BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 2797 (Chiu) - City and County of San Francisco: Mission Bay South Project: redevelopment plan ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: June 22, 2016 |Policy Vote: GOV&F. 6 - 1, | | | N.R.&W. 6 - 2 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 8, 2016 |Consultant: Mark McKenzie | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 2797 would authorize the Port of San Francisco (Port) to borrow non-trust lease revenues to pay for infrastructure and other developer advances related to development projects on Seawall Lot 337 (Misson Rock Project), extend the final termination dates of any non-trust lease terms from 2094 to 2020, and make other changes to provisions of law pertaining to San Francisco's waterfront, as specified. Fiscal Impact: Unknown, significant State Lands Commission (SLC) costs to review development project documents, review and approve non-trust leases, make fair market value determinations, and approve or disapprove the Port's use of non-trust lease revenues for specified purposes. These SLC costs must be AB 2797 (Chiu) Page 1 of ? reimbursed by the Port. Unknown ongoing SLC costs (General Fund) for oversight of the non-trust leases and land uses in the project area through 2120. Staff notes that the current termination date for any authorized non-trust leases is 2094. Unknown temporary loss of local trust revenues, likely in excess of $150 million, for 50 or more years, for loans of non-trust revenues to the Port to pay for Seawall Lot 337 infrastructure (including a return on developer equity) or to reimburse the developer directly for those costs. These costs represent a diversion of funds that would otherwise be used to preserve historic piers and structures, or the construction and maintenance of waterfront plazas and open space, consistent with public trust purposes. Likely minor costs to the San Francisco Bay Conservation and Development Commission (BCDC) to update and reprint the seaport plan to reflect the removal of Pier 48 form the port priority use area designation, as specified. (General Fund) Background: The Public Trust Doctrine 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 the 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 Legislature has granted public trust lands to local trustees so the lands can be managed locally for the benefit of the people of California. The 1968 Burton Act resulted in transferring the state tidelands along San Francisco's waterfront to the City and County of San Francisco, which assumed $55 million in state debt obligations, and gave the San Francisco Port Commission jurisdiction over San Francisco's tide and submerged lands. The State Lands Commission (SLC) is the steward and manager of the state's public trust lands and maintains oversight authority over public trust lands granted by the Legislature to local public agencies. The San Francisco waterfront includes a number of seawall lots AB 2797 (Chiu) Page 2 of ? controlled by the Port, some of which have been developed, but many have been used for decades as parking lots, a use that is inconsistent with the trust and does not conform with the surrounding urban landscape. SB 815 (Migden), Chap. 660/2007, freed trust use restrictions from 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 and structures 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 non-trust uses to have a term of up to 75 years, and specified that any non-trust leases will terminate no later than January 1, 2094, at which time the public trust restrictions on the land are restored, and any improvements that are inconsistent with public trust purposes must be removed or modified. 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 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. AB 2797 (Chiu) Page 3 of ? The Mission Rock Project calls for substantial investments in public infrastructure, including new streets, sidewalks, bicycle paths, utility infrastructure, and 8 acres of parks. 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. Proposed Law: AB 2797 would authorize the Port of San Francisco to borrow non-trust lease revenues to pay for infrastructure and other developer advances related to development projects on Seawall Lot 337, extend the termination dates of any non-trust lease terms from 2094 to 2020, and make other changes to provisions of law pertaining to San Francisco's waterfront. Specifically, AB 2797: Provides numerous definitions, and specifies that the definitions supercede any previous definitions specified in SB 815 or AB 2549 (Chap. 757/2012). Makes numerous findings regarding the San Francisco Bay, the San Francisco waterfront, public trust, and SB 815. Expands the boundaries of Seawall Lot 337 to include Parcel 20 (P20), Third Street, and Terry Francois Boulevard, subject to approval by the SLC, as specified. Provides exemptions to specified statutes, which govern the dissolution of redevelopment agencies, and would otherwise prohibit P20 from being removed from the Mission Bay South redevelopment plan and redevelopment project area. Authorizes a non-trust lease of Seawall Lot 322-1, under the same terms that apply to other seawall lots, as provided in SB 815. Removes Pier 48 from the specified "port priority use area designation, as specified. Authorizes the Port, for Seawall Lot 337, to enter into AB 2797 (Chiu) Page 4 of ? non-trust leases of development parcels, subject to specified requirements, if the SLC has approved port advances from non-trust lease revenue for infrastructure. Removes the current January 1, 2094 termination date for any non-trust leases, and instead authorizes an individual non-trust lease to have a maximum term of 75 years from the date of initial occupancy of the improvements. The term of any non-trust lease shall not extend beyond December 31, 2120. Authorizes the Port to use its non-trust lease revenue from the development of parcels in Seawall Lot 337 to make advances to fund Seawall Lot 337 infrastructure, if the SLC has approved Port advances from