Brea to Ponder Which Funds to Plunder for $12.6MM Parking Structure Giveaway

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If Brea's taxpayer-funded parking structure passes, it will mean the end of the City's "560 fund" reserve for environmental preservation.  Please don't pretend that it won't.

If Brea’s taxpayer-funded parking structure passes, it will mean the end of the City’s “560 fund” reserve for environmental preservation. Please don’t pretend that it won’t.

Brea’s City Council has already settled on its plan — not coincidentally, it’s the plan supported by the Downtown Owners’ Group (“DOG”) which wants the City to build a parking garage from which they will glean the primary benefit.  That’s why, however much DOG team leaders Dwight Manley and Mark “Blight” Caplow splutter and explain that it’s not a giveaway to them — it is pretty much exactly that.  And the only reason they’re getting it is because they bought the Council that they wanted last year and have warded off the opposition this yer with fear of political retaliation.

This is, in effect, a “joint venture” between the City and the DOG team to improve the Brea Downtown.  The DOG team will invest money into its own properties, from which it will profit in the long term.  (The City, beyond a minimal extent compared to the DOG team, will not.)  The DOG team also gets an extremely convenient parking structure, dedicated essentially to its own businesses, with all sorts of amenities like dedicated space within it for trash storage for the business there.  (That will allow for some increased rents over time!)

What the City gets out of the deal is not so much “upside” as avoidance of threatened “downside”: it avoids the promised collapse of Brea’s Downtown.  Manley has told the Council that the leases for Downtown businesses somehow got written so that the departure of the Brea Improv would allow a cascade of lease terminations, a domino effect that would leave Downtown as empty as Caplow has left his Tower Records building at the main intersection of Downtown for almost the entire last decade as — it now appears — sort of a demonstration project of what the City can expect if it doesn’t play ball with the DOG.  It all turns out to be some sort of terrible trap that the DOG team somehow landed the City into — and the City can only get out of it by doing exactly what the DOG team wants.  (Not that it’s the DOG team’s fault, of course.)

Two points on this to make up front:

(1) Downtown Brea wouldn’t collapse unless Manley followed Caplow in WANTING IT to collapse unless he gets his way.  There is plenty of money out there for investors to take over a huge and lucrative property.  (Seriously, part of DOG’s argument is that the Buffalo Wild Wings in Brea Downtown, while the largest in the country, is only the 10th largest in terms of revenue.  Does anyone believe that no investor out there would be happy to have a location that can hold the 10th largest Buffalo Wild Wings in the nation, in a town of only about 40,000 at a site several miles from the nearest freeway?)  At worst, parts of it might be converted into a more Asian theme a la Rowland Heights just across the Puente Hills.  And you know what?  If that’s what capitalism dictates, as so many more Korean and Chinese residents move into Brea, Fullerton, and the nearby East San Gabriel Valley — then what’s wrong with that?  It’s as legitimate a use of entertainment property as anything else — and maybe new owners would have the grace to build their own $13 million parking structure!  The big problem with selling their properties is that Manley and Caplow don’t want to do it — in part because they probably wouldn’t make as much money off of it.

(2) Don’t get me wrong: I enjoy the Brea Improv quite a bit — and their expansion plans into the newly vacated “Old Navy” property sound just grand — but I don’t enjoy the Brea Improve “$13 million worth of public money in a city with only $26 million in reserves” worth!  If I and others did think that keeping the Brea Improv here rather than in Buena Park or wherever it was worth that much money, then the parking structure should be paid for via a $1 surcharge on ticket prices paid for by those of us who value it rather than taking it all out of the local taxpayers’ — most of whom don’t attend the Improv — pockets!)

But they’re going to get their way.  Leader of the DOG team contributed handsomely to two of the three “Class of 2014” Councilmembers, Cecilia Hupp and Steve Vargas, who along with Mayor Marty Simonoff formed the majority that has promoted the DOG’s interests from the start.  They have their three votes.  The only question — and this is what is to be voted on Tuesday night — is where they’re going to get the money to build the parking structure.

(Odds are high that it will gut most or all of the “560 fund,” which was to go to purchase of land for environmental preservation.  Some civic leaders argued at the outset that the fund would be used “only over their dead body” — but they were later lobbied into supporting the project because they were convinced that the only alternative was the utter destruction of Brea Downtown.  Well, tomorrow, they get to open up the box and see what they’ve won!  Or, as is likely, what they’ve lost.)

