DATE: September 10, 2020
SUBJECT:
Title
RESOLUTION AUTHORIZING A SECOND AMENDED AND RESTATED REVENUE SHARING AGREEMENT WITH THE CITY OF CHULA VISTA, WITH CONDITIONS, FOR THE PUBLIC FINANCING FOR THE RESORT HOTEL AND CONVENTION CENTER AND PHASE 1A INFRASTRUCTURE IMPROVEMENTS
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EXECUTIVE SUMMARY:
The Chula Vista Bayfront Master Plan1 (CVBMP) is the result of a decade-long joint planning effort by the San Diego Unified Port District (District), the City of Chula Vista (City), and a broad coalition of stakeholders. The CVBMP was collaboratively planned through an extensive public participation program that included over 100 community meetings and resulted in a comprehensive Environmental Impact Report (EIR) and Port Master Plan Amendment, which was approved by the Board of Port Commissioners (Board) in May 2010 and certified by the California Coastal Commission (CCC) in August 2012. The Amended and Restated Chula Vista Bayfront Master Plan Financing Agreement2 (Financing Agreement) for the CVBMP was approved by the Board in 2017 (Attachment A) and the Disposition and Development Agreement was entered into among RIDA Chula Vista, LLC (RIDA), the District, and the City on May 7, 2018 (DDA)3, each setting forth the framework and mechanism to design, finance, and construct the resort hotel and convention center (RHCC) and surrounding public infrastructure (Phase 1A Infrastructure). The RHCC and the Phase 1A Infrastructure are collectively referred to herein, as the “Project”.
The RHCC, located on approximately 36 acres of land within the CVBMP (Site), is the catalyst project for the CVBMP with the goal to not only provide a world-class hotel and convention center to the region, but also provide a vehicle to build future parks, restore sensitive habitat, and construct public infrastructure. The DDA sets forth the necessary steps for the District, the City, and RIDA to close escrow on the Project (“Close Escrow), at which time public and private financing for the Project will be issued, the parties will enter into their respective leasing documents, and construction of the Project may commence towards a world-class hotel and convention center. In the process of determining the financial feasibility of the Project, it was determined that in order for the RHCC to be developed a public financial subsidy would be needed, herein described as the “Public Contribution”. The Public Contribution is anticipated to be delivered to the Project through the issuance of future bond offerings. To pay for the debt service for the Public Contribution, the District and the City must commit sources of revenues, as identified in the Conceptual Outline of the Plan of Finance (Conceptual Plan of Finance) attached to the DDA that will be used to repay the Public Contribution. It is anticipated that the proposed bond financing structure will result in excess cash flow to the District and the City after debt service payments are made for the Public Contribution. The District and the City entered into a Revenue Sharing Agreement on April 24, 2018 (Revenue Sharing Agreement) describing the priority in which any excess cash flow after the debt service payments are made on the Public Contribution (Excess Funds) would be disbursed to the District and the City (Attachment B).
On October 8, 2019, the District and City authorized a funding agreement (Funding Agreement) between the District, the City, the County of San Diego (County), and the Chula Vista Bayfront Facilities Financing Authority (Authority) whereby the County agreed to contribute $25 Million toward the Phase 1A Infrastructure (County Contribution). The County Contribution would be repaid to the County through a percentage of the property tax revenue generated from the CVBMP (Property Tax Increment) that is actually received by the County, as may be supplemented by payment from the District to the County to make the County whole if such projected tax revenue is not achieved for a given year (Shortfall Payment) or from the City of contested funds currently subject to litigation with the County (Disputed Funds). The Funding Agreement required that the District and the City amend the Revenue Sharing Agreement to provide for priority reimbursement to the District and the City for any payment or contribution made by either party to the County under the Funding Agreement. On October 9, 2019, the Board of Directors of the Authority (Authority Board) provided direction to staff to amend the Revenue Sharing Agreement to guarantee repayment to the District for any Shortfall Payments made by the District to the County under the Funding Agreement. On November 5, 2019, the Board approved the Amended and Restated Revenue Sharing Agreement (A&R Revenue Sharing Agreement) (Attachment C) which includes a revised priority of disbursements to the District and City that requires that any funds that are contributed or paid to the County through the Funding Agreement to be reimbursed pari passu to each entity as the second priority under the disbursement list. After the A&R Revenue Sharing Agreement, the District remained in the first priority spot for its support payments toward the Project.
