sometimes SS.�c2 Chevron Development Agre�nlent Page 3 September 20, 2011 complete offsite improvements that may be necessary to mitigate their development impacts, potentially without any ability for cost sharing with other development. Chevron is proposing to develop its project in five phases over a 25-year period. Within each phase, Chevron is proposing to build public infrastructure as outlined in the AASP Financial Plan that is in excess of its fair share requirement. This is primarily due to the identification of both Tank Fane Road and Santa Fe Road as area-wide infrastructure that is funded by AASP add-on fees. These facilities are almost entirely within the Chevron development project area, but because these major roadways are identified in the AASP fee program, Chevron is eligible for additional fee participation from other development in the AASP. The City benefits from the early installation of this public infrastructure because it can be constructed close to present value and once construction is complete, the roads can be put to use immediately yielding a longer return on investment. Specifically, Chevron is proposing to implement the following infrastructure during the course of the project: • Widen Tank Fane Road to four travel lanes with sidewalks. • Build Class I bicycle trail along Tank Farm Road • Build Santa Fe Road North to the AASP/MASP boundary • Realign the Santa Fe Road South intersection at Tank Farm Road • Signalize Santa Fe/Tank Farm Road intersection (although the AASP calls for a potential roundabout at this location and this option is being evaluated in the EIR) • Install oversized water lines in Tank Farm Road and Santa Fe Road • Install Tank Farm Creek and Acacia Creek bridges necessary for area-wide storm water management The early installation of infrastructure can have economic development benefits by facilitating development of adjacent properties that will utilize the infrastructure. The project will also create a substantial inventory of business park and industrial land suitable for relocating business or for local businesses that are expanding. Other benefits of the project include: • Dedication of land for open space over and above what would be required by the General Plan • Public open space facilities (e.g. trails) over and above what would be required by the General Plan • Open Space restricted fund to provide a resource for future maintenance and improvements to the open space as envisioned in the AASP. Reimbursement Basics The infrastructure projects listed above build public facilities that are identified in the Airport Area Specific Plan as necessary to support build-out of the plan. The costs of these projects are to be shared among all development in the Airport Area. The method of SS3-3 Chevron Development Agrees ent Page 4 September 20, 2011 cost sharing approved by the City Council is an impact fee program. In theory, as development moves forward, fees are collected and when a sufficient amount of funding is available, it can be used by the City or another developer to construct the public infrastructure needed to serve the area. Every time a new project is built in the Airport Area, the developer pays a fee for its fair share of the cost of the public facilities needed to serve the project. In practice, some infrastructure must be installed before any projects can move forward (and pay the fees that are used to fund the infrastructure costs). As a result, developments that are the first to build in a new area will often need to install significant infrastructure to advance the backbone system of the area instead of paying the fees. Depending upon the size and costs of these improvements the City can establish an equivalent fee credit for the development or, in cases where the costs exceed fee requirements, consider a reimbursement agreement for disbursement of future fees to be collected from other development projects; thus maintaining the integrity of the fee program Chevron's Request Chevron is requesting a development agreement. Generally, a development agreement is a negotiated contract that outlines both parties obligation, responsibilities, and entitlement rights for a specific period of time. Additionally, in this case, the development agreement would address reimbursements that will enable the early installation of infrastructure in the Airport Area associated with the SLO Tank Farm project. Chevron is proposing to install approximately $11.1 million of backbone infrastructure beyond its fair share requirements and seeks City support so that fees collected from other Airport Area development will go to help reimburse them first, prior to being used on other AASP infrastructure. In addition, Chevron has requested that the City "share" in the risk of reimbursement from the infrastructure fees to help reduce the initial costs associated with installing each phase of infrastructure improvements. Potential sources for the additional fee credits include reduced permit and plan check fees, reduced affordable housing fees, and revenue sharing from a potential future hotel. Granting fee credits entails the City deferring revenue into the future thereby reimbursing Chevron for its initial investment in infrastructure beyond the fair share requirement. Ultimately, future development in other locations within the Airport Area will cover the cost of Chevron's initial oversizing of infrastructure when development moves forward and associated fees are paid. Chevron has requested to be reimbursed for its actual costs over a 25-year period, or sooner if possible. Status of Development Agreement Application Along with the project's planning applications, Chevron has submitted an application for a development agreement. During a series of meetings held between City staff and Chevron representatives, a document summarizing the guiding principles for negotiating a development agreement was prepared (Attachment 2). The document describes the community-wide benefits associated with the project, reimbursement strategies, and SS3-4 Chevron Development Agr&.nent Page 5 September 20, 2011 actions the City would take in consideration of the project's benefits to the community. Detailed negotiations have not yet taken place. The purpose of the study session is to provide the City Council with background information regarding the proposed development agreement to facilitate future negotiations on the development agreement. Municipal Code Direction Chapter 17.94 of the Municipal Code establishes.the purpose and scope of development agreements for the City. Specifically, Section 17.94.010 states: Development agreements specify the rights and responsibilities of the city and developers. Used in conjunction with subdivision approval, annexation, rezoning, or architectural approval, development agreements establish the terms and conditions under which development projects may proceed. Development agreements are best used for large; complex or phased projects which require extended construction time and which involve numerous public improvements such as streets, utilities, flood improvements, schools, parks and open space and other improvements of community-wide benefit. Under a development agreement, projects may proceed under the rules, standards, policies and regulations in effect at the time of original project approval. The Chevron Tank Farm project falls under this description due to its large scale, and complex development timeline. The oversizing of infrastructure and the request for reimbursement are covered by the description of a development agreement envisioned in the Municipal Code. General Plan Policy The RASP represents the culmination of over 20 years of planning efforts between the City, the County, and property owners in the Airport Area. The AASP includes policies that address conservation of resources on the Chevron property as well as land use goals and development standards that balance resource protection, airport safety, and economic development. Implementation of the AASP through annexation and development of property such as the SLO Tank Farm is consistent with the City and the County General Plans. The County's General Plan recognizes the City as the urban service provider for the area. There is no land identified in the County's General Plan for commercial development that is not planned for annexation into the City. As a result, the City has planned for all new Airport Area development to occur within the City, and its fee program reflects the costs needed to support this growth. The following General Plan policy describes how the cost of growth should be allocated. Land Use Element (LUE) Policy 1.13: Costs of Growth The costs of public facilities and services needed for new development shall be borne by the new development, unless the community chooses to help pay the costs for a certain development to obtain community-wide benefits. The