WATER SUPPLY PLANNING COMMITTEE
ITEM:		DISCUSSION ITEM
3.	PROGRESS REPORT ON PROPERTY LEASE FROM CITY OF SEASIDE FOR AQUIFER STORAGE AND RECOVERY PROJECT
Meeting Date:			November 10, 2014	Budgeted:	Yes
From:			David J. Stoldt	Program/	Water Project 1
			General Manager	Line Item No.:	1-2-1
Prepared By:			David J. Stoldt	Cost Estimate:	TBD
General Counsel Review: N/A
Committee Recommendation:
CEQA Compliance: N/A

SUMMARY: The District has been working with the City of Seaside since early this year to negotiate an easement for the Santa Margarita Aquifer Storage and Recovery site.

In April, the City initially proposed a ground lease with basic terms (see Exhibit 3-A) including a 40 year term with an annual payment of $17,700 beginning with the execution of the agreement. The annual lease payment shall be adjusted on an annual basis by the San Francisco Bay Area Consumer Price Index (CPI). Further, the annual lease shall be re-evaluated at the 10^th, 20^th, and 30th year. The new lease rate shall based on a fair market lease rate based upon an appraisal (determined at lessee expense). The annual CPI adjustment will continue to apply and in no case will the lease rate drop below the previous annually adjusted rate.

The District offered a counter-proposal in June (see Exhibit 3-B) which clarified that the District could not pay the City until it receives possession, disagreed with the escalation factor and reappraisals, and reminded the City that the District actually has an existing easement from FORA until 2050 for a majority of the site.

The City responded June 25, 2014 (see Exhibit 3-C) maintaining the form of a ground lease, recognizing the commencement at title transfer, waiving the reappraisal process, but insisting on an annual CPI escalation factor. The District agreed to these basic terms in a July 22, 2014 letter as an expediency to advance the project to completion and requested that the City provide a draft ground lease to the District’s General Counsel.

The City’s proposed ground lease (Exhibit 3-D) was found to be unsatisfactory by District General Counsel.

Attached as Exhibit 3-E is a proposed streamlined version for an ASR ground lease.  This version puts the City’s reduces the City’s 45 page version to 8 pages.  

Please note General Counsel’s provided two options for the amount of rent, but the General Manager does not believe either will be acceptable to the City, based on a conversation with the City Manager last week.

Key elements in this revised draft are:

1. No CPI inflator.

2. No punitive "hidden" or end of term fees.

3. Reciprocal indemnification.

4. Mediation of disputes.

5. Allows MPWMD to self insure or insure through a JPA.

6. Deletes MPWMD abandonment of the easement that it already holds (the City did not propose any value for this abandonment).

Both versions are presented for review and comparison. 

EXHIBITS

3-A City of Seaside Initial Ground Lease Proposal, April 2014

3-B Response letter from MPWMD to City, June 2014

3-C City of Seaside Counterproposal, June 2014

3-D Proposed Groundlease – City of Seaside Draft

3-E Proposed Revised Groundlease – MPWMD General Counsel

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