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TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: CHAIR BECKY CLARK, FINANCE ADVISORY COMMITTEE
DENNIS McLEAN, DIRECTOR OF FINANCE AND INFORMATION TECHNOLOGY
DATE: AUGUST 31, 2004
SUBJECT: PROPOSED NATURAL COMMUNITIES CONSERVATION PLAN AND PROPOSED PURCHASE OF OPEN SPACE – FISCAL IMPACT
RECOMMENDATION BY THE FINANCE ADVISORY COMMITTEE
Pursuant to direction from the Open Space Acquisition Ad-Hoc Committee of the City Council, the Finance Advisory Committee (the "FAC") has reviewed the financial information provided by Staff regarding the City’s proposed Natural Communities Conservation Plan (the "NCCP"), open space purchase and the establishment of a habitat preserve (the "Preserve") and has not noted anything problematic. Based on its review, the FAC believes there may be savings to the City resulting from implementation of the NCCP that would mitigate additional costs. The FAC recommends that the City Council move forward expeditiously with the completion of the NCCP and the related land acquisition.
This staff report includes information regarding the fiscal impact of the proposed NCCP, open space purchase and the establishment of a Preserve. The following Tables accompany detailed explanations contained in this staff report.
Table 1 (see Pages 4- 5)
Note: All of the City’s costs associated with the development of the NCCP and proposed purchase of open space (described herein) have been budgeted and paid for within the General fund
Table 2 (see Pages 5-6)
Table 3 (see Pages 6-9)
Table 4 (see Pages 9-10)
Table 5 (see Pages 10-11)
BACKGROUND AND DISCUSSION
An initial portion of the following Background and Discussion serves to provide a chronology of the analysis performed by Staff and the review conducted by the FAC.
Direction From Open Space Acquisition Ad-Hoc Committee of the City Council
During its conference call on March 27, 2004, the Open Space Acquisition Ad-Hoc Committee of the City Council (Mayor Pro Tem Clark and Councilman Stern) directed Staff and the Executive Director of the PVPLC to brief the FAC about the proposed NCCP, open space purchase and the establishment of a Preserve. In the event the purchase is completed, the open space land would be transferred to the Preserve established by the NCCP Subarea Plan for a term of fifty years. The City would own the land and the PVPLC would hold the conservation easements and have the responsibility for managing the Preserve.
Presentation to Finance Advisory Committee, April 28, 2004
At the meeting of the FAC on April 28, 2004, Barbara Dye, Executive Director of the PVPLC, presented an overview about the NCCP, the proposed purchase of approximately 700 acres of open space and the establishment of a Preserve.
Subsequent to Ms. Dye’s presentation, the Director of Finance & IT presented a verbal overview of an accompanying staff report describing: (1) what the City has paid to date; (2) as expected future costs for the development of the NCCP; and (3) the estimated cost and funding sources for the proposed open space purchase.
The Director stated that he and the Director of Planning, Building & Code Enforcement expected to present estimated operating and maintenance cost information about the Preserve at the next meeting of the FAC to be conducted on May 26, 2004. After the Director’s presentation, it was the consensus of the FAC members to defer questions until the next meeting of the FAC.
Presentation to Finance Advisory Committee, May 26, 2004
At the meeting of the FAC on May 26, 2004, The Director of Finance & Information Technology and the Director of Planning, Building and Code Enforcement presented a staff report that provided details of the following topics:
Barbara Dye, Executive Director of the PVPLC, attended the meeting and answered questions asked by the FAC.
The following financial information was included in staff reports presented to the FAC on April 28, 2004, May 26, 2004 and/or June 22, 2004:
Costs Expended To Date, As Well As The Future Costs Expected Leading to the Proposed Purchase and NCCP
The City paid its open space lobbyist $15,000 during FY02-03 and an additional $60,000 during FY03-04 for lobbyist services associated with securing state Proposition 50 grant funds (described later in this report). The FY04-05 budget includes $30,000 for additional lobbyist services. Additionally, a necessary second appraisal of the open space was recently performed at a cost of about $17,000.
