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HomeMy WebLinkAboutStaff Report 10276City of Palo Alto (ID # 10276) City Council Staff Report Report Type: Action Items Meeting Date: 3/2/2020 City of Palo Alto Page 1 Summary Title: Discussion of & Potential Direction for Next Steps Regarding the Roth Building, 300 Homer Avenue Title: Review of the Report on the Palo Alto History Museum's Fundraising Status for the Roth Building Rehabilitation Project (300 Homer Avenue), Discussion of Options for Roth Building use and Rehabilitation, and Direction for Next Steps; Approval of an Agreement With Sea Scouts/Environmental Volunteers to Provide $65,000 in Dedicated Funding for Uses Related to the Mission of the Environmental Volunteers From: City Manager Lead Department: Administrative Services Recommendation Staff recommends that the City Council: 1.Review the status of the fundraising for the Roth Building rehabilitation project and provide direction on possible next steps for the Roth Building; 2.Approve allocation of $65,000 from the FY 2020 City Council Contingent account to the Sea Scouts/Environmental Volunteers, consistent with direction provided by Council on December 17, 2018; and 3.Authorize the City Manager to negotiate and execute an agreement with Sea Scouts/Environmental Volunteers for use of the $65,000 in dedicated funding from the City Council Contingent account. Executive Summary For more than a decade, the Palo Alto History Museum (PAHM) has engaged in various strategies and activities to raise funds from private and public sources to undertake a seismic and historical rehabilitation of the Roth Building, 300 Homer Avenue, and to operate a historical museum at this location. This staff report is intended to provide an update on the direction provided to staff at the December 17, 2018 City Council meeting (CMR 9767) including the validation of fundraising by PAHM as performed and reported by an outside firm. The report builds on information provided in the most recent updates provided to Council in September (CMR 10600) and December (CMR 10868) 2019. Staff is seeking review of the status of this project in the context of this validation of fundraising and potential direction on next steps as City of Palo Alto Page 2 part of this project. Background The City acquired the Roth Building in April 2000. In 2002, the City issued a Request for Proposals (RFP) for proposed uses of the Roth Building, and received one response, from the PAHM. In 2007, the City and PAHM entered into a two-year option agreement to lease the Roth Building. Since 2007, PAHM personnel and City staff have examined a variety of proposals to fund the capital and operating needs of the Roth Building historical museum and the City Council has extended the option agreement several times. Additional background information can be found by referring to prior staff reports, CMRs: 2197, 2891, 4703, 5365, 5551, 5879 and 8612. The 2007 option agreement was extended several times over the past 13 years, but finally lapsed in late 2018 and is no longer in effect. In December 2018 (Report #9767) the City Council reviewed the status of the Roth Building project and directed staff, over the next six months, to validate the PAHM’s recent fundraising milestone of $1.75 million - a target set by Council for a certain period of time, between 2017 and present. At that time, Council did not choose to extend the option agreement further but directed staff to update the option and lease agreement, which had not been updated since 2007, for later consideration by Council. On December 17, 2018 Council approved the following motion (9-0): A. Extend the deadline by six months for the Palo Alto History (PAHM) to achieve the goal of raising $1.75 million as set by Council in 2017 (to allow for validation of PAHM fundraising); B. Direct Staff to revise and update the lease agreement between the Palo Alto History Museum and return to City Council in six months for approval; C. Adopt a Resolution designating the Roth Building as a park and committing to use the Roth Building consistent with park use for a period of no less than 20 years and making other representations to apply for historic preservation grant funds from the County of Santa Clara to rehabilitate the Roth Building roof; D. Transfer the $665,000 of Sea Scout Building Transferable Development Rights (TDRs) proceeds to the Roth Building Rehabilitation Reserve Fund; and E. Direct Staff to return to Council to dedicate $65,000 from the Council Contingency Fund to the Sea Scouts. Staff has provided updates to the City Council on work towards this direction, both in September 2019 and December 2019. The most current status on each component of the motion is included in this report for consolidation purposes at the end of the Discussion section. City Council Previous Funding Actions In order to provide the background of funding actions, staff has consolidated the funding actions and direction to date below