BILL ANALYSIS
SB 586
Page 1
Date of Hearing: July 7, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
SB 586 (Yee) - As Amended: May 6, 2009
SENATE VOTE : 35-0
SUBJECT : State property: sale.
SUMMARY : Directs the Department of General Services (DGS), in
consultation with the Department of Food and Agriculture (DFA)
to enter into negotiations by an unspecified date, to sell at
fair market value, to any interested third party, with certain
restrictions, a parcel of state property located in the County
of San Mateo and the City and County of San Francisco, known as
the Cow Palace. Specifically, this bill :
1)Provides the coordinates of the 13-acre property at the Cow
Palace for sale, identified as "Parcel A."
2)Requires a notice of every public auction or bid opening on
the parcel for sale to be printed in a newspaper of general
circulation published in the county in which the parcel is
located.
3)Prohibits DGS from selling the parcel below fair market value.
Specifies that fair market value shall be evaluated at the
highest and best use of the property as entitled within its
existing zone designation, and as governed by the Uniform
Standards of Professional Appraisal Practice.
4)Requires the sales agreement to include a requirement that the
purchaser develop the property for uses consistent with the
general plan of the City of Daly City, any amendment to the
general plan, and the Bayshore Revitalization Redevelopment
Plan.
5)Requires DGS to be reimbursed by the buyer for any costs or
expenses incurred in the disposition of the property.
6)Requires that the net proceeds from the disposition of the
property be paid into the Fairs and Exposition Fund (F&E Fund)
for the benefit of the District 1-A Agricultural Association
(DAA 1-A).
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7)Makes legislative findings and declarations.
8)Takes effect immediately as an urgency measure.
EXISTING LAW :
1)Requires DGS to perform various functions with respect to
state property, and provides for the sale, lease, or transfer
of surplus state property, upon authorization by the
Legislature. Each state agency is required to annually review
proprietary state lands under its jurisdiction to determine
what lands are in excess of the agency's foreseeable needs and
to report their findings to DGS.
2)Provides criteria for state agencies to use in determining and
reporting to DGS lands in excess of the agency's foreseeable
needs. Under existing law, DGS is responsible for determining
if surplus land is needed by any other state agency. The law
also provides that if the land is not needed by another state
agency, the property shall be offered to local governments for
local government facilities, parks and recreation, open-space,
low or moderate income housing, and local schools.
3)Requires, among other things, that the proceeds from the sale
of surplus state property, with specified exceptions, be used
to pay the principal and interest on the Recovery Bond Act of
2004 (Proposition 60A of November 2004, SCA 18 [Johnson],
Resolution Chapter 103, Statutes of 2004).
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of the bill . According to the author's office, "The
structure commonly known as the Cow Palace is located on 68
acres of property located within the jurisdiction of the City of
Daly City and the Daly City Redevelopment Agency. The Cow
Palace which was constructed in 1941, has failed to be updated
and adequately maintained over the years.
"The Bayshore neighborhood which surrounds the Cow Palace
property is in desperate need of basic services. There are no
grocery stores, banks, or pharmacies in the area. Residents
have to take three buses in order to buy groceries for their
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families. Daly City has been able to create a master plan for
the area, assuring that those basic needs will be met. The
master plan includes the 13 acres in this bill which will
actually unlock an additional 24 acres for revitalization and
development.
"The Cow Palace imposes a financial challenge to Daly City
because of the high cost of providing excess public safety
services to the facility. The Cow Palace constrains improvement
of the Bayshore neighborhood and remains in blighted condition
due to its deteriorated physical infrastructure and
non-conformance with seismic and American Disabilities Act
requirements. The State's own estimate calls for nearly $50
million in upgrades in order to bring the facility into code
compliance. Additionally, the Cow Palace is currently running
an operating deficit of nearly $700,000, which comes from the
General Fund. The sale of the parking lot adjacent to the Cow
Palace is expected to generate $20 million to $21 million in
revenue for the State.
"This bill allows DGS to sell, at fair market value, 13 acres of
property adjacent to the Cow Palace. The 13 acres that the bill
identifies is an overflow parking lot. This bill will not result
in the sale of the Cow Palace. The funds that result from the
sale of the Cow Palace would be paid into the F&E Fund. The Cow
Palace and the F&E Fund will receive a much needed cash infusion
by the sale of the parcel. The F&E Fund will be the recipient
of the proceeds of the sale because that was where the money
used to develop the parking lot derived from. State law
provides that of any amount paid into the F&E Fund in excess of
$13 million in any fiscal year, half of the excess amount shall
be transferred to the General Fund (Business & Professions Code,
section 19620.1). Preliminary estimates show that the parcel
will sell for tens of millions of dollars."
