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HomeMy WebLinkAbout10 - Amending City Council Policy F-7 (Income and Other Property)Q SEW Pp�T CITY OF O � z NEWPORT BEACH <,FORN'P City Council Staff Report November 14, 2023 Agenda Item No. 10 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Jason AI -Imam, Finance Director/Treasurer - 949-644-3126, jalimam@newportbeachca.gov PREPARED BY: Alan Rivera, Management Fellow, 949-644-3313, arivera@newportbeachca.gov TITLE: Resolution No. 2023-68: Amending City Council Policy F-7 (Income and Other Property) ABSTRACT: The Newport Beach City Council at its October 24, 2023, meeting voted unanimously, via a straw poll, in favor of staff returning with an amendment to City Council Policy F-7. City Council Policy F-7 sets forth the City Council's policy for holding and managing the City of Newport Beach's (City) extensive property portfolio that is either owned or held in trust, as well as recognizing the importance of those properties as revenue generators and as a means to provide otherwise financially less feasible uses and facilities that benefit the community. The amendment would delete sub -paragraph F-7, which addresses the bylaws of a leasing organization. RECOMMENDATIONS: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; b) Adopt Resolution No. 2023-68, A Resolution of the City Council of the City of Newport Beach, California, Amending City Council Policy F-7 (Income and Other Property). DISCUSSION: On October 24, 2023, pursuant to City Council Policy A-1, Councilmember Will O'Neill requested that the City Council consider amending Council Policy F-7 to delete sub- paragraph F-7, which addresses the bylaws of a leasing organization. The request followed various waivers of the policy by the Council due to mitigating factors brought forward by the nonprofit organizations. The City Council voted unanimously, via a straw poll and with a recorded excused absence by Councilmember Brad Avery, in favor of staff returning with an item. Adopted in July 1992 as City Council Policy F-24 and last amended in February 2019, City Council Policy F-7 sets forth the City Council's policy for holding and managing the extensive and valuable assortment of properties that are either owned or held in trust by the City. 10-1 Resolution No. 2023-68: Amending City Council Policy F-7 (Income and Other Property) November 14, 2023 Page 2 The policy also recognizes the importance of these properties as sources of revenue and a means to provide otherwise financially less feasible uses and facilities that benefit the community. Sub -paragraph F of City Council Policy F-7 addresses the need for the City to make specific findings to justify circumstances in which the City receives less than the open market or appraised value for lease of its real property or circumstances in which an open bid process is forgone. Moreover, sub -paragraph F-7 currently dictates that if a lessee of City -owned or managed real property is not a statewide or national nonprofit organization, nor a government entity or a subdivision thereof, the City must verify that the organization's bylaws and charter documents meet the following criteria: The organization must have a process for electing directors that is open, democratic and transparent, allowing members to vote. 2. The organization's governance structure and operations follow best practices for nonprofit public benefit corporations, as determined by the City Council. 3. Any changes to the aforementioned criteria cannot be made without the prior written consent of the City as lessor. Should the Council find that the requirements captured in sub -paragraph F-7 of Council Policy F-7 are not necessary because adherence to best practices are addressed in the lease agreements, approval of Resolution No. 2023-68 would amend City Council Policy F-7 to delete sub -paragraph F-7. FISCAL IMPACT: There is no fiscal impact related to this item. 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). ATTACHMENT: Attachment A — Resolution No. 2023-68 10-2 ATTACHMENT A RESOLUTION NO. 2023- 68 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, AMENDING CITY COUNCIL POLICY F-7 (INCOME AND OTHER PROPERTY) WHEREAS, the City of Newport Beach ("City") is governed, in part, by its Charter, Municipal Code, and adopted City Council Policies; WHEREAS, City Council Policy F-7 (Income and Other Property) sets forth the City Council's policy for holding and managing the extensive and valuable assortment of properties owned or held in trust by the City, which policy recognizes the importance of those properties not only as a revenue generator, but also as a means to provide otherwise financially less feasible uses and facilities that benefit the community; and WHEREAS, amending City Council Policy F-7 as shown in the revised Policy attached hereto as Exhibit 1 will promote efficiency and ensure smooth administrative operations. NOW, THEREFORE, the City Council of the City of Newport Beach resolves as follows: Section 1: The City Council does hereby