Together with RIDA, the District and the City are now preparing to enter the financing phase of the Project. There is a substantial amount of work to be completed over the next several months, and staff will be seeking future approvals from the Board during that time. The parties have been working closely together on the necessary documentation for the District, the City, and the Authority to proceed with the public financing of the Public Contribution to be applied to the convention center and Phase 1A Infrastructure. As the District and the City have discussed, it is clear that as more fully described below, revisions to the A&R Revenue Sharing Agreement are necessary to accomplish the following goals prior to proceeding with the public financing:
(1) Clarify the existing revenue sources the City and District will commit to the Project prior to and after Close of Escrow, and if by a future action of the City Council or District’s Board either party decides to contribute other sources of revenue to the Project as needed, then another amendment to the Second Amended & Restated Revenue Sharing Agreement attached as Attachment D (Second A&R Revenue Sharing Agreement) would not be required
(2) Simplify the process for paying expenses associated with Project-related activities occurring before the Close of Escrow such as design work performed by RIDA for the Phase 1A Infrastructure and consultant services necessary for the Authority.
(3) Define a clear, efficient process for restricting the revenues to be contributed prior to the Close of Escrow and defining how such funds may be used through operating memoranda executed by the City Manager and Executive Director of the District without further approvals from the Board or City Council.
District and City staff have addressed these goals as more specifically described below in the proposed Second A&R Revenue Sharing Agreement. A redline showing the changes between the A&R Revenue Sharing Agreement and Second A&R Revenue Sharing Agreement is attached as Attachment E. Staff recommends that the Board authorize the Executive Director, or her designee, to enter into the Second A&R Revenue Sharing Agreement substantially in the form presented to the Board at the September 10, 2020 Board meeting. The City Council will also be considering the Second A&R Revenue Sharing Agreement at their September 10, 2020 Board meeting.
RECOMMENDATION:
Recommendation
Adopt resolution authorizing a Second A&R Revenue Sharing Agreement, with conditions, for the public financing for the Project
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FISCAL IMPACT:
The proposed Board action to authorize the Second A&R Revenue Sharing Agreement between the District and the City sets forth the revenue sources that the District must contribute to the Authority before and after Close of Escrow. The revenue sources to be contributed to the Authority prior to the Close of Escrow consist of moneys in an amount equivalent to: (i) rent payments from four ground leases located in the Chula Vista Bayfront (see Discussion below for further details); (ii) the Tidelands Use and Occupancy Permit (TUOP) for the current RV Park (Document No. 71068); and (iii) the replacement RV Park lease on parcel S1 of the CVBMP (Document No. 70407) (collectively, District Existing Revenues). From the District Existing Revenues, the District may deduct a credit for amounts paid by the District to buy out the tenant under the current RV Park totaling $3,283,970, which would be amortized over a period of eight years. The District Existing Revenues may be used to cover existing or future obligations of the Authority (as memorialized in one or more operating memoranda. Under the Second A&R Revenue Sharing Agreement, the District Existing Revenues would be remitted to the Authority by no later than the date the Preliminary Official Statement (POS) for the Revenue Bonds is posted on the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access website (Contribution Date). The Contribution Date would be approximately 30 days prior to the Close of Escrow. If the District elects to retain the District Existing Revenues for a period from and after July 1, 2018 to the Contribution Date, such District Existing Revenues need to be reported as restricted in the audited financial statements included in the District’s Comprehensive Annual Financial Report (CAFR), commencing with the CAFR for the fiscal year that ended on June 30, 2020. Agenda Item No. 2020-0274 will discuss revisions to the FY20/21 Budget that are needed to implement the Second A&R Revenue Sharing Agreement should the Board authorize the Second A&R Revenue Sharing Agreement at the September 10, 2020 Board meeting.
Compass Strategic Goals:
This agenda item supports the following Strategic Goal(s).
• A vibrant waterfront destination where residents and visitors converge.
• A Port with a healthy and sustainable bay and its environment.