The City received a federal NCCP grant of $275,000 during FY97-98 and FY99-00 to match ($1 for $1) the City’s cost for developing the NCCP. The Director of Planning, Building & Safety and Code Enforcement expects that the balance of the grant funds will be completely expended during FY04-05, including about $25,000 of interest earned on the $275,000 grant. Most all of the monies have been paid to or appropriated for consultants who have assisted staff with the development of the NCCP Subarea Plan and the Environmental Impact Report ("EIR") documents. The grant monies were also expended for the development of aerial photographs of the proposed open space. All of the City’s costs associated with the development of the NCCP and proposed purchase of open space (described herein) have been budgeted and paid for within the General fund. A table titled "Summary of Costs Expended To Date, As Well As The Future Costs Expected Leading to the Proposed Purchase and NCCP" follows:
Note: All of the City’s costs associated with the development of the NCCP and proposed purchase of open space (described herein) have been budgeted and paid for within the General fund
Proposed Purchase of Approximately 700 Acres of Open Space
The City, the PVPLC, Los Angeles County, and the Wildlife Agencies (the "Resource Agencies") have been collaborating towards the proposed purchase of 684.5 acres of privately owned lands considered regionally important for habitat preservation. In the event the purchase is completed, the open space land would be transferred to the Preserve established by the NCCP Subarea Plan for a 50-year term. The City would own the land and the PVPLC would have the responsibility for managing the Preserve.
Purchase agreements between the City and the two private landowners expired several years ago, but new agreements are currently being reviewed and the property owners continue to express a willingness to sell their land. The City and the PVPLC continue to pursue the financing necessary to complete the purchase of the open space by the City. A schedule titled "Sources For Financing The Proposed Purchase" (Table 2) follows:
The Resource Agencies have approved the list of funds included in Table 2 in the NCCP Subarea Plan. However, none of the grant sources described above are fully committed by the respective agency at this time, and a material shortfall of the financing sources would require a re-assessment of the proposed purchase by all entities involved.
USFWS Section 6 (Cooperative Endangered Species) funds were appropriated by the federal government to support multi-species regional conservation plans such as the NCCP Subarea Plan. The current administration and Congress have continued to appropriate funds for this purpose because of the bipartisan support for this type of regional planning. Proposition 50 authorized the issuance of $3.44 billion of bonds to be deposited in the Water Security, Clean Drinking Water, Coastal and Beach Protection Fund of 2002 created by the state ballot initiative in 2002. The fund contains approximately $50 million to be spent for land acquisition in coastal areas of Los Angeles County.
$1 million is included in the City’s FY04-05 budget for the City’s participation towards the proposed purchase. Based on a staff report prepared by the Director of Public Works, dated March 4, 2003, the City Council adopted a spending plan for the $1 million budgeted, including the appropriation of $538,878, $332,500 and $128,622 of Proposition 12, Proposition 40 and Measure A funds, respectively, for the proposed open space purchase. No General fund monies are budgeted for the proposed land purchase. The 2004 Five Year Financial Model includes the use of these funds for the proposed open space purchase.
Summary Of Estimated Costs, Tax Increment Revenue Reduction And Potential Savings Associated With Implementation Of The Proposed NCCP, Purchase Of The Proposed Open Space And Establishment Of A Habitat Preserve
Estimated Costs – Management of the Preserve
The Draft Subarea Plan for the NCCP outlines the expected economic and operational responsibilities for both the City and the PVPLC. As outlined in the Subarea Plan, the City’s commitment to fund habitat maintenance costs of the proposed Preserve includes an annual cash payment of $100,000 to the PVPLC for management of the Preserve (adjusted annually for inflation), as well as in-kind costs described below.
The Center for Natural Lands Management (CNLM), a non-profit organization engaged in management of numerous habitat and open space preserves in California, developed a cost accounting procedure to estimate costs of habitat management. This procedure, called a Property Analysis Record (PAR), has been prepared and revised by the City’s NCCP consultant, URS Corp. Based upon the PAR estimates (see Attachment A), the City’s first year in-kind costs have been estimated to be $90,355. In-kind costs would include brush management, debris control and sanitation control. Staff has identified $58,836 of the in-kind costs already being paid for by the City (e.g. sanitation control). Therefore, the net incremental increase of first year in-kind costs is estimated to be $31,519 (see Attachment A). Actual in-kinds costs may be greater.