approve and adopt City Council Policy F-7 as amended, which is attached hereto as Exhibit 1 and incorporated herein by reference. Section 2: All prior versions of City Council Policy F-7 are hereby repealed. Section 3: The recitals provided in this resolution are true and correct and are incorporated into the operative part of this resolution. Section 4: If any section, subsection, sentence, clause or phrase of this resolution is, for any reason, held to be invalid or unconstitutional, such decision shall not affect the validity or constitutionality of the remaining portions of this resolution. The City Council hereby declares that it would have passed this resolution, and each section, subsection, sentence, clause or phrase hereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases be declared invalid or unconstitutional. 10-3 Resolution No. 2023- Page 2 of 2 Section 5: The City Council finds the adoption of this resolution 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, Division 6, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. Section 6: This resolution shall take effect immediately upon its adoption by the City Council, and the City Clerk shall certify the vote adopting the resolution. ADOPTED this 141h day of November, 2023. NOAH BLOM Mayor ATTEST: Leilani I. Brown City Clerk APPROVED AS TO FORM: CITY ATTORNEY'S OFFI E Aaron C. Harp City Attorney Attachment: Exhibit 1 — Revised City Council Policy F-7 10-4 F- 7 INCOME AND OTHER PROPERTY The City owns and manages an extensive and valuable assortment of property including streets, parks, beaches, public buildings and service facilities. The City also owns or ground leases and/or operates a yacht basin, resort hotel and apartment property, a luxury residential development and various other income -producing properties. Much of the income property is tidelands, filled tidelands or waterfront. Unencumbered fee value of income property is substantial. As owner/ manager of property, the City is the steward of a public trust, and state law requires the City to maximize its returns on state -managed property or be subject to a charge of making a gift of public funds. Nevertheless, the City Council recognizes the importance of this property not only as a revenue generator, but also as a means to provide otherwise financially less feasible uses and facilities that benefit the community. In managing its property, the City will continually evaluate the potential of all City owned property to produce revenue. This may include leasing or licensing unused land, renting vacant space, and establishing concessions in recreation areas or other similar techniques. The City Council will evaluate the appropriateness of establishing new income generating opportunities on City controlled areas using sound business principles and after receiving input from neighbors, users and the public. The policy of the City Council is that income and other property be held and managed in accordance with the following: A. Whenever a lease, license, management contract, concession or similar action regarding income property is considered by the City, an analysis shall be conducted to determine the maximum or open market value of the property. This analysis shall be conducted using appraisals or other techniques to determine the highest and best use of the property and the highest income generating use of the property. B. All negotiations regarding the lease, license, management contract, concession, or similar action regarding income property shall include review of an appraisal or analysis of the use being considered for the property conducted by a reputable and independent professional appraiser, real estate consultant, or business consultant. C. The City shall seek, whenever practical and financially advantageous, both in the short and long term, to operate or manage all property and facilities directly with City staff or contractors, provided staff have the expertise needed to competently do so, or to oversee the work of contractors. 1 10-5 F- 7 D. In most negotiations regarding the lease, license, management contract, concession, or similar action regarding an income or other property, the City shall seek revenue equivalent to the open market value of the highest and best use; and, whenever practicable the City shall conduct an open bid or proposal process to ensure the highest financial return. E. However, in some circumstances the City may determine that use of a property by the public for recreational, charitable or other nonprofit purpose is preferred and has considerable public support, in which case the City may determine that non- financial benefits justify not maximizing revenue from such property. In such circumstances, the City has a vested interest in ensuring that the lessee of such property operates the activities conducted on or from the property in the manner that has been represented to the City throughout the duration of any lease or contract with the City. F. Whenever less than the open market or appraised value is received or when an open bid process is not conducted, the City shall make specific findings setting forth the reasons thereof. Such findings may include but need not be limited to the following: 1. The City is prevented by tideland grants, Coastal Commission guidelines or other restrictions from converting the property to another use. 2. Redevelopment of the property would require excessive time, resources, expertise and costs, which would outweigh other financial benefits. 