City will adopt a development-fee program and other SS3-5 Chevron Development Agre%,.iient Page 6 September 20, 2011 appropriate financing measures, so that new development pays its share of the costs of new services and facilities needed to serve it. LUE Policy 1.13 is the fundamental City policy that ensures development pays its fair share. In this case, Chevron is proposing to pay more than its fair share for infrastructure installation which has the potential to create community-wide benefits. In determining whether or not a development agreement and reimbursement agreement is consistent with LUE Policy 1.13, the City Council will need to weigh the community-wide benefits associated with early installation of infrastructure in the Airport Area versus the costs associated with methods and timing of reimbursement. Investment Decision Chapter 16.20 of the Municipal Code establishes requirements for formal reimbursement agreements for oversizing improvements of development. This is the normal mechanism for establishing reimbursement arrangements with a developer who builds more than their fair share. Unfortunately, these types of reimbursement agreements are limited to fifteen year increments, and do not normally include issues of development rights and guarantees. The SLO Tank Farm project has a 25 year development horizon and the complexity of the infrastructure phasing along with fee amounts make a development agreement a better mechanism for establishing terms and conditions for both the City and Chevron. At a minimum, the City will need to establish an infrastructure improvement and reimbursement agreement with Chevron as part of the subdivision approval. However, the decision about whether or not to participate with Chevron in a development agreement is a policy and business decision for the City Council. The Council will have to decide if the infrastructure Chevron is proposing to build is the right place for the City to allocate its future resources. In other words, the Council will need to provide policy direction as to the level of City participation in some of the upfront costs. The concept of allocating a percentage of future AASP fees to Chevron for reimbursement first, prior to reimbursing the City or being used on other AASP infrastructure will be evaluated in more detail and a recommendation will be presented to the Council in the future regarding a specific level of participation. The City's ability to defer revenue in support of infrastructure development should be focused and limited and the City will need to determine what specific costs are eligible for reimbursement. SLO Tank Farm Project Feasibility To help determine the feasibility and need for a reimbursement agreement, Chevron and the City have undertaken a financial feasibility study for the SLO Tank Farm project. Goodwin Consulting Group has prepared a feasibility analysis of the SLO Tank Farm project (Attachment 3). The report summarizes infrastructure costs and financial feasibility of the proposed project. The feasibility test evaluates whether or not the total infrastructure costs plus the fees for the project place too heavy of a financial burden on the project to be successful. The report concludes: SS3-6 Chevron Development Agre%�,nent Page 7 September 20, 2011 • Total AASP infrastructure cost to be incurred by Chevron is $17.4 million • The project's total fair share of AASP infrastructure is approximately $6.3 million. • The cost of oversized infrastructure is estimated to be $11.1 million (the "Gap"). • Without some form of reimbursement, the project as a whole, accounting for all land uses, does not appear to be feasible. Business Park land uses may be feasible but only represent 50%of the project. • "When viewed as a whole, the entire project appears to be viable after accounting for reimbursements" for oversized infrastructure along with project property values in future years. Manufacturing uses may not be feasible or may need to be subsidized by other development uses in the project. The final conclusion of the study states: "The bottom line is that the chevron project can be successful, but there is uncertainty associated with the timing of the reimbursements from other development projects inside the AASP. Without reimbursements, the project looks like it doesn't work; with reimbursements, the project appears to be feasible. In other words, if the reimbursements materialize during and/or within a few years of completing the project, it should be financially rewarding, but if they don't occur for a long time (10-20 years) the project may not produce any net financial benefit because the time value of money will erode any value in the late reimbursements". In essence the report helps to justify a development agreement to establish a better outcome for both the developer and the City. Two Scenarios Evaluated It should noted that the Goodwin report evaluates two scenarios. The first scenario assumes that the "Unocal Collector"road and the Tank Farm/Santa Fe roundabout are not required. Scenario two includes both of these facilities. Scenario two includes higher costs than scenario one, and a determination regarding the actual infrastructure obligations of the project will not be made until the results of the EIR traffic analysis become available. Oversized Infrastructure Table A-6 of the Goodwin report includes a summary of the infrastructure obligations associated with the project. 5S3-7 Chevron Development Agrecrnent Page 8 September 20, 2011 Table A-6 City of San Luis Obispo Chevron Restoration and Redevelopment Project Gap Analysis and Feasibility Test Summary of Infrastructure Obligations Scenario 1: Not including the Round-A-Bout and Unocal Collector Project-Specific Project-Specific Total Improvements Improvements Project-Specific Covered by Requiring Other Item Improvements RASP Add-On FeesSources of Funding 2 Transportation $11,732.399 $4,240.386 $7,492,013 Water $1,204,360 $935.530 $268,830 Sewer 540,774 $351,494 (5310,719) Storm Drain $4.426.793 $737.899 53,688,894 Subtotal $17,404,327 $6,265,309 $11,139,017 Private UtiWes $1,496,559 $0 $1,496.559 Restricted Fund $1,500.000 — $1,500.000 ` Total $20.400.886 $6,265.309 514.135.577 ' Equals the land uses from Table A-1 muitiplied by the add-on fees shown in Table A-5. 2 WAe the rest of the project-specific facilities,the project's required sewer adrastructure wiD not be oversized. Source: Goodwyn Consulting Group, Inc. 1220/2010 Total Project Specific Improvements The first column describes total infrastructure improvements associated with the project. These are the public transportation, water, sewer, and storm drain costs that are included in the AASP fee program. Private utilities and the $1.5 million restricted fund for on- going open space maintenance are Chevron's responsibility and are not addressed in the AASP nor in their request for reimbursement. Project Specific Improvements Covered by AASP Add-On Fees (Chevron's Fair Share) The second column describes the total Airport Area infrastructure cost that Chevron is responsible for based on the size of the proposed project. These area-benefiting improvements are covered by AASP impact fees. In other words, column two represents Chevron's obligation to pay for its fair share of all AASP public infrastructure. Instead of paying these fees, Chevron will install the infrastructure directly as part of the project. SS3-8 Chevron Development Agrecr,fent � Page 9 September 20, 2011 Project Specific Improvements Requiring Other Sources of Funding (Oversized Infrastructure) Finally, the third column describes the costs of the proposed improvements that are beyond Chevron's fair share. In this case, the "other sources of funding" will be the cash resources used by Chevron to complete installation of public infrastructure for the area. It is this portion of the costs that are considered the oversized infrastructure for which Chevron is requesting timely reimbursement. Reimbursement of Costs Beyond Chevron's Fair Share The AASP includes a detailed description of the public facilities (backbone infrastructure) needed to support Airport Area development. The Public Facilities Financing Plan (AASP, Chapter 8) describes how the fee program distributes costs to private development of public infrastructure (arterial roads, water lines, sewer lines, bridges,bike paths) that benefits all of the development in the Airport Area. Here is a simplified explanation of how it works: If Total Infrastructure Cost= $1 million And Total Development Potential = 1 million square feet of building floor area Then Total Add-On Infrastructure Fees =$1 per square foot of building floor area In the scenario above, what if Developer A decided to develop first and install 100% of the Total Infrastructure Cost, and Developer A's property allowed for 100,000 square feet of building floor area? In this case, Developer A has