Subsequent to the FAC’s review, an additional $15,000 of in-kind costs was included in the final NCCP Subarea Plan for habitat management in the Oceanfront Estates tract. The additional in-kind costs would be entirely funded with the Subregion One (Oceanfront Estates) Maintenance fund. The estimated fund balance of the Subregion One Maintenance fund was $800,000 as of June 30, 2004. The City’s annual funding commitment for in-kind services associated with habitat restoration and Preserve management shall not exceed $107,000 each year, subject to inflationary increases.
The PAR includes an estimated cost of Public Safety of $51,173 annually for the Preserve, based upon a standard rate of $33.80/per acre. The City Manager and Captain Zuanich of the Lomita Sheriff station have discussed the possible need for additional services to be provided by the Los Angeles County Sheriff’s Department in the event the open space purchase is consummated. Both parties agreed that it is pre-mature to evaluate any need for additional public safety services until the proposed open space purchase is consummated and the Preserve management by the PVPLC has begun. Therefore, Staff has not included the $51,173 of estimated cost of Public Safety services as an additional in-kind cost in Attachment A. An increase of surveillance and enforcement responsibilities in the open space area of the City occurred when the number of Core Deputies was increased from 2 to 3 during FY99-00. The annual cost of a Core Deputy is approximately $112,000.
Estimated Costs - Assessment District Fees
The property owners in two separate landslide areas of the City formed the Abalone Cove Landslide Assessment District (ACLAD) and the Klondike Canyon Geologic Hazard Abatement District (Klondike AD) to perform landslide abatement projects and maintenance (e.g. installation and subsequent repair of de-watering wells) within the boundaries of their respective districts. Five of the nine open space parcels under consideration for purchase are within the boundaries of the two Districts. The assessments for the five open space parcels total $25,126 for FY04-05. The City would assume responsibility to pay these assessments in the event the proposed open space purchase is consummated.
The following Table 3, titled "Schedule of Estimated Annual Expenditures Over Estimated Revenues", provides a five-year summary of expenditures. Staff is not aware of any known significant dedicated revenue sources available to maintain the Preserve at this time.
The estimated annual cash payment of $100,000 (plus annual adjustment for inflation) to PVPLC for Preserve operation and maintenance was included in the 2004 Five Year Financial Model submitted to the City Council on May 4, 2004. The other estimated additional annual costs to maintain the Preserve, totaling $56,645, included in the staff report to the FAC on May 26, 2004 (as well as Table 3 above) were not included in the 2004 Model.
Several knowledgeable residents of the City have cited the fact that the City would enter into a fifty-year commitment with both the Resource Agencies and the PVPLC. The knowledgeable residents have suggested that the "total" cost to maintain the Preserve should be presented, including the impact of inflation. Of course, inflationary indexing would be applied to all costs and revenues of the City. Accordingly, future economic uncertainty over a period of 50 years renders any comparison of future costs of the NCCP and Preserve maintenance, including comparisons with other costs and revenues of the City, to be of little value while evaluating current day financial information.
Tax Increment Revenue Reduction
Seven of the nine parcels for the proposed open space purchase exist within the project area boundaries of the City’s Redevelopment Agency (RDA). The tax increment revenue for the open space parcels was $30,708 during FY03-04. Of this amount, $24,566 was recorded as revenue within the RDA Debt Service fund and $6,142 was deposited into the RDA Housing Set-Aside fund. General fund property tax revenue for the remaining two parcels was $1,227 during FY03-04.
The FY04-05 budget for the Debt Service fund includes tax increment revenue of $478,600. In the event the proposed open space purchase is consummated, tax increment revenue available to pay outstanding debt would decrease by about $25,000 annually. Therefore, it appears as though there would still be a sufficient amount of tax increment revenue available in excess of the scheduled bond indebtedness payments to satisfy the scheduled 1997 RDA Bond payments until paid in full. Although the amount of the scheduled bond payment increases during the term of the 1997 RDA bonds, tax increment revenue will still exceed the scheduled bond payments by more than $100,000 annually, even if the open space parcels are purchased.
