HomeMy WebLinkAbout11 - Authorization to Issue an RFP for Legal and Financial Analysis of the Tidelands TrustciTY of
F NEWPORT REACH
City Council Staff Report
January 13, 2015
Agenda Item No. 11
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Dave Kiff, City Manager— (949) 644 -3002, dkiff @newportbeachca.gov
PREPARED BY: Dave Kiff, City Manager
PHONE: (949) 644 -3002
TITLE: Authorization to issue an RFP for Legal and Financial Analysis of the Tidelands
Trust
ABSTRACT:
Council Member Kevin Muldoon asked that the City Council consider an audit of the Tide and Submerged
Land Fund ( "Tidelands Fund "), a Fund within the City's administrative budget. Mr. Muldoon also provided
staff with suggestions as to what types of revenues and expenditures should be considered in both a look -
back financial analysis and a look -ahead financial projection, assuming those revenues and expenditures
were included in the Tidelands Fund's calculations.
RECOMMENDATION:
a) Clarify and advise staff regarding appropriate revenues and expenditures to be included in the
financial analysis and financial projection;
b) Determine whether the review should segregate Harbor from Non - Harbor Tidelands revenue and
expenses;
c) Authorize staff to release a request for proposals from qualified accounting, financial and /or legal firms
that would provide a comprehensive analysis of the Tidelands trust in two parts:
• First - A legal analysis and determination should be made of revenues that are required to be
assigned to Tidelands in accordance with the Beacon Bay Bill and other pertinent legislation in sufficient
detail to address omitted revenues sources historically questioned by Council and the public. Similarly,
expenditures would also be reviewed to determine their eligibility and reasonableness as it pertains to the
trust. This could be returned to Council prior to Part 2, which is:
Second - Following the legal analysis (and Council feedback on that analysis), a financial
compilation of the Tide and Submerged Land Fund revenues and expenditures should be prepared, going
back 5 years and going ahead 5 years based on the conclusions of the first analysis and any Council
input. This compilation could be prepared by staff or a private accounting firm, as directed by Council; and ��_�
d) Direct staff to bring back the ranked RFP responses to the City Council for formal approval and
budgeting of the review.
FUNDING REQUIREMENTS:
We are unable to accurately estimate the expected cost of this review and projection without additional
direction from the Council as to the scope of both, but we are assuming a cost of between $50K and
$125K.
DISCUSSION:
The City's Tide and Submerged Land Fund ( "Tidelands Fund ") accounts for both revenues and expenses
associated with the City's management of water and filled tidelands across what is generally:
Lower Newport Bay
Ocean waters and ocean beaches
Certain other lands placed in the Tidelands Trust
The Tidelands Trust is a document that grants the Tidelands' administration to the City and sets forth the
City's roles and obligations associated with managing these lands, which are lands reserved for the people
of California. The City itself does not own the lands — the State Lands Commission (generally) does,
again on behalf of all Californians.
To find out more about the Tidelands Trust documents, please see these attachments:
• A map of Tidelands Trust properties. Note on the map that several areas on the map are either County
tidelands (as is the case of Newport Dunes, near the Harbor Patrol docks and the Scout Sailing Center),
State Parks property (Little Corona and Big Corona), property owned by the California Department of Fish
and Wildlife (much of Upper Newport Bay, including Shellmaker Island) and even private property (such as
submerged lands in Promontory Bay and Linda Isle's lagoon). "Uplands" as shown on the map are not
tidelands (Attachment A).
• The City's most recent report to the State Lands Commission as to the operations of the Tidelands
Fund. This report is also available online at www.newoortbeachca.gov /tidelands (Attachment B).
• The "Beacon Bay Bill," which is the trust document that the City follows. This State legislation was
adopted by the State Legislature and has been amended several times (Attachment C).
For the Council's discussion at the January 13, 2015 meeting, Mr. Muldoon asked that a variety of sources
of revenue as well as expenditures be discussed as to inclusion into the financial analysis and projections.
Staff has reviewed this list, and added some items as well as clarified others. This is shown as
Attachments D (Revenues) and E (Expenditures) . We welcome the Council's discussion of these items to
help clarify the scope of the RFP. The items include some revenue categories that we have not previously
counted as Tidelands Revenues before, such as:
• Sales and Use Taxes for items sold or used on Tidelands
• Property taxes from boats, Tidelands- adjacent homes, and more
• Business - license taxes for Tidelands- adjacent businesses
• Rentals of smaller hand - launch vessels, such as kayaks and SUPS
The Marine Charter Passenger Tax 11 -2
Revenue from fee -based Recreation Classes on tidelands
Why aren't some of these traditional taxes attributed to the Tidelands Fund? It's a bit complex. But as
noted, the State of California granted certain tidelands property in trust to the City of Newport Beach. The
Tidelands Trust is likened to an individual property owner.
The property owner might expect to incur expenses to maintain and improve the property. The property
owner might also expect to pay property taxes associated with the assessed value of the property and to
pay sales and use tax associated with business conducted on the property. These taxes are used by
entities like the State, county, school districts, community college districts, transportation agencies, cities
and special districts to provide services of general benefit (education, law enforcement, fire suppression,
transportation and more) to the community at large, including the property owner.
While the property owner could reasonably expect to receive rental, lease and encroachment revenue
from the private use of his or her property, the property owner would not receive back the property taxes or
sale taxes imposed on the subject property. The property owner is assessed the tax but is not the
recipient of the tax revenue. Staff acknowledges that the Council may not wish to continue this practice,
but we note that it is commonplace across other jurisdictions that administer Tidelands — as an example,
please see Attachment F for the City of San Diego's analysis of this same issue.
On the expenditure side, some in the Harbor community argue that several of the expenses that the City
assigns to the Trust have little to do with the Harbor itself. These include costly items such as ocean
lifeguarding, emergency medical response, and law enforcement. It's true that the Harbor's activities
generate little expense in these categories, but the ocean beaches do, and the ocean beaches are part of
the Tidelands. The City also attributes a cost - allocation to the Tidelands fund for a share of City
administration, such as city management, legal advice, and portions of the Finance Department, among
other things.
The Council may also wish to consider whether the scope of the analysis should propose a compilation to
include a segregation of Lower Newport Bay (Newport Harbor) revenues and expenditures from other
Tidelands sources and uses, such as the Upper Bay or the ocean beaches.
ENVIRONMENTAL REVIEW:
Staff recommends the City Council find this action is not subject to the California Environmental Quality
Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably
foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as
defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3,
because it has no potential for resulting in physical change to the environment, directly or indirectly.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at
which the City Council considers the item).
ATTACHMENTS:
Description
Attachment A - Mao of Tidelands
Attachment B - Reoort to the State Lands Commission
Attachment C - Beacon Bay Bill
Attachment D - Revenues
Attachment E - Expenditures
Attachment F - City of San Diego Memo
11 -3
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ATTACHMENT B
X71° m1mmmv MIE
TIDE & SUBMERGED LANDS
ANNUAL FINANCIAL REPORT
For the Fiscal Year Ended June 30, 2014
11 -7
CITY OF NEWPORT BEACH
Tide and Submerged Lands Annual Financial Report
for the Year Ending June 30, 2014
Overview
The City of Newport Beach manages and administers the Tidelands on behalf of all of the people of
California and subject to specific legislative grants. The Tidelands within the city's boundaries are
owned by the State of California and overseen by the California State Lands Commission (SLC). Some
of the lands are administered by the County of Orange, but still are owned by the State.
The City, as a trustee, is required to submit an annual financial report to the SLC. This report enables
us to highlight information on the City's financial administration of the Tidelands in more detail than the
City's Comprehensive Annual Financial Report (CAFR). This report only presents information on the
financial position of the Tide and Submerged Land funds, and does not address the financial position of
the City of Newport Beach, CA as a whole. The City's audited CAFR, can be obtained at:
www.newportbeachca.gov/cafr.