oversized infrastructure and installed more than its fair share. In essence, Developer A paid $10 per square foot of building area ($1 million in Total Infrastructure Cost for 100,000 square feet of building floor area). As other developers pay Add-On Infrastructure Fees to develop their property, those fees are passed through from the City to Developer A. However, Developer A has to wait until all of the other developers in the program develop the remaining 900,000 square feet of building floor area to be fully reimbursed for their initial oversizing of infrastructure. In a nutshell, this is how the AASP add-on fee program works and Chevron is Developer A. However, Chevron does not want to wait until all of the other developers in the Airport Area build out their property to be fully reimbursed for its initial costs. Chevron is asking the City to agree to reimbursement within a 25-year timeframe. Moreover, the Goodwin Report concludes that the project's financial viability is dependent on establishing a reimbursement agreement with a 25-year time horizon. It is likely that in the next 25 years, there will not be sufficient other development occurring in the Airport Area to fully reimburse Chevron through the AASP fee program. As a result, Chevron and staff have looked at alternatives to achieve full reimbursement within the 25-year timeframe. Using the same scenario outlined above, the City could expedite reimbursement to Developer A by deferring certain fees. For instance, and only SS3-9 Chevron Development Agrerlaent Page 10 September 20, 2011 intended as an example, if the building permits for Developer A's project total $100,000 the City could defer that cost, as illustrated below: Developer A's Reimbursement Scenario with City Participation Total Infrastructure Cost = $1 million Developer A Infrastructure Obligation = $100,000 Building Permit Fee Credit = $100,000 Remaining Reimbursement from future development, Developer A= $800,000 Remaining Reimbursement from future development to City = $100,000 In this scenario, both Developer A and the City will be fully reimbursed when future development moves forward and pays its fair share of area-wide Add-On Infrastructure Fees. The City shares in the risk of any fee collection delay, however, all parties are already benefiting from the initial infrastructure investment. Chevron's proposal to install more than its fair share of infrastructure in the Airport Area can be thought of as a loan Chevron is making to the public and other developers of the AASP. The loan would be at 0% interest and would be repaid based on the terms to be negotiated as part of the development agreement and reimbursement agreement. In turn, the City is providing a 0% loan to future developers in the Airport Area by carrying the cost of reimbursement in the form of fee credits, deferred fee revenue and timing of other infrastructure improvements. The following flow chart below begins with Chevron's installation of $11.1 million of infrastructure that is beyond its fair share requirement. *AASP property owners benefit from early •Individual lots within '' the Chevron project installation of develop and realize fee infrastructure •The City uses fees paid by credits due to •Add-on fees charged to other AASP development to Chevron's intial new development are reimburse Chevron investment paid at time of building •The City also provides .Chevron also recieves permit issuance Chevron with fee deferrals,or reimbursement from credits,when individual lots City when other AASP within its project develop land develops In this scenario, there are also benefits to the public from Chevron's initial investment in area infrastructure. SS3_10 Chevron Development Agrevr,ient Page 11 September 20, 2011 Public facilities are in place for use early in the development of the specific plan area:These include bicycle trails,pedestrian connections,Tank Farm Road travel lanes,and open space amenities. •Acquisition of a public lot in the Chevron Area for use as a recreation facility,public safety facility,transit facility,or other public use •Connections to the MASP @ Prado Road can occur sooner rather than later Potential Sources of Reimbursement Goodwin Consulting Group evaluated Chevron's responsibility for AASP infrastructure costs and also reviewed potential methods for "closing the gap" for infrastructure costs in excess of Chevron's fair share. In addition to the methods evaluated by the Goodwin report such as the formation of assessment district and granting of AASP impact fee credits, Chevron has requested consideration of other ways to reduce the "gap" and for how reimbursement could be made in a timely manner. These options include credits that could be applied towards buildings within the SLO Tank Farm project to reduce or defer in-tract engineering plan check and inspection fees, in-tract building permit fees, and affordable housing fees. In addition, hotels are an allowed use in the Business Park zone because a hotel can be a valuable resource for surrounding business, particularly in a location proximate to the airport. Chevron has indicated its desire to see a hotel developed on the site in the future, and the project EIR will be evaluating a hotel as a potential land use within the project. If a hotel is developed, additional Transient Occupancy Tax (TOT) revenue would become a new revenue source to the City and a potential source of reimbursement for Chevron. To the extent that Chevron's infrastructure investments facilitate a hotel sooner than one could be otherwise developed, the City would realize new revenue that it would not collect without Chevron's investment. In this scenario, it may make sense to use some of this revenue as a source to reimburse Chevron for infrastructure costs. As described above, all money used to reimburse Chevron will be recovered by the City as other development in the Airport Area moves forward and pays its fair share of area-wide infrastructure fees. While this is an option, it may not be the most prudent approach to pursue since TOT from a new hotel would be a net new, ongoing revenue source that has the most flexibility in terms of potential future uses. Previous Reimbursement Agreements The City of San Luis Obispo has used reimbursement agreements previously to enable early installation of infrastructure. One recent example includes an agreement to reimburse the developers of Village at Broad/Maymont at the corner of South Street and SSM 1' Chevron Development Ag 6trnent � Page 12 September 20, 2011 Broad Street for improvements that will be made to that intersection. Traffic impact fees credits along with mitigation fees collected from other development was used in this case. A second example is a reimbursement agreement with the initial developers of the Laurel Creek subdivision on Orcutt Road and Sacramento Drive. In this case, the developers made improvements to the Orcutt Road and Laurel Drive intersection, including signalization, and widened Orcutt Road where it crosses the railroad tracks. The source of reimbursement is a combination of traffic impact fees fee credits and add-on fees from future development in the Orcutt Area, which carries the bulk of the fait share requirement for the cost of the improvement. As part of that agreement City staff was successful in receiving grant funds for the project that helped reduce the private participation need, and the reimbursement was therefore expedited.. Grant funding may also play a role in the reimbursement of costs associated with the Chevron project but it is too early to tell if funding will be available for any work that will be built. As opportunities become available, staff will recommend seeking grant funding to help pay for infrastructure costs if they compete well with other City and regional needs. The application of grant funds as a reimbursement mechanism can be included in the reimbursement agreement. Risk Analysis and Next Steps The purpose of the study session is to familiarize the City Council with the concepts associated with reimbursement to Chevron for investments made in area-wide infrastructure that is beyond its fair share. Chevron representatives will be making a presentation to the City Council regarding the project (Attachment 4). No recommendations about specific terms and conditions of the development agreement or reimbursement agreement are being made at this time. Staff plans to work with a public finance consultant to help develop answers to the key questions listed below and will return to the Council with a recommendation on parameters for negotiating the details of a development agreement in the near future. 1. Will the public facilities that Chevron builds help expedite other Airport Area development, thereby generating the fees necessary to support the reimbursement? 