Sunnyvale Public Lands Act Independent Analysis

In this week’s meeting, Council certified registrar results and placed the Sunnyvale Public Lands Act on the November 2016 ballot in response to a resident petition.  The meeting was very useful in educating residents about the actual impacts of the proposed ordinance.  For the past several months, the proponents have been circulating both partial information and misinformation about the impact of the proposed ordinance.  As such, the City commissioned an independent consultant well-versed in what’s called a “9212 report” to analyze the actual impacts of the initiative.  I encourage residents to watch the meeting, but I’ll provide some of the highlights.  The consultants made it clear that this proposed ordinance is the most restrictive municipal land use ordinance that they’ve ever encountered anywhere.

The prevailing message from the consultants was that the wording of the initiative is vague and unclear, and the scope of its impact is so wide, that there is extreme difficulty in predicting all of its impacts.  The vagueness doesn’t give the City more discretion in enforcing the ordinance; instead, it creates significant opportunity for the City to be sued, repeatedly.  Regardless of what the authors’ intent may have been, or what the City may reasonably interpret the ordinance to say, the real concern is the danger that for any land transaction, any unhappy person (resident or not) can use the ordinance as grounds to sue to slow or stop the transaction, regardless of the legal merit of the claim.  With just land sales, that’s not a significant danger, since the City almost never sells land (I believe there have only been two such sales in the past decade – the houses on Jackson Street and the Raynor Activity Center school buildings). But the initiative also requires voter approval for leases – whether the City leases land to another party or from another party.  And that happens a lot.

The 9212 report is a fascinating read.  Most useful are the two lists at the end of the report, one showing the 160 City properties and whether or not they are affected, the other being the 110 recent land use agreements and whether or not they are affected.  I encourage you to read the report.

Cost to the City

The biggest impact to the City is the impact to the budget, and it’s huge.  The substantial costs of this ordinance are incurred in several ways.

The biggest cost stems from the potential loss of lease revenue.  The City gets about $600k per year in lease revenue from properties clearly falling under the proposed ordinance. Those leases would require voter approval.  Unfortunately, almost all of them are small-value month-to-month leases, meaning that the cost to place a measure on the ballot would be greater than the revenue generated. This would likely result in terminating those leases and losing that revenue, which would obviously impact the City services funded by that revenue. A $12 million hit to our 20-year budget creates serious problems for City services.

But equally significant are the election costs incurred by the required ballot measure.  Each ballot measure costs the City $41k in hard cash paid to the Registrar of Voters, and measures requiring special elections (because they cannot wait up to two years for a general election) incur a cost of $700k. And in most cases, two or more different approvals cannot be legally combined into a single measure.

Second, the consultant estimated that performing due-diligence and analyzing legal implications of a land transaction (even when it isn’t necessarily covered by the ordinance) would incur a cost of $100k per land transaction – independent of the aforementioned election costs, mostly in analysis and outside consultants.

Third, the consultant made it clear that enacting this ordinance would require hiring dedicated staff in the City Attorney’s office to enforce the ordinance.

Fourth, there is substantial loss of revenue due to “opportunity cost”.  The requirement that a sale or even a lease must wait up to two years for a public vote will almost certainly lower the value of those transactions. Forcing a purchaser or lessor to wait two years (and to risk the uncertainty of lease renewal) will dramatically reduce the number of interested parties, as well as reducing the fair market value of the transactions.  In many cases, the City will simply have to give up the notion of a short-term lease, since getting voter approval of month-to-month leases every two years is simply impractical.  In others, the delays and requirement for voter approval of lease renewals will decrease what a party is willing to pay for a lease.  And for land the City leases from others, the City will likely have to pay more for those leases, due to the uncertainty of elections.

There are additional unclear costs imposed by the ordinance. There is a subtlety in the provisions of state and federal grant funding rules that would actually invoke the ordinance in many cases.  This may prevent the City from applying and receiving significant grant funding in many cases. The ordinance may make it difficult for the city to unload property for which maintenance costs outweigh the value of keeping possession of the land, increasing general fund expenditures for maintenance (or, more properly, preventing the city from decreasing those expenses).

Finally, and also subtle, the consultant says the ordinance may impact the City’s credit rating and potentially increasing its cost to borrow money, since voter approval would impact the “underlying property transaction”.  The consultants recommend working with a financial adviser and/or a bond legal counsel to determine how the ordinance may worsen the City’s credit rating.

