BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:  April 11, 2016   


                       ASSEMBLY COMMITTEE ON NATURAL RESOURCES


                                 Das Williams, Chair


          AB 2797  
          (Chiu) - As Amended April 5, 2016


          SUBJECT:  City and County of San Francisco:  Mission Bay South  
          Project:  redevelopment plan


          SUMMARY:  Authorizes the Port of San Francisco (Port) to loan  
          specified nontrust lease revenues to cover the infrastructure  
          costs for the development of Seawall Lot 337.  Expands the  
          boundaries of Seawall Lot 337 and extends permissible lease  
          periods.   


          EXISTING LAW:  


          1)Protects, pursuant to the common law doctrine of the public  
            trust (Public Trust Doctrine), the public's right to use  
            California's waterways for commerce, navigation, fishing,  
            boating, natural habitat protection, and other water oriented  
            activities.  The Public Trust Doctrine provides that filled  
            and unfilled tide and submerged lands and the beds of lakes,  
            streams, and other navigable waterways (public trust lands)  
            are to be held in trust by the state for the benefit of the  
            people of California.  

          2)Establishes that the State Lands Commission (SLC) is the  
            steward and manager of the state's public trust lands.  SLC  








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            has direct administrative control over the state's public  
            trust lands and oversight authority over public trust lands  
            granted by the Legislature to local public agencies (granted  
            lands).

          3)Grants in trust to the Port, pursuant to the Burton Act,  
            Chapter 1333, Statutes of 1968, administrative control over  
            the public trust lands in the harbor of San Francisco for  
            purposes of commerce, navigation, and fisheries.

          4)Authorizes the Port, pursuant to SB 815 (Migden), Chapter 660,  
            Statutes of 2007, to lease all or any portion of designated  
            seawall lots free from use requirements established by the  
            public trust, the Burton Act trust, and the Burton Act  
            Transfer Agreement (hereinafter "nontrust leases"), provided  
            certain conditions are met, including:

             a)   The term of any individual non-trust lease, including  
               any extension of the term allowed by right of renewal, does  
               not exceed 75 years, and the non-trust lease will terminate  
               no later than January 1, 2094;

             b)   All revenues received by the Port from the non-trust  
               lease will be deposited in a separate account in the harbor  
               fund to be expended for the preservation of historic piers  
               and historic structures, or for the construction and  
               maintenance of waterfront plazas and open space required by  
               the special area plan.  Prior to the use of revenues for  
               any pier of structure subject to public trust restrictions,  
               the executive officer of SLC must approve the proposed uses  
               of the piers or structures; and,

             c)   The non-trust lease is for fair market value subject to  
               the approval of SLC, which must find that the lease is  
               consistent with the terms of the public trust and Burton  
               Act trust, other than their restrictions on use, and that  
               it is in the best interest of the state.

          5)Requires that, prior to the lease of Seawall Lot 337 for  








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            nontrust uses, a study is undertaken and approved by SLC.   
            Requires the study to analyze the need to retain  
            trust-consistent uses on the site.  Requires that, prior to  
            the lease of Seawall Lot 337 for nontrust uses, the San  
            Francisco Bay Conservation and Development Commission has  
            amended the seaport plan to remove the port priority use  
            designation from lands to be leased for nontrust uses.



          6)Allows the Port to lease Seawall Lot 330 to any person, free  
            of the public trust, the Burton Act trust, and the  
            restrictions of SB 815 if all specified conditions are met.



          7)Authorizes the Port, conditioned on the approval of SLC, to  
            provide a rent credit or other waiver or deferral of rent in  
            connection with a nontrust lease of Seawall Lot 337 that  
            results in an effective rent to the port below fair market  
            value for affordable housing.
          THIS BILL:


          1)Defines 40 terms, many of which have already been defined in  
            prior Port granted land statutes, including "port advances"  
            which means, "nontrust lease revenues that the port uses to  
            pay directly or to reimburse the Seawall Lot 337 developer or  
            any district providing project-based public financing for  
            costs of infrastructure in accordance with the terms and  
            conditions of this act."


          2)Makes numerous findings about San Francisco Bay, the San  
            Francisco waterfront, seawall lots, SB 815, and Mission Bay  
            South Redevelopment Project Area.


          3)Declares it is critical that the Port be able to use nontrust  








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            lease revenues "to pay Seawall Lot 337 infrastructure costs to  
            minimize the cost of development capital and maximize the land  
            value that the Port is able to realize for preservation of its  
            historic piers and historic structures, and for other public  
            trust uses."


          4)Expands the boundaries of Seawall Lot 337 to include portions  
            of Parcel P20, Third Street, and Terry A. Francois Boulevard.