The City's granted Tidelands consist primarily of the land bayward of the bulkhead, and portions of the
bay beaches in the Lower Bay (Coastward of the Upper Bay Bridge). Newport Beach Tidelands also
include large portions of our ocean beaches and land covered by the Pacific Ocean from the shoreline
to three (3) miles out to sea. Additionally, some areas within the Tidelands were filled in and developed
long ago, and these are known as filled Tidelands. The portion of State Tidelands administered by the
City is illustrated on the map below:
11 -9
Guiding Legislation
The granted Tidelands must be used for purposes consistent with the public trust. Legislation known as
the Beacon Bay Bill, adopted in 1978 and subsequently amended multiple times, is the guiding
document that outlines how the City is to use and manage Tidelands, as well as how the City accounts
for revenues and expenditures generated within Tidelands. According to the Bill, Tidelands can only be
used for purposes in which there is a general statewide interest. These purposes include establishing,
maintaining, improving and operating a public harbor, docks, piers, slips, beaches, marinas, etc. These
purposes are generally as follows:
Establishing, improving, and operating a public harbor.
• Establishing, maintaining, and operating wharves, docks, piers, slips, quays, ways, and streets,
or utilities, to promote commerce, fishing, or navigation.
• Establishing, improving, and operating beaches, marinas, aquatic playgrounds, and similar
recreational facilities open to the public.
Preserving, maintaining, and enhancing Tidelands in their natural state for use in scientific
study, open space, and wildlife habitat.
The City has the power to regulate the use of Tidelands through leases, permits, policies, and
ordinances that are consistent with the trust and relevant legislation.
Additionally, the Public Trust Doctrine and the California Constitution advise us. The Public Trust
Doctrine says that:
...the Legislature has the power to delegate the management responsibility of tidelands and submerged
lands to local governments. When it does so, these lands are known as granted lands, and the
grantees that manage them must ensure that they are used in ways that are consistent with the public
trust and with any other conditions the Legislature imposes...
The State Constitution (Article XVI, Section 6) says that:
...The Legislature shall have no power ...to make any gift or authorize the making of any gift, of any
public money or thing of value to any individual, municipal or other corporation whatever...
Accounting for Tidelands Revenues and Expenditures
Funds are used by the City as a means to track and control resources intended for specific purposes.
The Tidelands funds are utilized to control and manage resources intended for purposes described in
the Beacon Bay Bill.
At this time the City uses a two -fund approach to track and control resources intended for Tidelands
accounting purposes.
Operating Fund
The Tidelands Operating fund is used to account for revenues related to the operation of the Tidelands
under City jurisdiction, including beaches and marinas, and the related expenditures. Revenue from
tideland operations includes, but is not limited to, rents from moorings, piers, and leases, as well as
income from parking lots, meters, and the sale of oil. Funds intended for the Upper Bay Restoration
are also accounted for in this fund in a separate reserve account.
Harbor Capital Fund
With the adoption of new permit and lease templates and adjusted commercial and noncommercial
tidelands rent to fair market value in 2012, the City Council asked the State Lands Commission for
permission to create a Harbor Capital Fund to sequester incremental increases from resulting tidelands
11 -10
rent adjustments solely finance critical in- Harbor capital improvements, like dredging, marinas, and sea
walls.
The following illustration identifies the structure of the City's Tidelands funds and the allocation of
revenue between those funds. Additionally, the City has some discretion on the use of Tidelands
revenues within the operating and capital funds.
Tidelands Funds
All Tidelands Revenue
BB and BBC represents Beacon Bay and Balboa Bac Club respects eh
Additionally, the City Council formed the Tidelands Management Committee, a committee of three
Council members plus seven citizen advisors that meets in public to make recommendations to the City
Council on the prioritization and implementation of large infrastructure needs of the harbor through the
publicly- available Tidelands Capital Plan.
Harbor dredging has been a major priority to restore the harbor to its optimal state for recreation,
commerce, and nature.
Advances and the General Fund Subsidy
Beginning in FY 2008 -09 the City had an opportunity to complete a long- awaited maintenance dredging
project within Lower Newport Bay, and a similar opportunity arose to remove sediments not suitable for
ocean disposal that sat at the bottom of the Rhine Channel. The timing was critical, as much of the
sediment within the Harbor and the Rhine needed a special repository — and that repository was in fill
areas at the Port of Long Beach as the Port embarked on a major terminal expansion. To take
advantage of the Port's space for sediment not suitable for ocean disposal (where the sediment would
be buried and encased in a support structure and secured), the City Council advanced a loan from the
General Fund to the Tidelands Harbor Capital Fund of $9.7 million. In addition, City Council approved
another $6.1 million in loan advances to the Harbor Capital Fund to cover the cost of developing the 23-
space visitor - serving marina at the Marina Park project on the Peninsula. These advances are non -
interest bearing, and are to be paid back to the General Fund from incremental revenue increases
generated from certain leases, mooring rents, and commercial and residential pier rents. The balance
of advance due to the General Fund as of June 30, 2014 is $15.8 million.
11 -11
Project
Total Advanc
Lower Bay Dredging
$ 5,443,145
Rhine Channel Dredging
4,202,784
Linda Isle Dredging
30,730
Marina Park
6,132,900
Total
$ 15,809,559
Please see the notes to the financial statement for the proposed repayment schedule.
Historically, the Tidelands Operating fund does not generate sufficient revenue to cover the full cost of
operations. This is still the case in FY 2013 -14. Due to the ongoing gap between revenues and
expenditures, the City's General fund transfers money to subsidize the operations of the Tidelands
Operating fund, on an annual basis. As Tidelands revenues and expenditures fluctuate year to year,
the General fund subsidy also fluctuates. For FY 2013 -14 the general fund transferred $4.5 million to
subsidize the Tidelands Operating fund.
Why aren't property taxes and other
taxes allocated to the Tidelands
trust? Very simply, the property
owner or trustee of the property is not
the intended recipient of the tax. For
example, all revenue from property
taxes are intended for local
governments, not the propery owner
or trustee of the property. Regardless
of who owns or operates the
Tidelands property, the 1 % property
tax is distributed to local jurisdictions
in accordance with Senate Bill 154
passed in 1978 and amended
thereafter. This distribution formula
includes counties, cities, special
districts but does not include the
property owner or trustee of the
property.
Revenues
The Beacon Bay Bill requires the City to set up a separate
Tidelands trust fund or funds, and mandates that the City
deposit into these funds "all moneys received directly from, or
indirectly attributable to..." the granted Tidelands in the City.
Revenue from all sources total $15.7 million for FY 2013 -14.
The allocation of revenue may be based on specific
locations, or on a percentage located within the Tidelands.
For instance, several leases are split between the General
fund and the Tidelands Operating fund based on the location
of specific rental units, or based on the percentage of units
located within the Tidelands. Revenues attributable to the
Tidelands are deposited and accounted for in the Tidelands
funds, consistent with grant and trust requirements.
The City has committed to using revenues generated by
certain incremental increases in rental rates for leases,
moorings, and piers over designated base years to support
Harbor related capital improvements in the Harbor Capital
Fund. This incremental increase consisted of $25,000 in
increased revenues from Balboa Yacht Basin rentals of slips,
apartments, and garages, $995,000 from onshore, offshore,
and County- managed guest moorings, and $59,000 from
residential piers.
4 11 -12
The table to the right shows the top
12 Tidelands Harbor Capital fund
revenue producers for FY 2013 -14.
Of the total $15.7 million in revenue
attributable to both Tidelands funds,
property income is the primary
source. Combined Tidelands
property income is $14.4 million, or
91% of FY 2013 -14 revenues, and is
made up of $7.4 million from leases,
$2.6 million from parking lots, $2.1
million from the sale of oil, and $2.3
million from rents for moorings,
residential piers and commercial
marina activities.