Background - State Fairs and the Cow Palace . California's
network of fairs includes 81 fairs operating under a variety of
governance structures, including 54 district agricultural
associations (state agency fairs), 23 county fairs, two citrus
fruit fairs (independent nonprofit organizations with state
oversight), and the California Exposition and State Fair (Cal
Expo), also a state agency fair. The 54 district agricultural
associations are managed under the DFA within the Division of
Fairs and Expositions. Each fair operates with a degree of
autonomy with a board of directors appointed by the Governor and
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in accordance with state law. For 75 years, license fees
assessed against California horseracing have been the sole state
support for the California network of fairs through the F&E
Fund. Existing law guarantees the F&E Fund will receive $40
million annually generated by horseracing license fees.
The Cow Palace is the official DAA 1-A and the structure
received its name for its grandeur livestock expositions at the
68-acre property in the midst of resistance to public funding
for the livestock pavilion during the 1930's Depression Era.
The Cow Palace is a cultural landmark located in the Bayshore
Neighborhood and commonly hosts sporting and entertainment
events at its pavilion. The Cow Palace long-term tenants
include: the Grand National Rodeo, Ringling Bros. Barnum &
Bailey Circus, the San Francisco Sport & Boat Show, the Golden
Gate Kennel Club Dog Show, and Disney on Ice. Events at the Cow
Palace can bring over 500,000 visitors. The facility is
currently running a deficit of $600,000. The Division of Fairs
and Expositions is providing a loan of $336,000 to the Cow
Palace to help address the shortfall. This loan is in addition
to an annual allocation of approximately $175,000 from the F&E
Fund to the Cow Palace for the Grand National Rodeo.
Background - Propositions 60A . Under the provisions of
Proposition 60A, the net proceeds of the sale of surplus
property must be used to pay the holders of the state's deficit
reduction bond. These payments accelerate the redemption of the
state's debt and reduce future General Fund payments to the
bondholders. The proceeds of sales of property purchased with
gas-tax revenue i.e., revenue constitutionally dedicated to
highway construction, or special funds, are exempt from the
deficit payment requirement.
This bill declares that the sale of the Cow Palace property
would not constitute a sale or other disposition of surplus
state property subject to the requirements of Proposition 60A.
Staff Comments . This bill would require DGS to enter into
negotiations to sell, at fair market value, a 12.97-acre parcel
of state owned property adjacent to the Cow Palace that is
currently used as overflow parking.
In March 2008, the DAA 1-A released a request for proposal (RFP)
to lease this parcel with the expectation that the lease could
generate $1.5 million in revenue annually. The RFP is
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consistent with the City of Daly City's master plan to construct
a grocery store, bank, and affordable housing on the site.
Responses to the RFP were initially due June 30, 2008, and the
deadline was extended several times to due to a lack of bids.
DGS is currently in exclusive negotiations with a developer on
the lease.
It is noted that this bill is not consistent with provisions of
other surplus property bills because it does not require DGS to
obtain approval to enter into sale negotiations from the state
agency that owns the property. Instead, this bill requires DGS
to consult with, but does not require the approval of, DFA as
the property owner prior to entering negotiations.
The bill contains language that would require DGS to negotiate
to sell the property without any conditions related to
entitlements (general plan amendments, etc) and subject to
existing zoning designations. This could limit DGS's ability to
increase the return to the state by precluding DGS from pursuing
entitlement and zoning changes that would enhance the value of
the property and maximize the state's return on the sale.
Further, the state's past estimates of fair market value have
not always proven to be an accurate appraisal of the market
value. For example, the state's appraised fair market value of
the Agnews Development Center in San Jose was $150 million
however, the open market offering of the Agnews property
resulted in a winning bid of $192 million - a 28% increase over
the state's appraised fair market value.
Arguments in support . According to the sponsor, this bill
"would declare as surplus, a 13-acre parcel of land currently
used as an overflow parking lot at the Cow Palace, part of the
District 1-A Agricultural Association. SB 586 would make
available for sale to the highest bidder, an underutilized
parking lot. The property would be sold at fair market value,
enabling the State of California to receive sorely needed funds,
while enabling the successful bidder to move forward with
developing this prime locating and creating an opportunity for
the economic revival of [the Bayshore] neighborhood?This
underserved and economically disadvantaged area lacks the basic
community amenities that many of us take for granted."
Prior Legislation . SB 1527 (Yee) of 2008 was an identical
measure, with the exception that the Daly City Redevelopment
Agency was afforded the first right of refusal to the parcel of
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property. The Governor's veto message stated the following:
"SB 1527 circumvents the state's current competitive bid process
and would potentially limit the state's financial return for the
sale of state-owned land without creating any added value for
the surrounding community. By including the first right of
refusal provisions, this bill narrows the range of options for
the use of the property and places the state at risk to receive
less revenue than if the property was offered to all interested
parties through a normal competitive bid process."
REGISTERED SUPPORT / OPPOSITION :
Support
City of Daly City (sponsor)
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301