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SR-012208-3A~_ ~;tYOf City Council Report Santa Monica City Council Meeting: January 22, 2008 Agenda Item: ~= P1 To: Mayor and City Council From: Andy Agle, Housing and Economic Development Director Elaine Polachek, Community Maintenance Director Subject: Study Session to Discuss "Managing the Future of Downtown Santa Monica Project Update" and Related Policy Issues Executive Summary The attached report, "Managing the Future of Downtown Santa Monica Project Update, December 2007", prepared by Progressive Urban Management Associates, Inc. and Kristin Lowell, Inc., ("Report") updates the Council on the progress being made in refining the Downtown Management Framework considered by Council in April 2007. The Report recommends modifying the management structure of the Bayside District Corporation (BDC), expanding District boundaries, and creating assessment formulas to finance new initiatives through the establishment of a new Property Based Assessment District (P-BAD). The establishment of this assessment district would provide substantial benefits to the City by improving maintenance, by providing more services to enhance the visitor experience and by directing more resources to this important community asset. The Management Plan will continue to be refined and finalized over several more weeks with input from the Council and the public and will be brought before Council for final approval in March. For the purposes of the study session, staff is requesting policy direction on components of the plan which have been further refined since April 2007: Creation of a new property based assessment district (P-BAD) while eliminating the Central Business District (CBD) assessment on retail businesses. 2. Change in the City's practice of granting operating revenues to the BDC and instead transfer, by right, mall assessment revenues to the BDC. 3. Enhanced maintenance through a portion of the P-BAD assessment will be provided by public or private contractors employed by the BDC, with an appropriate indemnification relationship between the City and BDC. Enhanced maintenance would be cost neutral to the City. 4. Inclusion of certain properties and uses in the P-BAD assessment district relative to the benefits received such as the Big Blue Bus (BBB) yard and the assessment of residential properties in the district. 5. Assessment of all City-owned properties at a commercial rate as opposed to a tax exempt rate offered to non profits and other tax exempt organizations. 6. Preparation of an ordinance to allow the P-BAD a term of 30 years. 7. Preparation of an ordinance to lower the petition threshold needed to initiate a ballot measure on the formation of a P-BAD to 35% of the property owners representing assessments to be levied. A vote of property owners representing more than fifty percent of assessments to be paid will be required to form the district in compliance in Proposition 218. Background The process for improving and preserving downtown as an economic and community asset has involved significant public involvement over the past several years beginning in 2002 with the Promenade Uses Task Force. Much progress occurred in 2007 with the BDC's establishment of a Downtown working group supported by the expertise of Progressive Urban Management Associates (PUMA) in the development of new approaches to the management and improvement of the Downtown. A brief chronological summary of the process milestones is presented below: • 2002- 2003 -Council-appointed Promenade Uses Task Force considered measures to promote a diversity of uses and activities on the Promenade and within the larger Downtown. The Task Force made a series of recommendations to Council, including programmatic elements such as ambassador services, broader and more extensive marketing, and supplemental cleaning services. • 2006 - The Bayside District Corporation (BDC) engaged Progressive Urban Management Associates (PUMA) to facilitate the community of interested parties (City, Bayside Board of Directors, property owners, business, and residents) 2 through a series of public workshops, meetings and surveys to solicit ideas and develop a program that would explore new approaches for managing and funding improvements to downtown. February 2007 -PUMA prepared a Draft Downtown Management Framework which recommended a number of changes that were cited as the key areas of importance to stakeholder groups including modifying the management structure of the BDC, expansion of District boundaries, and developing a revised assessment structure through a property based assessment district (P-BAD) to finance new initiatives such as Clean and Safe/Ambassador programs, enhanced maintenance, homeless outreach, parking management and marketing programs. ^ April 24, 2007 -Council reviewed the recommendations of the Framework and directed staff to assist the Bayside District Corporation in implementing the new strategy with the understanding that the governance model be based on the Convention and Visitors model, that the City control services on public spaces or, should private services be used in maintaining public property, that standards be implemented, and that existing City jobs not be privatized. May 2007-December 2007 -The BDC retained PUMA to facilitate monthly public meetings with a downtown `working group' comprised of a diverse group of property owners, business representatives and residents to continue to refine .and develop consensus on the details of the Framework including governance, new initiatives, boundaries, service budgets, assessment scenarios and legal mechanisms for the establishment of a P-BAD. ^ October 9, 2007 -Council directed the City Attorney and staff to work with the BDC in helping to clarify and formulate a policy and return to Council for 3 consideration, as the BDC moves forward in presenting a proposal for revamping the business improvement districts and assessments in the downtown area. • January 22, 2008 -This Council Study Session is being conducted to update Council on the progress made by the working group, and to solicit feedback on policy decisions pertaining to the establishment of a new property based assessment district. Discussion The following is an overview of the recommendations that have been endorsed by the working group and where appropriate, staff analysis of such recommehdations: New Governance A concern that was discussed in great detail by the working group was how to ensure that the BDC's governing board represents both concerns and interests of residents and the broader community while also representing the interests of property and business owners who are contributing funds through special assessments. Currently, the 11- member BDC Board of Directors is appointed by the City Council. However, many stakeholders recommended that the governing body that oversees the expenditure of funds raised by assessments have more direct accountability to those paying assessments. In response to these concerns, the working group has endorsed a model of governance based on Santa Monica Convention and Visitors Bureau (CVB), where half of the board is selected by the rate payers and the other half is selected by Council, with a City Manager representative serving as the `tie-breaking' voting member. The working group recommended a fifteen (15) member Board of Directors consisting of property owners, businesses and residents in an effort to represent the variety of interests within the area and achieve diverse representation. In accordance with State law, the Board of Directors will continue to be required to provide an annual report to City Council on 4 revenue received, expenditures made, and budgets and work program for the upcoming year. The CVB model of governance was favored by Council at its April 24, 2007 review of the Framework. Proposed Annual Resources and Expenditures Currently, businesses in the Bayside District pay a mall assessment equal to one times the business tax, not to exceed $ 23,913.20. This assessment currently generates about $1,000,000 per year and is revenue to the City's general fund. In return for this special assessment, the City currently grants to the BDC funds to support its operation and about $190,000 per year to the Community Maintenance Department for enhanced contract maintenance services on the Promenade. In addition, retail businesses in the Central Business District pay an assessment equal to 1/15"' of 1% of gross sales, not to exceed $1,000. This assessment generates about $200,000 per year. The City collects these funds and transfers the revenues to the BDC for their marketing program. The working group recommends that businesses continue to pay the Mall Assessment, but that the City agrees to pass through to the BDC the full amount collected (less administrative fees). Revenues from the Mall Assessment would continue to fund BDC activities and programs, including administration. The working group recommends that the City discontinue the Central Business District assessment. To replace the Central Business District assessment and to generate additional revenue for enhanced services, the working group recommends establishment of a new property-based assessment from properties within an area shown on Attachment 2. This P-BAD would generate approximately $3.7 million for additional services in the expanded area, as described below: 5 Enhanced Maintenance $1,289,000 Ambassador Program $1,228,000 Marketing Enhancements $ 500,000 Special Projects $ 350,000 Administration $ 336,700 Total $3,703,700 Enhanced Maintenance: Through public workshops and surveys, enhanced maintenance was identified as a priority for improving and preserving downtown as an economic and community asset. The working group also supported a mechanism to ensure formal oversight by the BDC of City maintenance efforts by defining clear expectations through negotiation of a services agreement and the development of verifiable "baseline" service levels. Currently, Promenade Maintenance has a staff of 19 full-time employees and nine part- time employees and an annual budget of $2,290,114. Staff is responsible for maintaining the Third Street Promenade, six downtown parking structures, six alleys, the Transit Mall, 2"d and 4`" Streets, Arizona Avenue, Wilshire Boulevard, and the attended restrooms in Parking Structures Nos. 3 and 4. In addition, Promenade Maintenance staff maintains the parking structures at Ken Edwards Center, Main Library, Public Safety Facility, Parking Structures Nos. 9 and 10 and the Civic Center Parking Structure. An analysis conducted by Service Group Inc., asub-consultant of PUMA, concluded that Promenade