Affected City Transactions

The consultants looked at the past few years of City operations and was able to identify 110 City transactions involving real property over those few years.  Of those transactions, an estimated 31-36 transactions would likely be subject to the proposed ordinance, or 27-32% of all transactions the City has conducted in that time.  At $41k apiece, the election cost alone from the sheer quantity of required ballot measures is staggering.  Add in the $100k per transaction for staff time in analyzing the agreement, and we’re talking several million dollars in real cost to the City, just in the past few years.  The consultants also determined that just in the very first election after enacting the ordinance, the City would have to create ballot measures on 12 separate agreements. If I’m doing the math right, that’s $1.7 million in costs to the city in just the first election year.

Affected Properties

While the proponents advanced this ordinance with only two properties in mind, the consultants determined that it likely impacts between 83 and 89 of the City’s 160 parcels, or 52-68% of all City properties. The uncertainty comes from the absence of clarity in the ordinance’s language, and the uncertainty about how a judge would interpret the ordinance when the City gets sued. Park properties are obvious, and the City has about 22 parks.  Less obvious were properties such as multiple  public parking lots and driveways, flood control areas, the old Sunnyvale landfill, all fire stations, water pumping stations, wells, and tanks, the water pollution control plant, and others.  In the end, the consultants could only identify 20 of the City’s 160 parcels as likely safe from litigation.

City Operations

The report makes it clear that this will fundamentally change the entire way that the City makes land use decisions – but that the consultants cannot determine exactly what those changes will involve, since the ordinance is so vague and its legal implications so uncertain.

And then there are the practical implications of the ordinance.  What happens when a lease expires well in advance of a general election? The ordinance explicitly prohibits the City from renewing leases without voter approval, so the City would be forced to evict the tenant until voters could weigh in. This was completely ignored by the proponents, who asked Council to adopt the ordinance immediately on Tuesday. Apparently, they were completely unaware of the impact to NOVA had we taken that action. NOVA provides workforce training and services for seven of the county’s cities, and they rent space from Sunnyvale under a year-to-year lease.  Had we adopted the ordinance as the proponents requested, the lease would have expired almost a full year before voters could approve it in the November 2016 general election, meaning that the City would have had to evict NOVA.  The impact to some of the most vulnerable of the County’s workforce would have been devastating.  That is one of many aspects of the ordinance that escaped its proponents.  Luckily, it didn’t escape the Council.

Other Stuff

There were some other surprising outcomes of the analysis.  One is that the actual Raynor Activity Center sale is not covered by the ordinance.  In analyzing the agreement, the consultants believe that the sale of the RAC parking lot is covered – but the sale of the RAC buildings and the use agreement for Raynor Park are not.  As I pointed out, the City could just as easily have agreed to sell the RAC buildings, include the Park agreement, and changed the sale of the parking to a simple use agreement, and the transaction would no longer be covered by the proposed ordinance.  Given the main intent of the ordinance is to protect against sales like the RAC, its failure to protect that specific sale is significant.

There are some interesting unknowns that are mentioned. In the event of a major disaster, FEMA leases local property from jurisdictions to provide disaster relief, and parks are commonly used. This was the case in Oakland and possibly SF after Loma Prieta.  The ordinance likely removes the City’s authority to engage in this sort of disaster recovery. It’s also uncertain if the City can simply swap uses within its own properties (a parking lot with a fire station, for instance), since the proposed ordinance restricts “land swaps”.  Child care locations, concession agreements, and sports league agreements are all uncertain as well, since those agreements involve exclusive use of land in exchange for money.  In all of these cases, the City couldn’t be sure of its legal footing until it gets sued and a judge renders a verdict.  That makes it very difficult for the City to make decisions on such issues.

There are some really odd cases that weren’t mentioned in the discussion. For instance, consider if the City decides to lease private property for a branch library or a teen center or whatever. That lease wouldn’t be subject to the ordinance due to its initial usage – but its subsequent renewals would all be subject to voter approval – even if the city stopped using the land for several years and then started up again and signed a new lease.  An existing cell tower renewal on public property may or may not be covered, but a new tower likely would – and all subsequent lease renewals involving that tower would also require ballot measures.  That creates the situation where some cell tower lease renewals within the City require voter approval but others (even in the same park!) would not.  The oddities go on and on.

Obviously, this is a massively confusing ordinance, and residents are going to have quite a challenge wrapping their heads around the significant impacts that would be caused by this initiative.  Hopefully, Tuesday’s consultant report will start that discussion and better inform Sunnyvale’s residents about what they’re getting into with this ordinance.

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