3. Converting the property to another use or changing the operator, manager, concessionaire, licensee, or lessee of the property would result in excessive vacancy, relocation or severance costs, real estate commissions, tenant improvement allowances, expenses or rent concessions which would outweigh other financial benefits. 4. Converting residential property to another use or opening residential leases to competitive bid would create recompensable liabilities and other inequities for long-term residents. 5. The property provides an essential or unique service to the community or a clearly preferred use that enjoys substantial support in the community that might not otherwise be provided were full market value of the property be required. 2 10-6 F- 7 6. The property serves to promote other goals of the City such as affordable housing, preservation of open space, uses available to the public or marine related services. G. Generally, lengths of licenses, leases, management contracts, concessions, or similar agreements will be limited to the minimum necessary to meet market standards or encourage high quality improvements and will contain appropriate reappraisal and inflation protection provisions. Also, all agreements shall contain provisions to assure complete audits periodically through their terms. H. All negotiations regarding the license, lease, management contract, concession or similar action regarding income property shall be conducted by the City Manager or his/her designee under the direction of any appropriate City committees. I. To provide an accurate accounting of actual net revenues generated by the City's income property, all costs directly attributable or allocable to the management of a specific income property shall be charged against the gross revenues collected on that property in the fiscal year the costs are incurred. Costs so chargeable include, but are not limited to, property repairs and maintenance, property appraisals, and consultant fees, as authorized by the City Council, City Manager, or by this Income Property Policy. J. The City Manager or his/her designee is authorized to sign a license, lease, management contract, concession, or similar agreement or any amendment thereto, on behalf of the City. Notwithstanding the foregoing, the City Manager or his/her designee, or a City Council member, may refer any license, lease, management contract, concession or similar agreement or any amendment thereto, to the City Council for its consideration and/or action. K. The City's portfolio of quality income producing properties adds an element of diversification to a portfolio otherwise invested primarily in financial assets. Certain of those income properties are restricted from sale by their terms of grant, state agency regulations or rules, other federal and state guidelines, private covenant or agreement or otherwise. For those properties not so restricted from sale, an analysis shall be prepared to determine the following prior to such income producing property being offered for sale: 1. The maximum open market value of the City's interest in the property in its as is condition. 2. If the property is in an important location, a determination of the possible future consequences of the City no longer controlling that property. 3 10-7 F- 7 3. If the current rent is contractually low and significant rent increases are likely within a finite period. 4. The likelihood of significant increases in the ability of the property to generate income after the expiration of any current lease of the property. 5. The likelihood of a lease extension being requested by the tenant and the ability to substantially increase rents or require significant improvements to enhance the utility and the value of the property as consideration for granting such an extension. 6. The value of the revenue stream from (i) lease income over the life of an existing lease and/or (ii) likely lease revenue if an existing lease were to be renewed or the property re -let to a different tenant; and/or (iii) lease income from the property if it were to be converted to its highest and best use, compared with the financial benefits of the use of the proceeds of a sale and if, considering the totality of the circumstances, such use of the proceeds of a sale is preferable to retaining the property in question. Adopted - July 27,1992 Amended - January 24,1994 Amended - February 27,1995 Amended - February 24,1997 Amended - May 26,1998 Amended - August 11, 2009 Amended - May 14, 2013 Amended - February 12, 2019 Amended - November 14, 2023 Formerly F-24 P 10-8