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HomeMy WebLinkAboutStaff Report 440-06.City City of Palo Alto Manager’s Report TO: ATTENTION: FROM: DATE: SUBJECT: HONORABLE CITY COUNCIL FINANCE COMMITTEE CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DECEMBER 12, 2006 CMR: 440:06 RECOMMENDATION TO ESTABLISH A POLICY ON RENT CHARGED BY THE GENERAL FUND TO THE REFUSE FUND ON UNOPENED PORTIONS OF LANDFILL FROM FINANCE COMMITTEE MEETING OF OCTOBER 17, 2006 RECOMMENDATION Staff recommends that the Finance Committee recommend that Council establish a policy on rent charged by the General Fund to the Refuse Fund on closed portions of the landfill whereby the Refuse Fund should pay rent at less than full market value in consideration of the fact that the landfill area cannot be readily converted to the land’s highest and best use. BACKGROUND On October 17, 2006, the Finance Committee considered a policy whereby the Refuse Fund pays rent on unopened portions of the landfill. The Finance Committee directed staff to investigate a possible alternative valuation of the landfill based on the availability of any appraisals performed by the Army Corps of Engineers as part of the San Francisquito Creek flood control feasibility study. Also, the Finance Committee moved to initiate a tolling agreement between the General Fund and the Refuse Fund. DISCUSSION As directed by the Finance Committee, staff explored a possible alternative valuation of the landfill and found that the Army Corps of.Engineers has not yet performed any detailed land appraisals in Palo Alto. During a past meeting of the San Francisquito Creek Joint Powers Authority Board, there was .general discussion and agreement that dedicated parkland parcels should be valued at a lower rate than unencumbered parcels due to the considerable constraints on such land. However, the Army Corps has not yet performed an appraisal nor provided any detailed land valuation as part of the San Francisquito Creek feasibility study. CMR:440:06 Page 1 of 2 PREPARED BY: DALE WONG ~ Senior Financial Analyst DEPARTMENT HEAD: CARL Director Administrative Services CITY MANAGER APPROVAL: Assistant City Manager ATTACHMENTS: Attachment A: CMR 373:06, Recommendation Regarding Rent Charged by the General Fund to the Refuse Fund on Unopened Portions of Landfill CMR:440:06 Page 2 of 2 ATTACHMENT A City of Palo Alto City Manager’s Report TO: ATTENTION: FROM: HONORABLE CITY COUNCIL " FINANCE COMMITTEE CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE: SUBJECT: OCTOBER 17, 2006 CMR:373:06 RECOMMENDATION REGARDING RENT CHARGED BY THE GENERAL FUND TO THE REFUSE FUND ON UNOPENED PORTIONS OF LANDFILL RECOMMENDATIONS Staff recommends that the Finance Committee recommend that Council establish a policy on rent charged by the General Fund to the Refuse Fund on closed portions of the landfill whereby the Refuse Fund should pay rent at less than full market value in consideration of the fact that the landfill area cannot be readily converted to the land’s highest and best use. BACKGROUND In the City Auditor’s review of the Environmental Services Center proposal, the City Auditor recommended that staff should determine whether the Refuse F.und should be.responsible for paying rent on the closed, undeveloped areas of the landfill. The Finance Committee reviewed staff’s original recommendations on. December 6, 2005 (CMR:441:05), and recommended that Council adopt a policy whereby the Refuse Fund pay rent on closed portions of the landfill that had not yet been developed into parkland. Staff was also directed to return with a proposed payment plan to recover unpaid rent for past periods and to provide funding forpost-closure park deve!opment: Staff was also directed to examine the legal issues relating to the recovery of rent in past periods and to review the appraised value of the landfill area. This report provides a proposed rental amount and payment plan. DISCUSSION The City retained an independent appraiser to appraise the land, and that appraisal determined that the highest and best use of the land was Industrial- Research & Development. After review of the appraised value, staff considered the possibility that the landfill area cannot be readily developed into usable space in keeping with its highest and best use designation as Industrial- Research & Development. Accordingly; staff has referred this matter back to the Finance Committee to review this-new consideration before submitting a proposed payment plan to the full City Council. The proposed payment plan sets the rent at less than full market value (see Attachment A). The plan also accounts for the recovery of back rent on closed portions of the landfill since 2004-05, CMR:373:06 ,Page 1 of 3 which is consistent with the applicable two-year statute of limitation for collection of back payment. The statute of limitations applies from the date of the forthcoming written lease agreement which will be completed once Council considers the payment plan. In her review of the Environmental Services Center proposal, .the City Auditor noted several comPlicated land use issues with regard to locating