Cmpa Memo Re Cra Reimbursement

MEMORANDUM To:

Community Maritime Park Associates Board of Trustees

From:

Lacey A. Collier, Chairman, Community Maritime Park Association Board of Trustees

CC:

Al Coby, City Manager Mr. Thaddeus Cohen, Executive Director, City of Pensacola Community Redevelopment Agency Edward Spears, Loaned Executive, CMPA, Inc.

Date:

September 11, 2009

Re:

Request of City Council to Reimburse Additional Expenses to CRA

On September 8, 2009, The City Council, sitting as the Community Redevelopment Agency (CRA), received the attached report detailing expenses made, “by the CRA on behalf of the CMPA”. The CRA instructed city staff to present the report to the CMPA at the next meeting of the Board of Trustees and to discuss reimbursement of the expenses from the CMPA. Starting in November, 2006, the CMPA approached the City and requested a pre-development budget to provide the costs associated with the start-up of the Maritime Park project. City Council approved the pre-development budget for calendar years 2007 and 2008. City Council allowed the 2008 unexpended balance to carry forward to 2009, as the project was nearing construction and issuance of the bonds and did not require an additional allocation. It was expressly understood that the expenses incurred during the pre-development phase would be reimbursed from the $40 million bond proceeds. The City Council Memorandum shows predevelopment costs totaling $2,160,011. CMPA financial records show that the CMPA has expended $2,096,578.45 to date. This is a difference of $63,432.55. The balance in the 2009 CMPA pre-development budget currently is $109,016.54. 2007 Allocation: $977,075 Expenses: $900,060.65 2008 Allocation: $1,305,535 Expenses: $894,186.74 2009 Allocation: $0 (08 balance carried forward) Expenses: $302,331.06 (to date) TOTAL

$2,282,610

$2,096,578.45

Community Maritime Park Associates, Inc, Memorandum re: City Reimbursement September 11, 2009 Page 2 The memorandum lists “LOST-8yr expenses of $396,603”. This expense is for the Southern Bulkhead Mitigation project undertaken by the City. When the southern bulkhead on the property was constructed in 2002, the City was required to provide a mitigation project to offset the environmental impacts. The required mitigation would have been completed during the Festival Park project, had that project gone through to completion. When the Festival Park project was overturned via referendum, all work on the property stopped. The mitigation project was left undone. When the CMPA submitted for state environmental permits in 2007, the Florida Department of Environmental Protection advised that no permit would be issued until the mitigation for the southern bulkhead was completed. The City approached the CMPA to extend CMPA’s contract with Caldwell and Associates to design and engineer the southern bulkhead mitigation project, as this would expedite the work. CMPA agreed and paid Caldwell Associates $56,173.30 for those services. CMPA was reimbursed by the City for these expenses and they are not included in the pre-development budget. The City oversaw the construction of the work which has recently been completed. The southern bulkhead mitigation project was an obligation of the City of Pensacola prior to the CMPA coming into existence and prior to the Maritime Park project. The CMPA assisted in expediting the City’s obligation to allow the CMPA permits to be issued. This expense should not be associated with the Maritime Park project in any way. The memorandum goes on to identify an additional $391,447, which includes $264,562 for professional fees in drafting documents. The report states, the remaining $126,885 is identified as costs associated with the loaned executive’s salary, lobbying costs and legal fees. According to Mr. Spears, prior to starting as the loaned executive with CMPA, his salary was funded 100% by City General Revenue. Based on the amount of time spent on CMPA issues, the City’s Finance Department assigned approximately 75% of his salary to the CRA in FY 2008 as an endof-year budget adjustment. Annually, Mr. Spears’ salary is 100% budgeted from the General Fund. Currently, Mr. Spears’ salary is 100% budgeted and paid out of the General Fund for FY 2009 and is shown as 100% General Fund in the proposed 2010 Budget. Reimbursement for Mr. Spears’ services has never been contemplated. His services have been a point of discussion with two City Managers at many CMPA Board meetings and the topic of reimbursement was never broached. Further, CMPA initiated a process to hire an executive director in 2007. The process was halted, when City Bond Council opined that executive director expenses are not reimbursable from the proceeds of the bond. Given that no counter opinion has ever been rendered, the CMPA cannot reimburse the CRA for costs associated with Mr. Spears’ services from the bond proceeds. What source the CMPA would utilize to make such a reimbursement is unknown at this time. In regards to lobbying fees and legal costs, these have been incurred by the City and approved by City Council. The Normandy Group was hired by the City to lobby not only for funding for the Maritime Park, but also for other City projects. This should not be a CMPA responsibility. Outside legal council has recently been retained to vet the use of Build America Bonds and to review the use of New Market Tax Credits to fund the Maritime Museum. While funding the Maritime Museum and securing better financing for the Bonds are important endeavors, neither of these programs directly benefits the CMPA. They specifically and financially benefit the City and the University of West Florida. However, the CMPA is being asked to reimburse the City for the costs associated with pursuing these options. In regards to the consultant fees associated with contract negotiations, the CMPA has long held the opinion that those services were sought at the direction of the City and to the benefit of the City. CMPA completed and approved a contract that was forwarded to the City in December, 2008. The City then embarked on a process that extended until April, 2009. Additionally, as required by the