Maintenance does a very good job with available resources, but that the staff is expected to cover too large an area to maintain excellent conditions at all times. The working group discussed ways that additional resources could enhance the current level of service. The working group contemplated that one way to significantly enhance maintenance in the District would be for the City to more effectively redeploy existing resources while ensuring continuation of a base-level of services and that the additional 6 resources from the property-based assessment be used to pay for enhanced maintenance through service contract(s) with a private maintenance provider(s). The new maintenance program would be jointly managed by BDC and the City under a cooperative services agreement. An idea discussed was for the City's maintenance resources to focus on the Promenade, 2"d to 5th Courts and Parking Structures Nos. 1 through 6, (the "Core") and that the funding from the P-BAD be used to provide maintenance services in the remainder of the District. Staff needs to continue to analyze this approach and explore other alternatives. Within the next several weeks the City and BDC staff will work with the working group to consider in detail the established current level of services (Attachment 3- Promenade Maintenance Baseline Services) and how redeployment of the City resources and additional resources of $1.3 million from a new P-BAD could enhance and improve maintenance services in the P-BAD area in a way that will be cost neutral to the City. Should private services be utilized in providing enhanced maintenance services to public areas, the City will need to amend the indemnification relationship between the City and BDC as set forth in the Services Agreement to address liability issues. Ambassadors The Ambassador Program is a new initiative that relies entirely on funding from the proposed P-BAD. Ambassadors would provide the public with concierge/information services and would also include restroom attendants, currently funded by the City on a pilot basis. Ambassadors would be additional "eyes and ears" on the street and coordinate efforts with social service agencies regarding services to street populations. Costs to run an Ambassadors Program seven days a week for approximately 15 hours per day is estimated to be $1.2 million annually and to be funded exclusively by the P- BAD. 7 Marketing/Special Proiects The program includes enhanced marketing efforts to better promote Downtown Santa Monica to the community. Other special projects include amulti-faceted approach to addressing homelessness through a specially designated downtown homeless outreach team, job placement opportunities through `clean and safe' programs, and involvement with social service agencies and City programs such as the Community Court. This initiative would be carried out in concert with the City's other homeless efforts. The proposed budget for Marketing and Special Projects is $850,000. Boundaries The proposed P-BAD boundary includes properties bounded by Ocean Avenue to the west, 7th Court to the east, Santa Monica Freeway to the south, parcels on the north side of Wilshire Boulevard and selected parcels with commercial or visitor-serving orientation north of Wilshire Boulevard along 2"d 3rd 4th 5th 6th and 7th (Attachment 2). The proposed District includes the Big Blue Bus (BBB) properties south of Colorado between 5th and 7th Street. District boundaries also include residential properties. This would be a new approach to the City's present system where only commercial properties and merchants are assessed for maintenance services. Residential property owners may be authorized by the City of Santa Monica Rent Control Board to pass-through the assessment to tenants. Another important policy consideration is whether properties operated by the BBB, such as the bus yard, will receive benefits from the P-BAD. The BBB operates acustomer- service facility within the District (223 Broadway) however the BBB yard is located at the periphery of the proposed district and is not a commercial or visitor-serving use. BBB also currently funds a variety of maintenance and traffic services in the District. It is unlikely the proposed assessment on the yards would be an eligible transit expense and 8 would require funding from the General Fund. Council is asked to consider whether such City assets should be included in the District. Assessments The proposed assessments are based on three (3) zones. Each zone is differentiated by location and levels of benefits to be received including types and frequency of services. Zone 1 includes properties along the Third Street Promenade. Zone 2 includes properties roughly between 4t" Street and Ocean Avenue including Santa Monica Place. Zone 3 includes properties roughly between 5t" Street and 7`" (See Attachment 2). In order to raise the $3.7 million needed to fund the new initiatives, the annual assessment rate to property owners in Zone 1 (who would receive most benefit) is estimated to be $0.88 per lot square foot or building square footages (whichever is greater). Property owners in Zone 2 and Zone 3 would be assessed at $0.44 and $0.22 respectively per lot square foot or building square foot (whichever is greater) based on differences in benefits and frequency of services. Residential and tax-exempt