BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON NATURAL RESOURCES AND WATER
                             Senator Fran Pavley, Chair
                                2015 - 2016  Regular 

          Bill No:            AB 2797         Hearing Date:    June 28,  
          2016
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          |Author:    |Chiu                   |           |                 |
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          |Version:   |June 22, 2016    Amended                             |
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          |Urgency:   |No                     |Fiscal:    |Yes              |
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          |Consultant:|Matthew Dumlao                                       |
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            Subject:  City and County of San Francisco: Mission Bay South  
                             Project: redevelopment plan


          BACKGROUND AND EXISTING LAW
          Since 1850, the California Legislature has periodically granted  
          public trust lands to local jurisdictions to hold and manage  
          according to various terms and conditions.  These lands remain  
          subject to the Public Trust Doctrine, which protects 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  
          beds of lakes, streams, and other navigable waterways, known as  
          public trust lands, are to be held in trust by the state for the  
          benefit of the people of California.  The State Lands Commission  
          (SLC) oversees the grants to ensure the use and management of  
          the trust lands is consistent with the Public Trust Doctrine and  
          granting statutes. 

          In 1968, the tide and submerged lands along San Francisco's  
          waterfront were transferred from the State to the City and  
          County of San Francisco through the Burton Act.  The City and  
          County of San Francisco assumed $55 million in state debt  
          obligations, and the state gave the San Francisco Port  
          Commission jurisdiction over San Francisco's tide and submerged  
          lands.  The SLC maintains oversight authority over public trust  
          lands granted by the Legislature to local public agencies,  
          including the tide and submerged lands transferred in the Burton  







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          Act.

          The San Francisco waterfront includes a number of seawall lots  
          controlled by the Port of San Francisco (Port).  These seawall  
          lots were created when tidelands between the seawall and the  
          shore were filled in with rock and other debris. In 2007, the  
          Legislature passed and the Governor signed SB 815 (Migden,  
          Chapter 660, Statutes of 2007), which addressed several seawall  
          lots granted under the Burton Act. SB 815 deemed five seawall  
          lots (specifically, numbers 314, 321, 321-1, 324, and 337) were  
          no longer needed for public trust purposes because they were  
          being used mainly as parking lots and were cut off from the Bay  
          by streets.  SB 815 freed trust use restrictions from those  
          specified seawall lots and allowed the Port to lease these  
          properties at market rates for non-trust purposes, provided  
          specified conditions were met.  Revenues from these non-trust  
          leases must be deposited into a separate account and used for  
          the preservation of historic piers or the construction and  
          maintenance of waterfront plazas and open space, as specified.   
          Before using any revenues for any pier or structure subject to  
          public trust restrictions, the SLC's executive officer must  
          approve the proposed uses.  The non-trust lease must be for fair  
          market value, subject to SLC's approval, and in the best  
          interest of the state.  The port is authorized to use part of  
          the non-trust lease revenues, as specified, for any purpose  
          consistent with the public trust and the act.  SB 815 authorized  
          leases for nontrust uses to have 75-year terms until January 1,  
          2094, at which time the public trust restrictions on the land  
          are restored.

          Included among the seawall lots subject to SB 815's provisions  
          is Seawall Lot 337, which currently functions as the San  
          Francisco Giants' parking lot in Mission Bay, located  
          immediately south of AT&T Park.  After SB 815's enactment, the  
          Port initiated a planning process for Seawall Lot 337, and, in  
          2009, the Port Commission selected a development team led by an  
          affiliate of the San Francisco Giants for exclusive negotiations  
          with the Port for the development of Seawall Lot 337,  
          rehabilitation and reuse of Pier 48, and expansion of China  
          Basin Park. The Giants' proposal, known as the Mission Rock  
          project, includes 8 acres of parks; approximately 1,500 rental  
          apartments, 40% of which would be designated affordable units to  
          families earning between 45% - 150% of Area Median Income;  
          approximately 1.3 million square feet of office space; 3,100  








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          parking spaces; and 250,000 square feet of retail,  
          manufacturing, and restaurants on the ground floors of the  
          buildings.  Seventy four percent of San Francisco voters  
          approved Proposition D in November 2015, approving a height  
          increase for this proposed project and endorsing the policy  
          objectives of the proposed project.