for Phase one of the project, consisting of capital investment expenses, the general construction and rehabilitation of the facility to prepare the building to move to Phase 2, the build-out of the museum space. The City Council has approved City of Palo Alto Page 3 two primary funding sources thus far. 1) Council approved the designation of the Roth Building as a “Sender Site” in the Transfer of Development Rights (TDR) program. Staff followed the provisions for eligible City owned buildings to participate in the TDR program as outlined in Sections 18.18.080 and 18.28.060 of the Palo Alto Municipal Code (PAMC). The program allows a Category 2 resource, such as the Roth Building, to be eligible as a “sender site” for a 9,592 square foot floor area bonus to be utilized at an eligible “receiver site”. The TDRs were put to bid and sold raising $2.88 million. 2) On December 15, 2015, City Council passed a motion instructing staff to identify $1.0 million to fund rehabilitation costs for the Roth Building. All potential sources were examined, and staff recommended that the Budget Stabilization Reserve be drawn down to provide the $1.0 million. The Museum representatives asserted that with this contribution and the sale of Transferable Development Rights (TDRs), further fundraising would gain traction. On June 29, 2015, the Council approved a budget amendment in the Capital Improvement Fund to establish a Roth Building rehabilitation reserve in the fund in the total amount of $3.88 million. Palo Alto History Museum has been working to fundraise the gap in funding for Phase one. After identifying $1.4 million in fundraising and a remaining gap of $3.5 million in identified project funding, in 2017, the City Council challenged the PAHM to raise 50% of the identified gap, or $1.75 million in the coming 12 months. In December 2018, the PAHM tentatively confirmed completion of fundraising the additional $1.75 million. The City Council directed staff to validate these funds for further project progress towards Phase one. In September 2019 staff provided an update to Council indicating that additional time was need to perform the validation of fundraising, the expansion of the scope of validation of fundraising to the full $3.2 million anticipated to assist in funding the phase one capital investment, and that a firm would be hired to assist in the completion of this work. The City hired Macias Gini and O’Connel (MGO) to validate the PAHM fundraising to accomplish item A from Council’s motion, Extend the deadline by six months for the Palo Alto History (PAHM) to achieve the goal of raising $1.75 million as set by Council in 2017 (to allow for validation of PAHM fundraising). This report provides a summary of the findings from MGO and the report is attached (Attachment A). Also, due to the timing of staff’s return to the City Council, staff recommended and the City Council approved on October 21, 2019 (CMR 10658) a reappropriation of the FY 2019 City Council contingent account in the amount of $65,000 to FY 2020 for the implementation of item E in the original motion. City of Palo Alto Page 4 Discussion The City hired MGO to review and validate the entire population of fundraising that was reported by the Palo Alto History Museum in 2018. At that time Council had set the goal of PAHM meeting a fundraising target of $1.75 million and directed staff to validate that amount. In researching the Museum’s fundraising, staff found that the earlier reported figure of $1.4 million had also not been validated. Together this fundraising totaled $3.15 million. The City and PAHM agreed it best to expand the scope of validation to all funds, not just the $1.75 million target. The expanded population of fundraising and validating expertise needed increased the time staff required to perform the review. It should be noted that MGO did not perform an official financial audit of the Palo Alto History Museum financials; this engagement focused solely on the evaluation of progress towards fundraising goals and identification of available funds for investment in the construction project at the Roth Building. The work performed by MGO included interviews with PAHM staff, review of records in the donations database, review of data from the accounting system and review of donations and pledges along with available supporting documents. MGO’s work culminated in a final report (Attachment A). A draft final report was reviewed with PAHM and their edits and comments where incorporated into the final report. PAHM provided a letter in response to the report (Attachment C). The key conclusion in the report is that PAHM has fundraised and received donations and pledges totaling $7.7 million, however, PAHM does not currently have sufficient cash on hand to meet the fundraising target of $3.15 million for contribution to the rehabilitation construction (Phase 1) of the Roth Building. Since approximately 20001, the museum has received donations of $4.8 million and pledges of $2.9 million which is inclusive of the $3.15 million amount that PAHM reported to the City. However, expenditures for the PAHM have been in the $3.6 million range for that same period, since 2000. As of November 2019, PAHM has an available operating cash balance of approximately $1 million. In addition to the cash balance, PAHM has total pledges of $2.9 million of which $2.0 million is restricted for other uses as discussed below. MGO reviewed the pledges and after identifying levels of risk, has deemed $0.2 million (up to $580,000) likely to be collected – these are the pledges that are less than three years old2. 