BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 2797|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
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                                   THIRD READING 


          Bill No:  AB 2797
          Author:   Chiu (D) 
          Amended:  6/22/16 in Senate
          Vote:     21 

           SENATE GOVERNANCE & FIN. COMMITTEE:  6-1, 6/15/16
           AYES:  Hertzberg, Nguyen, Beall, Hernandez, Lara, Pavley
           NOES:  Moorlach

           SENATE NATURAL RES. & WATER COMMITTEE:  6-2, 6/28/16
           AYES:  Pavley, Allen, Hertzberg, Hueso, Jackson, Monning
           NOES:  Stone, Vidak
           NO VOTE RECORDED:  Wolk

           SENATE APPROPRIATIONS COMMITTEE:  7-0, 8/11/16
           AYES:  Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen

           ASSEMBLY FLOOR:  76-0, 5/19/16 (Consent) - See last page for  
            vote

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


          SOURCE:    City and County of San Francisco, Mayor Edwin M. Lee
                     Port of San Francisco

          DIGEST:   This bill authorizes the Port of San Francisco (Port)  
          to borrow non-trust lease revenue to pay for infrastructure and  
          other developer advances related to development projects on  
          Seawall Lot 337 (Mission Rock Project); allows individual  
          non-trust leases to have a variable start date with a maximum of  
          75 years; extends the final termination dates for any non-trust  








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          lease terms from 2094 to 2120; and makes other changes to  
          provisions of law pertaining to San Francisco's waterfront, as  
          specified.


          ANALYSIS:  


          Existing law:


           1) Protects, through the 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 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. 


           2) Establishes that the State Lands Commission (SLC) is the  
             steward and manager of the state's public trust lands.  SLC  
             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 "non-trust  
             leases"), provided certain conditions are met.


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







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             non-trust 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 non-trust uses, the San  
             Francisco Bay Conservation and Development Commission (BCDC)  
             has amended the seaport plan to remove the port priority use  
             designation from lands to be leased for non-trust 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 non-trust lease of Seawall Lot 337 that  
             result in an effective rent to the port below fair market  
             value for affordable housing.


          This bill authorizes the Port to borrow non-trust lease revenues  
          to pay for infrastructure and other developer advances related  
          to the Mission Rock Project, extend the termination dates of any  
          non-trust lease terms from 2094 to 2120, and make other changes  
          to provisions of law pertaining to San Francisco's waterfront.   
          Specifically, this bill:   


           1) 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.


           2) Makes numerous findings 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  
             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.


           3) Expands the boundaries of Seawall Lot 337 to include Parcel  
             20 (P20; a parcel that lies partially within the southern  
             portion of Seawall Lot 337), Third Street, and Terry Francois  
             Boulevard, subject to approval by the SLC, as specified.  


           4) Provides exemptions to specified statutes, which govern the  
             dissolution of redevelopment agencies, and otherwise  
             prohibits P20 from being removed from the Mission Bay South  
             redevelopment plan and redevelopment project area.


           5) Authorizes a non-trust lease of Seawall Lot 322-1, under the  
             same duration as permitted for other seawall lots, as  
             provided in SB 815. 


           6) Removes Pier 48, the wharf between Pier 48 and Pier 50, and  
             a portion of Seawall Lot 337 from the specified "port  
             priority use area" designation, as specified.


           7) Reasserts that BCDC has authority to approve or deny permits  
             for mixed-use development on Pier 48.   


           8) Authorizes the Port, for Seawall Lot 337, to enter into  
             non-trust leases of development parcels, subject to specified  
             requirements, if the SLC has approved port advances from  
             non-trust lease revenue for infrastructure.


           9) Authorizes the Port to enter into a non-trust 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 non-trust lease  
             extend beyond December 31, 2120.


           10)Authorizes the Port to use its non-trust lease revenue from  
             the development of parcels in Seawall Lot 337 to make  







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             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). 


           11)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.  


           12)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.  


           13)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. 


           14)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. 


           15)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.


           16)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.









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           17)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.


           18)Provides that 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.


          Background


          The San Francisco waterfront includes a number of seawall lots  
          controlled by the 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, 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.








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          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 eight 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.  74 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.


          Comments


          This bill creates a system to finance development.  The proposed  
          Mission Rock Project calls for new streets, bicycle paths,  
          utility infrastructure, eight acres of park space, and  







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          adjustments to the elevation of Seawall Lot 337, all of which  
          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 allows 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.  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.  The money diverted to pay port advances is  
          currently set placed in an account that is used to pay for  
          preservation of the historic piers and structures, construction  
          and maintenance of waterfront plazas and open space, and other  
          purposes consistent with the Public Trust Doctrine.  


          This bill changes the non-trust lease termination date specified  
          in SB 815.  Current law (pursuant to SB 815) allows non-trust  
          leases on Seawall Lot 337 to be entered into for a maximum  
          period of 75 years and establishes that no lease may extend  
          beyond January 1, 2094. This bill maintains the 75-year maximum  
          lease term, but extends the final termination date to December  
          31, 2120 and specifies that a lease term does not begin until  
          the initial occupancy date of improvements on the leased site.   
          The proposed project 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.   
          The Port argues that the flexible start date is needed to secure  







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          financing for development.


           NOTE:  For a complete discussion on the other changes purposed  
                 in this bill, please see the Senate Natural Resources and  
                 Water Committee analysis.




          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


          According to the Senate Appropriations Committee:


           Unknown, significant 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 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.  Senate Appropriations 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 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)







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          SUPPORT:   (Verified 8/18/16)


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


          OPPOSITION:   (Verified8/18/16)


          None received


          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."  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."
           
          ASSEMBLY FLOOR:  76-0, 5/19/16
          AYES:  Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,  
            Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,  
            Calderon, Campos, Chau, Chávez, Chiu, Chu, Cooley, Cooper,  
            Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines,  
            Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,  
            Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger  
            Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey,  
            Levine, Linder, Lopez, Low, Maienschein, Mayes, Medina,  







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            Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,  
            Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Wood, Rendon
          NO VOTE RECORDED:  Chang, Mathis, McCarty, Williams

          Prepared by:Matthew Dumlao / N.R. & W. / (916) 651-4116
          8/18/16 16:57:26


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