2. What is the most appropriate balance between various sources of reimbursement, which include fees paid by other Airport Area development, fee credits for Chevron's project, and potential tax revenues? 3. What are the risks to the City associated with entering into a long-term reimbursement agreement and how can risk be minimized or eliminated? 4. Are there other issues or items not currently identified that should be included in discussion of a formal development agreement with Chevron? In addition, staff will work with Chevron to further refine the attached draft guiding principles regarding the development agreement. SSX-12 Chevron Development Agreoanent Page 13 September 20, 2011 FISCAL IMPACT There are no fiscal impacts associated with evaluating the request for a development agreement. Chevron has made an application to the City to consider its request for a development agreement. Chevron is paying the full cost of staff time and materials associated with the evaluation of the proposal, consistent with the Community Development Department's adopted fee schedule. The costs borne by Chevron include payment for staff time associated with negotiating the agreement, and payment for the cost of.a public finance consultant. The fiscal impact of a potential development agreement between the City and Chevron will be evaluated in detail along with any future recommendation made regarding the disposition of such an agreement. ALTERNATIVE There is no recommendation associated with the study session. However, the City Council could direct staff not to proceed with evaluating Chevron's request for a development agreement. This alternative is not recommended because it is important to evaluate methods to facilitate installation of the infrastructure outlined in the Airport Area Specific Plan as necessary to support development of the area. ATTACHMENTS 1. Vicinity Map 2. Draft Development Agreement Guiding Principles 3. Chevron Project Gap Analysis/Feasibility Test Memorandum 4. Chevron Project presentation slides prepared by Chevron COUNCIL READING FILE Airport Area Specific Plan Chevron Project Gap Analysis/Feasibility Test Tables \\chstore4\Team\Chevron Development Agreement\CAR\chevronDA3.docx SS3-13 J ATTAURTI ' 0 1 rl i •Y +• i i� t U � y U O N Q S-S3 4 � I - CHEVRON SLO TANK FARM GL-\IELOPMENT AGREEMENT A�1aCHMENT 2 Draft Guiding Principles: 1. The Project Description needs to describe the scope of the Development Agreement to support a complete environmental review process. 2. The Development Agreement identifies the Project's benefits, which include: • Dedication of Land to Open Space over and above what would be required by conditions of the General Plan • Public Open Space Facilities (e.g.. trails) over and above what would be required by the General Plan ;SII • Open Space Restricted Fund to provide a resource�for future maintenance and improvements to the open space • Public Lot dedicated to the City to be used for public purposes, such as recreational facilities, a transit facility or other use s(il�l' �i ,ljli • Flood Control Improvements benefiting regional flood controf I , I Ii�1+11, I • Economic Development - Creation of job opportunities I illlilii I u 'ill,f IIII!I ililll I" mill, • Early construction of AirportiArea Backbone,]infrastructure using Chevron capital '1 N11 , „ 7DFIS�r- for those portions beyond'C{hevron s Fair Share;} including: ,ijht ' z iii , ' ' o Tank Farm Road wideni ng IlIIfI?it, `�i�111i o Signalization at Tank Farm & Santa'jFe,Roaclintersection 'IIP' ! :171. ,;11 L1, , o Regionalidomestic watelline improvements & upsizing (.I,t1n` 7Yies 1'1-n Islay 11It7tts o Regional reclaimed water line improvements 11•"ll ;lila• 1!I1f111151; '�jjl111 o Regional flood control improvements o Santal•Fe. Road North extensionl{ ,0i,,. i1`11 i „ o Improved airpciAisafety 1;11, '�' it li Ilf illlliii)j ii11 , jillll l ilil IEl ,l , , IlIIl1,111 Ili 3. iThe;Development Agreement describesith°ejierms by which Chevron will be .I reimbursed fo�lcosts exceeding fairNsFiare requirements("the gap"). : lill;►,,. Illl�il, 4. one;nmportant strategy for limiting the size of "the gap" is to limit costs that exc4&Chevron s fai'eI. are wherever possible. 5. In exchanlgleifor the puEilic benefits, the City will: ,11 • Reduce planilcheck aniilinspection fees where.possible due to efficiencies associated with the scale:lof,t}�elproject, or made possible by alternative delivery methods (e.g., contra ct out;the plan check duties). • Credit of certain Airport Area Add-On Fees. • Credit a percentage of in-tract plan check and inspection fees (if a gap exists) at the time of public improvement plan approval, to be negotiated. • Credit a percentage of building plan check and inspection fees (if a gap exists) at the time of building permit issuance, to be negotiated. • Consider a phased payment schedule for Affordable Housing Fees to reduce upfront costs. June 23,1011 rrmides cyngroup Page 1 of 1 creating environments people,enjoy' SS345 �-' CHEVRON Sl0 TANK FARM DL✓ELOPMENT AGR �E92 • Enter into a reimburse-first agreement. • Allocate Transient Occupancy Tax revenue to the reimbursement during specific time period - not to exceed a specified amount, to be determined. 6. Management of the Agreement: • During the 25 year period the agreement would be managed by the City, with reimbursements made on an annual basis. • Reimbursement will be of actual costs, whether below or above estimates. IIi I • The value of credited fees will be based on the:cu�`re�n�t fee resolution at the time of !I�" permit issuance, as adopted by the City Councill1 1 ,+ I �ii#, • If the gap is closed, the Project will pay,All,applicable!fees at the time. • The reimbursement can be re-establ shed following gap closure if a subsequent phase of the project requires early'construction of Airport Aeew';'Backbone" infrastructure. �jil j;l �y�l� .1 ? �; ' t it Ey' I 1 i �Il ill, II I� ` ° Ii' i'i(IIIlilt I lit li';; t' t l!�•i1�,i Il ;. i, 'i �,11iie11't �,'`I1, ! }HI;j I� I;. t � f {{ H ahvllApDIWon-sitei,200312005020-Chevron3LO-Tank-Farm Comrnerce.-Park1Project-Managernent,Currespondence�Covt\Development Agreement',Principles- 06-73-1 l.docx June 23,2011 rrmida'5;gnigroup Page 2 of 1 creating environments people enjoy" SS346 J � AT�ACHMEHT3 GCG GOODWIN CONSULTING GROUP MEMORANDUM December 20, 2010 To: Chevron Project Team From: Dave Freudenberger, Cindy Yan, and Nikki Muranaka Re: Chevron Restoration/Redevelopment Project Gap Analysis/Feasibility Test Objective This memo summarizes the gap analysis and feasibility test prepared for the Chevron Restoration and Redevelopment Project (Project). The gap analysis compares the Project's fair share of total Airport Area Specific Plan (RASP) infrastructure costs to the infrastructure required for the Project to develop. As a first step to producing this analysis for the Chevron Project, Goodwin Consulting Group was also tasked with preparing a comprehensive update to the AASP financing plan, which was last updated in August 2005. The results from the updated AASP Public Facilities Financing Plan have been incorporated into this memo and the attached tables. Two tests of feasibility are conducted to ascertain if total Project-specific infrastructure costs (including costs of oversized infrastructure), plus development impact fees that would be imposed on the Project for City-wide and other capital improvements, will place too heavy a burden on the Project for it to be successful. A burden-to-value analysis compares the infrastructure burden to the value of developed land uses, and a residual land value analysis evaluates the profit margin of the Project. Lastly, this memo suggests ways to close anticipated pay-as-you-go financing gaps that do not involve a financial commitment to the Project from the City. Project Background The Project area consists of approximately 332 acres commonly known as the Chevron Tank Farm. This area represents a significant portion of the developable area within the AASP. Development plans call for approximately 803,000 square feet of business park, service commercial, and manufacturing land uses on 53 acres. Development in the Project area, as well 555 UNIVERSITY AVENUE, SUITE 280 • SACRAMENTO, CA 95825 PHONE: (9 16) 561-0890 • FAX: (916) 561-0891 IJrS3-1 / AITACHMENT3 . . Chevron Project Team December 20,2010 Page 2 of 10 as the construction of required infrastructure, is anticipated to occur in five phases, as shown in Tables A-1 and A-2 as well as Tables B-1 and B-2. Additional land uses that are not analyzed in this study include 250 acres designated for open space and environmental mitigation, 15 acres designated for active sports fields, and 14 acres earmarked for streets and other public rights-of-way. Scenarios This analysis evaluates two scenarios. Scenario One is the "base case" scenario and reflects the land uses and Project-specific infrastructure requirements as provided by Chevron and RRM Design Group. The first set of tables attached to this