properties in Zone 2 and Zone 3 will pay only for maintenance and ambassador programs and will have an adjusted annual assessment rate of $0.32 and $0.16 respectively per lot square foot or building square foot (whichever is greater). The Report proposes that City-owned parking structures be assessed only on lot square footage, while the remainder of City-owned properties be assessed at the greater of lot square footage or building square footage at the commercial rates established by zone. The City of Santa Monica, Redevelopment Agency (Agency) and BBB currently own 42 parcels located within the proposed District. Based on the proposed assessment formula the annual assessment for public facilities would total $315,000. Of this total, property controlled by the City, Agency and BBB would be assessed annually $56,000, $134,000 and $125,000 respectively. In addition to the direct property assessments, 9 there will also be a small number of pass-through costs on City leases in privately owned office buildings in the District. Although the City is a tax exempt entity, an important policy question is whether City- owned properties used for non-commercial purposes should be assessed at a commercial rate or the tax exempt rate: Such properties include the Parking Structures and Fire Station No. 121 which provide infrastructure support. Commercial space in the parking structures and Main Library could be assessed at the commercial rate. The reassessment of City-owned non-commercial properties at a lower rate would necessitate an increase in the assessments paid by the remaining property owners if the P-BAD is to generate the same amount of revenue as currently proposed. Duration of P-BAD Property based assessments are limited to a five-year term. There was consensus of the working group that the term should exceed the five years and proposed a district with a thirty (30) year term emphasizing that the longer term will enable property owners in the District bonding capacity to fund future improvements. The Petition Process If Council is supportive of the finalized Management Plan (expected to be brought to Council in March 2008) and the working group's recommendation to form a new properly based assessment district, Council will need to authorize an Ordinance to enable a petition of property owners. The signing of the petition is not a vote for the formation of the P-BAD but an expression of support for placing the question of forming an assessment district on a ballot for a vote by property owners. The petition process is a prerequisite for a ballot vote. For a property owner petition state law requires a threshold of 50% of the property owners that comprise the total assessment to be levied. However, the working group, 10 after much discussion, endorsed a lower threshold of 35% for the petition process. State law permits a Charter City to lower the threshold in the ordinance enabling a petition drive. When the petition drive is launched, Council will be asked to authorize the City Manager and Executive Director of the Redevelopment Agency to sign the petition on behalf of Agency and City-owned properties within the District. The City/Agency properties represent approximately 8% of the total assessments as currently proposed. Ballot Vote Under the proposed scenario, if property owners representing at least 35% of the proposed assessment sign a petition to initiate the special assessment proceedings, the City will prepare and mail out ballots to all property owners within the proposed District to vote on whether to approve the formation of the P-BAD. Proposition 218 requires a property owner ballot vote with no less than 50% of the ballots received, weighted by assessment, to be in support of the District in order for the District to be formed. Finalization of the Management Plan Timeline and Future Council Actions The working group will continue to guide the refinement of the plan's development and assessment methodology based on Council feedback and will work to educate other stakeholders through workshops, meetings and one-on-one discussions. A formal Management Plan is expected to return to Council for approval in March 2008 following endorsement by the BDC. At that time, Council will be asked to approve a resolution declaring its intention to form the PBAD and initiate a petition process. The property owner petition drive is estimated to be launched immediately thereafter. 11 If the petition process threshold is reached by early summer 2008, Council will be asked to hold a public hearing to authorize an ordinance to create the District and authorize a mail ballot for property owners to vote on the approval of the District. Council will also be asked to authorize the City Manager and Executive Director of the Redevelopment Agency to vote the City and Agency's ballots. If the P-BAD passes with at least 50% in favor, all assessments would be recorded and sent to the Los Angeles County Tax Assessors by its August 2008 deadline. If the process is not completed in time, assessments will be levied on the following year's tax rolls. Financial Impacts & Budget Actions As proposed in the Management Plan, the property-based assessment, if adopted, would increase costs to the City for enhanced services in the District, as follows: The property-based assessment proposes to raise $3.7 million from