a facility on the landfill site. The report states: "The landfill site is dedicated parkland with flat, natural wetlands on three sides. Identification and discussion of all California Environmental Quality Act (CEQA) issues, regulatory agency permit .and approval processes, and land use approval processes add complexities and costs to the proposed project. Use of dedicated parkland requires voter approval." Given the complexities of locating a facility on the landfill site, staff has considered that it may be difficult to readily convert the landfill area to the land’s highest and best use designation. Therefore, staff presents a payment plan whereby the rent charged on the closed portions of the landfill is based on a return on the land value of five percent, which is less than full market value, but which accounts for some possibility that the land could be converted to non-park use at a later time. As such, based on the square footage of the landfill, the amount charged would be $7,420,925, which is less than the full market rental return often percent as determined by the independent appraiser. To avoid the need for customer rate increases due to increases in the amount of rent owed, the annual rental payments would follow the current payment schedule previously adopted by Council, which calls for annual payments of $4,288,747 through 2011-12, and payments of $2,094,332 in 2012-13 and $2,094,331 in 2013-14 (CMR:238:0.4). At the end of 2010-11, or when the landfill is scheduled to close and be developed as a park, the cumulative difference between the amount charged and the rent payments made would grow to $21,925,247. This plan would add $13,447,837 to the current payment schedule. Annual rent payments of $2,094,331 would continue from 2013:14 through 2019-20 with a final payment of $881,851 due in 2020-21 (see Attachment A). RESOURCE IMPACT The current Long Range Financial Plan reflects projected net operating deficits for the General Fund in 2014-15 and beyond, due in part to the elimination of rental payments according to the existing smoothing schedule. These projected net operating deficits could be reduced or eliminated entirely under the proposed payment plan. The plan could have an impact on Refuse Fund rates and charges to the ratepayers over the long term. POLICY IMPACT This change to the Refuse Fund rent responds to an audit recommendation and will not impact the rent charges of other utility funds. In addition, a policy question still needs to be addressed related to how much Refuse Fund rent shall be set aside for park development. Staff will return at a later time with a recommendation addressing this policy question. CMR:373:06 Page 2 of 3 ENVIRONMENTAL REVIEW This matter is not a project for the purposes of the California Environmental Quality Act. PREPARED BY: DALE WONG ~ Senior Financial Analyst DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: . CARL YEATS Director of A~inisfrative S erv~ces GLENN S. ROBERTS Director of Public Works EMILY HARRISON Assistant City Manager ATTACHMENTS Attaclmaent A: Schedule of Landfill Rent Attachment B" CMR:441:05 "Response to the Audit Recommendation Regarding Rent Charged by the General Fund to the Refuse Fund on Unop.ened Portions of Landfill" Attachment A City of Palo Alto Landfill Rent Schedule 2004-05 !2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 12024-25 ’2025-26 2026-27 2027-28 2028-29 Rent Charged 4,700,821 4,700,821 4,700,821 4,700,821 4,700,821 4,700,821 4,700,821 0 Current Rent Payment 4,288,747 4,288,747 4,2-88,747 4,288,747 4,288,747 4,288,747 4,288,747 4,288,747 0 2,094,332 O.2,094,331 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 0 0 Proposed Rent Charged 7,420,925 7,420,925 7,420,925 7,420,925 7,420,925 7,420,925 7,420,925 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Rent Payment 4,288,747 4,288,747 4,288,747 ¯4,288,747 4,288,747 4,288,747 4,288,747 4,288,747 2,094,332 2,094,331 2,094,331 2,094,331 2,094,331 2,094,331 2,094,331 2,094,331 881,851 0 0 0 0 0 0 0 0 Proposed rent payments beyond current schedule 13,447,837 ATTACHMENT B City of Palo Alto City Manager’s Report. TO: ATTENTION: HONORABLE CITY COUNCIL FINANCE COMMITTEE FROM: DATE: SUBJECT: CITY I~IANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DECEMBER 6, 2005 ,CMR:441:05 RESPONSE TO THE AUDIT RECOMMENDATION REGARDING RENT CHARGED BY THE GENERAL FUND TO THE REFUSE FUND ON UNOPENED PORTIONS OF LANDFILL RECOMMENDATIONS Staff recommends that the Finance Committee recommend that Coiancil establish the City’s policy on rent charged by the General Fund to the Refuse Fund on cl0sed but unopened portions of the landfill by choosing one of the.following alternatives: 1) The Refuse Fund should pay rent on unopened portions of the landfill and staff is directed to update the appraised value of the landfill area, review legal issues, and return with a proposed payment plan. 2) The Refuse Fund should not pay rent on the unopened portions, of the landfill. BACKGROUND Landfill rent is eharged to the Refuse Fund by the General Fund based on an independent annual appraisal which determines the market value rental amount