memo, Table As, presents the analysis for Scenario One. Scenario Two incorporates additional costs for the Unocal Collector and Tank Farm round-a-bout; these infrastructure items could potentially be identified as mitigation factors in the Project's EIR. However, these additional costs are not analyzed in the updated AASP Public Facilities Financing Plan since they are specific to the Chevron Project. A minor loss of 0.4 acres in business park land uses is also anticipated in Scenario Two due to the construction of the round-a-bout; this acreage loss can be seen in the difference between Table A-1 and Table B-1. A set of tables for Scenario Two, presented as Table Bs, is also attached. Infrastructure Costs Development of the Project will require various transportation, water, sewer, storm drain, and private utilities improvements. A restricted fund for open space maintenance will also be required, most likely during the first phase of development. As shown in Tables A-3 and A4 and Tables B-3 and B4, the total cost for these improvements is estimated to be $20.4 million in Scenario One and $24.0 million in Scenario Two. The higher amount for Scenario Two relates directly to the costs of the Unocal Collector and Tank Farm round-a-bout. Oversized Infrastructure The results of the gap analyses are presented in Tables A-6 and B-6 for Scenario One and Scenario Two, respectively. AASP infrastructure burdens, in the form of "add-on fees," are calculated in the updated AASP Public Facilities Financing Plan. These "add-on fees" are . shown as fees per building square foot and fees per acre, and are then multiplied by the Chevron land uses to determine the Project's total fair share of AASP infrastructure in Tables A-5 and B-5. The fair share amount is approximately $6.3 million and $6.2 million for Scenarios One and Two, respectively, and is shown by facility category in the second column of Tables A-6 and B-6. In Scenario Two, it is assumed that additional costs related to the Unocal Collector and Tank Farm round-a-bout are not spread to other areas of the AASP; instead, they are the responsibility of Chevron. 53-15 MACHM603 - Chevron Project Team Decem_her 20,2010 Page 3 of 10 In both scenarios, the total cost of infrastructure funded by the Project (column one of Tables A-6 and B-6) is greater than the Project's fair share of total AASP costs, which implies that some of that infrastructure will be oversized. In Scenario One, the cost of oversized infrastructure is estimated to be $11.1 million, and in Scenario Two it is estimated to be $14.6 million. These costs, in addition to the private utilities amount of$1.5 million and restricted fund amount of $1.5 million, will require sources of funding other than AASP add-on fees. Total Project-Specific Costs plus Other Fees Total Project-specific improvement costs (including oversized infrastructure), including the restricted fund amount and private utilities, are allocated to the Chevron land uses based on certain benefit criteria (Tables A-7 through A-13 for Scenario One and Tables B-7 through B-13 for Scenario Two), and are summarized in Tables A-14 and B-14. City-wide fees for transportation, water, wastewater, and other fees (inclusionary housing, public art in-lieu, school impact, and entitlement process reimbursement) are listed in Tables A-15 and B-15. Due to the timing of the Project's vesting tentative maps, City staff has indicated that the Project will likely be subject to the City's current water and wastewater fees, which are included in this analysis. These fees are added together with the Project-specific costs to show the total gross burden by land use, assuming no tax—exempt debt financing, in Tables A-16.1 and 13-16.1. For purposes of this analysis, it is assumed that the Project will receive a credit against the AASP "add-on fees"; therefore, they are shown as $0 per acre. Table A below summarizes the total gross burdens for Scenarios One and Two. Note that the total gross burdens shown in Table A do not include a reimbursement for infrastructure oversizing because the timing of such reimbursement is currently unknown. New development in the Project area will be subject to the gross burdens as shown in Table A below; impact fees collected elsewhere in the AASP may be used to effectively lower the Project's burdens when funding for reimbursement becomes available. TABLE A TOTAL GROSS BURDENS NOT INCLUDING REIMBURSEMENT Scenario One Scenario Two Total Gross Burdens Total Gross Burdens Land Use per Acre per Bldg SF per Bldg SF Business Park $679,500 $42.90 $750,800 $47.40 Service Commercial $757,800 $52.50 $861,700 $59.70 Manufacturing $436,000 $30.30 1 $473,400 $32.90 SS3-19. J A11ACHMENT Chevron Project Team December 10,2010 Page 4 of 10 Tables A-16.2 and B-16.2 identify the total gross burden by land use, after accounting for a reimbursement for infrastructure oversizing and still assuming no tax-exempt debt financing. Table B below summarizes the total gross burdens for Scenarios One and Two that reflect the oversizing reimbursement. Development elsewhere in the AASP and, therefore, reimbursement for oversizing, could occur: 1) simultaneously with development of the Project; 2) never, or effectively never if it happens too far in the distant future; or 3) somewhere in between (1) and (2). Total burdens including, and total burdens not including, reimbursement capture the two extremes of the range within which reimbursements may be received. TABLE B TOTAL GROSS BURDENS INCLUDING REIMBURSEMENT Scenario One Scenario Two Total Gross Burdens Total Gross Burdens Land Use per Acre per Bldg SF er Acre per Bldg SF Business Park $467,600 1 $29.50 $470,900 $29.70 Service Commercial $465,600 $32.20 $469,000 $32.50 Manufacturin $318,300 $22.10 1 $321,600 $22.30 Land-Secured Debt Financing Analysis A planning level debt financing analysis was conducted to estimate the Mello-Roos Community Facilities District (CFD) bonding capacity of the proposed Project. The special tax (annual burden) and bonding capacity calculations are offered in Tables A-17 through A-19 for Scenario One and Tables B-17 through B-19 for Scenario Two. For both Scenarios One and Two, it is estimated that the future land uses within the Project could support approximately $5.7 million in bonds to fund required infrastructure. After accounting for a reserve fund, two years of funded interest, and various financing costs associated with issuing bonds, approximately $4.0 million of facility costs could be funded through the land-secured financing of a CFD. This represents 20% of Project-specific infrastructure costs in Scenario One and 17% of Project-specific infrastructure costs in Scenario Two. The balance will need to be funded by another source, most likely a combination of development impact fees and developer equity. Net Infrastructure Burdens Tables C and D below summarize the total net burdens by land use, before and after a reimbursement for infrastructure oversizing, after accounting for CFD debt financing. SS3-2U AITACHME93 Chevron Project Team December 20,2010 Page 5 of 10 TABLE C TOTAL NET BURDENS NOT INCLUDING REIMBURSEMENT Scenario One Scenario Two Total Net Burdens Total Net Burdens Land Use per Acre per Bldg SF per Acre per Bldg SF Business Park $582,600 $36.80 $653,900 $41.30 Service Commercial $689,400 $47.70 $793,300 $54.90 Manufacturing $396,800 $27.60 1 $434,300 $30.20 TABLE D TOTAL NET BURDENS INCLUDING REIMBURSEMENT Scenario One Scenario Two Total Net Burdens Total Net Burdens Land Use per Acre per Bldg SF per Acre per Bldg SF Business Park $370,700 $23.40 $374,000 $23.60 Service Commercial $397,200 $27.50 $400,600 $27.70 Manufacturin $279,100 $19.40 1 $282,400 $19.60 Feasibility Tests One of the main purposes of this study is to make a preliminary determination as to the financial feasibility of proposed development in the Project. A common test used to measure project feasibility is the burden-to-value ratio. While there are no values in this test that guarantee project success, a burden-to-value ratio that is less than 15% to 20% is typically considered feasible. There are many types of project costs that are incurred as part of a new development. If the infrastructure and related burdens are more than 15%-20%, it generally means the purchase price for the land must be reduced so that the other development costs can be absorbed and still result in a profitable development. The estimated burdens presented in this analysis are subject to change as assumptions continue to be refined, public agencies make policy decisions that affect the proposed development, and actual infrastructure improvements are installed. However, at this point, the burden-to-value ratios shown in Tables A-16.1 and B-16.1, which do not account for a reimbursement for infrastructure oversizing, indicate the following: SS3-21 ATTACHMEW3 Chevron Project Team December 20,2010 Page 6 of 10 1. Business park land uses appear to be feasible in both Scenarios One and Two. 2. Service commercial and manufacturing land uses, which represent half of future development in the Project, produce very high ratios that will most likely preclude successful development that is financially viable. 