property-owners within the District. The City and Redevelopment Agency currently own 42 parcels located within the proposed District which would be assessed annually approximately $315,000, or 8% of the proposed assessment. Of this total, property controlled by the City, Agency and Big Blue Bus would be assessed annually $56,000, $134,000 and $125,000 respectively. The transfer of 100% of the Mall Assessment of approximately $1,000,000 per year would require another funding source for the annual supplemental specialized contract services for maintenance on the Promenade ($190,000) currently administered by the Community Maintenance Department. To ensure that this proposal is cost neutral the development of a cooperative maintenance service agreement may provide an opportunity to transfer these supplemental contract services to the BDC who would fund them through the Mall Assessment, or by having the City pass through the entire amount of the Mall Assessment to BDC, less the amount needed for supplemental 12 specialized contract services. The City would also retain an administrative fee to cover collection and disbursement costs associated with the districts. The Report proposes the elimination of the Central Business District Assessment (CBD) which currently generates about $200,000 per year which is transferred to the Bayside District for marketing and promotions. There would be no financial impact to the City as a result of this action. While longer term economic impacts are difficult to determine, if downtown property owners elect to assess themselves to fund the agreed upon enhancements and services in the downtown, this partnership between the City and property owners would ideally result in improved conditions for residents and visitors, increased commercial activity and positive economic effects within the district providing for stable or greater revenues to the City. Prepared by: Elana Buegoff, Sr. Administrative Analyst Forwarded to Council: Andy Agle, Director ~ _ P~L~fnont EN Housing and Economic evelopment Ci Manager Attachments: 1. Management the Future of Downtown Santa Monica Project Update Presentation 2. Proposed P-BAD District Map 3. Promenade Maintenance Baseline Service Levels 13 3-A- r-a~--e~ c7r Information Item City of Santa Monica Date: January 22. 1008 To: Mayor and City Council From: Marsha Jones Moutrie, City Attorney Subject: Benefit Assessment and the Property Improvement District Law of 1994. Introduction This Item provides information about benefit assessments and the creation of assessment districts and supplies specific information about the Property and Business Improvement District Law of 1994. Background Council will study a proposal to establish a new assessment district in the Downtown. This general information about the law is intended to assist Council in studying the proposal. Discussion Benefit Assessments Benefit assessments, or special assessments, are levied to pay for particular public improvements or services that specially benefit the properties or businesses that are assessed. In California, the Legislature has adopted a number of assessment laws that authorize the imposition of assessments for different or differing purposes. Charter 1 cities, like Santa Monica, may impose assessments pursuant to one of the state assessment laws or may enact and utilize their own, local assessment laws. Of course, state constitutional provisions, includ~;ig the provisions of Proposition 218, apply uniformly. Some assessment laws, particularly those designed to fund services, authorize annual assessments. Other assessment laws, particularly those that finance construction of infrastructure, are designed so that the entire cost of the project is technically assessed in a single year. Usually the construction project is actually financed with a bond, and the annual assessment payments represent interest and principal payments due on the bonds. This enables property owners who need a public improvement to pay for it over time while accruing interest only at the relatively low rate applicable to government bonds. Assessments are levied over a specified geographic area (the "assessment district") Within a district, there can be different zones of benefit, and the assessment for each zone might differ because owners in each zone receive different levels of benefit from the assessment. Thus, if an assessment were imposed to fund a park or other recreational improvement, owners in the zone nearest the park or improvement might pay the highest assessment. Most assessments are levied against real property, collected on the property tax roll; secured by a lien against the assessed property, and subject to the requirements of 2 Proposition 218. However, some assessments, including a number in Santa Monica, are levied upon businesses, not real property. That type of assessment is usually collected along with business license taxes, and is not secured by a real property lien. Assessments levied solely against businesses may not be subject to the requirements of Proposition 218. The main difference between assessments, and other government revenues such as taxes and fees, is that assessments are levied as a charge for a special benefit to the property (or business). This distinction, which depends upon a demonstrable benefit to the property assessed, is crucial for