• A Port with a comprehensive vision for Port land and water uses integrated to regional plans.
• A Port that is a safe place to visit, work and play.
• A financially sustainable Port that drives job creation and regional economic vitality.
DISCUSSION:
In the process of determining the financial feasibility of the Project, the City and the District determined that a public financial subsidy would be needed to make the Project successful, herein described as the Public Contribution. The following is a breakdown of the Public Contribution:
1. Phase 1A Infrastructure: $63 Million
2. Convention Center: $240 Million
TOTAL $303 Million
The District and the City entered into the Financing Agreement, setting forth the revenue sources and financing alternatives necessary to financially implement the development of the Project. The Board will be asked to consider the application of various District revenue sources to the Project through a future Plan of Finance which will detail the District’s proposed contribution to the Project for the economic feasibility of the Project. That future Plan of Finance will include the Revenues and Existing Revenues set forth in the Second A&R Revenue Sharing Agreement. The District and City will work collaboratively to prepare the Plan of Finance that, if approved by the Board, would set forth the revenue sources to be contributed to the Project and will be used as the roadmap to fund the Public Contribution component of the Project.
Under the A&R Revenue Sharing Agreement, it was contemplated that the District would contribute the following sources of revenue to the Project consistent with the Financing Agreement and Conceptual Outline of the Plan of Finance attached to the DDA (Conceptual Plan of Finance): (1) existing and designated future lease revenues from the CVBMP (i.e., the District Existing Revenues); and (2) ground rent from the RHCC. Additionally, it was contemplated that the District would contribute the previously received SDG&E contribution of $1.7 million and the Pacifica contribution of $3.0 million toward the Phase 1A Infrastructure cost. The District would also be responsible for an annual support payment contribution (Annual Contribution) to be applied toward the payment of bond debt service to “support” the Public Contribution in an amount not to exceed the following schedule of amounts during Lease Years 5 through 38:
|
Lease Years 1-4 |
$0 |
|
Lease Years 5-14 |
$5.0 million |
|
Lease Years 15-19 |
$6.0 million |
|
Lease Years 20-24 |
$3.0 million |
|
Lease Years 25-38 |
$3.5 million |
|
|
|
The City would contribute toward the construction of the required sewer and fire services and contribute to the Project through (i) transient occupancy tax (TOT) for the RHCC, existing and future RV Park, (ii) sales tax for the RHCC, (iii) incremental property tax (including property tax in-lieu of motor vehicle license fees) generated by the RHCC, and (iv) revenues received from the District under Agreement No. 88-2012 between the District and the City providing for Police, Fire and Emergency Medical Services (PMSA). Both the District and City have been setting aside the revenues consistent with the commitments in the Financing Agreement, and included in the Second A&R Revenue Sharing Agreement, since July 1, 2018.
Since the approval of the Revenue Sharing Agreement and A&R Revenue Sharing Agreement, both District and City staff have continued to clarify the revenue sources committed to the Project. The Project has also incurred expenses related to design, development, permit processing, legal fees, and Authority Board actions. RIDA has almost completed all of the design work for the RHCC and Phase 1A Infrastructure to be constructed by RIDA. The Second A&R Revenue Sharing Agreement will facilitate reimbursement to RIDA for the design work on the Phase 1A Infrastructure as contemplated in the DDA. The changes proposed in the Second A&R Revenue Sharing Agreement, described in detail below and attached in draft form as Attachment D, are broken down into three categories:
(1) Types of District and City Revenue Sources: Clarify the existing revenue sources the City and District will commit to the Project prior to and after Close of Escrow, and if by a future action of the City Council or District’s Board either party decides to contribute other sources of revenue to the Project as needed, then another amendment to the Second A&R Revenue Sharing Agreement would not be required.
(2) Use of Existing Revenues to Pay for Pre-Close Expenses: Simplify the process for paying expenses associated with Project-related activities occurring before the Close of Escrow such as design work performed by RIDA and consultant services necessary for the Authority.
(3) Identify Status of Funds and Designate Contribution Date: Define a clear, efficient process for restricting pre-Close of Escrow funds and defining how such funds may be used through operating memoranda executed by the City Manager and the Executive Director of the District.
