BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1527
                                                                  Page  1

          Date of Hearing:   August 7, 2008

                                  Mark Leno, Chair

                     SB 1527 (Yee) - As Amended:  July 14, 2008 

          Policy Committee:                              Business and  
          Professions  Vote:                            7-2

          Urgency:     Yes                  State Mandated Local Program:  
          No     Reimbursable:               


          This bill 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 13-acre parking  
          lot portion of the state-owned Cow Palace property, located in  
          the County of San Mateo and the City and County of San  
          Francisco. 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 the property at fair market value,  
            without any conditions relating to entitlement, to any  
            interested third party, with the Daly City Redevelopment  
            Agency (DCRA) afforded the right of first refusal on the  

          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.

          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.


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          5)Requires the sales agreement to require the purchaser to  
            develop the property consistent with the general plan of the  
            City of Daly City and the Bayshore Revitalization  
            Redevelopment Plan.

          6)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).

          7)Provides that DFA, until June 1, 2012, shall assume only those  
            rights, duties, and powers of the board of directors of the  
            DAA 1-A associated with negotiating the sale of the property.

          8)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 Cow Palace property, by June  
            1, 2013.

           FISCAL EFFECT  

          1)Unknown one-time revenue to the Fairs and Exposition Fund from  
            the property sale, net of any costs to DGS to administer the  
            transaction. It is unclear whether the disposition process  
            required in the bill would result in less than optimum  
            revenues to the state. (See Comment #5.)

          2)One-time cost, probably under $50,000, to DFA for the report.


           1)Purpose  . The author indicates that the Bayshore neighborhood  
            in Daly City is in desperate need of basic services. This  
            neighborhood has no post offices, pharmacies or grocery  
            stores. Some residents living near the Cow Palace must take  
            three buses to get to the closest grocery store. The Cow  
            Palace property occupies 68 acres within this neighborhood,  
            including a 13-acre overflow parking lot that is rarely used.  
            The author states that the Cow Palace is currently running an  
            operating deficit of nearly $700,000, and over the past five  
            years the Cow Palace has lost over $1.5 million dollars. This  
            bill provides for the disposition of the overflow parking lot,  
            with the proceeds going to Fairs and Exposition Fund.


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           2)Background  . The state's network of fairs includes 54 district  
            agricultural associations (state agency fairs), which are  
            managed under the DFA within the Division of Fairs and  
            Expositions.  Each fair operates with a degree of autonomy  
            through a board of directors appointed by the governor. State  
            support to these fairs comes through the Fairs and Expositions  
            Fund, principally from a portion of license fees assessed  
            against California horseracing. State funding has been around  
            $11 million annually in recent years.

            According to the DFA, the Cow Palace 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.

           3)Conflict with Leasing Process  . In March 2008, the DAA 1-A  
            released a request for proposal (RFP) to lease the same  
            13-acre 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 two  
            responsive bidders. Even if enacted, the property sale  
            envisioned in this bill could be precluded if a lease  
            agreement is entered into prior to completion of any sale  

           4)Proposition 60A  .  Under Proposition 60A, the net proceeds of  
            the sale of surplus property must be used to pay the holders  
            of the state's deficit reduction bonds.  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  

            SB 1527 declares that sale of the Cow Palace property does not  
            constitute a sale of surplus state property subject to the  
            requirements of Proposition 60A, and directs the sale proceeds  
            into the appropriate special fund for district agricultural  


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           5)Opposition  . DGS is opposed to providing a right of first  
            refusal to the DCRA, arguing that this approach could reduce  
            the number of parties interested in bidding on the property,  
            possibly resulting in reduced revenue to the state from the  
            sale. The author responds in part that affording DCRA the  
            opportunity to obtain the property, when combined with the  
            DCRA's existing control over an adjoining 12.5 acre parcel and  
            the potential cooperation from the owner of an additional  
            11-acre contiguous parcel could enhance the overall value of  
            the state-owned parcel by providing the opportunity for a  
            development encompassing almost 37 acres. DGS is also opposed  
            because the property disposition lacks an exemption to the  
            California Environmental Quality Act (CEQA), as discussed  

           6)No CEQA Exemption  . In recent years, several legislative  
            measures to sell state property have been vetoed due to  
            objections that the bills did not exempt the property  
            dispositions from a CEQA review. This bill likewise does not  
            provide a CEQA exemption. The author argues that the transfer  
            of property should fall under a categorical CEQA exemption  
            inasmuch as the use of the property has not changed since it  
            was first acquired by the state as a parking lot for the Cow  
            Palace, and would not change until acquired by the DCRA. At  
            that time, subject to local control, the future change of use  
            and development of the parcel will be subject to CEQA.

           Analysis Prepared by  :    Chuck Nicol / APPR. / (916) 319-2081