Community Maritime Park Associates, Inc, Memorandum re: City Reimbursement September 11, 2009 Page 3 conditions precedent in the master lease between CMPA and the City (section 7.06), the City of Pensacola was obligated to have “an analysis of the project by an independent consultant retained by the lessor (city)”. A City Council agenda item issued on May 28, 2009 stated that, “reports from Abramson and Associates, Inc, Real Estate Advisors and the City Manager were provided to the City Council detailing the economic feasibility of the Development agreement with Maritime Park Development Partners.” There are expenses totaling $264,562 identified as the costs associated with generating these reports. This was a contractual obligation of the City under the terms of the Master Lease and Master Development. These reports were deemed satisfactory as signified by the City Council confirmation that the conditions precedent had been met and the establishment of a lease commencement date of May 28, 2009. It appears the CRA is asking the CMPA to reimburse them for a contractual obligation of the City. The report then identifies several other costs. The first is a cost of approximately $25,000 for the CRA/City to amend an agreement with the ECUA regarding the funding of the site remediation at the Main Street Waste Water Treatment Plant. While this, much like the southern bulkhead mitigation project, is a worthwhile project, it is in no way related to the Community Maritime Park project. The City/CRA’s involvement in that project is a separate matter which was approved by the City Council and CRA. How this is related to the CMPA and would be an eligible reimbursement from the CMPA bonds is unclear. The report then discusses issuance costs related to the bond. It has been represented from the onset, that the costs of issuing the bonds would be included in the issuance of the bonds. CMPA is to receive a net of $40,000,000 for the project. This would require a gross amount in the $42 to $44 million range as has been shown on several financing strategy reports to City Council. It should be noted that no presentation regarding the City’s plans to finance the $40 million has ever been made to the CMPA Board of Trustees, as this is a City Council and CRA matter. The next item in the report is the costs associated with the New Market Tax Credits (NMTC). At a recent City Council Committee of the Whole meeting, City Council received a presentation from Mr. Ed Gray, Executive Director of the CTA-CDE, the group overseeing the NMTC. The City Council gave overwhelming support to pursue the NMTC and was made aware of the up to $50,000 in costs that would be incurred. It was also advised that these costs can be reimbursed if the NMTC deal is closed, but could be lost if the deal falls through. City council concurred. To date, the CMPA has paid $10,000 toward these costs. The University of West Florida has been invoiced for $5,000 as reimbursement of half of the non-refundable reservation fee. The CMPA’s current pre-development budget has sufficient balance to pay this expense until reimbursed at closing. The City has incurred legal fees associates with the NMTC to provide a level of comfort in the City’s participation. Why CMPA should be charged for these legal fees is unknown, as CMPA has its own legal counsel and financial advisors. The next discussion in the report is of certain administrative fees that the City agreed to waive in the Master Lease and Master Development Agreements between the City and CMPA. The City negotiated this during the contracting phase of the project. This was agreed to by both parties and should be adhered to. This could be considered a violation of the contract if the City were to seek reimbursement of these expenses from the CMPA. According to city staff, there have been substantial cost savings from the Southern Bulkhead project which was discussed earlier. The City’s Finance Director has identified those costs savings as a potential source of funding for

Community Maritime Park Associates, Inc, Memorandum re: City Reimbursement September 11, 2009 Page 4 engineering and inspection fees. Regarding the City’s tree ordinance, the CMPA received a report from the City’s Building Official on September 2, stipulating that the CMPA will have to either replant 55 trees or pay $13,750 into the City’s Tree Fund. Conversations with the master developer have confirmed that substantially more than 55 trees will be replanted during phase one of the project and the fee will not have to be paid. Finally, it should be noted that the Community Maritime Park Associates, Inc. in a private, notfor-profit, 501(c)3 company organized under the laws of the state of Florida with a Board of Trustees appointed by the Board and City of Pensacola. There is no authorization for the City to carry out any action, “on behalf of the CMPA”. No expense, other than those identified in the pre-development budget, allocated and approved by the City Council, was authorized by the Board of Trustees. No approval was ever sought for any such expense. The CMPA is fully aware of the obligation to reimburse the City advances for pre-development activities undertaken by the CMPA. As has been shown above, the other expenses are not the responsibility of the CMPA.