A. Types of District and City Revenue Sources
Additional clarity is needed to define revenues committed by the District and City to the Project, specifically with respect to the existing ground lease revenue, calculation of the credit for the buyout of the tenant under the prior lease for the existing RV Park, the ground lease revenues and the PMSA. This additional clarity is necessary prior to entering the public financing market and are as described below:
District
1. Existing ground lease revenues which include the revenues for the lease for the Marine Group Boat Works, lease for the Chula Vista Marina, lease for the California Yacht Marina, TUOP for the Chula Vista RV Park and lease for the Costa Vista RV Park (District Leases). The Second A&R Revenue Sharing Agreement provides further clarity that if one or more of the District Leases are renewed, replaced, or amended in such a way as to change the size or configuration of the original premises to include premises outside of the original premises boundaries of all the District Leases, the revenues derived from each such renewed, replaced, or amended District Lease shall be calculated by multiplying the total amount of the revenues generated by such District Lease by a fraction, the numerator of which shall be in an amount equal to the District Lease premises still within the original premises boundary, and the denominator of which shall be the total premises area of the District Lease as modified. Similarly, if the District enters into any revenue generating agreement other than a ground lease with respect to operations of all or any portion of the District Leases premises, such revenue, net any related out-of-pocket operating costs paid by the District to third parties, shall also be included as revenues contributed to the Authority.
2. The District is to contribute the revenues from the District Leases (or operating agreements, as applicable) less the amount of the buyout credit paid to the prior tenant of the existing RV Park. The amount of the buyout credit and the schedule to apply the credit is further clarified in the Second A&R Revenue Sharing Agreement. It provides that the credit of $3,284,000 will be amortized over a period of eight years, starting in July 1, 2018, in annual installments of $410,500 and deducted from the District’s contribution of revenues.
3. The District’s contribution of revenues under the ground lease with RIDA has been consolidated into one section to more accurately reflect the anticipated flow of these revenues in the future Plan of Finance. The revenues include minimum annual rent, the additional rent equivalent to 20% of the amount by which the Net Operating Income (defined in ground lease) for such Lease Year (defined in ground lease) exceeds eleven percent (11%) of the Actual Capital Investment (defined in ground lease), assignment participation fees if any, together with any other amounts payable to the District by RIDA except for parking revenues which remain with the District.
City
4. The City contributes PMSA Revenues defined as an annual amount payable by the District to the City pursuant to the PMSA which is currently in effect, and which as of July 1, 2018 is identified as $1,059,364 (payment received in fiscal year 2016) increasing annually at the rate of 3% per annum each fiscal year thereafter until the termination of the Second A&R Revenue Sharing Agreement. The existing PMSA expires June 30, 2021 and a new PMSA is currently under negotiations. To avoid confusion, the Second A&R Revenue Sharing Agreement clarifies that the City’s commitment remains the same, and that if a new, higher payment to the City is negotiated in a future PMSA or amendment to the current PMSA, those future increases are not committed to the Project, only its previous commitment.
B. Use of Existing Revenues to Pay for Pre-Close Expenses.
The Second A&R Revenue Sharing Agreement adds language on how the revenues from each party are to be used prior to the Close of Escrow for the Project, including to meet the requirements of the DDA to reimburse RIDA for design work for the Phase 1A Infrastructure. The uses for the revenues contemplated prior to the Close of Escrow and what would occur if escrow is not closed are as follows:
• The City may deduct amounts reimbursed to RIDA for the design, architectural work, and engineering work for the Phase 1A Infrastructure to be constructed by RIDA (Pre-Close Design Services) through a reimbursement agreement. The thirty percent design of the Phase 1A Infrastructure was delivered to RIDA in June 2019, and RIDA has continued to advance the design work up to this point. No further design work can be completed on this portion of the Project until the reimbursement is approved. Fees associated with review of the Phase 1A Infrastructure design were already advanced by the City and would be deducted from the City’s contribution of Existing Revenues through this Second A&R Revenue Sharing Agreement.
