BILL ANALYSIS SB 1527 Page 1 Date of Hearing: August 5, 2008 ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS Mike Eng, Chair SB 1527 (Yee) - As Amended: July 14, 2008 SENATE VOTE : 27-9 SUBJECT : State property sale: Cow Palace. SUMMARY : Directs the Department of General Services (DGS) to enter into negotiations, prior to January 1, 2009, to sell at fair market value, with certain restrictions, a parcel of state property located in the County of San Mateo and the City and County of San Francisco, known as the Cow Palace. Specifically, this bill : 1)Requires DGS, in consultation with the Department of Food and Agriculture (DFA), prior to January 1, 2009, to enter into negotiations to sell at fair market value, as specified, without any conditions relating to entitlement, to any interested third party, with the Daly City Redevelopment Agency (DCRA) afforded the right of first refusal, a specified parcel of property located within the City and County of San Francisco and the County of San Mateo known as the Cow Palace. 2)Specifies that if DCRA exercises its right of first refusal or enters into negotiations with DGS pursuant to the above, then DCRA and DGS shall enter into a written agreement within 90 days to complete the sale of the property at least at its fair market value but for no less than the accepted bid, proposal, or offer. 3)Specifies that fair market value shall be evaluated at the highest and best use of the property as entitled within its existing zone designation, and as governed by the Uniform Standards of Professional Appraisal Practice. 4)Specifies that if the DCRA and DGS do not enter into a written agreement for the purchase of the property within 90 days, DGS may sell, transfer, or otherwise dispose of the property as provided by law. 5)Requires the sales agreement to include a requirement that the purchaser develop the property for uses consistent with the SB 1527 Page 2 general plan of the City of Daly City, any amendment to the general plan, and the Bayshore Revitalization Redevelopment Plan. 6)Requires DGS to be reimbursed by the buyer for any costs or expenses incurred in the disposition of the property. 7)Requires that the net proceeds from the disposition of the property be paid into the Fairs and Exposition Fund (F&E Fund) for the benefit of the District 1-A Agricultural Association (DAA 1-A). 8)Provides that DFA, until June 1, 2012, shall assume only the rights, duties, and powers of the board of directors of the DAA 1-A affiliated with negotiating the sale of the property. 9)Requires the DFA, in coordination with DGS, to provide to the Legislature a report analyzing the business operations of the DAA 1-A for the previous five years and make recommendations identifying the best use of the property, by June 1, 2013. 10)Contains an urgency clause. EXISTING LAW : 1)Requires DGS to perform various functions with respect to state property, and provides for the sale, lease, or transfer of surplus state property, upon authorization by the Legislature. Each state agency is required to annually review proprietary state lands under its jurisdiction to determine what lands are in excess of the agency's foreseeable needs and to report their findings to DGS. 2)Provides criteria for state agencies to use in determining and reporting to DGS lands in excess of the agency's foreseeable needs. Under existing law, DGS is responsible for determining if surplus land is needed by any other state agency. The law also provides that if the land is not needed by another state agency, the property shall be offered to local governments for local government facilities, parks and recreation, open-space, low or moderate income housing, and local schools. 3)Requires, among other things, that the proceeds from the sale of surplus state property, with specified exceptions, be used to pay the principal and interest on the Recovery Bond Act of SB 1527 Page 3 2004 (Proposition 60A of November 2004, SCA 18 [Johnson], Resolution Chapter 103, Statutes of 2004). FISCAL EFFECT : Unknown COMMENTS : Purpose of this bill . According to the author's office, "The Bayshore neighborhood in Daly City is in desperate need of basic services. There are no post offices, no pharmacies and no grocery stores in the area. In fact, residents who live in proximity to the facility must take three buses to get to the closest grocery store. "The structure commonly known as the Cow Palace is located on 68 acres of property located in the Bayshore neighborhood within the jurisdiction of Daly City. Within the footprint of the Cow Palace property is a 13 acre overflow parking lot, which is rarely used. "Unfortunately, The Cow Palace is currently running an operating deficit of nearly $700,000. Over the past 5 years the Cow Palace has lost over $1.5 million dollars. The facility is in great need of a cash infusion in order to provide much needed updates. State estimates show that in order for the structure to become seismically safe it would cost nearly $50 million dollars. Additional funds are needed to allow the property to become ADA (Americans with Disabilities Act) compliant and to replace the faulty roof." Background - State Fairs and the Cow Palace . The state's network of fairs includes 81 fairs operating under a variety of governance structures, including 54 district agricultural associations (state agency fairs), 23 county fairs, two citrus fruit fairs (independent nonprofit organizations with state oversight), and the California Exposition and State Fair (Cal Expo), also a state agency fair. The 54 district agricultural associations are managed under the DFA within the Division of Fairs and Expositions. Each fair operates with a degree of autonomy with a board of directors appointed by the Governor and in accordance with state law. For 75 years, license fees assessed against California horseracing have been the sole state support for the California network of fairs through the Fairs and Expositions (F&E) Fund. Existing law guarantees the F&E Fund will receive $40 