Top Tidelands Revenue Producers
Top Tidelands Revenue
Producers
Tide and
Submerged Land
Operating
Tide and
Submerged Land
Capital
Tide and
Submerged Land
Total
Balboa Bay Resort
$ 3,011,161
$ 1,546,663
$ 4,557,824
Petroleum Royalties
2,125,768
-
2,125,768
Balboa Pier Parking Lot
1,424,126
-
1,424,126
Beacon Bay Residences
953,919
-
953,919
Oceanfront Parking Meters
727,865
-
727,865
Balboa Yacht Basin Slips
653,171
216,939
870,110
Offshore Moorings
623,171
813,226
1,436,397
Commercial Piers
412,107
-
412,107
Balboa & 19th St. Parking
266,367
-
266,367
A& B Metered Parking
194,486
-
194,486
Residential Piers
117,800
58,650
176,450
Onshore Moorings
69,546
86,736
156,282
Totals= $ 11,697,812 $ 3,983,088 $ 15,680,900
Lease revenue of $7.4 million Is Note: "Total" includes other Tidelands revenue besides the top revenue producers.
made up as follows; 1) $4.6 million
from the Balboa Bay Club Lease, an increase of $1.5 million over prior year due to an amendment to
the ground lease with the Balboa Bay Club. Per the amendment and the Stale Lands statute, revenues
from the Balboa Bay Club are split, 95% to Tidelands operating fund and 5% to the State Lands
Commission's Land Bank fund, for the next five years, after which they will be modified 90% to
Tidelands operating fund and 10% to the State Lands Commission's Land Bank fund; 2) $986,000 from
Balboa Yacht Basin leases for slips, apartments, garages, and electricity. Balboa Yacht Basin
revenues are split 53% to the General fund and 47% to Tidelands based on the percentage of area in
the Tidelands. 3) $954,000 from the Beacon Bay lease. Beacon Bay lease revenues are split 80% to
the Tideland Operating fund, 10% restricted within the Tidelands Operating fund for Upper Newport Bay
Restoration, and 10% deposited in the Land Bank fund held and administered by the State Lands
Commission. 4) The remaining $870,000 is derived from a variety of smaller leases.
Parking revenue of $2.6 million is made up of $1.4 million from the Balboa Parking Lot, $728,000 from
the Ocean front Lot, $194,000 from both A and B Street Lots, and $266,000 from a combination of the
Balboa Metered Lot and 19th Street Lot.
The City received $2.1 million in revenues from the sale of oil. During FY 2013 -14, 24,487 barrels of oil
were produced from 16 wells located in West Newport. The City has set aside $480,000 in the
Tideland's Operating fund for future improvements to these oil wells, but as of the date of this report, no
determination has been made to proceed with these improvements.
Newport Beach is home to approximately 9,900 boats, 1,200 moorings, 2,300 commercial slips and
side ties, and 870 residential piers, resulting in $2.3 million in revenue from rentals, including $1.7
million in revenue from off - shore, on- shore, and county managed guest moorings, $176,000 from
residential piers, and $412,000 from commercial piers.
Additional revenue sources include; 1) licenses and permits of $41,000, derived from pier transfer fees
and live aboard permits, 2) $56,000 in charges for services from investigative fees, 3) $516,000 from
the US Army Corps of Engineers for the damages to a sewer main during dredging, 4) $601,000 from
Orange County Parks, 5) $83,000 from interest income as well as 6) $1,000 from fines and forfeitures
for administrative fines, and abandoned vessels.
11 -13
Expenditures
Generally, the Beacon Bay Bill permits the City to expend the revenues accruing from use of the
Tidelands for the management, operation, and control of the lands and /or any improvements,
betterments, or structures, as well as for any use that furthers the purposes of the trust. Total tidelands
expenditures for FY 2013 -14 totaled $17.8 million. The City's expenditure approach is reviewed
regularly between City staff and SLC staff.
Direct Costs are those activities, programs, or functions whose primary purpose wholly or substantially
benefit the Tidelands. These expenditures are charged directly to the activity, program, or function that
benefits from them. There are currently three types of expenditures charged directly to the Tidelands
funds; 1) Harbor Resources division operating costs of 1.5 million; 2) oil and gas generating activities
of $1.2 million; and 3) capital projects directly benefiting, or located within the Tidelands of $3.8 million.
Indirect Costs are those City -wide costs for services that support a variety of City activities, programs,
and functions and are centrally budgeted, examples include but are not limited to; 1) Public safety
services to Tidelands users, including Police, Fire, and Marine safety services of $7.8 million; 2) Public
Works services that protect or otherwise support the Tidelands, such as infrastructure maintenance and
municipal operations of $371,000 and $2.1 million respectively; 3) Community Services (such as
parking operations) of $698,000; and 4) General government administrative services of $397 million
including City Council, City Clerk, City Attorney, City Manager, Finance, Human Resources, and
building use which generally consists of the Tidelands' share of this overhead.
The City uses outside cost allocation experts, currently MGT of America Inc. (MGT), to develop the
indirect cost allocation plan that identifies and distributes these indirect costs to all operating activities,
programs, and functions within the City's organizational structure. This allocation plan includes
allocation of costs to the Tidelands Operating fund.
The cost allocation plan takes a detailed approach to analyzing the costs attributable to
Operations. MGT interviewed staff in each department and analyzed data within each central
determine: 1) what services are provided; 2) which functions
or departments receive benefits from these services; and 3)
how to determine the amount of benefit received, or what is
the best driver for allocating centrally budgeted services to
programs or functions receiving the benefits.
For example Public Works salaries and operating expenses
may be allocated based on a time study of which programs or
functions were worked on, Accounts Payable salaries and
operating expenses may be allocated on the number of
checks processed for a program or function, City Clerk
salaries and operating expenses may be allocated based on
the number of agenda items per program or function. There
are many alternative drivers to choose from, and the City
relies on MGTs expertise in selecting these drivers.
The drivers are used to allocate General government activities
among the City's departments and divisions, then
administrative costs within the departments and divisions are
allocated to the various activities, programs, and functions of
the City using similar methodologies. Indirect costs are added
to direct costs, to determine the full cost of each activity,
program, and function.
Tidelands
activity to
Why allocate Police and Fire /EMS
costs to Tidelands? A certain
percentage of calls and responses far
emergency medical and police services
occur on the ocean beaches, which are
tidelands. These departments'
activities are higher because of beach
going visitors. However, of the
expenses discussed above for FY 2013-
14, the expenses attributable to
tidelands are only 4% and 6% of the
Police Department's and Fire
Department's (exclusive of
lifeguarding) budgets respectively.
Remember, too, that the City adds in
ocean beach parking lot revenue and
oceanfront parking meter revenue to
the income side of the spreadsheet.
Beach parking revenue alone offsets
over 70% of the cost of Police and
Fire /EMS services to the Tidelands.
11 -14
Finally, a share of the full cost of activities, programs, and functions, that provide services to the
Tidelands are allocated, using the best drivers and methodologies identified by MGT. For FY 2013 -14
total expenditures of $17.8 million for both funds included indirect cost allocations to the Tidelands
Operating fund totaling $11.3 million.
The City regularly reports its expenditure information, including the indirect cost allocation, to the State
lands Commision for review and approval to ensure the City is meeting all the obligations of the Beacon
Bay Bill; using Tidelands funds only for Tidelands purposes.
Conclusion
The City endeavors to manage and administer Tidelands in accordance with the appropriate legislation
while working with the California State Lands Commission to ensure Newport Harbor continues to be a
prosperous and effective harbor. It is always fair to re- evaluate both Tidelands revenue sources and
expenditure purposes on a regular basis, and the City attempts to do so with the City Council, the
community, and the State Lands Commission. Changes to the allocations, if consistent with the Trust
and related legislation, should be viewed both on their merits and how they might impact City
operations, services, and other funds.
Comprehensive financial detail on City of Newport Beach Tidelands can be found in the financial
statements that follow.