purposes of compliance with Proposition 218 which establishes drastically different requirements for taxes, assessments and fees. General Procedures for Establishing Benefit Assessment Districts In very general terms, the legal process for forming an assessment district typically involves six steps. The process is initiated through a petition signed by persons who will be assessed or by action of the legislative body. Next, an "Engineer's Report" is prepared, describing the improvements or services to be financed, providing cost estimates, including a diagram depicting district boundaries and parcels within, describing the method of "spreading" the assessments throughout the district (for example, through creation of zones paying differing assessment amounts to reflect differing levels of benefit), and supplying an assessment roll listing the parcels. Next, the legislative body adopts resolutions declaring the legislative body's intent to levy, 3 adopting the engineers report, scheduling a public hearing and taking other required actions. Then, for bonded assessments, the boundary maps are recorded. Once the legislative body declares its intent to move ahead with forming a district, important procedural requirements must be fulfilled. These are established by Proposition 218, ensure notice and the opportunity to protest and be heard, and are intended to protect those subject to the assessment. The requirements are very specific. They include, but are not limited to, notifying a property owner of the specific charge to their own parcel and the opportunity to express support or opposition by a majority protest "ballot" which must accompany the notice. If there is a majority protest, no assessment may be imposed. After complying with the notice, protest and hearing requirements, the legislative body may adopt a resolution establishing the district and levying the assessment. Once the district is formed, various additional steps would include collection, issuance of bonds and any required subsequent proceedings, among other things. The Property and Business Improvement District Law of 1994 ("the PBID Law") PBID assessments were created to aid economically disadvantaged business districts and to serve the public interest by promoting economic revitalization and physical maintenance of business districts. Streets and Highway Code Section 36601. The PBID Law authorizes assessments for the purpose of "acquiring, constructing, installing, or maintaining improvements and promoting activities which will benefit the properties or 4 businesses" in the district. Section 36606. The term "activities" is defined to include promotion of public events which will benefit businesses or real property, furnishing music in public places, promoting tourism, marketing and economic development including retail retention and recruitment, and providing security, sanitation, graffiti removal, street and sidewalk cleaning and "other municipal services supplemental to those normally provided by the municipality." Section 36613 (emphasis supplied). The PBID Law authorizes levying businesses and/or properties. Section 36628.5. Thus, property or business owners may petition for district formation. Their petition must include, among other things, a summary of a "Management District Plan." The plan must include a map, a description of district boundaries and boundaries of zones, a list of the improvements and activities proposed for each year of operation of the district along with their estimated maximum cost, the total annual amount to be expended plus debt service, and other things. Section 36622. In response, the local legislative body may propose to levy an assessment consistent with the petition and. plan or may alter the proposal and plan. Whatever the proposal, notice to those who would be assessed, a protest procedure and another hearing are required in conformity with the PBID Law and Proposition 218. Once a district is established, the city typically enters into a contract with a nonprofit "Owners' Association" which administers or implements the activities and improvements specified in the Management District Plan. Section 36614.5. That body submits an 5 annual report with the clerk of the local entity as specified by the PBID Law. Section 36650 One important feature of the PBID Law is that the maximum number of years in which an assessment may be levied is five for a newly created district. Section 36622(h). Following renewal procedures, the assessment can be extended for ten years. Id. Another important feature is that the PBID Law authorizes a local legislative body to, not only establish separate benefit zones, but also to define categories of businesses based upon the degree of benefit that each would derive from the improvements or activities provided within the district and impose different rates on different categories. Section 36628. Also, the Law contains a provision stating that a charter city may "adopt ordinances providing for a different method of levying assessments for similar or additional purposes from those set forth 'in this party." Section 36603. Several Southern California charter cities have utilized the PBID procedure. Apparently, the majority have opted not to adopt their own laws. Prepared By Marsha Jones Moutrie, City Attorney 6 Additional attachments available in City Clerk's Office.