Subject: Amended
and Restated Cooperation Agreement Regarding Civic Plaza Redevelopment Area
1. Adoption of resolutions by City Council and Agency Board approving the Amended and Restated Cooperation Agreement between the City and Agency Relative to the Civic Center Project providing for the terms of repayment of the Agency by the City for the Civic Center site and Civic Center garage site.
2. Adoption of a resolution by the Agency Board approving the following adjustments to the Agency’s Five Year CIP all as detailed on Attachment A:
a. Approving the
shift of $4,000,000 from Civic Plaza – Land Acquisition project line to the
Capital Reserve; and,
b. Approving the
shift of $5,850,000 from Adopted FY2001-2002 Capital Budget for the Civic Plaza
Infrastructure project line in the Civic Plaza Redevelopment area to the
Capital Reserve; and
c. Approving the
shift of $3,320,000 from Adopted Five Year CIP FY2002-2003 for the Civic Plaza
Infrastructure project line in the Civic Plaza Redevelopment area to the Capital
Reserve; and,
d. Approving the
shift of $3,320,000 from Adopted Five Year CIP FY2003-2004 for the Civic Plaza
Infrastructure project line in the Civic Plaza Redevelopment
area to the Capital Reserve; and,
3. Adoption of a resolution by the Agency Board amending the FY 2001-2002 Agency appropriations resolution to reflect the above adjustments.
BACKGROUND
In 1958, City Hall was relocated from downtown San Jose to its current location at North First and Mission. In 1968, the citizens of San Jose approved an ordinance -- known as Measure Q -- at a special municipal election. Measure Q requires the principal meeting place of the City Council, the office of the Mayor, City Manager, and the principal administrative offices of at least a majority of the departments of the City to be at the current City Hall location. The only exception provided in Measure Q is if another alternative is approved by the voters.
Since the mid 1970’s the City has leased increasing amounts of office space, much of it in downtown office buildings. After years of studying possible solutions to the space needs of the City, the City Council determined that, subject to voter approval, a new City Hall should be built in the Downtown area.
On the November 5, 1996 ballot the question posed to San José voters in Measure I was as follows:
Without imposing additional taxes or taking money from other city programs, shall Ordinance No. 14224.1 [Measure Q] be amended to permit the relocation and consolidation of civic center offices in the downtown so long as the costs are paid by using the proceeds from the sale or lease of the old civic complex and other land, savings from the elimination of leased office space, and consolidation of city facilities and services?
Measure I passed and City and Agency staff were directed to produce a Downtown City Hall project within the parameters of Measure I.
On June 8, 1999, the City Council approved the adoption of the Civic Plaza Redevelopment Project Plan, as well as the construction of a new City Hall on a site located within the new Redevelopment Plan.
The new City Hall was included in the Redevelopment Plan as one of many projects identified in the Redevelopment Plan to eliminate blight. Other projects included in the Plan are the rebuilding of Horace Mann elementary school, a new performing arts complex, a child care center, retail space, a public plaza, public parking facilities, public infrastructure improvements, a general office building, and a mixed use commercial/residential shopping center.
The Redevelopment Plan calls for the Agency to facilitate the implementation of these various projects through traditional redevelopment practices, including acquisition and assembly of properties for development, site preparation activities, such as demolition, clearance and assistance for environmental remediation, relocation assistance to displaced businesses and residents, and assistance in the rehabilitation and renovation of existing buildings.
Also on June 8, 1999, the City Council and the Agency Board approved the Cooperation Agreement between the City and the Agency regarding the Civic Plaza Redevelopment Area, which outlined the responsibilities of the two entities with regard to the various projects intended to be constructed in the Civic Center Redevelopment Area, including the City Hall project.
Since the redevelopment law prohibits the Agency from spending tax increment on the construction of a city hall building, at the time the parties entered into the Cooperation Agreement, the City intended to spend funds on the construction of City Hall and required parking, including soft costs, such as design and engineering of the facilities, and construction contingency, and the Agency intended to spend funds for the costs of site acquisition, relocation of persons on the site, demolition of structures on the site and toxic environmental review and remediation. In other words, it was intended that the Agency would provide the City a developable site, just as it could to any private developer who would redevelop that site.