• The City may deduct plan review, permitting, and inspection fees in the amount that would have been incurred by RIDA to process the work for the Phase 1A Infrastructure to be constructed by RIDA based on current schedules of fees adopted by the City for such plan review, permitting, and inspection; and
• The District and City may deduct such amounts necessary for the payment of existing or future obligations of the Authority, including without limitation, administrative fees, consultant and attorneys’ fees, and other staff reimbursements and fees (collectively, the Pre-Close Authority Expenses), as such Pre-Close Authority Expenses are memorialized in one or more operating memoranda of the parties executed by the City Manager of the City and the Executive Director of the District, without further approval of the Board or City Council. The District could advance up to $2.3 Million for Pre-Close Authority Expenses.
The District, the City, and RIDA continue to move forward to achieve a successful Close of Escrow. If escrow doesn’t close for some reason, then the District and City will each prepare an accounting of amounts they have deducted from the revenues to be contributed under the Second A&R Revenue Sharing Agreement pursuant to the above described criteria and requirements (the Pre-Close Expenses).
The City and the District are sharing equally in the expenses which must be incurred prior to Close of Escrow. Should the Pre-Close Expenses of one party exceed the Pre-Close Expenses of the other party, then the party with the lower Pre-Close Expenses shall make a reimbursement sufficient to equalize the other party’s contribution (e.g. if the City has expended $2.0 million and the District has expended $1.0 million, then the combined Pre-Close Expenses total $3.0 million, with a fair-share expense of $1.5 million per party, and a reimbursement due from the District to the City in the amount of $0.5 million) (Pre-Close Expense Reimbursement).
Operating Memoranda
The Second A&R Revenue Sharing Agreement requires certain revenues consisting of the District Existing Revenues and the equivalent revenues from the City to be contributed to the Authority by no later than the date the POS for the Revenue Bonds is posted which would be approximately thirty (30) days before the Close of Escrow. It further defines that such revenues shall be identified as restricted in the audited financial statements included in each of the District and City’s Comprehensive Annual Financial Report (CAFR), commencing with the fiscal year that ended on June 30, 2020.
The Second A&R Revenue Sharing Agreement introduces the concept of using an operating memorandum to be executed by the City Manager and Executive Director of the District, without further approval by the Board or City Council, to help the parties validate pre-Close of Escrow expenses made to the Authority by either party. This would not commit additional funds to the Project, nor would it obligate the District to contribute new sources of revenue. Instead, it would allow for the District and the City to memorialize the flow of funds to pay for Pre-Close Expenses using the revenues to be contributed by the parties before the Close of Escrow. Since the operating memorandum would relate to the Authority, the operating memorandum would (1) include specifics on any instructions that the Authority shall follow upon receipt of the operating memorandum; and (2) require prompt delivery of the operating memorandum to the Treasurer of the Authority after the execution of the operating memorandum by the City Manager of the City and the Executive Director of the District.
If the Authority is unable to comply with the instructions set forth in the operating memorandum for any reason without the adoption of administrative rules or procedures or an amendment to the Amended and Restated Joint Exercise of Powers Agreement filed on August 7, 2019 as Document No. 70245 (Authority Incorporation Agreement) or the Bylaws of the Authority (Bylaws), the District and City, as the sole members of the Authority, agree to use good faith efforts to promptly adopt such administrative rules or procedures or present any modifications to the Authority Bylaws or Authority Incorporation Agreement to the Authority Board of Directors for their consideration, as necessary.
Conclusion and Next Steps
Since the approval of the A&R Revenue Sharing Agreement, the District and the City have continued to refine specifics related to the Public Contribution. The approval of this Second A&R Revenue Sharing Agreement is a critical step to move the parties closer to the Close of Escrow of the Project and demonstrates the significant progress that has been made toward the public financing for the Project. RIDA anticipates submitting permit applications soon, and the Second A&R Revenue Sharing Agreement will facilitate the City’s ability to reimburse RIDA for the design work related to the Phase 1A Infrastructure, as contemplated in the DDA. Staff will be back to the Board in the coming months with more important documents related to the financing, demonstrating further progress for the Project. Anticipated future documents include, but are not limited to:
• PMSA agreement between the City and the District to replace the existing MSA.
• Consent to the Management Agreement between RIDA and Marriott (Gaylord).