1 Page 3 of the MGO report Assessment of Palo Alto History Museum (PAHM) Fundraising Efforts for Phase 1. 2 An aging chart for pledges is provided on page 8 of the MGO report Assessment of Palo Alto History Museum (PAHM) Fundraising Efforts for Phase 1. City of Palo Alto Page 5 Donations The detailed history of all donations shown in the MGO report since 2000 is presented in the table below. TABLE 1: Summary of All Donations received since 2000 Donations3 Year Amount Year Amount <2000 $250 2010 $192,879 2000 $14,415 2011 $598,577 2001 $1,000 2012 $165,943 2002 $8,675 2013 $93,635 2003 $125,351 2014 $269,397 2004 $62,856 2015 $143,642 2005 $308,642 2016 $440,775 2006 $250,637 2017 $463,602 2007 $128,215 2018 $976,619 2008 $131,078 2019 $394,595 2009 $111,595 Total $4,882,378 A summary of PAHM revenue and expense is shown below. A graph of revenue and expenses since 2005 is shown on page 8 of the MGO report. TABLE 2: Summary of PAHM Revenues & Expenses PAHM Revenue and Expenses Total Revenue since 2005 (page 6 MGO) $4,330,654 Other sources4 $269,349 Operating expenses since 2005 ($3,599,559) Cash on hand5 $1,000,444 3 Some donations were recorded in the year shown above after they were migrated from a prior system. 4 The MGO review could not verify all revenue sources, MGO did not review records prior to 2000 as the ROTH building purchase in 2000 was the catalyst for PAHM capital campaign fundraising efforts. 5 Page 4 of the MGO report Assessment of Palo Alto History Museum (PAHM) Fundraising Efforts for Phase 1. City of Palo Alto Page 6 Pledges MGO reviewed outstanding pledges that totaled approximately $2.9 million6 and determined that $2.01 million have restrictions from the donor and cannot be used for Phase 1 construction. MGO determined that of the remaining pledges approximately $681,500 have high risk factors7 that decrease the likelihood of the pledge being collected. Approximately $242,600 (or up to $583,000) in pledges are more likely to be collectable according to the MGO report. Summary of Project Funding The overall funding picture for the Roth Building rehabilitation project is shown in the table below. Following the table are additional updates to the financial status of Phase 1 capital investment and construction that may impact the overall funding picture. The PAHM has expended $57,000 to date on this project for the construction contract. Not itemized below is the award of $100,000 in grant funding from the County of Santa Clara County Parks Historical Grant for reimbursement of costs associated with the roof replacement. TABLE 3: Summary of Project Funding and Costs Description Other Funding Sources Identified and Projected Projected Cost Balance Building Project Total Rehabilitation Cost $9.2 million City’s contribution: TDRs, BSR, interest, Library Impact Fees (est. $300k) $5.2 million PAHM cash on hand as of November 2019 $1.0 million Phase 1 Pledges as of December 2019 $583,000-$242,600 Phase One – Capital Shortfall (as of 2019) ~($2.8m - $2.4m) The Phase 1 construction cost estimate of $9.2 million is from 2016. According to PAHM’s construction contractor, Vance Brown, who City and Museum staff met with in January 2020, this cost estimate has likely escalated by at least ten percent making the current project cost anticipated to exceed $10 million. Another factor that may add costs to the project is the fact that the subcontractor costs since initial estimates have not been updated by Vance Brown. Only once the project has a firm start date does the contractor update these estimates with a firm quote from the subcontractors. This step will likely result in additional cost increases. 