          5)Exempts specified actions amending the Mission Bay South  
            Redevelopment Plan from certain redevelopment agency  
            dissolution provisions. 


          6)Allows the Port to enter into 75-year leases that terminate  
            after January 1, 2094.


          7)Allows the Port to use its nontrust lease revenues from  
            Seawall Lot 337 to make port advances to fund Seawall Lot 337  
            infrastructure.


          8)Requires SLC to consider whether the Port will receive  
            consideration equal to fair market value on terms consistent  
            with prudent land management practices.


          9)Requires SLC to consider whether to make all of the following  
            findings:


             a)   The disposition and development agreement, including the  
               plan of finance and use of Port advances, the procedures  
               for establishing rent for future nontrust leases of  
               individual development parcels, including appraisal  
               instructions, and other consideration to the port will  








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               provide the port with fair market value.



             b)   The submitted documentation identifies the projected  
               amount of port advances and the nontrust sources projected  
               to repay Port advances with interest.  If port advances are  
               not projected to be repaid with interest within 40 years  
               after the Port makes its first Port advance, the  
               projections and other evidence shall demonstrate the  
               availability and viability of those sources for full  
               repayment within an additional period that the SLC finds  
               reasonable and consistent with this bill.



             c)   The master development on the whole is consistent with  
               the Port study.



             d)   The use of Port advances will not substantially  
               interfere with trust uses and purposes and will reduce  
               Seawall Lot 337 infrastructure financing costs.



             e)   The Port advances will generate increased revenues for  
               the trust, including revenues available for historic pier  
               and historic structure preservation.



             f)   The master development is consistent with the terms of  
               the public trust and the Burton Act trust, other than their  
               restrictions on uses.

             g)    The development is otherwise in the best interest of  
               the state.








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          10)Prohibits port advances if the SLC cannot the make the  
            findings above.



          11)Requires the Port to provide the SLC an accounting of all  
            nontrust sources and other Port revenue spent on Seawall Lot  
            337 annually, including any port advance. 



          12)Authorizes SLC to require the Port to take actions to remedy  
            any shortfall in repayments of port advances.



          FISCAL EFFECT:  Unknown


          COMMENTS:  


          1)Public Trust.  The foundational principle of the common law  
            Public Trust Doctrine is that it is an affirmative duty of the  
            state to protect the people's common heritage in navigable  
            waters for their common use.  The traditional uses allowed  
            under the Public Trust Doctrine were described as  
            water-related commerce, navigation, and fisheries.  As a  
            common law doctrine, the courts have significantly shaped the  
            Public Trust Doctrine in a number of important ways.  Courts  
            have found that the public uses to which sovereign lands are  
            subject are sufficiently flexible to encompass changing public  
            needs.  The courts have also found that preservation of these  
            lands in their natural state, so that they may serve as  








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            ecological units for scientific study, as open space, and as  
            environments that provide food and habitat for birds and  
            marine life, are appropriate uses under the common law Public  
            Trust Doctrine. Courts have also made clear that sovereign  
            lands subject to the Public Trust Doctrine cannot be sold into  
            private ownership.

          2)Background on Granted Lands.  For over 100 years, the  
            Legislature has granted public trust lands to local  
            governments so the lands can be managed locally for the  
            benefit of the people of California.  There are over 80  
            trustees in the state, including the ports of Los Angeles,  
            Long Beach, San Diego, San Francisco, Oakland, Richmond,  
            Benicia, and Eureka.  While these trust lands are managed  
            locally, SLC has oversight authority to ensure those local  
            trustees are complying with the Public Trust Doctrine and the  
            applicable granting statutes.

          3)Port of San Francisco.  In 1968, the Legislature enacted the  
            Burton Act, which transferred, in trust, the interest of the  
            state in, and the control and management of, the Port.   
            However, when this occurred, the Port's assets were in poor  
            condition.  For example, 23 of the piers transferred in 1968  
            were virtually unusable for maritime purposes because of their  
            poor physical condition.  Those piers which were structurally  
            sound were only marginally productive because containerized  
            shipping was already replacing break bulk shipping at the time  
            of the transfer.
            
            The City was also required to assume $55 million of the  
            state's bond debt, which, according to the Port, hampered its  
            ability to make capital improvements to its assets.  The age  
            and condition of Port facilities, some of which are historic  
            structures at the end of their useful life, combined with  
            their construction on filled tidelands in a high risk seismic  
            area, has created a significant capital funding challenge for  
            the Port.  

