City Hall Quietly Seeks Sac'to Bill That Could Extend Taxpayer Payments To Civic Center Deal's Private Developer/Operator To 50 Years
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(May 6, 2015) -- Long Beach city staff is seeking Sacramento legislation -- passage of a special state law -- to help facilitate the controversial Long Beach Civic Center transaction in which the City Council voted (Dec. 2014) to let a private developer/operator finance, design, build, operate and maintain a new Civic Center for which the City would pay annual sums (increasing each year with the CPI) for a period of years and give the private firm the prime located land under the former LB courthouse for the firm's development and profit.
SB 562 is sponsored by [advanced at the request of] the City of Long Beach, which contends the legislation isn't legally required but would merely "clarify" state law. However the measure has raised some initial red flags visible in the legislative analysis by the state Senate Governance and Finance Committee, where the bill is scheduled to be heard later today (May 6.)
SB 562 would extend the allowable period for a lease of the Civic Center public areas to the private developer-operator to 50 years (after Long Beach city management told the public and the Council that lease to the private developer/operator would run for roughly 30 years, then 30+ years, and most recently, 40 years. Extending the financing period typically means making more payments and raising the ultimate cost to the buyer (in this case the taxpayer.)
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[Committee legislative analysis text]
SB 562's 50-year limit on a lease agreement for the Civic Center project is shorter than the limits that generally apply to leases on city property. However, 50 years far exceeds the 20 to 30 year terms of bonds or other debt instruments that local governments usually use to finance public infrastructure projects and extends the 35-year maximum lease term established by the 1996 Aguiar bill for local P3 [public-private-partnership] agreements. While allowing for a longer lease term may help ensure that the annual General Fund impact of Long Beach's Civic Center project doesn't exceed budgeted amounts, longer financing periods typically result in higher overall borrowing costs which are ultimately paid by the city's taxpayers. It is unclear whether authorizing a maximum 50-year term for Long Beach's public-private infrastructure agreement makes it more difficult to ensure that the public's interest in the Civic Center project is protected for the duration of any agreement.
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Former LB Redevelopment Agency Boardmember Terry Jensen, who has criticized the Civic Center transaction on fiscal grounds, told LBREPORT.com:
Using a payment term of 50 years instead of 30 or 40 years would dramatically increase the cost of the project to the City and its taxpayers. It is the same ploy auto dealers use on a buyer who can't afford the model they're shown. Once the buyer is in the office, the salesman's first question is something like "what monthly payment do you want?" or "what payment can you afford?" The salesman (and his boss) then fiddle with the terms, possibly offering a longer payment term, which sounds "affordable" but makes the buyer's ultimate cost (and the dealer's ultimate return) much higher. The same principle applies with the Civic Center. Extending the payment term means the taxpayers' ultimate cost will be higher, and I believe lengthening the term beyond 40 years could make the total cost significantly higher for taxpayers.
The Civic Center transaction was controversial before the proposed legislation. Critics [including LBREPORT.com editorially] have noted that the City didn't seek or obtain bids for a seismic retrofit of its current City Hall (built less than 40 years ago.) Two separate sources -- a Long Beach architect experienced in adaptive reuse retrofits and a Columbia University graduate student independently indicated that a retrofit should cost significantly less than the sum city management estimated to recommend rejection of a retrofit option.
Former Redevelopment Agency Boardmember Jensen has separately itemized his grounds for challenging city staff's claimed operating costs (city management's basis for the P3 transaction)
City management contended that LB's current Civic Hall (built in the late 1970s) had become "functionally obsolete" and the building's seismic issues gave the city an "opportunity" to create an entirely new Civic Center that it said would provide a better use of public space.
LB's current Civic Center includes a large Main Library, which under the new transaction will be replaced by a smaller size library. The new Civic Center will include an area for private development (possibly a hotel) on what is now publicly-owned land under the now-former LB courthouse.
Another area of potential Sacramento interest may be the involvement of the Port Long Beach, which operates on state Tidelands, and agreed to participate financially in the transaction by agreeing to co-locate its new Port headquarters building as part of the new Civic Center.
Although multiple study sessions and public meetings were held describing the transaction's asserted benefits, the City Council held only one "study session" on the transaction's financial details...a little over a month before its decisional voted action. The Council invited no formal presentations from independent witnesses or experts regarding seismic retrofits or other alternatives. During study sessions and Council sessions preceding the final vote, taxpayers were allowed 180 seconds per person at the public speaker's podium.
On December 14, 2014, the Long Beach City Council voted 8-0 to approve pursuing the Civic Center transaction with a chosen developer/operator.
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On Wed. May 6, SB 562 will get its first Sac'to hearing before the state Senate's Governance and Finance Committee. Its members include SB 562's named author, state Senator Ricardo Lara (D., LB-Huntinton Park.) Also on the Committee -- and serving as its vice-chair -- is state Senator Janet Nguyen (R., SE LB and OC) (elected Nov. 2014.)
The Committee also includes former OC Supervisor John Moorlach (R, OC), who as a private citizen CPA twenty years ago warned of risky investments by Orange County but was shrugged by officialdom. The investments ultimately collapsed and the County's bankruptcy followed, ending the political careers of several then-incumbent Supervisors. Voters elected Moorlach County Treasurer-Tax Collector, then to the Board of Supervisors in 2006 and in March 2015 to the state Senate.