The only bright side (beyond that it will only take 40 or so years for the projected profit from the site to pay off the $13 million, rather than 400 years or something like that) is that once he casts this vote Councilmember Steve Vargas — who dropped his appeal a while ago of a judge’s finding in a civil trial that he had committed felonies in embezzling from a veterans’ charity — will no longer be of any use to the DOG team and those who needed him to stay in office through at least September.  Watch for interest in Vargas’s actions to suddenly spring up, once the bottom line in signed, followed by a recall.  He shouldn’t expect Manley to be donating to him once his usefulness has expired.  (I wouldn’t bet against Manley donating to the recall effort, though.)

The City Staff did a good job with its report though — I wish that Anaheim’s budget people were that good — so I leave that to you, because there’s almost no chance that all but a few of you readers would be taking a look at it otherwise.

Of course the staff report leaves out the solution that actually makes sensetreat a joint venture like a joint venture!  Even though some leases will continue at their present rate, over the long term — the decades over which the parking structure will exist with the expanded Brea Improv as its anchor — rents (or other paybacks to owners) are likely to go up.  (WHY ELSE WOULD THEY BE DOING THIS?)  The city should share directly in the revenue from those higher rents — if and when, or rather when — they occur.  And that money can be used to pay off the money that Brea Taxpayers are being asked to pitch in to, ultimately, line Mr. Manley’s and Mr. Caplow’s already overstuffed pockets.

Instead, as you’ll see, Manley has proposed a pittance: $15,000/year, and it’s not even clear on paper who will pay the costs of maintenance.  And, frankly, even if it is clear, Manley could save money by getting a future Council to excuse him and Caplow from any such obligation.  A Council term is four years; it’s a lot cheaper than $60,000 just to pay for a Council Majority that will gratefully give you whatever you want.

If you still care — if you ever cared — about what of Brea’s funds are going to be et up tomorrow night, the information you want from the Staff is just below the line of stars.   The headings for each of the two “exhibits” are in orange; subheadings are in green.  Some small changes have been made in formatting (but not content) as the city used a style of PDF that could not be directly copied into this post.

(Oh, and in the closed session before the meeting, the City Council is apparently preparing to sue someone.  No idea who that is or whether it’s related to Downtown.)

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STAFF REPORT for City Council Agenda Item 13

Agenda Item   13.
City Council Meeting
Meeting Date: 09/15/2015
FROM: City Manager

Subject:
CONSIDERATION OF BREA DOWNTOWN SUPERBLOCK PARKING STRUCTURE RECOMMENDATION
Staff recommends that the City Council review and discuss funding options for the new parking structure and provide staff direction regarding the funding sources to be used for the project.
BACKGROUND/DISCUSSION
At its meeting of August 18, 2015 the Council limited the new parking structure design options to continue work to achieve a new “parking only” design option for Superblock One in Brea Downtown.  An RFQ process is already underway for contractors for this option which will result in a pre-qualified bidders list.  Additionally, an RFP is being updated together with necessary support documents, including the “40% complete plans”, to solicit bids on the project.  The Council also affirmed that funding sources for this CIP project need to be identified prior to going out for public bidding.  They initiated some funding discussion on August 18 and continued those considerations to the meeting of September 15, with a goal to identify and select funding sources for the project.The recommended “all in” cost estimate for this project for budget planning purposes stands at $12.6M. Funding options previously identified in the June 16 and August 18 staff reports have been updated and are attached as Exhibit A. Additionally, the Council requested a summary of all City funds and balances for its reference and this information was conveyed to the Council shortly after the August 18 meeting and is attached here as Exhibit B.Follow-Up Actions for Parking Structure – Together with direction to staff regarding project funding the City Council may also desire to provide any further direction regarding the various follow-up actions which are related to the new parking structure.  These items were previously presented to Council and are summarized below for your information.  In some instances these items will require written agreement prior to awarding a bid to commence the project to assure for any assigned responsibilities and work regarding some of these details is already underway.  To date, staff have noted either Council or Downtown Owner representative discussion regarding a number of follow-up issues triggering the following policy questions or follow-up needs:

  • New land use entitlements – Does the City Council find the parking structure to be contingent upon delivery of new Downtown uses (i.e. expanded Improv)?  This is an important consideration for the timing of any parking structure bidding and construction schedule.
  • Maintenance responsibility – What level of assurance will the City Council require concerning maintenance responsibilities of any new parking structure?  The Downtown Owners have verbally committed to maintain the new parking structure.  This commitment will require amendment to Downtown CCRs or separately executed agreement(s) with the parties prior to implementing a bidding process or award, if absolute assurance of agreement is desired.
  • Prior parking assignments – Does the City Council find the parking structure to be contingent upon modifying the current parking easement agreement between the City and TAPS?  What modification does the Council seek?  The existing agreement affords TAPS the non-exclusive use of a maximum 132 parking stalls on the City owned parking lot.
  • Service Operations and Revenues – Does the City Council desire to assign any of the City’s operations and revenues for valet functions or revenues from mobile communication facility leases to the Downtown owners?  The Downtown Owners have consistently requested that they should directly receive City revenues from mobile communications leases for antennas atop the existing City parking garage, as well as control and realize revenues from valet operations on the City’s parking lots.
  • Pay for Parking – Does the City Council desire to implement any “pay for parking” at a new parking structure?  Discussion has included how such a fee may serve parking management goals by charging for the most convenient parking.
  • CEQA studies – This work is now moving forward with funding for its portion of studies having been received from the Improv applicant.  Recall, a portion of those studies will address the development application for the new Improv, while also reviewing a parking structure alternative, and the resulting CEQA document will serve as the environmental clearance for both projects (the portion of the CEQA studies applying to the parking structure will be funded by the CIP).
  • Other items – As may be identified or discussed by the City Council.
SUMMARY/FISCAL IMPACT
The parking structure design option identified for implementation by the City Council at its August 18 meeting is moving forward toward public bidding.  A critical step prior to releasing the project for public bidding is to identify and confirm funding for the project. Additionally identified follow-up actions are also critical to resolve prior to award of any bid and initiating the design/build work effort which will follow such award.
RESPECTFULLY SUBMITTED:
William Gallardo, City Manager
Prepared by: David M. Crabtree, AICP, Community Development Director
and Eric Nicoll, Public Works Director

Attachments
Exhibit A – Funding and Financing Options Information
Exhibit B – Summary of City Funds

EXHIBIT A — Downtown Financing Options

There are several methods of financing or constructing public improvements:

1) City financed;

2) Privately financed by adjacent property owners that benefit from these improvements via an assessment or special tax; and

3) A combination of City and private property owners sharing in the cost of the public improvements.

Federal, State or County grants are sometimes available and could also be considered as additional funding sources, however, are not likely for this project.

In order to consider options that involve private property owners, there must be a willingness or agreement to participate in an assessment or special tax. At the present time, ownership in the Downtown has not put that option forward for consideration.

Therefore, solutions such as Community Facilities Districts, Enhanced Infrastructure Finance Districts or any other method of financing which involves an assessment or special tax, cannot be considered at this time. State law prohibits a City from imposing or compelling any special tax or assessment without a vote of the property owners affected.

If the City is therefore to fund 100%, or nearly 100% of the cost of the public improvements, the following options are available:

Use of RDA Bonds — $12,500,000 from 2011 Redevelopment Bonds

The 2011 bonds were issued to help construct three projects: New Downtown Parking Structure, Tracks at Brea and an Eastside Community Facility.

Staff has [been] working diligently with our legislative partners in Sacramento to increase access to the 2011 Bonds. At this time this issue has not yet been resolved.

Any action to approve funding using these bond funds should have a clause preserving the right to “reimburse” the project if these bond funds become available.

Inter-Fund Loan

General Fund and/or Fixed Assets Replacement Fund makes a loan to Fund 140 Community Benefit Economic Development Fund (CBED) with repayment of the loan back to the General Fund and/or Fixed Assets Replacement Fund from the $1.3 million in annual receipt of landfill host fees. This loan would provide cash to CBED and in turn CBED would be used to reimburse our Capital Improvement Project (CIP) Fund. This is similar to how the CIP Fund is reimbursed from other funds such as Gas Tax Fund, Measure M Fund, etc. for capital improvement projects. A nominal interest rate can be charged so the lending fund does not lose investment income.

