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
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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
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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
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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.
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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.
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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