3. The project as a whole, accounting for all land uses together, does not appear to be feasible. Tables E and F below summarize the burden-to-value ratios for Scenarios One and Two, before and after a reimbursement for infrastructure oversizing. As shown in these two tables, the ratios improve after a reimbursement is received. The burden-to-value ratios, after accounting for a reimbursement, suggest the following: 1. The service commercial and manufacturing burden ratios fall within the 15% - 20% range and appear to be feasible. 2. The manufacturing burden ratio is still high and may only be marginally feasible. 3. The project as a whole comes in below 15%, which indicates that after reimbursements the project is likely to be a feasible endeavor. TABLE E NET BURDENS AS% OF DEVELOPED VALUE NOT INCLUDING REIMBURSEMENT Scenario Scenario Land Use One Two Business Park 16.3% 18.3% Service Commercial 27.3% 31.4% Manufacturing 27.6% 30.2% Total Project 20.2% SS3-22 J ATTACHMENT Chevron Project Team December 20,1010 Page 7 of 10 TABLE F NET BURDENS AS% OF DEVELOPED VALUE INCLUDING REIMBURSEMENT Scenario Scenario Land Use One Two Business Park 10.4% 10.5% Service Commercial 15.7% 15.9% Manufacturing 19.4% 19.6% Total Project12.7% 12.9% Another way to test feasibility is to prepare a land residual analysis, which evaluates the profit potential of the Project by estimating land value. Tables A-20.1 and A-20.2 illustrate the land residual calculations and results before and after a reimbursement for infrastructure oversizing under Scenario One, and Tables B-20.1 and B-20.2 illustrate the results under Scenario Two. At the top of each table, the building square footage, net acreage, and average FAR are shown for each land use. Assumptions regarding market price were determined based on input from Chevron and various research performed regarding new non-residential development in the San Luis Obispo area. Other assumptions such as builder's profit, construction, general, lot improvement, and building permit costs were obtained from a development cash flow analysis provided by Chevron; however, some adjustments were made to reflect the current market downturn, decreases in construction costs, updated building permit fees collected by the City, and GCG's experience evaluating similar projects. These items, as well as estimated backbone infrastructure and other fee obligations, are subtracted from the estimated market value as completed, resulting in the residual land value for each land use. Tables G and H below summarize the residual land value analyses for Scenarios One and Two, before and after a reimbursement for infrastructure oversizing. The results are consistent with the conclusions made from the burden-to-value test: 1. Prior to a reimbursement, only the business park land uses have a positive land value and appear to be feasible. The average residual land value for the entire project is also positive, but appears to be low, especially since it will be encumbered with the annual burdens of a land-secured financing district. 2. The results improve for all land uses once the reimbursement is received. Service commercial land uses appear to be marginally feasible, while manufacturing land uses do not appear to be feasible at all. Still, when viewed as a whole, the entire project appears to be viable after accounting for reimbursements. 5�3-23 ATTACHMENT3 Chevron Project Team December 20,2010 Page 8 of 16 TABLE G RESIDUAL LAND VALUE ANALYSIS NOT INCLUDING REIMBURSEMENT Scenario One Scenario Two Residual % of Residual % of Land Value Completed Land Value Completed Land Use per Acre Value per Acre Value Business Park $654,200 18.3% $582,900 16.3% Service Commercial $53,900 2.1% $157,800 6.2% Manufacturing $243,900 16.9% $281,300 19.5% Total Project $2629000 9.4% $187,100 6.7% TABLE H RESIDUAL LAND VALUE ANALYSIS INCLUDING REIMBURSEMENT Scenario One Scenario Two Residual % of Residual % of Land Value Completed Land Value Completed Land Use per Acre Value per Acre Value Business Park $866,100 24.3% $862,800 24.2% Service Commercial $238,300 9.4% $234,900 9.3% Manufacturin ' $126,100 8.8% $129,500 9.0% Total Project $4729200 16.9% $465,500 16.7% Project Cash Flow and Funding Mechanisms Tables A-21 and B-21 present the Project's cash flow by phase for Scenario One and Scenario Two, respectively. The infrastructure required to serve the Project area may be funded through a combination of financing tools. A CFD could be established to reduce the amount of one-time burdens; through the CFD,the City would levy an annual special tax on each land use and collect special tax revenues to pay debt service on tax-exempt municipal bonds issued through the CFD to fund infrastructure. The amount of Project-specific infrastructure that won't be covered by CFD bonds will need to be funded through a Project-specific impact fee program. Project developers may also build and dedicate capital facilities incorporated into the Project-specific fee program using equity or private sources of financing. For both Scenarios One and Two,. developer equity will be required in Phase 1 and then will be reimbursed (or credited) in future phases from other development within the Project. SS3-24 AITACHMENT3 Chevron Project Team December 20,2010 Page 9 of 10 To illustrate how Project feasibility changes over time, the bottom section of Tables A-21 and B-21 compares the cumulative net fees plus equity in each phase to: I) the Project's fair share of AASP infrastructure costs; and 2) the net Project-specific fees that could be generated from Chevron land uses if paid on a pay-as-you-go basis. As previously mentioned, the net burden-to- value ratios for half of the Project's development are problematic, especially before a reimbursement is received for infrastructure oversizing. Although business park ratios are within the 15%-20%range at Project build-out, they are still fairly high considering this is a maximum range. The feasibility of the Project looks even worse in the early phases of development than at build-out, as shown in Tables A-21 and B-21. For example: 1. In Scenario One, total net fees plus equity required in Phase I is over three times the net fee amount that can be generated from developed land uses in that phase. 2. Net fees plus equity as a multiple of the Project's fair share amount is 8.6 in Phase 1; this factor decreases over time to 2.6 by Project build-out. 3. Scenario Two shows similar results, which indicate that it will be particularly difficult to achieve financial feasibility during the first two phases of Project build-out. Conclusion The results of the analysis illustrate how important the timing of cash flow is to the success of most developments. They also reveal that being the pioneer developer in a large specific plan area can be an expensive undertaking. In summary, this is a tale of two projects: the completed project without any reimbursement from other development inside the AASP; and the completed project after reimbursements are received. Table I below provides the intuitive data that the detailed analysis confirms, which is that the infrastructure required to support the Chevron project under Scenario One as a percentage of the total infrastructure to support the AASP is substantially higher than the Chevron acreage as a percentage of total RASP acreage. TABLE CHEVRON AND AASP ACREAGE AND COST COMPARISON SCENARIO ONE Develo able Acreage Costs Chevron Chevron asa % of asa % of Chevron AASP AASP Chevron AASP AASP 53 450 12% $20AM $40.7M 50% SS3-25 ATTACHMENT Chevron Project Team December 20,2010 Page 10 of 10 The bottom line is that the Chevron project can be successful, but there is uncertainty associated with the timing of reimbursements from other development projects inside the AASP. Without reimbursements, the project looks like it doesn't work; with reimbursements, the project appears to be feasible. In other words, if the reimbursements materialize during and/or within a few years of completing the project, it should be financially rewarding, but if they don't occur for a long time (10-20 years) the project may not produce any net financial benefit because the time value of money will erode any value in the late reimbursements. SS3=2b J ATTACHMENT.4 V i 1 V 1 = ® C • t V � 1 � 1 � O O N 1 • a o CL vJ U 0 N SSS-til / AITACHMEI�T 4 v � �� � � ` .•- r'j ' a,..�' .uS'�j •fir„' " � r �'\ `�__•..- / .' � \� } a �.� _fit {`�.�. a aC FIL co A-0CD JE N 0 SS3-28 ATTACHMENT 4 m , 00 ter•'. ,� � ... o o a•o•o �,4 n � i•�p •r Y � t U W` ,, N SS3-29 ATTACHMEW4 • . . • . � t Q,z cn co c 'IIi e N SS3-3u AITACHMENT4 , CD co Jor ;- W L t C �- -T2 CD r � i o N SS3-31 \ 2 � � o _ \ 2 E o \ � % k o = ) f CL % ? .2 .. � �\ 0 .