          The Mission Rock project calls for substantial investments in  
          public infrastructure, including new streets, sidewalks, bicycle  
          paths, and utility infrastructure.  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 Mission Rock project site to be resilient to future  
          sea level rise.  SB 815's provisions did not take into account  
          the need to finance these infrastructure investments.  Port  
          officials want the Legislature to allow the Port to use  
          specified revenues to finance these infrastructure costs and to  
          make additional modifications to state law to accommodate other  
          aspects of the Mission Rock development that were not  
          contemplated when SB 815 was enacted.


          PROPOSED LAW
          AB 2797 would authorize the Port of San Francisco to loan  
          specified nontrust lease revenue for infrastructure costs for  
          the development of Seawall Lot 337, and extends the boundaries  
          of Seawall Lot 337.  Specifically, AB 2797:

                 Provides numerous definitions covering the entities  
               involved in development of Seawall Lot 337, the financing  
               options for development, and the waterfront plans adopted  
               by the entities overseeing San Francisco's waterfront near  
               Seawall Lot 337.
                 Makes findings and declarations regarding San  
               Francisco's seawall lots in general and Seawall Lot 337 in  
               particular; the San Francisco waterfront; the proposed  
               redevelopment project on Seawall Lot 337; the high cost of  
               improving the infrastructure on Seawall Lot 337; possible  
               financing options to pay for the infrastructure  
               improvements; the role of the San Francisco Bay  
               Conservation and Development Commission (BCDC) in  
               protecting the Bay's natural resources; the BCDC's plans  
               governing the protection of historic piers near Seawall Lot  
               337; and the value of the proposed improvements along the  








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               waterfront to the public.
                 Allows the boundaries of Seawall Lot 337 to be revised  
               to conform to new street and/or park boundaries, as  
               specified.
                 Provides exemptions to specified statutes, which govern  
               the dissolution of redevelopment agencies, and would  
               otherwise prohibit Parcel P20 (a parcel that lies partially  
               within the southern portion of Seawall Lot 337) from being  
               removed from the Mission Bay South redevelopment plan and  
               redevelopment project area.
                 Allows a nontrust lease of Seawall Lot 322-1 (which was  
               included in SB 815 from 2007) to be entered into for the  
               same duration as permitted for other designated seawall  
               lots.
                 Declares that Pier 48, the wharf between Pier 48 and  
               Pier 50, and the portion of Seawall Lot 337 are no longer  
               classified as a "port priority use area."
                 Amends BCDC's special area plan to permit a  
               redevelopment project on Pier 48 provided the project is  
               consistent with certain standards. 
                 Reasserts that BCDC has authority to approve or deny  
               permits for mixed-use development on Pier 48.
                 Authorizes the Port to enter into a nontrust lease that  
               will not exceed 75 years from the initial occupancy date of  
               the improvements developed on the leased site or  
               development parcel. In no event will the term of the  
               nontrust lease extend beyond December 31, 2120.
                 Authorizes the Port, with SLC approval, to use nontrust  
               lease revenues from development parcels in Seawall Lot 337  
               to make port advances to fund Seawall Lot 337  
               infrastructure.
                 Prohibits revenue from being expended for historic piers  
               or historic structures on land subject to public trust use  
               restrictions, unless the SLC's executive officer has  
               approved the proposed uses of the pier or structure.
                 Requires the Port to provide separate accounting and  
               final audit reports, as specified.
                 Requires the SLC, for nontrust leases of Seawall Lot  
               337, to consider whether the Port will receive  
               consideration equal to the fair market value on terms  
               consistent with prudent land management practices based on  
               specified procedures.
                 Requires the Port, following approval of the development  
               project from the San Francisco Board of Supervisors, to  








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               submit to the SLC the proposed disposition and development  
               agreement between the master developer and Port governing  
               the development of Seawall Lot 337. 
                 Requires the Port to bear the costs of any study or  
               investigation that the SLC undertakes, as specified.
                 Requires the Port to ensure repayment, with interest, of  
               each port advance within 50 years, or longer with SLC  
               approval.

          ARGUMENTS IN SUPPORT
          
          The City and County of San Francisco and the Port of San  
          Francisco are sponsoring this bill.  

          The author of the bill argues that "AB 2797 will facilitate the  
          development of the new Mission Rock neighborhood in San  
          Francisco by, among other provisions, allowing the Port of San  
          Francisco to use nontrust lease revenues to finance the cost of  
          the infrastructure for the project."