million annually generated by horseracing SB 1527 Page 4 license fees. The initial proposal for construction of the Cow Palace was a result of the success of the 1915 Pan Pacific International Exposition in San Francisco. After several attempts to develop the Cow Palace locally, a legislative appropriation was passed in 1931 to purchase a suitable site. Twenty years after its inception, and at the height of the Depression, the Cow Palace was built under the New Deal "Works Progress Administration" (WPA) program as part of a federal effort to put Americans back to work. Since opening in 1941, the Cow Palace has hosted a wide variety of sporting events, and concerts, etc., including the Grand National Rodeo, Ringling Bros. Barnum & Bailey Circus, the San Francisco Flower and Garden Show, the Golden Gate Kennel Club Dog Show, and Disney on Ice. Events at the Cow Palace can bring over 500,000 visitors. The facility is currently running a deficit of $600,000. The Division of Fairs and Expositions is providing a loan of $336,000 to the Cow Palace to help address the shortfall. This loan is in addition to an annual allocation of approximately $175,000 from the F&E Fund to the Cow Palace for the Grand National Rodeo. Background - Propositions 60A . Under the provisions of Proposition 60A, the net proceeds of the sale of surplus property must be used to pay the holders of the state's deficit reduction bond. These payments accelerate the redemption of the state's debt and reduce future General Fund payments to the bondholders. The proceeds of sales of property purchased with gas-tax revenue i.e., revenue constitutionally dedicated to highway construction, or special funds, are exempt from the deficit payment requirement. This bill declares that the sale of the Cow Palace property would not constitute a sale or other disposition of surplus state property subject to the requirements of Proposition 60A. Staff Comments . This bill would require DGS to enter into negotiations to sell, at fair market value, a 12.97 acre parcel of state owned property adjacent to the Cow Palace that is currently used as overflow parking. DCRA will be given a right of refusal to purchase the property, and if a sale agreement between DGS and the DCRA is not executed within 90 days of entering negotiations, DGS is authorized to sell the property to other parties. SB 1527 Page 5 In March 2008, the DAA 1-A released a request for proposal (RFP) to lease this parcel with the expectation that the lease could generate $1.5 million in revenue annually. The RFP is consistent with the City of Daly City's master plan to construct a grocery store, bank, and affordable housing on the site. Responses to the RFP were due June 30, 3008 and DGS, DFA, and the DAA 1-A are currently negotiating with three bidders who responded to the RFP. This bill would appear to preclude the execution of a lease agreement resulting from these negotiations if it is enacted before a final agreement is reached. It is unclear what would happen if a lease agreement is executed and this bill is subsequently enacted. It is noted that this bill is not consistent with provisions of other surplus property bills because it does not require DGS to obtain approval to enter into sale negotiations from the state agency that owns the property. Instead, this bill requires DGS to consult with, but does not require the approval of, DFA as the property owner prior to entering negotiations. This bill also contains the following unique requirements: 1)This bill would establish a right of first refusal for the DCRA without the condition that the property be used for governmental purposes. Existing state policy and law provides for a right of first refusal to local governments only if the property will be used for government facilities, parks, schools, or low income housing. 2)Although the bill states that the property shall not be sold at less than fair market value, a right of first refusal for one potential bidder allows that bidder to review the outcome of the bids and beat the winning bid after completion of the bidding process. If competing bidders believe they are not competing on equal terms as other bidders they may not be willing invest the time and money in preparing a bid which could reduce participation and competition in the bidding process and thus reduce the return to the state. Further, the state's past estimates of fair market value have not always proven to be an accurate appraisal of the market value. For example, the state's appraised fair market value of the Agnews Development Center in San Jose was $150 million however, the open market offering of the Agnews property resulted in a winning bid of $192 million - a 28% increase over the state's appraised fair market value. SB 1527 Page 6 3)The bill contains language that would require DGS to negotiate to sell the property without any conditions related to entitlements (general plan amendments, etc) and subject to existing zoning designations. This could limit DGS's ability to increase the return to the state by precluding DGS from pursuing entitlement and zoning changes that would enhance the value of the property and maximize the state's return on the sale. REGISTERED SUPPORT / OPPOSITION : Support (unverified as of July 31, 2008) City of Daly City ACORN Bayshore Community Services Bayshore Friendship Senior Citizen Club Bayshore Sanitary District Bayshore School District Construction Trades Council County of San Mateo Outer Mission Merchants and Residents Association Plumbers, Steamfitters, and Refrigeration Fitters Local Union #467 San Mateo County Building and Numerous individuals Opposition (unverified as of July 31, 2008) Crossroads of The West Gun Shows Department of Finance (unless amended, verified July 31, 2008) Flying U Rodeo Hastings Island Land Company Horse power Promotions Nevada County Fairgrounds Professional Rodeo Cowboys Association Save the Cow Palace Yuba Sutter Fair Numerous individuals Analysis Prepared by : Ross Warren / B. & P. / (916) 319-3301