11 -15
CITY OF NEWPORT BEACH
Tide and Submerged Lands Funds
Balance Sheet
June 30, 2014
Liabilities, Deferred Inflows of Resources
and Fund Blances
Liabilities:
Accounts payable $ 741,160 $ 542,630 $ 1,283,790
Accrued payroll 21,298 - 21,298
Deposits payable 122,019 - 122,019
Advance from other funds (note 2) 15,809,559 15,809,559
Total Liabilities 884,477 16,352,189 17,236,666
Deferred Inflows of Resources
Unavailable revenue 112,400 374,917 487,317
Total deferred inflows of resources 112,400 374,917 487,317
Fund balances (deficit):
Tide and
Tide and
Tide and
Submerged Land
Submerged Land
Submerged Land
Assets
Operating
Harbor Capital
Total
Cash and investments
$ 3,598,785
$ 8,389,198
$ 11,987,983
Receivables:
Oil and Gas
480,000 -
Accounts (net of allowance)
907,812
374,917
1,282,729
Intergovernmental receivables
3,509,720 (7,942,501)
20,490
20,490
Total assets
$ 4,506,597
$ 8,784,605
13,291,202
Liabilities, Deferred Inflows of Resources
and Fund Blances
Liabilities:
Accounts payable $ 741,160 $ 542,630 $ 1,283,790
Accrued payroll 21,298 - 21,298
Deposits payable 122,019 - 122,019
Advance from other funds (note 2) 15,809,559 15,809,559
Total Liabilities 884,477 16,352,189 17,236,666
Deferred Inflows of Resources
Unavailable revenue 112,400 374,917 487,317
Total deferred inflows of resources 112,400 374,917 487,317
Fund balances (deficit):
Restricted:
Upper Newport Bay Restoration
430,626 -
430,626
Capital re- appropriations
2,013,027 -
2,013,027
Encumbrances
586,067 -
586,067
Committed:
Oil and Gas
480,000 -
480,000
Unassigned:
- (7,942,501)
(7,942,501)
Total Fund Balance (Deficit)
3,509,720 (7,942,501)
(4,432,781)
Total liabilities, deferred inflows of
resources and fund balances $ 4,506,597 $ 8.784.605 $ 13,291 ,202
See accompanying notes to the financial statements
8 11 -16
CITY OF NEWPORT BEACH
Tide and Submerged Lands Funds
Statement of Revenues, Expenditures and Changes in Fund Balances
Year Ended June 30, 2014
Revenues
Other
Intergovernmental
Licenses, permits and fees
Charges for services
Fines and forfeitures
Investment income
Net increase in fair value of investments
Total Other
Property income
Parking
Balboa lot
Other parking (note 3)
Total Parking
Leases
Balboa Yacht Basin slips
Balboa Yacht Basin garages
Balboa Yacht Basin apartments
Balboa Yacht Basin electricity
Balboa Bay Club
Beacon Bay
Other leases (note 3)
Total Leases
Rent
Moorings - off -shore
Moorings - on -shore
Moorings - guest
Residential piers rent
Commercial piers rent
Large commercial marina rent
Small commercial marina rent
Vessel charter business rend
Vessel rental facility rent
HOA Members Only
Yacht club guest slip rent
Restaurant pier rend
Shipyard rent
Other rent - City Tidelands (Harbor Marina)
Other rent - Buildings over Tidelands
Fuel dock - Base /Plus rent
Sport Fishing Charter Rent
Total Commercial Piers rent
Total Rent
Sale of oil
Total Property Income
Miscellaneous Income
Total revenues
Tide and Tide and
Submerged Land Submerged Land
Operating Harbor Capital
Tide and
Submerged Land
Total
$ - $
516,133 $
516,133
41,496
-
41,496
55,661
-
55,661
1,041
-
1,041
62,896
2,302
65,198
11,990
5,413
17,403
173,084
523,848
696,932
1,424,126
-
1,424,126
1,188,718
1,188,718
2,612,844
-
2,612,844
653,171
216,939
870,110
35,344
23,818
59,162
30,456
10,501
40,957
15,305
-
15,305
3,011,161
1,546,663
4,557,824
953,919
-
953,919
863,873
5,752
869,625
5,563,229
1,803,673
7,366,902
623,171 813,226
69,546 86,736
- 95,542
117,800 58,650
264,923 -
45,373 -
24,977 -
18,378 -
9,685 -
14,337 -
7,825 -
8,757 -
4,838 -
4,696 -
4,279 -
4,039 -
412,107 -
1,222,624 1,054,154
2,125,768 -
11,524,465 2,857,827
263 601,413
11,697,812 3,983,088
See accompanying notes to the financial statements
1,436,397
156,282
95,542
176,450
264,923
45,373
24,977
18,378
9,685
14,337
7,825
8,757
4,838
4,696
4,279
4,039
412,107
2,276,778
2,125,768
14,382,292
601,676
15,680,900
9 11 -17
CITY OF NEWPORT BEACH
Tide and Submerged Lands Funds
Statement of Revenues, Expenditures and Changes in Fund Balances
Year Ended June 30,2014
(continued)
Community services
Harbor Resources (direct) 1,507,909 - 1,507,909
Parking Operations (cost allocation) 698,185 - 698,185
Total Community Services 2,206,094 - 2,206,094
See accompanying notes to the financial statements
10 11 -18
Tide and Tide and
Tide and
Submerged Land Submerged Land
Submerged Land
Operating Harbor Capital
Total
Expenditures
General government:
City Council (cost allocation)
5,873 -
5,873
City Clerk (cost allocation)
19,770 -
19,770
See accompanying notes to the financial statements
72,542 -
72,542
City Manager (cost allocation)
98,163 -
98,163
Finance (cost allocation)
71,131 -
71,131
Human Resources (cost allocation)
9,361 -
9,361
Building Use (cost allocation)
120,000
120,000
Total General Government
396,840 -
396,840
Public safety:
Police (cost allocation)
1,969,812 -
1,969,812
Fire (cost allocation)
1,947,497 -
1,947,497
Marine Safety (cost allocation)
3,895,069
3,895,069
Total Public Safety
7,812,378 -
7,812,378
Public works:
MOD - General Services (cost allocation)
2,055,741 -
2,055,741
Public Works (cost allocation)
370,849 -
370,849
MOD - Utilities (direct)
1,163,123
1,163,123
Total Public Works
3,589,713 -
3,589,713
Community services
Harbor Resources (direct) 1,507,909 - 1,507,909
Parking Operations (cost allocation) 698,185 - 698,185
Total Community Services 2,206,094 - 2,206,094
See accompanying notes to the financial statements
10 11 -18
CITY OF NEWPORT BEACH
Tide and Submerged Lands Funds
Statement of Revenues, Expenditures and Changes in Fund Balances
Year Ended June 30, 2014
(continued)
Capital improvement projects: -All are Direct
Newport Harbor Dredging Permit (RPG54)
Marina Park
Lower Harbor Dredging
Ocean Pier Repair & Inspection
Bay Beach Sand Management
Rehab Doryman Fleet Facility
Balboa Marina Public Pier
Harbor Piers Maintenance
Eel Grass Mapping & Survey
Bulkhead Repairs
BYB M000rings Services
Total Capital Improvement projects
Total expenditures
Excess (deficiency) of
revenues over expenditures
Other financing sources
Transfers in
Total other financing sources
Net change in fund balances
Fund balances (deficits), beginning
as restated (note 4)
Fund balances (deficit), ending
Tide and Tide and
Submerged Land Submerged Land
Operating Harbor Capital
339,725
- 2,931,175
36,782
119,398 -
118,346 -
50,000
36,939 -
20,486 -
17,677 -
13,047 146,211
658 -
716,276 3,114,168
Tide and
Submerged Land
Total
339,725
2,931,175
36,782
119,398
118,346
50,000
36,939
20,486
17,677
159,258
658
3,830,444
721,301 3,114,168 17,835,469
(3,023,489) 868,920 (2,154,569)
4,532,086
4,532,086
4,532,086
4,532,086
1,508,597 868,920
2,377,517
2,001,123 (8,811,421)
(6,810,298)
$ 3,509,720 $ (7,942,501)
See accompanying notes to the financial statements
11 11 -19
NOTES
Basis of Accounting and Measurement Focus
The basic financial statements of the Newport Beach, CA Tide and Submerged Lands are
comprised of fund financial statements, and notes to the financial statements.