6 Page 7 of the MGO report Assessment of Palo Alto History Museum (PAHM) Fundraising Efforts for Phase 1 7 Page 7 of the MGO report Assessment of Palo Alto History Museum (PAHM) Fundraising Efforts for Phase 1; factors include donation and payment history of the donor, age of the pledge, amount owed/pledged; and documentation status (written or verbal) City of Palo Alto Page 7 Discussion of Next Steps Given the findings in the MGO report as well as the updated discussion of overall Phase one project construction costs, staff is bringing back to the City Council these findings for discussion and potential direction on next steps. The fact that the passage of over a decade of time has not fared well for the structure nor has it resonated with stakeholders and fundraising efforts. Over the span of nearly two decades, despite best intentions, the work needed to preserve the building has been postponed as the necessary private funds have not fully materialized, leaving the building in an increasingly degraded physical state. Over the past year as staff have been completing these fundraising validation efforts with the necessary stakeholders – City departments, the PAHM, and Vance Brown – ideas on the potential path forward for this building and project have been discussed. The ideas below spring from these conversations with the core tenet of building preservation in mind and staff is seeking input and direction from Council on the next steps in this potential project given the current status of project funding. These ideas are not intended to be holistic or mutually exclusive but rather resurrect prior potential paths forwards for this valued community asset as well as new options. The City would coordinate with PAHM on these revised paths forward pending City Council direction. Request for Proposal The last request for proposals RFP for the Roth Building was completed in 2005, over a decade ago. The City Council considered the development of a RFP for the Roth Building in 2017 (CMR 8612) as the Council was faced with an approximately $3.5 million funding gap in the construction project then. At the Council’s direction, staff could resume this option and dedicate staff time and resources to the execution of a new RFP. An RFP would inform what the market would bear for this property and may identify new interest as well as alternative ideas for use. The zoning for this land is currently Public Facilities (PF) and this along with the City’s Comprehensive Plan and other planning and development codes would be necessary to consider in soliciting and evaluating potential options. This process would extend the time the building remains vacant and could be done in conjunction with other options described below. As discussed previously, the high-level steps needed for issuing a new RFP would include: • Prepare a timeline for the RFP • Obtain input from Council on goals, concepts and core variables for the RFP • Solicit a request for qualifications to set a prequalification level which firms must meet to respond to the RFP (optional) • Issue the RFP to qualified firms and allow a one-to-two-month window for firms to respond • Hold interviews and presentations with firms, the City, and the community representatives • Consider alternatives presented by proposing firms and develop options for review with the City Manager • Present options and a recommendation to the Council along with related contract City of Palo Alto Page 8 awards It is estimated that the RFP selection process would take approximately one year to complete. Physically Stabilize the Roth Building Allow PAHM to begin initial construction to stabilize the Roth Building from water intrusion and repair a back wall based on the current building permit and design that PAHM holds. This would stabilize the facility; however, the building would not be ready for occupancy. The estimated cost for this work is $8.5 million8 according to initial estimates from PAHM contractor Vance Brown. This idea leverages the existing building and approved planning permits and starts the rehabilitation of a City owned property and the overall project. PAHM estimates that this activity, demonstrating capital investment in the facility, would motivate additional fundraising. However, as noted above, funding of $6.2 million ($5.2 million from City contributions and $1.0 million in PAHM operating cash balance) would be insufficient to fully fund a project this size. This option would require identification and commitment of additional funding prior to the commencement of work. Sharing of Facility The City and PAHM could work together and/or potentially with another party to share the 20,000 square foot facility so that it would not be solely occupied by PAHM. This co-tenancy could lessen the cost burden on the PAHM by sharing costs with another party both for construction and the ongoing operating costs associated with maintaining and running a building of this size. Parking would potentially be an issue depending on the use and volume of customers/users if any. The PAHM has expressed an openness to discuss a shared occupancy concept including shared square footage on the first and/or second floor of the facility. One example of sharing the facility could be PAHM co-tenancy with City operations or common/community facilities. For illustration purposes only, the City currently leases space for City staff at satellite locations such as the Development Center (approximately 12,000 square feet) and Utilities staffing at Elwell Court (approximately 16,000 square feet) and an average City Hall floor is 6,000 square feet. Co-tenancy with the City or another party will necessitate