Before the City and
Agency even took action in June of 1999, a citizen brought a lawsuit
challenging the relocation of the City Hall to Downtown on several
theories. One of those theories was
that the Agency’s contribution of the assembled site to the City for the City
Hall project was in violation of the
redevelopment law prohibition on using tax increment to construct a City Hall
building.
On August 24, 2001, the
California Court of Appeals reversed a trial court's grant of a summary
judgment in favor of the City and Agency in the case of Ruffo v. Redevelopment Agency of the City of San Jose. In reversing the trial court, the Court of
Appeals held that expenditure of tax increment funds for the acquisition and
preparation of land for the purposes of a new City Hall violated Section 33445,
and that there was a triable issue of fact as to whether the Agency had
improperly expended tax increment funds on the City Hall project.
Based on the appellate Court’s decision, and depending on the outcome of the litigation, the City will be required to reimburse the Agency for its expenditures for the acquisition and preparation of the land if it is to be used for the new City Hall. The purpose of the proposed Amended and Restated Cooperation Agreement is to acknowledge certain changes in the Project, including the requirement that the City compensate the Agency for the assembled City Hall and Parking Garage sites, at the time the land is transferred to the City for the construction of a City Hall.
Status of Site
Delivery.
To date, the Agency has expended approximately $40,768,399 on land acquisition, relocation and site clearance, including all costs related to the Historic House Moving Program, which although not a part of the City Hall project, is being undertaken as means of clearing the site. The Agency has been working since 1999 to assemble the City Hall Site, and since May of 2001, when the Offsite Parking Garage site was defined, to acquire those parcels as well. The parcel map attached to this memo depicts the sites and status of the acquisitions.
The Agency has obtained possession of 25 of the 26 parcels required for the City Hall Site and (four of the six) parcels required for the Offsite Garage Site. Several of these sites are in eminent domain proceedings. Negotiations are ongoing to resolve outstanding compensation and relocation issues.
Contracts have been let to demolish or relocate structures on the City Hall Site.
To date, demolition or removal of structures has occurred on 21 of the 26 City Hall Site parcels. The five remaining houses are scheduled to be moved as Phase III of the Historic House Moving Program in the early December. Thirteen receiver sites have been acquired and cleared for the Historic House Moving Program, and agreements are currently being negotiated with parties who intend to acquire these sites, with the relocated houses, and rehabilitate them for residential uses.
Agency staff is very concerned that any disruption to the acquisition and relocation efforts at this juncture would leave the property owners and remaining occupants with too much uncertainty. Furthermore, terminating the demolition and house moving contracts mid-project is inefficient and would cause unnecessary expenses to be incurred.
With regard to the site remediation phase of the project, the design documents are approximately 95% complete and will be 100% complete by October 31, 2001. The site remediation activities will require removal of contaminated soil across large portions of the site at a depth of 20 feet below grade. The extent of the contamination is conical in shape and will require large mass excavation of non-contaminated soil to reach the actual contaminated soil. Due to the extensive nature of the excavation required by the remediation, Agency and City staff recommend that the excavation for the remediation be done in conjunction with the excavation for the building. This will provide construction efficiencies, saving time and money to the project. It is anticipated that the same will be true for the Garage Site.
Therefore, based on the status of the Agency’s site delivery work to date, City and Agency staff recommend that the Agency complete the assemblage of the City Hall Site and the Garage Site up to and including the site remediation plan, but not the actual remediation work.
Compensation for City
Hall and Parking Garage Sites.
The proposed modifications to the Cooperation Agreement require the City to purchase the cleared and assembled City Hall Site and the Garage Site from the Agency, in the amount actually expended by the Agency to assemble the sites, plus interest at the Agency’s rate of return on invested funds. The Cooperation Agreement only requires this payment to be made upon transfer of the sites to the City for a City Hall. If, due to the outcome of the pending litigation or for any other reason, the City Council determines not to acquire the Site from the Agency for a new City Hall, the Agency may redevelop the assembled Site in any manner consistent with the Civic Plaza Redevelopment Plan. In such an event, the City will not be required to compensate the Agency for any funds expended by the Agency in assembling the site. It is anticipated that the transfer of the site will not occur until after the pending litigation is resolved. This is because the City intends to finance the acquisition costs through issuing bonds, and bonds cannot be issued while this litigation is pending.