$12,600,000 — Parking Structure Project
 -$3,481,000 — Fund 140 CBED Reserves
-$9,119,000 — LOAN from General Fund and/or FARP Fund
[Paid back in approximately 7 years with $1.3 million in annual landfill host fees]

Use of City’s Pooled Investment

Consider funding for this project as an investment to be purchased from the City’s pooled cash fund with the loan repaid by the $1.3 million annually received by CBED. This method creates a mechanism which allows all City funds to provide the financing and this investment is paid back via annual payments from CBED (the $1.3 million in annual receipt of landfill host fees) to the pooled cash fund. A nominal interest rate can be charged so the pooled cash fund does not lose investment income.

As of August 31, 2015, the City’s Investment Portfolio month end balance was $71,857,195 and these funds are comprised of reserve funds from the 39 operating funds. [See Exhibit B]

Use of Reserves

These funding sources have been identified: however, use of these funds may influence future policy decisions and future City projects not yet defined. Any combination of the following sources may be used.

$5,160,000 from the 560 Capital & Mitigation Improvement Fund – This fund was established to account for Council designated Capital Improvement Projects. These funds are one-time revenues received by the County for the extension of the Olinda Landfill. The fund description is as follows: “This fund is used to account for the revenues received and expenditures made for City Council designated Capital Improvement Projects. As well as the implementation Exhibit A Page | 3 of measures designed to mitigate impacts related to development, and the operation of government facilities, including but not limited to traffic, noise aesthetics, and open space preservation.” The City Council has the full discretion to use these funds to build a parking structure.

$3,481,000 from the 140 Community Benefit & Economic Development (CBED) Fund – This fund was established to account for the deposit of revenues from the County of Orange. These revenues are collected by the County at $1.50 per ton and remitted to the City of Brea and housed in this special fund. It is estimated the City will receive approximately $1.3 million per year over the next seven years of the agreement with the County of Orange. The fund description is as follows: “This fund was established in 2014 to retain funds which are set aside annually for the continuation of “legacy” community benefitted projects as well as provide a funding source for the attraction and retention of business and economic development”. The City Council has the full discretion to use these funds to build a parking structure.

$11,900,000 from the 110 General Fund Reserves – The City’s General Fund reserves projected at the conclusion of FY 2015-16 are estimated to be $17.5 million. This is a 33% reserve level and represents a percentage of operating expenditures Brea has available as reserves. Generally, reserves are considered a “rainy day” or “catastrophic event” resource. In the past, Brea has used reserves on such items as fire apparatus, plunge rehabilitation and Envision Brea project. The use of General Fund reserves is at the discretion of the City Council. The $11.9 million is an illustration of a maximum amount that could be used and not drop below the 10% General Fund reserve level. The current Council policy is to maintain an 8 to 10% General Fund reserve level; however, more recently, the Council has had an interest in increasing the reserve level policy.

$11,641,000 from Other Reserves – Exhibit B identifies funding that could be made available if the Council so desires. The caveat is these funds were created for a specific purpose. In other words, they have been established to meet a specific financial need in the organization largely as replacement funds or set aside funding for liability and insurance purposes.

  • $687,000 Community Center Replacement Fund
  • $4,539,000 Fixed Asset Replacement Fund
  • $350,000 IT External Support
  • $4,965,000 Risk Management Fund
  • $1,000,000 Equipment & Vehicle Maintenance Fund
  • $100,000 Building Occupancy Fund

With the exception of the IT External Support Fund all of the listed funds depend on on the General Fund as a “backstop” in the event additional funding may be necessary. In other words, for example, if an immediate and necessary building repair to a City facility was needed and the “Building Occupancy Fund” did not have the resources to complete the project, the General Fund would step in and provide the funding.

Unknown — Enterprise Funds, Water Fund, Sewer Fund, Urban Run-Off & Sanitation and Street Sweeping Funds The Engineering Division along with the parking design team are analyzing various components of the project related to the use of these funding options. The review includes storm drain collection, fire sprinkler requirements, trash enclosures and sewer for the restrooms. Additional work needs is being done in this area to determine the nexus and use of these funds.

Long Term Financing

The City may choose to finance the cost of the parking structure; however, given this is a City project the resources committed to pay the annual debt service (loan payment) would come most likely from the General Fund.

We previously identified in a prior report that approximately $197,000 in new General Fund revenues could be generated from expanded uses in the downtown and related “spin-off” revenues. If we include existing valet and cell tower revenue the City is currently receiving, that number grows to approximately $267,000 per year.

In order to reduce the impact to the General Fund with an ongoing expense greater than the amount of new revenue generated, consideration should be given to match as closely the annual payment being financed to the amount of revenue generation. In other words, finance an amount closely related to the amount of money the City would be receiving in new revenues.