detailed discussions and formal agreement(s) to address issues such as but not limited to parking needs/requirements, allocation of space, expenses, and building access, constraints related to the County grant designation of the building as parkland, and building permit amendment or new application. Per PAHM, the Conditional Use Permit (CUP) allows for some sub-leasing to appropriate nonprofit entities; this option could be resurrected. Sharing of the facility would necessitate PAHM staff to coordinate with the organization’s board as well. Lastly, although not a path forward for the physical Roth Building facility, it is notable that the MGO report also provides recommendations, which may be considered by PAHM and the City should the parties wish to continue the current project path. These include: 8 Estimate from Vance Brown/PAHM City of Palo Alto Page 9 • The City and PAHM should consider an agreement which could include requirement for a regular report on fundraising, an approved PAHM operating budget, operating reserve and review of financial policies and procedures. • Establishment of a PAHM operating reserve, which is an unrestricted fund balance to provide a cushion against unexpected events together with a realistic plan to replenish the reserve. • PAHM should continue to expand its comprehensive policies and procedure manual to establish a control environment and to address internal control risks. • Establish an account that is used by PAHM to estimate the true collectability of receivables by accounting for doubtful accounts. Summary of Council’s December 17, 2018 direction and the current status of each item: Council Motion Background/Status A. Extend the deadline by six months for the Palo Alto History (PAHM) to achieve the goal of raising $1.75 million as set by Council in 2017 (to allow for validation of PAHM fundraising); Review of fundraising completed. B. Direct Staff to revise and update the lease agreement between the Palo Alto History Museum and return to City Council in six months for approval Development of option and lease agreement in progress. The updated draft of the agreement is being reviewed by City departments, including Public Works, Planning and Community Services. While this effort is moving forward it has been separated from the review of fundraising. Depending on Council’s direction as a result of reviewing the fundraising this may impact the terms of the option and lease agreement, or whether to proceed with the agreement. C. Adopt a Resolution designating the Roth Building as a park and committing to use the Roth Building consistent with park use for a period of no less than 20 years and making other representations to apply for historic preservation grant funds from the County of Santa Clara to rehabilitate the Roth Building roof; Resolution approved and County grant secured. D. Transfer the $665,000 of Sea Scout Building Transferable Development Rights (TDRs) proceeds to the Roth Building Rehabilitation Reserve Fund; and Complete City of Palo Alto Page 10 E. Direct Staff to return to Council to dedicate $65,000 from the Council Contingency Fund to the Sea Scouts. Pending approval in this report (Recommendation 2). The original request for this funding was made by the Environmental Volunteers (Sea Scouts) in December 2018 (Attachment B). Other Updates Building permit PAHM’s construction contractor currently holds an approved (in February 2019) building permit for the rehabilitation project of which PAHM was the applicant. The building permit remains active and has been extended through February 2020. PAHM has initiated a second six-month extension of the building permit to adjust for timing of this project including but not limited to the Lease and Option Agreement review and approval by the City Council. Building permits may be extended up to three times. County grants The City in partnership with PAHM has submitted two new grant applications to the 2019 Santa Clara County Historical Grant Program. One grant is to provide additional funding for the roof replacement project and the other grant is to provide funding to preserve the art frescoes on the outside front wall of the building. These grants will be determined in 2020 after award recommendations, which are scheduled for February 2020. As discussed above, an earlier grant submitted in the County’s prior grant cycle to help support roof repair was granted by the County in the amount of $102,992; the contract was recently signed. Stakeholder Outreach Throughout this project staff has maintained regular and open communications with PAHM and its staff as well as the construction contractor. The collaboration between the City and PAHM has been positive as a result. Internally, staff have been coordinating among the Public Works, Community Services, Planning and Administrative Services departments on different aspects of the project. Resource Impact City Financial Contributions As discussed earlier, the City Council previously took