Furthermore, if the City determines not to acquire the City Hall Site from the Agency for use as a City Hall, the City will not be liable to compensate the Agency for the Garage Site, even if the site is transferred to the City for a public parking garage. This is because the Garage Site is covered by the Cooperation Agreement only because it is essentially part of the City Hall Project. If the new City Hall is never built at the Santa Clara Street site, then the site can be used for any other redevelopment purpose, including a public parking garage, without the City having to compensate the Agency for the site.
The total expenditure by the Agency, to date, for the City Hall and the Garage sites, is $40,768,399 as detailed in Attachment B, “Project Status Report as of October 25, 2001, Civic Plaza”. The cumulative Agency expenditures shall accrue interest on a monthly basis at an interest rate based on the yield the City and Agency received in that month on its pooled invested funds. Interest will be calculated as of the first of each month based upon the accumulating balance spent by the Agency on the Project as of the last day of the preceding month. Accrued interest on the current balance of $40,768,399 is approximately $2,110,000.
The Agency’s budgeted amount for the remainder of the project is $9,081,601, for a total site assembly budget of $49,850,000, excluding the $4,000,000 previously budgeted by the Agency for site remediation. It is estimated that if the City issued Bonds in November 2002 to acquire the assembled sites from the Agency for a City Hall, the accrued interest would be approximately $4,884,113, for a total compensation amount of $54,734,113.
The Agency will continue to separately track and report out its expenditures on this Project on a monthly basis. It is anticipated that the Agency Board will be asked to take additional action in the next several months in order to complete the site assembly project. These actions include amending existing agreements, and entering into new acquisition agreements, relocation agreements, and DDA’s for the Historic House Moving Program. For example, on the Agency agenda on October 30, 2001, there was an amendment to the agreement with Mineweaser & Associates to add services related to the design requirements for the Historic House Moving Program and items related to the relocation of the Emergency Housing Consortium from the new City Hall site. All of these expenditures will be tracked through this Cooperation Agreement.
Other Modifications to the Agreement.
Since the original Agreement was entered into in 1999, several changes and refinements to the implementation of the project have occurred that are reflected in this Amended and Restated Cooperation Agreement. First, the original Agreement contemplated that the Agency would fund the Site Delivery but the City would actually undertake the work. Two Hundred Fifty Thousand Dollars was transferred to the City by the Agency to cover this work. It was subsequently determined that the Agency would handle the actual site delivery work. Therefore, provisions in the original Agreement related to the transfer of funds to the City for this purpose have been deleted. The $250,000 is included in the Agency’s project expenditures to date.
Another modification is the specification of the Garage Site. At the time of the original Agreement the location of the Garage had not yet been determined. The Amended and Restated Agreement specifies the actual location and provides an acquisition budget for that site.
Another clarification in the Amended and Restated Agreement deals with the Fifth Street Utility Relocation Project, which was previously intended to be funded by the Agency as part of the City Hall Site Assembly Project. The Project is currently under construction by the City without the use of Agency Funds. The intent was that the Agency would transfer its funds to the City upon completion of the project. The Amended and Restated Agreement acknowledges that the Agency has rebudgeted the funds earmarked for that Project, which is an additional action the staff is requesting the Agency Board to take along with the approval of the Amended and Restated Agreement. The City will also take appropriate budgetary action to reflect that this reimbursement will not occur.
The Amended and Restated Agreement requires that several adjustments to the Agency’s Five Year CIP be made. It is recommended that the $4,000,000 for site remediation be shifted from the Civic Plaza – Land Acquisition project line to the Capital Reserve. It should be noted that streetscape improvements for the whole Civic Plaza Project Area are presently under study by the urban design firm SMWM. Once the studies are completed and the designs and costs estimates reviewed, the Board will likely be asked to consider adding funding back into the Project Area for these improvements.
The recommended budget action also re-allocates the $5,850,000 in the Civic Plaza Infrastructure line item formerly earmarked for transfer to the City for the Fifth Street Utility Relocation Project, discussed above, to the Capital Reserve. The funds budgeted in the Civic Plaza Infrastructure line item for 2002-03 and 2003-04 Fiscal Years will also be shifted to the Capital Reserve.
RICHARD DOYLE
City Attorney/General Counsel