On December 2, 2003, Staff presented a staff report to the City Council regarding various matters about the RDA, including its projection of future tax increment revenues. The projection indicated that upon the complete payment and satisfaction of the 1997 RDA Bonds (scheduled in FY27-28), about $7.7 million of future tax increment revenue would be available to repay loans made by the RDA to the General fund of the City prior to FY34-35, the year the RDA is expected to terminate. In the event the proposed open space purchase is consummated, about $6.9 million of future tax increment would be available to repay loans made by the RDA to the General fund of the City prior to FY34-35. The reduction of about $800,000 ($7.7 million less $6.9 million) would be a result of the tax increment reductions from the open space parcels purchased.
Long-Term Potential Savings of Federal and State Habitat Costs
One of the motivations behind the City’s decision to enter into an agreement in 1996 with the resource agencies to prepare an NCCP, was the desire to reduce the cost and time delays experienced by the City in carrying out public infrastructure improvements and landslide abatement activities. Because of the existence of federally protected Coastal Sage Scrub ("CSS") habitat in and around the landslide, the coastal bluffs and most canyon areas, Public Works projects in these areas are required to prepare biological studies and assess the biological impacts of the proposed project before the project can proceed. If it is determined that a City project will result in impacts to sensitive habitat (state or federally protected habitat), a state and/or federal permit must be obtained and the project’s habitat impacts mitigated by the City.
As a result, the City’s NCCP has been written in manner to provide the required mitigation for past City projects that have impacted CSS since1996 and future City projects that are anticipated to impact CSS. The pending revision of the Draft NCCP Subarea Plan identifies 21 such City projects that will be covered by the plan. The 21 City projects identified in the NCCP result in impacts to 33.7 acres of CSS and 94.30 acres of grassland habitat. The mitigation for 33.7 acres of CSS loss is the provision of 95.5 (approximately a 3:1 ratio) acres of habitat and the mitigation for the 94.30 acres of grassland habitat would be the provision of 47.15 acres of habitat (approximately a 0.5:1 ratio). The mitigation for these past and future losses is being provided by the dedication of 298.8 acres of City-owned land into the Reserve and 5.6 acres of re-vegetation (2.1 acres which already has been completed).
Typically, mitigation for the loss of habitat is provided by the re-vegetation of new habitat, which is then actively managed for a 5-year period. According to the City’s NCCP consultant, this typically costs $25,000-35,000 per acre over the 5-year period. For comparison purposes, the CSS re-vegetation for the Ocean Trails project is costing approximately $33,000/acre/5-years and the recently completed CSS re-vegetation for the City’s San Ramon landslide stabilization project is costing approximately $80,000/acre/5-years. As a result of the mitigation that the NCCP would provide, the typical re-vegetation that would have been required for these past and future projects is not necessary. This will provide a substantial cost savings to the City. Using the consultant’s most conservative estimate of $25,000/acre/5-years, and applying it to the number of acres required for mitigation of CSS and grassland vegetation, not having to perform this re-vegetation equates to a potential savings of $3,566,250 to the City ($25,000 x 142.65 acres (95.50 acres of CSS + 47.15 acres of grassland). A table that shows the breakdown of these savings is provided as Attachment B.
It should also be noted that in addition to the costs of planting new habitat and managing it for 5 years (weeding, etc), there are costs associated with the preparation of a re-vegetation plan and the monitoring of the work by biologist over the 5-year period. These costs vary by project. For example, for a 10-acre re-vegetation project these costs would typically total about $75,000. For the recently completed San Ramon project, which involved 1.5 acres of re-vegetation, the costs are expected to be $100,000. Using an estimate of $75,000 per project, the costs for the 21 City projects would be approximately $1,575,000 (see Attachment B). This represents an additional potential cost savings to the City.
Note: None of the Staff’s presentations of estimated costs or potential savings have been adjusted for inflation.
Although none of the proposed projects presented in Attachment B (and summarized in Table 5 above) are currently included in the Capital Improvement Plan (CIP) fund budget for FY03-04 or the 2004 Five Year Financial Model, Staff believes that several projects (i.e. storm drain projects) will be completed during the next 2-10 years. Due to the uncertainty of the completion of future CIP projects, as well as their timing, the presentation of the potential annual savings to the City has not been prepared.
Additional Observations That The FAC Requested To Be Included In The Report To The City Council
After Staff’s oral presentation on May 26, 2004, the FAC discussed the costs and benefits of the proposed NCCP and Preserve. The members of the FAC made the following observations and asked that they be included in a report to the City Council:
Director of Finance and Information Technology