± - � 2 � p ■ �O q / ƒ � � U ■ �QL� . 7 70 . 4c O . ) -0 p o �� � � f y � � O � \ % — lat. ■ � � � � � _ � �� ■ / � . 3: � 7 � �2 e a •— ■ E ? 4 ± : 2 0 Q • . .�. :\ � � �2 � .. . �� �� ■ � . .� . . . � Eo �� \ / .m ƒ �k ■ �� � � � � . . U O 4-a O � U N Q: T O O N U Q cz j • O N — Q (� 0) ,M O � � cz C N t6 _ O > j Q O CZ O QO O �- O U O O 4_ C6 — Q. ,O N Cn C O Q L VJ R LO 4-1 • O CVQ O T U N Q cn tn .- O N (tS E tz O • U C) 0 }: L M c N O CO coey-) O 0 LOIr O r 4—.j X 3 ; x _04-0 a v? ca N Q a U Q, :t:f. 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O E .� % \ > & 0 m0 2 % E : _ m e ~e @. \ g \ S 2 3 Q > m e �o : % . � Z Q O © o � (D . � . m � . �. ƒ .�, �, E m , `o o + / ' _ & 0 _0_ Q •� � 2 � G \� � e^� �. � � � O »y °§ E . e . x . . . . . . . u � RED FILE MEETING AGENDA DATE &/ ITEM # s 0 San Luis Obispo Chamber of Commerce 1039 Chorro Street o San Luis Obispo, California 93401-3278 (805)781-2670 o FAX (805)543-1255 Ermina Karim, President/CEO hard rn . end September 19,2011 o COUNCIL o CDD DIR c CrNMGR 0 FITDIR O AMCM O FM CHIEF Mayor Jan Marx 0 ATTORNEY 0 PWDIR o C BWORIG o POLICE CHEF Members of the City Council v TRIBUNE o UTILDll2 0 0 MDI REcnm Ci of San Luis Obispo 0 NEWTMU 0 HRDIR City P o SLOCITYNM aCOUNCIL 990 Palm Street 0 CITYMOR o CLERK San Luis Obispo, CA 93401 Subject: Study Session on Proposed Chevron.Development Agreement Concept Dear Mayor Marx and Council members, The San Luis Obispo Chamber of Commerce is writing to express our support for the concept of a reimbursement agreement with Chevron on the Chevron Tank Farm Project.This type of creative financing is in direct alignment with the Council's own 2011-13 budget priorities of creating a financing and phasing strategic plan and could make the implementation of the Airport Area Specific Plan closer to reality.We believe this presents a win-win opportunity for the city, the business community and the community at-large. The Chevron Tank Farm Project embodies numerous environmental, public amenities, and area-wide infrastructure benefits. The General Plan has long identified this area as a critical inventory of land appropriate for commercial growth-More importantly, it creates the capacity to accommodate both new businesses and existing, growing businesses and the head-of-household jobs they represent. The project also proposes long desired infrastructure enhancements, most notably the widening of Tank Fane Road and the Santa Fe.Road extension. Other important benefits include dedicated open space preservation, bike paths, sports fields and flood control improvements among others. slochamber@slochamber.org o www.slochamber.org o www.visitslo.com o www.sio-business.com The development of this project does require a significant expense to build regional infrastructure that exceeds the project's "fair share" as specified in the Airport Area Specific Plan.The analysis by Goodwin Consulting Group makes it clear that that the project's financial viability is dependent on establishing a reimbursement agreement with a 25-year time horizon.As noted in the staff report, a reimbursement scenario with city participation"can be thought of as a loan Chevron is making to the public and other developers of the AASP.The Ioan would be at 0%interest and would be repaid based on the terms to be negotiated as part of the development agreement and reimbursement agreement." The Chamber's Economic Vision six-point strategy, which the City Council endorsed, supports the need to modernize our physical infrastructure and find creative ways to fairly distribute the cost of these needed improvements. The city already has experience at developing reimbursement agreements to enable early installation of infrastructure. Structuring a reimbursement agreement for this project will certainly be-a more significant task but carries with it tremendous potential upside for the city and the community. In conclusion, we support the discussions that are underway between the city and Chevron representatives to explore appropriate and mutually beneficial avenues for reimbursement. They underscore how a city can effectively support its economic development objectives as well as enable important city needs and resident goals. Thank you for considering our views on this matter. Sincerely, Ermina Karim 1� President/CEO cc: Michael Codron, Assistant City Manager RED FILE IL ...,,'EYING AGENDA DAT -ZZ±011L ITEM afta # SS 3 . counc,t MCMORAnbum ctty_or san_lus oslspoJaOmimstuation DATE: September 19, 2011 hard eqW. email: a COUNCIL o MDDIR o CrrYMGR o FR DM a AWCAI a MECHU TO: City Council a A7TORM a FWIQ o CL MKMG o POLICIECIDEF a PM a PAW@RECDIR VIA: Katie Lichtig, City Manage ., kL c�DIRo NEWTMO D o SLOCRYNM a COUNCIL cnyMGR FROM: Michael Codron, Assistant City Manager o SUBJECT: Response to Council Member Ashbaugh Regarding Chevron Questions The following questions were posed by Council Member Ashbaugh on Friday, September 16Th Staff responses follow each question. In reviewing the AASP, and the Goodwin report attached to the staff report for item SS3, I have a few questions: 1. Where does Goodwin come up with the data in the Table at the end of their report which shows AASP with 450 developable acres? I see on p.4-3 a Table 4-01 that shows 233 ac of Business Park, and 491 ac.of Services and Manufacturing among the total 1,498 acres of land. Adding that up yields 724 acres of developable land, but in the text below that table there are 350 acres identified as already"fully developed," which must be deducted;this would result in only 374 acres of developable land (724—350). Have we amended the AASP to add more developable property since 2005? TABLEI CHEVRON AND AASP ACREAGE AND COST COMPARISON SCENARIO ONE Develo able Acres a Costs Chevron Chevron asa % of asa % of Chevron AASP AASP Chevron RASP AASP 53 450 12% S20.4M S40.7M 50% Staff Response: An amendment to the AASP is proposed as part of the Chevron project. The analysis included in the Goodwin Report is based on the land use plan that is proposed by Chevron, which includes a change in the overall developable acreage for the Airport Area. The change is being evaluated in the Environmental Impact Report for the project, and will be reviewed by the Planning Commission before a recommendation is made to the City Council. GAStaft\Codron\Memos\Council Memo Chevronl.dot Q � O Council Memorandum September 19, 2011 Page 2 2. Goodwin's study identifies three non-residential categories of developable land in the Chevron property: Business Park, Service Commercial,and Manufacturing.The AASP only has two: Business Park and Services& Manufacturing. Has there been a further delineation in some amendment to the Specific Plan, or is this merely a distinction that they are proposing? Staff Response: Service Commercial (C-S) and Manufacturing (M) are zoning designations. Both zoning designations implement the Services and Manufacturing land use category. There is no further delineation proposed. 3. 1 would also note that Goodwin's analysis is.based on an assumption that the Business Park category(approx 27 ac in the.Chevron proposal)would be developed at a 33%floor area ratio; the.AASP only assumes a 15% FAR. Staff Response: The assumptions made in the AASP regarding floor area ratio (FAR) should be thought of as an average across all property with the AASP. Many properties include constraints that would prevent achieving a FAR of 33%, such as on-site stormwater management requirements. Chevron's development proposal is currently being evaluated as part of the City's environmental review process and recommendations regarding the proposed development plan will be brought forward after it is completely evaluated. 4. Final question: Within the last few days,we've learned something new about the "Avila Ranch" property fronting Buckley Road in the southwest corner of the.AASP.This large property is being proposed by its new owners (Mangano Properties)to be removed from Business Park in favor of a mix of residential uses. if the City were to approve that proposal,what happens to: a)The infrastructure sizing and costs that were proposed in the original Specific Plan? ...and b)The fees that would be generated from that part of the Specific Plan? (Related to this question is the issue of how much sooner—or later?