BILL ANALYSIS                                                                                                                                                                                                    



          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
          
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          |Version: June 22, 2016          |Policy Vote: GOV&F. 6 - 1,      |
          |                                |          N.R.&W. 6 - 2         |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: August 8, 2016    |Consultant: Mark McKenzie       |
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          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  







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            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  








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          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.  








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          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  








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               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. 









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                 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  








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          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.








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          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. 




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