non-trust lease revenue for infrastructure (as defined in the bill). Requires SLC, for non-trust 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 the board of supervisors (BOS) approval of the development project, to submit to SLC the proposed disposition and development agreement between the master developer and Port governing the development of Seawall Lot 337, and other specified project documents. Requires the SLC, within 75 days after BOS approval of the project and receipt of all required documentation, to either approve or deny the Port advances from nontrust lease revenues for Seawall Lot 337 infrastructure based on the information provided and whether Port advances are consistent with the goals of SB 815. Requires the Port to submit a copy of the proposed non-trust lease to the executive director of the SLC, following SLC approval and prior to entering into the lease. Unless the executive officer provides written determination that the lease is inconsistent with the SLC's original approval within 30 days, the Port may enter into the lease. AB 2797 (Chiu) Page 5 of ? Requires the Port to bear the costs of any study or investigation that the SLC undertakes, including SLC staff time related to the Port's submittal, as specified. Requires the Port to provide separate accounting and final audit reports related to non-trust leases and other revenues received in connection with Seawall Lot 337, as specified. Requires the Port to ensure repayment, with interest, of each port advance within 50 years, and authorizes the Port to extend the repayment period beyond 50 years with SLC approval, as specified. Upon termination of the 75-year non-trust lease term for a development parcel, all structures, buildings, and appurtenances on the parcel that are not consistent with the public trust must be "repurposed," (rather than removed, as currently specified), or modified to facilitate public trust uses. Staff Comments: This bill makes several substantive changes to San Francisco's existing authority (through the Port) to lease specified trust lands for non-trust purposes. AB 2797 would allow non-trust lease revenues to be used to make "port advances" to fund the construction of Seawall Lot 337 infrastructure, including planning and design and a return on developer equity. "Seawall Lot 337 infrastructure" includes water, sewer, stormwater management, and other utility installations, streets, roadways, sidewalks, parks, public access and open space areas, shoreline improvements, and other public facilities. "Port advances" means a loan of non-trust lease revenues from Seawall Lot 337 to a district or other entity providing project-based public funding to pay directly or to reimburse the Seawall Lot 337 developer for costs of infrastructure. Based on these definitions, it appears that the intent would be for the developer to pay for infrastructure costs, as specified, and the Port would borrow non-trust lease revenues to repay the developer for those costs, and provide an additional amount from non-trust lease revenues for "a return on AB 2797 (Chiu) Page 6 of ? developer equity," or a built in profit margin. The Port must ensure repayment of non-trust funds with interest within 50 years of each port advance, a term that may be extended beyond 50 years with SLC approval. Staff notes that this bill would divert funding from other authorized uses, such as preservation of historic piers and structures, and construction and maintenance of waterfront plazas and open space (as required by BCDC's special area plan). In total, these diversions could exceed $150 million in the aggregate, depending upon other sources of funding that may be available to pay for public infrastructure, and repayment could occur over 50 years or more. While these are non-state funds, the bill would divert significant funding from purposes consistent with the public trust, for which there is a state interest. Current law, as negotiated during the passage of SB 815, provides for leases on Seawall Lot 337 for non-trust purposes for a period of 75 years, but no lease may extend beyond 2094. This bill would continue the 75-year maximum lease term, but would extend the final termination date of any individual non-trust lease to December 31, 2120, and specify that a lease term does not begin until the initial occupancy date of improvements on the leased site. These changes provide maximum flexibility for San Francisco and its developer partners to capitalize on using waterfront parcels for non-trust uses. Under current law, these uses must terminate within 75 years or the year 2094, whichever comes first, but this bill ensures that individual parcels may be used for non-trust purposes for a full 75 years, and allow some parcels to remain outside of trust uses until 2021. Even with phased development of the site, a non-trust lease could be initiated in 2046 and still have a full 75-year term. With the revised terms specified in the bill, it is likely that some portion of Seawall Lot 337 would remain outside of public trust uses for over 100 years, assuming a 25 year time gap between the initiation of the first non-trust lease and later leases. In addition, since the clock doesn't start on the 75-year lease term until initial occupancy on an individual development parcel, the non-trust uses would extend beyond 75 years, when one accounts for pre-development and construction on the parcel. Considering the length of time that these parcels would be used for non-trust purposes, the Committee may wish to consider whether it is realistic to expect that these parcels would ever return to the public trust. AB 2797 (Chiu) Page 7 of ? Under current law, any structures or buildings must be removed or modified and returned to purposes consistent with the public trust. This bill allows a building or structure to be repurposed rather than removed at the end of a non-trust lease. It is unclear what trust purposes could be served by repurposing some of the larger structures planned for the Mission Rock Project, such as a 240-foot housing tower. -- END --