            In 2007, after lengthy discussions between the Port and SLC,  








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            the Legislature enacted SB 815.  That statute recognized that  
            several of the seawall lots granted under the Burton Act,  
            including portions of Seawall Lot 337, ceased to be useful for  
            the promotion of the public trust except for the generation of  
            revenues for the public trust.  SB 815 lifted the public trust  
            and the Burton Act use restrictions on the designated seawall  
            lots, subject to the requirement that the revenues be used by  
            the Port for preservation of historic piers and historic  
            structurers.  The bill also authorized leases for nontrust  
            uses to have 75-year terms, with an end date of January 1,  
            2094. 

          4)According to the author: 
            
               The Port initiated a planning process for Seawall Lot  
               337 and in 2009, the Port Commission selected a  
               development team led by the San Francisco Giants for  
               exclusive negotiations with the Port for the  
               development of Seawall Lot 337.  The proposal, known  
               as the Mission Rock project, would include  
               approximately 1,500 rental apartments, 40% of which  
               would be affordable to individuals and families  
               earning between 45% - 150% of area median income;  
               approximately 1.3 million square feet of office space;  
               3,100 parking spaces; and 250,000 square feet of  
               retail, manufacturing, and restaurants on the ground  
               floors of the buildings.  Public improvements include  
               the installation of streets, sidewalks, 8 acres of  
               parks, public access areas, water, sewer, and  
               electrical utilities, and other infrastructure known  
               as "horizontal development."  In addition, to address  
               the effects of climate change, the project sponsor  
               proposes to raise the elevation of portions of Seawall  
               Lot 337 and new streets within the site to be  
               resilient to future sea level rise of 55" and 100 Year  
               Storm events.  The Developer will finance much of the  
               horizontal development; infrastructure costs are  
               currently expected to exceed $150 million.   









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               The Mission Rock project also includes the  
               rehabilitation of Pier 48 consistent with the  
               Secretary of the Interior's Standards for the  
               Treatment of Historic Properties.  Pier 48 is one of  
               the Port's historic finger piers and is a contributing  
               resource to the Embarcadero Historic District, which  
               is listed on the National Register of Historic Places.  
                Under the proposed project, Pier 48 would be  
               renovated to become the expanded home for Anchor  
               Brewing Company, San Francisco's oldest and largest  
               manufacturing business.  Anchor will host public tours  
               of its brewing operations, and the project will  
               include a restaurant and a new public boardwalk with  
               dramatic water and bridge views around the pier.  The  
               project would entail seismic improvements to the  
               seawall along China Basin Park to the north and to the  
               east of Seawall Lot 337, including in front of Pier  
               48, to minimize the risk of lateral ground spreading  
               toward San Francisco Bay, which could seriously damage  
               the piles supporting the pier.  As with all of the  
               Port's finger pier projects, the project's design and  
               mix of uses on Pier 48 are required to be consistent  
               with the Burton Act and the public trust.

               The proposed legislation is necessary to address  
               challenges of financing the infrastructure and public  
               facilities required for the project, which the Port  
               has come to better understand since 2007.  The  
               legislation would remove substantial obstacles to the  
               development of the project and the public benefits it  
               will provide. 

           5) Amendments.  The bill has some conflicting findings and a  
             convoluted SLC approval process.  In addition, it is unclear  
             when the Port advance must be repaid and what happens if it  
             is not.  The bill might also reduce SLC oversight over  
             nontrust leases the Port enters into. The author and  
             committee may wish to amend the bill to:









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              a)    Remove the findings in subdivision (g) of Section 2;


              b)    Specify that nontrust lease revenues are a loan in  
                subdivision (y) of Section 1 and (m) of Section 2;


              c)    Ensures that SLC maintains oversight and approval over  
                nontrust leases;


              d)    Clarify that the Port must receive SLC approval prior  
                to any port advances; and,


              e)    Set a repayment deadline of 50 years after a port  
                advance is made and require any extension of the repayment  
                deadline be subject to SLC approval.  


              This bill has been significantly amended prior to this  
              hearing.  The process of using port advances is extremely  
              complex, and involves large sums of money that will  
              eventually be used to further the public trust.  As the bill  
              moves forward, the author may wish to consider continuing to  
              work with all interested parties to refine the provisions of  
              this bill.


           6) Double Referral.  This bill has been double referred to the  
             Assembly Local Government Committee.


          REGISTERED SUPPORT / OPPOSITION:












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          Support


          Port of San Francisco (sponsor)


          San Francisco Mayor Edwin Lee (sponsor)


          San Francisco Housing Action Coalition


          The San Francisco Bay Area Planning and Urban Research  
          Association


          One individual




          Opposition


          None on file




          Analysis Prepared by:Michael Jarred / NAT. RES. / (916) 319-2092

















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