ITEM:		ACTION ITEM
21.	CONSIDER APPROVAL OF GROUND LEASE WITH CITY OF SEASIDE FOR SANTA MARGARITA ASR SITE EXPANSION
Meeting Date:			December 14, 2015	Budgeted:	Yes
From:			David J. Stoldt,	Program/	Water Supply Projects
			General Manager	Line Item No.:	1-2-1 A i
Prepared By:			David J. Stoldt	Cost Estimate:	$22,000 (Initial Lease Fee)
General Counsel Review: N/A
Committee Recommendation: N/A
CEQA Compliance: N/A

SUMMARY: At its July 20, 2015 meeting, the Monterey Peninsula Water Management District (District or MPWMD) Board reviewed a ground lease with the City of Seaside for the Santa Margarita Aquifer Storage and Recovery (ASR) site located at 1910 General Jim Moore Boulevard in Seaside. The purpose for entering the lease with Seaside is to allow a modest expansion of the existing Phase 1 ASR site so that pipelines and equipment can be installed at the site to accommodate treatment and distribution of water from other existing and planned additional ASR sites per current long-term water supply augmentation plans.

The District raised 19 concerns over the City’s first draft, 17 of which were addressed in the District’s favor. The two areas that the City did not agree to were a rent discount due to our existing easement and mediation as a dispute resolution. The City’s response to our request for consideration of the existing easement was: “The position of the city and that of FORA is that the easement is invalid. The easement violates the Army's agreement with FORA and therefore the land was deeded to FORA unencumbered. The city was not provided the opportunity to comment or consider a more suitable location for these facilities that would provide less of an obstacle to our future economic development. The revenue generated under this agreement is minimal in comparison to the obstacle that this facility places on future development opportunities in the surrounding areas. Furthermore, FORA is required to approve the agreement between the City and MPWMD and in my consultation with them I was informed that the agreement would not be approved unless it provided fair market consideration for the entire easement area not just the expansion of the site.”

MPWMD believes it has a valid possessory interest in the Santa Margarita Easement. The U.S. Army granted an express easement to MPWMD through September 30, 2050, which was subsequently recorded. Said easement is for 1.09 acres of the 1.9 acre site or 57.4%. MPWMD believes the appraiser erred in not recognizing the easement and market rate should have been reduced through the term of the easement. Seaside and FORA assert the easement is invalidated by FORA’s agreement with the U.S. Army. However, MPWMD believes it may assert a claim for a prescriptive or equitable easement and could perfect this right.

The General Manager met with representatives of Seaside and FORA, and was asked to present alternatives for Seaside negotiators to consider. Additionally, at its October meeting the District Board approved a Local Water Project Grant for the City of Seaside. As a result of that meeting, the District presented three alternatives to the City:

Alternative 1: Seaside and FORA agree with MPWMD. Market-based rent is reduced by 57.4% through 2050 and annual rent becomes $6,978. After 2050, the rent returns to $16,380 plus escalation to that time.

Alternative 2: Seaside and FORA recognize some value to existing easement and agrees to a negotiated market-based rent of $11,680 which splits the difference in the two values in Alternative 1. City may also determine such rent is market-based due to in lieu contributions from the Local Water Project Grant.

Alternative 3: Seaside and FORA seek judicial decision invalidating the easement and prevail. Annual market-based rent remains $16,380.

The City has agreed to alternative 2.

RECOMMENDATION: The General Manager recommends the Board approve the form of ground lease contained in Exhibit 1-A and authorize the General Manager to execute the ground lease with the City of Seaside on behalf of the Board, provided there are no additional substantive changes.

BACKGROUND: The District began negotiations in 1999 with the U.S. Army for an easement on former Fort Ord property to install and test a full-scale ASR well in the Seaside Groundwater Basin. In 2000, the Army granted a 0.23 acre easement, which was amended to 1.09 acres in 2007 to allow an expansion area for a second well and facility building as part of the first phase of a permanent ASR project. Since then, plans have been developed to utilize this site for treatment and distribution of water delivered from additional ASR sites in the basin, in coordination with long-term water supply project planning with California American Water (Cal-Am). Expansion of the existing easement area to 1.90 acres is required in order to accommodate the space needs for the planned use of the site. .

Currently, this portion of the former Fort Ord land is under the jurisdiction of the FORA. Per an agreement between FORA and Seaside, these entities must coordinate on this proposed property transaction, as the land is intended for future transfer to Seaside. The ground lease will also be subject to FORA’s review and concurrence per this agreement. The District has been working on this matter with both Seaside and FORA since 2010. The current ground lease reflects the multiple staff-level discussions and reviews that have taken place in order to get to closure on the site expansion issue.

IMPACTS ON STAFF/RESOURCES: A significant staff effort has been expended in planning, coordinating, analyzing and overseeing work on the District’s ASR program, as reflected in the District’s Strategic Plan. It is expected that District staff will continue this level of effort as part of the ongoing development of the ASR program in the Seaside Basin.

EXHIBIT

21-A Draft Ground Lease

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