The fund financial statements utilize the financial resources measurement focus and thus have a
short-term focus measuring inflows of current spendable assets. The resulting net difference
between current financial assets and current financial liabilities otherwise known as fund balance.
Fund balance is similar to net working capital in the private sector, a measure of the entity's ability
to finance activities in the near term.
Tidelands are accounted for in two Special Revenue funds. These Special Revenue funds are
used to account for and report the proceeds of specific revenue sources that are restricted or
committed to expenditure for the Tide and Submerged Lands. Fund descriptions are:
Tide and Submerged Land — Operating Fund is a Special Revenue fund used to account for
revenues related to the operation of the City's tidelands, including beaches and marinas, and the
related expenditures. Revenue from tideland operations includes, but is not limited to, rents from
moorings, piers, and leases, as well as income from parking lots, meters, and the sale of oil.
Tide and Submeraed Land — Harbor Capital Fund is used to account for incremental increases in
revenue from certain property lease, pier, and mooring rentals that exceed Council designated base
year revenue amounts, as well as other designated revenues and the related expenditures for
capital projects, maintenance, and servicing of loan advances from the General fund.
These funds are presented using the modified accrual basis of accounting. Their revenues are
recognized when they become measureable and available as net current assets. Measurable
means that the amounts can be estimated, or otherwise determined. Available means that the
amounts were collected during the reporting period or soon enough thereafter to be available to
finance the expenditures accrued for the reporting period. The City uses an availability period of 60
days for all revenues in the Tidelands fund.
2. Advances
Advances from the General fund to the Tide and Submerged Land — Harbor Capital fund are
primarily for the purpose of funding expenditures for dredging and other high impact projects within
the City's tidelands, specifically within, or benefitting the Newport Harbor.
Advance from Advance To
General Fund $15,809,559 $ -
Tide and Submerged Land - Harbor Capital Fund 15,809,559
Total $15,809,559 $15,809,559
The advances will be paid back to the General fund from incremental revenue increases
generated from certain leases, mooring rents, and commercial and residential pier rents. Below
is the proposed repayment schedule:
12 11 -20
3. Revenue
In some instances, governmental accounting standards require or permit revenues in governmental
funds to be reported net of certain costs. Accordingly, other leases revenue of $863,873 is reported
net of $1,851 of estimated uncollectible customer accounts, and parking meter revenues are
reported net of $99,794 of related credit card service costs.
4. Fund balance Restatement
During the current year it was discovered that rental property income accrued in the prior year was
related to the 2013 -14 fiscal year. The restatement affected the beginning fund balance of the Tide
and Submerged Land- Operating Fund as follows:
Tide and and Submerged Land - Operating
Fund balance, as previously reported $2,519,190
Adjustment:
To adjust prior year fund balance in conformity with GAAP (518,067)
Fund balance, at July 1, 2013, as restated $2.001.123
13 11 -21
Advance #1
Advance #2
Dredging
Marina Park
Projects
Project
Total
Fiscal Year
Repayment
Repayment
Repayment
2015
$ 500,000
$ -
$ 500,000
2016
500,000
-
500,000
2017
750,000
132,900
882,900
2018
750,000
250,000
1,000,000
2019
750,000
250,000
1,000,000
2020
750,000
500,000
1,250,000
2021
750,000
500,000
1,250,000
2022
750,000
500,000
1,250,000
2023
750,000
500,000
1,250,000
2024
750,000
500,000
1,250,000
2025
750,000
500,000
1,250,000
2026
750,000
500,000
1,250,000
2027
750,000
500,000
1,250,000
2028
426,659
500,000
926,659
2029
-
500,000
500,000
2030
-
500,000
500,000
Total
$ 9,676,659
$ 6,132,900
$ 15,809,559
3. Revenue
In some instances, governmental accounting standards require or permit revenues in governmental
funds to be reported net of certain costs. Accordingly, other leases revenue of $863,873 is reported
net of $1,851 of estimated uncollectible customer accounts, and parking meter revenues are
reported net of $99,794 of related credit card service costs.
4. Fund balance Restatement
During the current year it was discovered that rental property income accrued in the prior year was
related to the 2013 -14 fiscal year. The restatement affected the beginning fund balance of the Tide
and Submerged Land- Operating Fund as follows:
Tide and and Submerged Land - Operating
Fund balance, as previously reported $2,519,190
Adjustment:
To adjust prior year fund balance in conformity with GAAP (518,067)
Fund balance, at July 1, 2013, as restated $2.001.123
13 11 -21
City of Newport Beach
100 Civic Center Drive
Newport Beach, CA 92660
(949) 644 -3123
www.newportbeachca.gov/tidelands
11 -22
Attachment C
Please click the link below to access the Beacon Bay Bill:
http: / /www.slc.ca.eov /Granted Lands /Oranee.html
11 -23
ATTACHMENT D
rMnddandl R111nue Sources
Marne CharChatte ssenger�Tax on:
Isdo
on Tld:I,RZ
City a
Count'
Tidelands
to countes
Peacock?
if not, why not'
Banne or UNR
scome he included in
Yes
City
No
Meant to equate to land-based similar service
LNG
Yes
' Party Boat'Charters
"Pallyher
Yes
City
No
Meant to equate to land -based similar service
LNG
Yes
Chatter
Any other Charter
Yes
City
No
Meant to equate [o land-based similar service
LNG
Yes
Property or Ppssessory lMerest Taxes (0.1] aft %)from:
Boats
most
City
No
what boats?
O95%LNGO
Homes 0nor adjacent mredanas
Some
th
Both
No
Need to staff regent
95 %LNB
Mort
Bath
No
deter inewreport
which, If an, pay
Neetltages
LNG
Other PIT(Piers
Other PIT Slips, possibly others)
Yes
6[V
No
BYB garages and oafs also pay PIT, but these are not on Tidela
and pts tt
WB
Revenue hom:
from
on wens
Yes
City
Yes
ocean
Yes
Parking
-ig
B tuna
Carona
No
N/A
11 No
Not tidelands. Is Nfate Pa rkz Property
No
Balboa Pier
Yes
City
Yes
Ocean
Yes
Any an
Yes
City
Yes
90% Ocean
Yes
on street tens that on
Yes
City
Yes
90% Ocean
Yes
Fee ased Recreation Dhatare
on
ReCreation Oepl classes on [ieelantls
Yes
City
No
Arevenuesou¢e completely offset by cast
Oceaq LNB
Yes
RenAaSetl
Beni hom:
Balboa Yacht Basin ARNilies
apoti
City
portion
LNG
Portions On TL
Garages
About 1/
City
yes - half
LNG
No
- Apartments
t
Abouuri
City
yes - half
LNG
No
Slip Rentals
About 1/2 /2
O[y
yes - half
LNG
Portions on TL
Any lost revenue from vacancies associated with increased rents
About 112
City
No
We haven't ceneitlered this to date.
LNG
Portions on TL
-Basin Marne Lease Payments
yes
City
yes
LNG
Yes
Tidelands Concessions
Yes
City
- Telescopes
Yes
City
yes
Ocean
Yes
- Balboa Pier
Yes
City
yes,
Ocean
Yes
- Newport Pier
Yes
City
yee
Ocean
Yes
Onshore Meetings
Yes
City
yes,
LNG
Yes
Offshore Moorings
yes
Both
or
A few on Countytidelands near BaVShores
LNG
Yes
Residential Piers
Most
Both
yes
Some on County fitlelantls, some private land.