actions to set aside $3.88 million in resources for the Roth Building rehabilitation. Funding primarily resulted from the sale of TDRs ($2.88 million), plus an additional contribution from the Budget Stabilization Reserve ($1.0 million). These funds plus interest earned remain accounted for in the General Capital Improvement Fund (471) in a reserve; as of February 2020, this reserve stands at $4.2 million. In addition, the Sea Scout Building Transferable Development Rights (TDRs) proceeds ($665,000) for historical restoration only also remain in a reserve in the General Capital City of Palo Alto Page 11 Improvement Fund; as of February 2020, this reserve stands at $700,030. Lastly, it is expected that $300,000 in Library impact fees will assist in coverage of costs associated with the archive build out. Therefore, in total, City funding of $5.2 million is available. Environmental Review The Roth Building rehabilitation project is categorically exempt from review under the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15331, Historical Resource Restoration/Rehabilitation, as a project limited to maintenance, repair, and rehabilitation in accordance with the Secretary of Interior Standards for Historic Preservation. Attachments: •Attachment A: Assessment of Fundraising Efforts; MGO report •Attachment B: Sea Scouts-Environmental Volunteers Letter •Attachment C: Palo Alto History Museum Letter Response www.mgocpa.com Macias Gini & O’Connell LLP 2121 N. 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We last appeared before Council on December 11, 2017, where Council unanimously accepted a “carrot and stick” approach. We were challenged to raise $1.75 million in just over a year. If we proved we could raise the funds, we could gain additional funds from the Sea Scout TDR sale. If we didn’t meet the challenge goal, City staff could be directed to release a new RFP to develop the Roth Building. The carrot won - we exceeded the City challenge. Since that time, we have: Seen the Sea Scout TDR funds allocated by the City and received a County grant (payable to the City) for $102,992.00 towards the Roth rehabilitation, Added seven dynamic new board members (just over half the board) and critical policies such as whistleblower and document retention policies, Pulled our building permit, are keeping it active and are maintaining our 2016 contract with Vance Brown, Updated our fundraising materials, created a corporate campaign, and are working on a more effective web site, Controlled expenses tightly, have seen increased annual revenue, and have held about a million dollars in our bank and investment accounts (for the first time in our history) and have maintained that despite regular expenses. Meeting the City challenge triggered the verification by MGO. While not a full audit, it was a comprehensive, in-depth review of our financial and fundraising history since the project began. The process was positive and all professionals involved were efficient and cooperative. The process drew out how our increasing professionalism over time has improved operations; we continue to make recommended improvements. That brings us to the present. As you are well aware, regional construction costs continue to escalate. Our not-to-exceed contract with Vance Brown (2016) is stretched to its limit, and sub-contractor estimates are rising. A review of potential expenses, undertaken recently at the request of City staff, shows that the margin to construction has increased substantially due to regional pressures. Our shared goal is to develop a museum that will enrich this community, and we appreciate your ongoing support. Clearly, the rehabilitation costs are a financial challenge. We are open to all reasonable opportunities to achieve this goal, and ask that you direct staff to explore such options with the Museum board and staff. Thank you for your consideration, and for the aid of City staff who are part of this process. We are very grateful for your support. Laura Bajuk, Executive Director HONORARY CHAIR: Dean Clark BOARD OF DIRECTORS Rich Green, President Patricia Sanders, Vice President Hon. Lanie Wheeler, Treasurer Margaret Feuer, Secretary Beth Bunnenberg Kevin Curry John W. King Doug Kreitz Hal Mickelson John C. Northway Nelson Ng Steve Staiger STAFF Laura Bajuk, Executive Director Crystal Taylor, Assistant Director Lynette York, Bookkeeper Kitzi Tanner, Construction Project Mgr. Sergio Mello, Corporate Outreach A community-driven effort supported by over 900 individuals, corporations, foundations, Santa Clara County and the City of Palo Alto. Founding Supporters: Palo Alto Historical Association University South Neighborhood Association Palo Alto-Stanford Heritage Museum of American Heritage Endorsed by: Palo Alto Woman’s Club Palo Alto Chamber of Commerce Professor Gordon Chang, Stanford Stanford Historical Society Stanford Special Collections and University Archives Palo Alto Housing Corporation Pacific Art League Canopy