          In support of this bill, the Port argues that "Many of the  
          proposed public infrastructure improvements will further trust  
          purposes. The majority of planned open space will enjoy direct  
          views of San Francisco Bay.  Improvements to the seawall in  
          front of Pier 48 will help preserve this important historic  
          trust asset." Furthermore, the Port says the project will be  
          consistent with sea level rise projections.

          The Port also argues that by "authorizing the use of nontrust  
          lease revenues as an additional source of early infrastructure  
          funding will reduce infrastructure financing costs and increase  
          the underlying land value accruing to the harbor fund, with the  
          advanced ground rents ultimately repaid, with interest, to the  
          harbor fund."

          ARGUMENTS IN OPPOSITION
          None received.

          COMMENTS
           
          This bill's goal is to find a way to finance the development:
           The proposed Mission Rock project calls for new streets, bicycle  
          paths, utility infrastructure, eight acres of park space, and  
          adjustments to the elevation of Seawall Lot 337, all of which  








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          will be very expensive.  To finance this project, the developer  
          will provide equity financing.  The City and County of San  
          Francisco intends to acquire the public infrastructure from the  
          developer over time through non-Port revenue generated from the  
          project site in the form of special taxes, tax increment, and  
          bonds secured by those revenues.  However, the tax increment  
          revenues will not be immediately available for early  
          infrastructure costs.  Therefore, this bill would allow the Port  
          to advance a portion of the nontrust lease revenue.  These  
          advances would allow the Port to reimburse the developer's  
          equity and pay off the accrued return on developer equity well  
          before funding from tax increment would be available for that  
          purpose.  Ultimately the Port advances would be repaid, with  
          interest, from the special tax and tax increment revenues.
          
           Changes to the termination dates specified in SB 815:
           SB 815 establishes January 1, 2094 as the outside termination  
          date for nontrust leasing terms of 75 years at Seawall Lot 337.   
          Section 7 of SB 815 requires that all uses on Seawall Lot 337  
          shall be consistent with the public trust, the Burton Act trust,  
          and Burton Act transfer agreement.  SB 815 further says that  
          "all structures, buildings, and appurtenances on the designated  
          seawall lots not consistent with the purposes of the public  
          trust, the Burton Act trust, and Burton Act transfer agreement  
          shall be removed or modified, including any necessary  
          restoration or remediation of the seawall lots, to facilitate  
          public trust uses."  

          The proposed project, however, is a phased project: the Port and  
          the project sponsor anticipate construction over 10-15 years  
          from project approval in 2017.  Some vertical construction could  
          occur into the mid-2030's.  For this reason, AB 2797 changes the  
          existing 2094 outside date to 2120 in order to provide full 75  
          year lease terms for each of the project's development parcels.

           Clarification of Seawall Lot 337 boundaries:
           The Mission Rock project would revise the boundaries of the  
          Seawall Lot 337 to account for how the streets are finally  
          configured.  If Terry Francois Boulevard is removed, the  
          boundary to the north will be the China Basin Park.

           Changes to the classification of Pier 48
           As part of the proposed Pier 48 historic rehabilitation and  
          reuse project, the project sponsors will need a major permit  








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          from BCDC for planned seismic improvements for the pier.  The  
          major permit process allows BCDC to ensure that the project will  
          provide maximum feasible public access around the pier.   
          However, Pier 48 is also subject to certain BCDC policies - the  
          Replacement Fill Policy and the port priority use designation -  
          that do not apply to the Port's other historic finger piers and  
          that may hinder the Port's ability to achieve its historic  
          preservation and public access goals for the pier.  The Port  
          proposes that Pier 48 be exempted from these policies and that  
          Pier 48 be treated like other piers in the embarcadero Historic  
          District.  The Port also proposes that the port priority use  
          designation be removed from both Pier 48 and Seawall Lot 337.   
          Pier 48 is currently designated an inactive cargo terminal, a  
          legacy from when the pier was used for freight rail service.   
          However, the historic use of Pier 48 for freight cargo  
          operations is no longer viable due to a number of factors,  
          including the elimination of rail service to the piers.   

          SUPPORT
          City and County of San Francisco, Mayor Edwin M. Lee (Sponsor)
          Port of San Francisco (Sponsor)
          South Beach Mission Bay Business Association 

          OPPOSITION
          None received.

          
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