LNG
Yes
Commercial Mannas
Mort
Both
yes
Some n0t on City TL, like Newport Dunes and De Area
mannas (Couni TL)
WB
Yes
Other Commercial Permottees, including:
-Boat Varas
Yes
City
yes
LNG
ves
-Fuel Docks
Yes
City
yes
Owsm, LNG
Yes
- Catalina Flyer
Yes
City
Yes
Oceary LNG
Yes
-Yacht Clubs
Yes
City
yes
Ocean, LNG
Yes
- Sailing Clubs
Yes
City
Yes
Oceary LNG
Yes
-Bait Barge at Jetty Entrance
Yes
City
yes
Ocean
yes
-Lido Marina Village docks
Yes
City
yes
Moi LNG
Yes
Rental Boats
Yes
Both
No
No tax orfee generated today
LNG
I HOwtoectimatefee?
Kayak Rentals
Yes
Both
No
No tax or fee generated today
LNG
How t0 estimate fee?
SUP Rentals
Yes
Both
No
No tax orfee generated today.
Mostly LNG
Howtd estimate fee?
Balboa Bay Resort Lease
- Marina mm o ent
Yes
City
Yes
LNG
Yes
- Apartments
Yes
City
Yes
??
Yes
- Otte rmmponents ID'd in Leaze
Yes
City
Yes
LNG
Yes
Beacon Be, Residences
About 1/2
City
Yes- 112
- Residential rental payments
About 1/2
city
Yes -1/2
??
Yes - half
any slip /dock rental payments
N/A
City
N/A
N/A
No
Pearson's Part Fish Market
Yes
County
No
County tidelands
N/A
No
Other miudlanewxfee, and chafges faom:
Newport Dunes launch Ramp
Yes
County
No
County tidelands
N/A
No
Fees forSpecial Event Permits where the event is on TL
Yes
Both
No
Fee would essentially be negated by rest
ocean, lNB
Yes
Fees to bansfera Mooring
Yes
Both
Yes
LNG
Yes
Rentals of vacant moorings to transient boaters
Yes
Both
Yes
LNG
Yes
LiveaboaM Permit Fees
Yes
City
Yes
LNG
Yes
Marine Artivitles Permit Fees
Yes
City
Yes
LNG
Yes
Film Permit Fees where Filming is on Tidelands
Yes
City
Yes
All
Yes
Fines (late fees, penalties, more)
Yes
Both
Mostly LNG
Yes
Building Permit Fees for dock constructire (ruxi old)
Most
Both
No
Fee would essentially be negated by cost
LNG
Yes
Fees for permits to dredge
Most
Both
Yes
LNG
Yes
Waterfront Restauants
Few
Ci[y
No
No tax orfee geneated today
LNG
Yes
Newport Aquatic Center(NAC)
Unclear
Uncear
N/A
Rint-f . rations given ublic benefit
LNG
N/A
- Rental Payments
Unclear
Unclear
N/A
Rent -free operations given public benefit
LNG
I N/A
-Fees for City programs /activities
Unclear
Uncear
N/A
Pent -free operations given ublic benefit
LNG
N/A
Manna Park(futurs)
- Sly fees at VisitorvSr ing Marina
Yes
I City
Future
LNG
Yes
- Parking meter fees (any that are on IT)
About 24
City
Future
Not all pa Long meters will be on TL
LNG
Yes - the 24
- Rentals of Concession space
Yes
City
Future
Restaurant concession on TL w /Sailing Center
LNG
Yes
- Rentals of Community Center space
No
N/A
N/A
Community Center not on TL
LNG
N/A
- Fee -based clasic,(any that are on TL)
Yes
City
Future
LNG
Yes
Business U ... I. Tax from:
Marine - Related Businesses
Some
Both
No
is.. disruzsion I. staff nr ort
LNG
Sales 8 Use Tax (0.01/100) on:
Small Boats
Yes
Both
I No
Ichallerging to track purchase and use
Cor lNB
Carldtry
Yachts
yes
Both
I No
Ichaltenging to tack purchase and use
Or— LNG
Couldt
Used Vassels(if any)
Yes
Both
I No
challenging to track purchase and use
I Cook n, LNG
Could try
11 -24
ATTACHMENT E
Tidelands
Dredging Costs
RMOF
:. ea
Regional General Permit S4
Yes
LNB
-Staff Costs
Yes
LNB
- Consultant Costs (testing, engineering, permitting, other)
Yes
LNB
- Eelgrass Management (survey, policy change, etc)
Yes
LNB
Upper Bay Dredging
No
No City hard costs
UNB
Rine Channel Dredging
Yes
LNB
Seminouk Slough Dredging
Yes
No construction work done yet.
N/A
Lower Bay Dredging
Yes
LNB
Total Costs for Dredging
Harbor Resources Costs
- Mooring Management and Administration (Harbor Patrol Contract)
Yes
LNB
- Removal of Derelict Boats
Yes
LNB
-Sand Replenishment on Bay Beaches
Ves
LNB
-Trash removal done by Harbor Resources (if any)
Yes
LNB
- Management of the Balboa Yacht Basin (Contract with Dave N)
Yes
LNB
- Management of the Marina Park Marina
- Regulation and Inspections of Charter Boats
Yes
LNB
- Regulation and inspections of docks, other harbor structures
Yes
LNB
- Other costs for the Upper Bay
77
Uncertain what these are
UNB
- Staffing the Harbor Commission, other Harbor Resources Activities
Yes
90% LNB
Public Works & MOD Costs
Protection of Water Quality /NPDES/TMDLs (equipment, engineering,
consulting, etc)
Yes
All 3
Management of Infrastructure on Tidelands (maintenance, replacement,
staffing, etc.)
— Tidelands Parking Lots
Yes
Ocean, LNB
— Tide Valves
Yes
LNB
-- Trash Boom
Yes
UNB
— Beach Cleaning (tractor,refuse cans, storm- related trash, etc)
Yes
Ocean
— Ocean and Bay Piers, any other city owned dock
Yes
Ocean, LNB
- -Oil Wells
Yes
Ocean
—Sea Walls
Yes
LNB
— consulting for engineering Harbor Facilities
Yes
LNB
-- NAC Capital Improvements (if any)
TBD
UNB
— Marina Park maintenance (parking lot, Sailing Center, etc)
Future
LNB
— New capital improvements (dinghy racks, etc)
Yes
LNB
Other Dept Costs
— Maintenance of the Marina Park Sailing Center
Future
LNB
— Contract classes at the MP Sailing Center, beach
Future
LNB
- Cost Allocation far General Gov't- CIA's Office, CA's Office, HR, Finance,
etc.
Yes
All
- Police Services to Tidelands
Yes
Mostly Ocean
- Fire Services to Tidelands
Yes
Mostly Ocean
- Ocean Lifeguarding
Yes
Ocean
- Emergency Medical Services to Tidelands
Yes
Mostly Ocean
11 -25
LESLIE E. DEVANEY
ANITA M. NOONE
LESLIE J. GIRARD
SUSAN M. HEATH
GAEL B. STRACK
ASSISTANT CITY ATTORNEYS
LORI W. GIRARD
DEPIPYCITYATTORNEY
DATE: March 9, 2000
ATTACHMENT F
OFFICE OF
THE CITY ATTORNEY
CITY OF SAN DIEGO
Casey Gwinn
C1W AMRNEY
MEMORANDUM OF LAW
CIVIL DIVISION
1200 THIRD AVENUE, SUITE 1100
SAN DIEGO, CALIFORNIA 9210111100
TELEPHONE (619) 533 -5800
FAX (619) 533 -5856
TO: Philip D. Phillips, Accounting Division Manager, Auditor and Comptroller
FROM: City Attorney
SUBJECT: State Tidelands Grant Issues
QUESTIONS PRESENTED
1. Is the City required to identify transient occupancy taxes, property taxes, or sales
taxes as revenue of tidelands property for the purposes of either the City's 1963 tidelands
agreements with the State or the City's annual statement of tidelands revenues and expenditures?
