BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1527
                                                                  Page  1

          Date of Hearing:   August 5, 2008

                                   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  

          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  


           Support  (unverified as of July 31, 2008)  
          City of Daly City
          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   
          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