• Revisions to the Ground Lease as may be necessary for financing.
• Agreements related to the leasing and project implementation of the RHCC.
• The private financing package for the RHCC.
Staff recommends that the Board authorize the Executive Director, or her designee, to enter into the Second A&R Revenue Sharing Agreement, in substantially the form presented to the Board at the Board meeting.
General Counsel’s Comments:
The Office of the General Counsel has reviewed this agenda sheet as presented to it and the Second A&R Revenue Sharing Agreement as attached as Attachment D and approves each as to form and legality.
Environmental Review:
The proposed Board action, including without limitation, a resolution authorizing a Second Amended and Restated Revenue Sharing Agreement for Chula Vista Bayfront, was adequately covered in the Final Environmental Impact Report (FEIR) for the Chula Vista Bayfront Master Plan (CVBMP) (UPD #83356-EIR-658; SCH #2005081077; Clerk Document No. 56562), certified by the District on May 18, 2010 (Resolution No. 2010-78), the Addendum to the FEIR, which was adopted by the Board on August 13, 2013 (Resolution No. 2013-138), and the Second Addendum to the FEIR, which was adopted by the Board on April 10, 2018 (Resolution No. 2018-0069). The proposed Board action is not a separate “project” for CEQA purposes but is a subsequent discretionary approval related to a previously approved project. (CEQA Guidelines § 15378(c); Van de Kamps Coalition v. Board of Trustees of Los Angeles Comm. College Dist. (2012) 206 Cal.App.4th 1036.) Additionally, pursuant to CEQA Guidelines Sections 15162 and 15163, and based on the review of the entire record, including without limitation, the FEIR and Addendums, the District finds and recommends that the proposed Board action does not require further environmental review as: 1) no substantial changes are proposed to the project and no substantial changes have occurred that require major revisions to the FEIR and Addendum due to the involvement of new significant environmental effects or an increase in severity of previously identified significant effects; and 2) no new information of substantial importance has come to light that (a) shows the project will have one or more significant effects not discussed in the FEIR and Addendum, (b) identifies significant impacts would not be more severe than those analyzed in the FEIR and Addendum, (c) shows that mitigation measures or alternatives are now feasible that were identified as infeasible and those mitigation measures or alternatives would reduce significant impacts, and (d) no changes to mitigation measures or alternatives have been identified or are required. Pursuant to CEQA Guidelines §15162(b), the District finds and recommends that no further analysis or environmental documentation is necessary. Accordingly, the proposed Board action is merely a step in furtherance of the original project for which environmental review was performed and no supplemental or subsequent CEQA has been triggered, and no further environmental review is required.
The proposed Board action complies with Sections 21 and 35 of the Port Act which allow for the Board to pass resolutions and to do all acts necessary and convenient for the exercise of its powers. The Port Act was enacted by the California Legislature and is consistent with the Public Trust Doctrine. Consequently, the proposed actions are consistent with the Public Trust Doctrine.
The proposed Board action does not allow for “development,” as defined in Section 30106 of the California Coastal Act, or “new development,” pursuant to Section 1.a. of the District’s Coastal Development Permit (CDP) Regulations because they will not result in, without limitation, a physical change, change in use or increase the intensity of uses. Therefore, issuance of a Coastal Development Permit or exclusion is not required. However, development within the District requires processing under the District’s CDP Regulations. Future development, as defined in Section 30106 of the Coastal Act, will remain subject to its own independent review pursuant to the District’s certified CDP Regulations, PMP, and Chapters 3 and 8 of the Coastal Act. The proposed Board action in no way limits the exercise of the District’s discretion under the District’s CDP Regulations. Therefore, issuance of a CDP or exclusion is not required at this time.
Equal Opportunity Program:
Not applicable.
PREPARED BY:
Stephanie Shook
Department Manager, Real Estate
Attachment(s):
Attachment A: Amended and Restated Financing Agreement
Attachment B: Revenue Sharing Agreement
Attachment C: Amended and Restated Revenue Sharing Agreement
Attachment D: Second Amended and Restated Revenue Sharing Agreement
Attachment E: Redline of Changes to Amended and Restated Revenue Sharing Agreement