—any reimbursement could be expected from that property to Chevron for their"front-ending"the infrastructure costs). Staff Response: Owners of the Avila Ranch property have approached the City with a development plan for consideration as part of the Land Use Element update. This development plan includes substantial changes in the land uses proposed for this portion of the Airport Area. As part of the evaluation of this proposal, a fee study will have to be conducted to answer the questions posed above. It should be noted that the Avila Ranch development will itself be required to construct Airport Area infrastructure, including the planned connection of Buckley Road to South Higuera Street. The preliminary proposal submitted for the Avila Ranch property is a good sign that reimbursement to the City and Chevron for infrastructure costs can be expected sooner rather than later. However, if a revised land use plan for the Avila Ranch reduces the property's obligation, or fair share, of the improvements proposed by Chevron, the overall amount of fees available to reimburse Chevron (and the City) would be reduced.This highlights an area of risk associated with all reimbursement agreements, that future development may not happen in the way it was initially anticipated. Staff is proposing to work with a municipal finance expert to identify methods for reducing any such risk to the City associated with a development agreement with Chevron. From: Almas, William rmailto:WAlmas(@chevron.coml Sent: Friday, September 16, 20111:56 PM To: Codron, Michael Subject Additional Information as Pre-Read for City Council for the SLO Tank Farm Development Discussion Michael, As discussed, I have included some additional information and request that it be distributed to the City Council for review prior to the September 201"workshop. The information consists of the following: • A slide to be inserted in the Chevron presentation that summarizes conclusions of the Goodwin Report • An analysis prepared by Vic Montgomery of RRM Design listing areas of conformity between the SLO Tank Farm Project, General Plan and Airport Area Specific Plan Please call and let me know if you have any questions or need additional information. Thanks, William Almas (Bill) Senior Project Manager Chevron Land and Development P.O. Box 1332 RED FILE San Luis Obispo, CA 93406 Tel 805 546-6970 MEETING AGENDA Fax 805 546-6900 DATE 7120111 ITEM It95'-3 walmas(alchevron.com herd coewafd: a COUNCIL a CDD DIR a CITYMGR a FITDIa a AMCM o ME CHIEF • ATTORNEY o PWDIR a CIBAKIORIO a POLICE CHIEF a PIR a PARKs3RECDIR a TRIBUNE a UTILDIR • NEWTBM cHRDIR • swcnTNEWS o COUNCIL a CITY h= o CLERK W L O L- L-- 4-0 U O � o a� cn a c� a Ile 0 U = L c� m O 4, • _ Q D 0 L Q U 4 `-- O 4-j N U • a--► O Chevron San Luis Obispo Tank Farm Project City General Plan and Airport Area Specific Plan Policies and Vision Statements What follows are Policy excerpts from the City General Plan that establish the approach,objectives and direction the City has established in regard to the Airport Area Annexation and Development. General Plan Policies GP Chapter I • Growth Management- Policy 1.12.3.A—Required Plans A. For the Airport area, a specific plan shall be adopted for the whole area. Until a specific plan is adopted, properties may only be annexed if they meet the following criteria: 1. The property is contiguous to the existing city limits; and 2. The property is within the existing urban reserve line; and 3. The property is located near to existing infrastructure; and 4. Existing infrastructure capacity is available to serve the proposed development;and 5. A development plan for the property belonging to the applicant(s) accompanies the application for annexation; and 6. The applicant(s) agree to contribute to the cost of preparing the specific plan and constructing area-wide infrastructure improvements according to a cost-sharing plan maintained by the City. • Open Space—Policy 1.12.5.1)—Airport Area "Airport Area properties shall secure protection for any on-site resources as identified in the Conservation and Open Space Element' • Creeks,Wetlands and Flooding Policies—Policy 6.4.3 Amenities and Access "Developments along creeks should include public access across the development site to the creek and along the creek, provided that wildlife habitat, public safety, and reasonable privacy and security of the development can be maintained, consistent with the Conservation and Open Space Element." GP Chapter 7—Airport Area Policies • Annexation—Policy 7.3 "The City intends to actively pursue annexation of the Airport Area. Airport Area land inside the urban reserve shall be considered for annexation if it meets the criteria stated in Policy 1.12.3.A." • Greenbelt Protection— Policy 7.4 "Annexation of the Airport Area, whether it occurs as one action or several, shall be consistent with the growth management objectives of maintaining areas outside the urban reserve line in rural, predominantly open space uses." 1 • Internal Open Space—Policy 7.5 "The areas designated for urban uses, but not necessarily each parcel, should include open areas as site amenities and to protect resources, consistent with the Conservation and Open Space Element." • Development Before Annexation—Policy 7.6— N/A • Transit Service— Policy 7.7 Transit service linking development sites with the citywide bus system should be provided concurrent with any additional urban development in the Airport Area. • Specific Plan—Policy 7.8—Airport Area Specific Plan —Adopted by City GP Chapter 7 • Business Parks—Policy 7.9 "Business parks may be developed in areas designated for them." • Specific Plan— Policy 7.10—Airport Area Specific Plan—Adopted by City • Airline Service and Impacts—Policy 7.11 The City will work with the County to assure that airline services and conditions in the vicinity of the airport are consistent with the Circulation Element policies. • Growth Management—Policy 7.12 The City will annex the area and accommodate incremental development consistent with the growth management policies, including those concerning adequacy of resources and services and development paying its own way. • Open Space Dedication and In-lieu Fees—Policy 7.13 "In approving development proposals, the City will assure that Airport Area properties secure protection for any on-site resources as identified in the Conservation and Open Space Element." Airport Area Specific Plan - Vision Statement and Plan Summary What follows are excerpts from the Airport Area Specific Plan that define the Vision for the Airport Area and establish the direction the City has established in regard to development within the Airport Area. 2 0 • The Vision—"This Specific Plan is about changing the identity and perception of the area and 'raising the bar'to meet the-standards of San Luis Obispo in the 21'`Century." (Vision Statement & Plan Summary, p. i) • The Introduction—'The Plan has been developed with a thorough analysis of environmental conditions and extensive input from City decision-makers, landowners, neighbors,and the community-at-large." (p. iii) • The Planning Area—''The entire:central portion of the Airport Area is generally undeveloped. The 368-acre Unocal property,which was formerly the site of a petroleum tank farm, comprises the majority of this central area." (p. iv) • Conservation and Resource.Management—"The Plan designates 23%of the planning area, practically the entire central portion of the planning area, as open space in order to adequately protect and enhance valuable wetland and grassland habitat areas. In addition to this central open space,the plan also designates all of the major creek corridors as open space to allow for the protection and enhancement of the creek system that flows through the area.The land use plan is structured to ensure that these resources are part of an integrated open space system that is directly linked to adjoining areas." (p.v) • Land Use—`The redevelopment and habitat enhancement of the site called for by the Plan represents an opportunity to ensure the wise, long-term management of the site's resources and hazards,while significantly enhancing the character of the planning area through the actions of a single property owner." (p.vi) (emphasis added) • Community Design—"The intent of the Specific Plan is to ensure that new development in the Airport Area is well-designed and contributes to the creation of a built environment that enhances San Luis Obispo's unique sense of place." (p.vi) • Circulation and Transportation—"The transportation and circulation system in the Airport Area is intended to provide safe and convenient mobility and access for all modes of transportation." (p.viii) • Utilities and Services—"One of the ways the plan enhances the ability of planning area landowners to realize more productive use of both of their land and buildings is to provide urban infrastructure and services to the area." (p.viii) • Financing—'The Financing chapter establishes a framework of policies and procedures that will allow the phasing of development and the choice of financing mechanism(s)to be determined according to property owners' needs and requirements:' (p. ix) • Implementation—"The Implementation chapter sets forth a variety of implementing steps and regulatory procedures that will be followed to implement the Specific Plan, including City- initiated steps such as zoning and annexation of the planning area." (p. ix) 3