2. When the City has reimbursed the State for improvements to certain tidelands
properties as required by the City's 1963 tidelands agreements with the State, can the City use the
revenues generated from the reimbursable tidelands grant areas on other tidelands grant areas?
3. When the City has reimbursed the State for improvements to certain tidelands
properties as required by the City's 1963 tidelands agreements with the State, can the City report
a single combined tidelands grant column on its annual statement of revenues and expenditures for
tidelands property, rather than reporting separate columns for each tidelands grant?
SHORT ANSWERS
11 -26
Philip D. Phillips -2- March 9, 2000
1. No. Taxes are not tidelands revenues for the purposes of the tidelands trust, the
City's 1963 tidelands agreements with the State, or the City's annual statement of revenues and
expenditures for tidelands property.
2. Yes. When the City has reimbursed the State as required by the 1963 agreements,
the City may expend revenues generated from one tidelands grant area on any other tidelands
grant area so long as the revenues are expended for tidelands trust purposes.
3. Probably not. The City should report the revenues and expenditures of each
tidelands grant area in a separate column unless the tidelands grant areas are operated as a single
integrated entity.
INTRODUCTION
The State of California has granted tidelands property in trust to the City of San Diego.
Certain tidelands trust property located in the Mission Bay/Beach and Ocean Beach areas was
granted to the City in or about 1963.' Pursuant to the terms of the statutory grants, the City and
the State entered into agreements regarding the use of the lands and reimbursement to the State of
its investment in the property conveyed.' Among other things, the agreements require the City to
reimburse the State from revenue realized from the operation of Mission Bay and Ocean Beach
that is over and above the City's costs of maintenance, operation, and capital investment. Because
the tidelands property is held in trust by the City, all revenue generated from the property must be
used for trust purposes.
DISCUSSION
I. Transient Occupancy Tax, Property Tax, and Sales Tax Proceeds Need Not be
Expended on Tidelands Trust Purposes.
The public trust in the tidelands does not require that tax proceeds be expended on
tidelands trust purposes. Similarly, the City's agreements with the State regarding the 1963
tidelands grants do not require the City to report tax proceeds as tidelands revenue. In addition,
the City is not required to report tax proceeds as revenue in its annual statement of revenues and
expenditures for tidelands trust property.
'Copies of the 1963 statutes granting the tidelands to the City are attached to this
Memorandum as Attachment Nos. 1 and 2.
'Copies of the agreements are attached to this Memorandum as Attachment Nos. 3 and 4.
11 -27
Philip D. Phillips -3- March 9, 2000
A. The Public Trust in the Tidelands Does Not Require That Tax Proceeds be
Expended on Trust Purposes.
When California was admitted to statehood in 1850, it succeeded to title in the tidelands
within its borders not in its proprietary capacity, but as trustee for the public. City of Berkeley v.
Superior Court, 26 Cal. 3d 515, 521 (1980). The permissible range of public uses of tidelands
includes the right to hunt, bathe, or swim, and the right to preserve the tidelands in their natural
state as ecological units for scientific study. Id. When the State of California transfers its interest
in the tidelands in trust to a city, the city is a trustee and as such assumes the same burdens and is
subject to the same regulations that pertain to other trustees of such trusts. City of Long Beach v.
Morse, 31 Cal. 2d 254, 257 (1947).
A trust can be created only if there is trust property, which can be real or personal
property. Cal. Prob. Code § 62. A trustee must administer the trust solely in the interest of the
beneficiaries. Cal. Prob. Code § 16002(a). As such, the proceeds of trust property, whether
regarded as principal or income, can be used only in furtherance of the trust purpose. Morse, 31
Cal. 2d at 257 -58; 60 Cal. Jur. 3d (Rev), Trusts § 160 (1994) (citing Morse).
"Income" of a trust is defined as: "money or property that a fiduciary receives as current
return from a principal asset. The term includes a portion of receipts from a sale, exchange, or
liquidation of a principal asset...." Cal. Prob. Code § 16324. "Fiduciary" means a trustee. Id. §
16323. An example of income is an amount received by the trustee as rent of real or personal
property. See id. § 16356.
In contrast, a tax is "a contribution for the support of a government required of persons,
groups, or businesses within the domain of that government." The American Heritage Dictionary
of the English Language 1839 (3d ed. 1992).' The transient occupancy tax is a tax imposed on,
among other things, occupants of hotel rooms. See San Diego Municipal Code [SDMC]
"`faxed" is defined as: "To place a tax on (income, property, or goods). The American
Heritage Dictionary of the English Language 1839 -40 (3d ed. 1992).
11 -28
Philip D. Phillips -4- March 9, 2000
§ 35.0103. Property taxes are generally imposed on owners of real property, and sales taxes are
imposed on purchasers of goods or services.° None of the foregoing taxes are imposed on, or
received by, the City as trustee of the tidelands property.5
Thus, transient occupancy, property, and sales taxes are not principal assets or income of
the tidelands trust that must be used for trust purposes. In contrast to lease or rental payments,
the taxes are not income to the City as trustee because they are not a return to the City from a
principal asset. The City does not receive any tax proceeds in its capacity as trustee of the
tidelands trust property. Further, it is not reasonable to conclude that either the courts or the
legislature intend that all tax proceeds, including those proceeds accruing to the state, county, or
other jurisdictions, be confined to tidelands trust purposes.6
B. The City's 1963 Tidelands Agreements with the State Do Not Require the
City to Report Taxes as Tidelands Revenue.
In 1963, the State granted certain sovereign state tidelands, located in the vicinity of
Mission Bay and Ocean Beach, in trust to the City.' See Stats 1963 ch 2139, 2140. Pursuant to
the terms of the grants, the conveyance of the lands would not take effect until the City and the
State executed agreements setting forth the conditions of the conveyance. See Stats 1963 ch
2139§ 2(b)(2); Stats 1963 ch 2140§ 2(b)(2). In 1964, the City and State executed agreements for
the Chapter 2139 grant [2139 Agreement] and the Chapter 2140 grant [2140 Agreement]
"In the case of tidelands trust property, property taxes are not imposed on the City.
Instead, a "possessory interest tax" is imposed on certain users of trust property, for example,
lessees of the property. The City may, however, be responsible for the payment of a possessory
interest tax if the City fails to notify a lessee or other responsible user of tidelands property that it
must pay a possessory interest tax.
'The transient occupancy tax is paid by the operator of a hotel to the City in its capacity as
taxing authority, not in its capacity as trustee. Similarly, property and sales taxes, if any, are
obligations of third party users of the trust property (for example, lessees), and are paid to taxing
authorities other than the City.
'In fact, under the San Diego Municipal Code, transient occupancy taxes must be spent as
directed by the City Council, which includes expending the taxes for the purpose of promoting the
City. SDMC § 35.0101(b). Similarly, a certain percentage of sales and property taxes that accrue
to entities other than the City must be spent as directed by the state legislature.
'See Attachment No. 5, Approximate Limits of Grants to City of San Diego Mission Bay.
11 -29
Philip D. Phillips -5- March 9, 2000
[collectively, Agreements]. See Attachment Nos. 3 and 4. Condition 4 of the 2139 Agreement
provides:
That all revenue realized from the operation of Mission Bay by CITY over and
above the cost to CITY for maintenance and operation and capital investment shall
be prorated between CITY and STATE on the basis of revenue assignable to a unit
acre of property located within Mission Bay on the date of this agreement until
such time as STATE regains its investment of ONE HUNDRED FORTY FIVE
THOUSAND, THREE HUNDRED DOLLARS ($145,300) in subject property. In
any proration of revenue...
CITY shall furnish STATE within ninety (90) days following the close of the fiscal
year, a financial statement covering the operation of Mission Bay which shall
include the CITY's total estimated annual cost of operation and maintenance as
well as a compilation of all gross receipts.