Ideally, you would want new revenue generation higher than your annual payment; however, if you can “fix” the annual payment, then you would look for revenues to grow higher over time due to inflation and increased cost of goods and service.

Examples of Long Term Financing

$3,000,000: Financing $3 million would result in an estimated annual payment of $220,000 per year over 20 years or if payments were extended 30 years, the payment would be estimated at $195,000 per year.

$3,500,000: Financing $3.5 million would result in an estimated annual payment of $257,000 per year over 20 years or if payments were extended 30 years, the payment would be estimated at $227,000 per year.

$4,000,000: Financing $4 million would result in an estimated annual payment of $294,000 per year over 20 years or if payments were extended 30 years, the payment would be estimated at $260,000 per year.

Other Offsets:  $15,000

The property owner of Gaslight Square offered to contribute $15,000 per year towards the City’s annual financing payment. Over a period of 20 years, this amounts to $300,000 towards the overall cost.

Long Term Financing Examples

2011 Bonds/Financing/Contributions from Multiple Fund Reserves

$12,600,000 Parking Structure Project
-3,750,000 2011 Bonds if funds are made available
-1,500,000 Fund 560 reserves
-1,500,000 Fund 140 reserves
-2,350,000 Fund 110 reserves
-3,500,000 Fund 110 Long term financing with $257,000 annual payment for 20 years

2011 Bonds/Financing/Contributions from General Fund Reserves

$12,600,000 Parking Structure Project
-3,750,000 2011 Bonds if funds are made available
-5,350,000 Fund 110 reserves
-3,500,000 Fund 110  Long term financing with $257,000 annual payment for 20 years

2011 Bonds/Financing/Contributions from General Fund Reserves

$12,600,000 Parking Structure Project
-3,750,000 2011 Bonds if funds are made available
-3,481,000 Fund 140 reserves
-5,369,000 Fund 110 Long term financing with $402,000 annual payment for 20 years

2011 Bonds/Financing

$12,600,000 Parking Structure Project
-3,750,000 2011 Bonds if funds are made available
-8,850,000 Fund 110 Long term financing with $658,000 annual payment for 20 years

 

 

EXHIBIT B

CITY OF BREA
CITY MANAGER’S OFFICE
Memorandum

DATE: August 21, 2015
TO: City Council
FROM: Bill Gallardo, City Manager
SUBJECT: Parking Structure Funding Options

As a follow-up from Tuesday’s City Council meeting, staff was asked to prepare a listing of available funding options in preparation for a Council discussion at the September 15, 2015 meeting. Attached is a summary worksheet showing all City Reserve Funds. Also identified are Funds that are labeled restrictive either by state law or Generally Accepted Accounting Principles (GAAP).

In addition, with the trustee is $12.5 million dollars in 2011 Redevelopment Agency Bonds that were issued to complete the following projects:

• The Tracks at Brea
• Downtown Parking Structure
• Birch Hills Community Facility

Assembly Bill 113, proposed by the Department of Finance, would in its current form allow Brea, after meeting certain criteria, to receive 55% of the amount in escrow or $6,875,000. The deadline for AB 113 to be approved at this legislative session is September 11, 2015.

If you have any questions please let me know.

Brea 9-15 Mtg, Ex B-1

Brea 9-15 Mtg, Ex B-2


About Greg Diamond

Somewhat verbose attorney, semi-disabled and semi-retired, residing in northwest Brea. Occasionally ran for office against jerks who otherwise would have gonr unopposed. Got 45% of the vote against Bob Huff for State Senate in 2012; Josh Newman then won the seat in 2016. In 2014 became the first attorney to challenge OCDA Tony Rackauckas since 2002; Todd Spitzer then won that seat in 2018. Every time he's run against some rotten incumbent, the *next* person to challenge them wins! He's OK with that. Corrupt party hacks hate him. He's OK with that too. He does advise some local campaigns informally and (so far) without compensation. (If that last bit changes, he will declare the interest.) His daughter is a professional campaign treasurer. He doesn't usually know whom she and her firm represent. Whether they do so never influences his endorsements or coverage. (He does have his own strong opinions.) But when he does check campaign finance forms, he is often happily surprised to learn that good candidates he respects often DO hire her firm. (Maybe bad ones are scared off by his relationship with her, but they needn't be.)