according to the landfill’s highest and best use (Industrial- Research & Development). For 2005-06, appraised rent for the landfill is $4,700,821. This appraised amount has remained unchanged, since 200]-02. The actual armua] rent paid by the Refuse Fund is $4,288,747. Annual rental payments have remained at this level since 1995-96, The policy to not pay the full-appraised value was instituted by Council in 1995-96 to avoid steep rate increases that woNd have been necessary to cover the increases in appraised rent (CMR:181:95). Council. has extended this policy twice (CMR:266:99 and CMR:238:04). To compensate for the difference between the appraised amount and the payments made, Council approved a smoo~hing schedule in which the Refuse Fund is required to make payments until 2013-14, beyond the antidpated time of landfill closure in 2010-11 (CMR:238:04). The Byxbee Park Master Plan outlines the sequence of phases of landfill closure adopted by the City Council. Each phase of the plan consists of closing a certain area of the landfill, d, eveloping that area into park space, and eventually opening the area to the public. Phase I (28.86 acres) was.completed in 1990. Phase II is further divided into three sub-phases. Phase IIA (22.47 9cres) wasclosed in 1992, and Phase IIB (23.-19 acres) was closed in 2001. Phase IIO consists of the remaining 51.24 acres of active landfill area. According to the Byxbee Park Master Plan, the park development stage for Phase II will not commence until all Phase I1 landfill areas are closed completely. Upon closure of each landfill area, rent charges cease. The closure of Phase I was immediately followed by park development and the area was opened to the punic shortly thereafter. In contrast, closure for Phases IIA and lib has occurred, but park development has not started and these areas remain closed to the public.. Upon completion of all landfill disposal operations, estima*ed in 2011, construction would begin for the final closure of Phase IIC and then be followed by park development for the entire Phase II area. Final closure involves installing col!ecti.on piping and wells underground in Phase I~IC, similar to the piping and wells which ha’,,e already been installed in Phases IIA and liB. These phases have already received final cloiure certification ieports from California Integrated Waste Management Board (CIWMB). A layer of low-permeability soil will then be put in place to cap the site and a drainage system will be installed, including a system for groundwater monitoring. Finally, a vegetative layer -will be put in place. The estimated completion for final closure is summer 2012. Upon approval of final closu~’e certification from the CIWMB, park development could begin in summer 2013, if GeneralFund monies become available for park development. The Byxbee .Park Master Plan recommends park development following landfi]l closure of the entire Phase II area, (Phases IIA, IIB and IIC); park development preliminary costs were estimated at $2,067,700. A funding plan for park deve]opmen* has not been determined. However, final closure costs and post closure maintenance costs are fully funded for 30 years in the Refuse Fund. : In the City Auditor’s review of the Environmental Services Center proposal, the City Auditor recommended that staff should determine whether the Refuse Fund should be responsib]e for paying rent on these closed, under, eloped areas. This report provides’ a response to the .City Auditor recommendation. DISCUSSION The Byxbee Park. Master Plan does notspecify whether the Refuse Fund should be responsible for paying rent on the closed, undevelopecl portions of the landfill. Furthermore, current City policy regarding rent paid for General. Fund properties used by Enterprise Fund operations does not address this issue (CMR: 181:95). Past Council discussion has not focused on this question either. This leaves the determination of this matter as a policy decision for the City Council. Therefore, staff has provided two alternatives for Council’s consideration. Alternative 1: The Refuse Fund should pay rent on unopened portions of the landfill. Staff should be .directed to update the appraised value of the landfill area and remm with a recommended payment plan. CMR:441:05 n ....... Even ihough the closed areas of the landfill are not being used by the Refuse Fund, these areas are still not available for public use as parkland. It could be argued that the Refuse Fund should therefore, pay rent on those areas. Should Council direct staff to condhct an appraisal of the land, staff would ascertain whether alternative cumulative-rent amounts could be derived. The appraisal process is intended to develop options for establishing a value for the land and the rent amount owed by the Refuse Fund so that refuse ratesare not overly burdened as a result of charging rent on the unopened portions of land. Staff will also review legal issues related to the impact of rent costs on Refuse rates. Alternative 2: The Refuse Fund should not pay rent on the ~nopened portions of the landfill. This option essentially endorses the status quo. The