See Attachment No. 3, p. 14 (emphasis added). Similarly, Condition 4 of the 2140 Agreement
provides:
That all revenue realized from the operation of Ocean Beach by CITY over and
above the cost to CITY for maintenance and operation and capital investment shall
be prorated between CITY and STATE on the basis of revenue assignable to a unit
acre of property located within Ocean Beach on the date of this agreement until
such time as STATE regains its investment of FOUR HUNDRED SIXTEEN
THOUSAND EIGHT HUNDRED SEVENTY SIX DOLLARS ($416,876) in
subject property. In any proration of revenue...
CITY shall furnish STATE within ninety (90) days following the close of the fiscal
year, a financial statement covering the operation of Ocean Beach which shall
include the CITY's total estimated annual cost of operation and maintenance as
well as a compilation of all gross receipts.
See Attachment No. 4, pp. 4 -5 (emphasis added).
Thus, the Agreements require the City to reimburse the State, on a pro -rata basis, from net
revenue realized by the City from the operation of Mission Bay and Ocean Beach. The
Agreements do not define the term "revenue." The term is, however, defined in the dictionary as:
"Yield from property or investment; income." The American Heritage Dictionary of the English
Language 1543 (3d ed. 1992).
11 -30
Philip D. Phillips -6- March 9, 2000
Transient occupancy taxes, property taxes, and sales taxes are not revenues within the
meaning of the Agreements. The Agreements were written in the context of the tidelands property
being subject to the public trust. As explained in Section I.A. above, the public trust requires that
all income realized from the operation of trust property be used solely for trust purposes. In that
context, the term "revenue" logically refers to income of the tidelands property.
Here, the Agreements do not require the City to report taxes as revenue of the tidelands
property because the taxes are not income of the trust. As explained in Section I.A. above, the
taxes are not a return to the City as trustee on a principal asset of the trust. To conclude
otherwise would contravene legislative intent with respect to the imposition of the taxes.
C. The City is Not Required to Report Taxes as Revenue on the City's Annual
Statement of Tidelands Revenues and Expenditures.
In addition to the public trust requirements, State statutory law imposes restrictions and
obligations on the City with respect to tidelands trust property. Specifically, the Public Resources
Code [Code] provides:
(a) Notwithstanding any other provision of law, every ... city ... to
which sovereign trust lands, including tidelands, submerged lands,
or the beds of navigable waters, have been, or in the future are,
granted, conveyed, or transferred by statute, shall establish and
maintain accounting procedures, in accordance with generally
accepted accounting principles, providing accurate records of all
revenues received from the trust lands and trust assets and of all
expenditures of those revenues...
(c) Unless otherwise prescribed by law, on or before October 1 of each
year, commencing October 1, 1986, each trust grantee shall file
with the commission a detailed statement of all revenues and
expenditures relating to its trust lands and trust assets, including
obligations incurred but not yet paid, covering the fiscal year
preceding submission of the statement.
Cal. Pub. Res. Code § 6306.
Thus, the Code requires the City to provide accurate records of all revenues received from
trust lands and trust assets and of all expenditures of those revenues. The Code also requires the
City to file with the State a detailed annual statement of all revenues and expenditures relating to
11 -31
Philip D. Phillips -7- March 9, 2000
its trust lands and trust assets. As with the Agreements, however, the Code does not define the
term "revenue."
Here, the revenue received from the tidelands trust lands or its assets does not include
transient occupancy, property, or sales tax. As explained in Sections I.A. and I.B. above, in the
context of public trust lands, revenue means income realized from the trust property or its assets.
The taxes are not income because they are not a return on a principal asset of the trust.
H. The City May Use Revenues Generated from One Tidelands Trust Grant on Any
Other Tidelands Trust Grant.
As explained in Section I above, the public trust in the tidelands requires that all revenues
received from trust lands be expended on trust purposes. Additionally, the Code provides: "[a]ll
revenues received from trust lands and trust assets shall be expended only for those uses and
purposes consistent with the public trust for commerce, navigation, and fisheries, and the
applicable statutory grant or grants." Cal. Pub. Res. Code § 6306 (b). The Code is silent,
however, on whether income generated from one tidelands grant area may be expended on other
tidelands grant areas.'
Because there is no clear legal requirement that revenue earned from a particular land
grant area must be spent solely on that land grant area, it can reasonably be concluded that the
City may use revenues generated from one land grant on another land grant area. This Office has
previously opined that revenues from tidelands trust property may be spent on other tidelands
trust property so long as the revenues are spent for trust purposes. See, e.g., 1985 City Att'y
MOL 85, 86 -87 (revenues from Mission Bay tidelands need not be spent solely for Mission Bay
tidelands improvements or operations so long as revenues not spent in Mission Bay are spent on
other City tidelands); 1989 City Att'y MOL 316, 317 (excess revenues generated from one
portion of tidelands granted to City can be used on another portion of tidelands granted to City).
Thus, when the City has reimbursed the State as required by the Agreements, the City may
use revenues from the reimbursable tidelands grant areas on any other tidelands grant area. As set
forth in Section I.B., the City is required to reimburse the State on a pro -rata basis from net
revenue realized by the City from the operation of Mission Bay and Ocean Beach. When the City
has fulfilled its reimbursement obligations, the net revenues from the Mission Bay and Ocean
Beach tidelands may be used on any other tidelands grant area.
'The legislative history of Section 6306 sheds no light on this issue. See Stars 1970 ch 250
§ 1; Stats 1985 ch 923 (SB 598).
11 -32
Philip D. Phillips -8- March 9, 2000
III. The City Probably Cannot Use a Single Column for All of its Tidelands Grant
Properties in its Annual Statement of Tidelands Revenues and Expenditures.
The Code requires the City to establish and maintain accounting procedures providing
accurate records of all revenues received from its trust lands and assets, as well as expenditures of
those revenues. Cal. Pub. Res. Code § 6306(a). The City is not required to separate accounting
records of several trust grants when the granted lands are operated as a single integrated entity.
Id. The Code also requires the City to file an annual detailed statement, prepared in accordance
with generally accepted accounting principles, of all revenues and expenditures relating to its trust
lands and trust assets. Id. § 6306(c).
Because the Code permits the City to combine accounting records of tidelands operated as
a single integrated entity, the Code impliedly requires the City to separate the accounting records
of tidelands that are not operated as a single entity. The Code is silent, however, on whether the
annual statement must separate revenues and expenditures for several trust grants.9 It can be
reasonably inferred, when reading Section 6306 as a whole, that the annual statement must also
separate tidelands grant areas that are not operated as a single integrated entity. Because the Code
is not definitive on this issue, the Auditor and Comptroller may desire to consult with the State on
whether a combined tidelands grant column is acceptable.
CONCLUSION
First, transient occupancy taxes, property taxes, and sales taxes are not revenues that must
be expended for tidelands trust purposes. Revenues are income received by the trustee as a return
on trust assets. The taxes are not a return on trust assets nor are the taxes received by the City in
its capacity as trustee.
Second, when the City has reimbursed the State as required by the Agreements, the City
may expend revenues generated from the reimbursable tidelands grant areas on any other
tidelands grant area. The tidelands revenues must, however, be used for tidelands trust purposes.
There is no clear legal restriction on using revenue from one tidelands grant area to benefit
another tidelands grant area.
Finally, the City probably cannot combine its tidelands grant accounting records into a
single column on its annual statement of tidelands revenues and expenditures. The Code impliedly
requires that tidelands trust grants that are not operated as a single integrated entity be reported in
'The legislative history of Section 6306 sheds no light on this issue. See Stars 1970 ch 250
§ 1; Stats 1985 ch 923 (SB 598).
11 -33
Philip D. Phillips -9- March 9, 2000
separate columns on the annual statement. Because the Code does not explicitly require separate
columns for each tidelands grant area, the Auditor and Comptroller may desire to consult with the
State as to whether a single column is acceptable.
CASEY GWINN, City Attorney
0
LWG:cdk(043.2; 716)
ML- 2000 -7
/S/
Lori W. Girard
Deputy City Attorney
11 -34