stoppage ofrent on closed areas is based on the premise that the closed, undeveloped portions of the landfill are not utilized by the Refuse Fund. There is no operational or technical reason from the Refuse Fund activity, why the area could not be utilized as park land immediately. The only constraints to such use are the Byxbee Park Master Plan staging recommendations and the lack of General Fund resources for park development. Hence, the Refuse Fund should not be liable for rent on these areas. RESOURCE IMPACT The implications for each alternative are presented below. Alternative 1 The Refuse Fund should pay rent on unopened portions of the landfill. Staff should be directed to hpdate the appraised value of the landfill area and return with a recon-nnended payment plan. - " _. The c-~rrent Long Range Financial Plan reflects projected net operating deficits for the General Fund in 2013-14, and beyond, due in large part to the decrease of rental payments according to the existing smoothing schedule. These projected net operating deficits could be reduced or eliminated entirely under Alternative 1. This alternative could have animpact on Refuse Fund rates and charges to the ratepay~rs over the long term. Alternative 2: The Refuse Fund should not pay rent on the unopened portions of the landfill] This option provides the General Fund.with a steady revenue stream until 2013-14. Compared to Alternative 1, the General Fund would lose this revenue stream much sooner under this scenario. Conversely, the Refuse Fund would be free of its rental commitment much sooner. Resources within the Refuse Fund could then be allocated for other capital or operating needs. Projected net operating deficits would persist from 2012-13 and beyond due primarily to the elimination of the rental payments. New revenue or expense reductions would be needed at that time to balance the General Fund. ENVIRONMENTAL REVIEW This matter is not a project for the purposes of the California Environmental Quality Act. PREPARED BY: DEPARTMENT HEAD APPROVAL: DALE WONG ,,.~ Senior Financial Analyst GLENN $. ROBERTS Director of Public Works CITY MANAGER APPROVAL: SON Assistant City Manager ATTACHMENTS .. Attachment 1: Map of Landi~ll Area Attachment 2: Correspondence from the Santa Clara .County and California Integrated Waste Management Board Regarding Acceptance of Closure Certification Attachment 3: Byxbee Park Palo Alto Baylands Update- June .1991 CMR:441:05 NISV8 (]O0-I._,d O.L-1V O’lVd ". ÷ county of santa clara HP_~allh DepaT~ment 2220 MOOrpark Avenue San Jose, California 95128 ATTACHMENT 2 February 2, t993 Robert Le City ofPa/o Alto Pt~bljc Works Deparm~en{ P,O. Box 10250 Pa]o Allo, CA 943()3 RE:Palo Alto l~andfill - l::::~cilily No. 43-AM-0001 Phase I.IA Closnre - Final Lbocumentati0n Report Dear Mr, Le: Tlnis departmenl has reviewed and approved the above referenced report. questions, please ca!l me at (408) 299-6930. Sincerely, Lisa Clark, R.E.H.S. Solid Waste Program Ofl~ce of Toxics Enforceme~t if you have any BOard of Supervisors: Michael M. Jlonda. Zoe Cofgrer~, Ron Gonzales, Rod DiriOon. Dia¢~ne lvlcl<e~hnB CounW Executive: Sally R. Reed ~ Wiston H. Hickox Secreiary for Environmental ¯ Protection April 13, 2001 Calif0mia!ntegrated Waste Management Board Linda Moulton-Parterson, Chair 1001 I Street ¯ Sacramento, California 95814 ¯ (916) 341-6000 ’ Mailing Address." tL O. Box 4025, Sacramento, CA 95812-4025 www.ciwmb.ca.gov Gray Davis Governor City of Palo Alto Public Works Department Attn: Mr. Phung Hoang, Senior Engineer P.O. Box 10250 Palo Alto, California 94303 Re:¯Acceptance of ClosureCertification for Partial Final Closure Activities at Palo Alto Landfill, Phase lib (43-AM-0001) Santa Clara County. Dear Mr. Cummins, Staff of the California Integrated .Waste Management Boacd (C!WMB) RCTSB staff has reviewed the Partial Final Closure Certification Reports forthe subject disposal site received December 26, 2000, a.nd your request for disbursal of closure funds. cIWMB ~taff fia~ f0undthat ihe :certif.~¢ation n~:~{s ’the’ i-e.i~uire’.met~i~ set forth in Title 27, California Cdde 6f RegUlationS(14 CCR); DMS]6n i, Ch~ter 51"Ai~i~le 3.4, section 21880 and is .her.e.by accepted.. Accoi-ding to 27 CCR, Division 2, Subdivision 1, Chapter 6, Subchapter 3, Article .1 Section 22235 (a); City of Palo Alto (City) is released from the requirementsof demonstratingfinancial assurances for closure of this pot[ion of Palo Alto Landfill. The City, however, is required to maintain financial assurances for postclosuremaintenance until the CIWMB determines that the City has completed postclosure maintenance according to the applicable postclosure plans and permit requirements. If you have any questions, please contact Mr. Jacques Graber at (916) 341-6353. For questions regarding the financial assurances mechanism, please contact Ms. Diana Vaughn-Tfiomas at (916) 341-6323. Sincerely, Permitting and Enforcement.Division Cc.Mr. stan Chau, san~ Clara Q.o.#n!y Environmental R~esource.s Agcy. (LEA) Mr, cecilFelix, San Francisco Ba~, Regional Water Q’uality Control B0atd~: Mr. Jacque~ Graber ClWMB ATTACHH~ENT,. ~3 Z Z © 0 oo o 0 0