| ITEM #: 19. DATE: 07/08/2024 AI #:2112 |
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CITY COUNCIL ACTION REPORT
| SUBJECT: | AMENDMENT TO DEVELOPMENT AGREEMENT WITH MICROSOFT MODIFYING TERMS REGARDING CONVEYANCE OF CITY BOOSTER STATION SITE AND TERMINATION OF DRAINAGE EASEMENTS |
| STAFF PRESENTER(S): | Barbara Chappell, Water Services Director |
SUMMARY
Fifth Amendment to Infrastructure Development Agreement for Project 10-11 modifying terms regarding conveyance of a city Booster Station Site to allow its continued operation until replacement facilities have been completed and authorizing termination of drainage easements.
STRATEGIC PLAN ALIGNMENT
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RECOMMENDATION
ADOPT RESOLUTION NO. 2024-2417 APPROVING THE FIFTH AMENDMENT TO INFRASTRUCTURE DEVELOPMENT AGREEMENT FOR PROJECT 10-11; AUTHORIZING THE TERMINATION OF DRAINAGE EASEMENTS; PROVIDING DIRECTION, AUTHORIZATION, AND AN EFFECTIVE DATE . (Barbara Chappell, Water Services Director)
FISCAL IMPACT
This amendment sets the amounts for two items from previous actions. The first is the replacement of the Booster Station facilities and associated construction costs ($3,545,459) that will be funded by Microsoft. The second is the subsequent purchase of the site ($173,454) by Microsoft. The replacement of the facility and sale of the site will open that area up to further development that will result in future construction sales tax collections for the City.
BACKGROUND AND PREVIOUS ACTIONS
Microsoft is developing property it owns bordered by MC-85 on the north, W. Broadway Road on the South and the S. La Cometa alignment on the west. The property is being developed under the name PHX 10-11. Microsoft is responsible for the design and construction of all infrastructure, within the boundaries of its property and outside the boundaries of its property needed for the city to serve the property. To that end, the city and Microsoft entered into an Infrastructure Development Agreement for Project 10-11 recorded on June 27, 2019, in the official records of Maricopa County, Arizona at recording number 2019-0486224 (hereinafter referred to as the “PHX 10-11 IDA”). The PHX 10-11 has been previously amended four times.
The city owns and operates a Booster Station Site that is surrounded by Microsoft’s property. Microsoft approached the city about acquiring the Booster Station Site to facilitate the development of Microsoft’s property. The Fourth Amendment to Infrastructure Development Agreement for Project 10-11 recorded on June 28, 2023, in the official records of Maricopa County, Arizona at recording number 20230337588 (hereinafter referred to as the “Fourth Amendment”), included terms and conditions for the city’s conveyance of the Booster Station Site and the city-owned improvements thereon to Microsoft. Under the terms of the Fourth Amendment, Microsoft was entitled to acquire the Booster Station Site, which included the city-owned improvements thereon, upon Microsoft’s request subject to Microsoft remitting the costs associated with the city’s development of replacement facilities at a different location.
The city subsequently determined that the Booster Station Site needed to remain in operation until the replacement facilities have been completed because the Booster Station Site is needed to provide the fire flow necessary to support Microsoft’s existing development. Microsoft and the city have agreed to further modify the current amended version of the Infrastructure Development Agreement for Project 10-11 IDA relate to terms specifically applicable to Microsoft’s acquisition of the Booster Station Site and the city-owned improvements thereon. However, prior to the negotiation of the terms of this Fifth Amendment, Microsoft asked the city to convey a small portion of the Booster Station Site to facilitate the development of its property. Because the conveyance of the portion of the Booster Station Site Microsoft wanted to acquire did not house any of the Booster Station Site improvements and was not needed for the operation of the Booster Station Site, and pursuant to the authority granted in the resolution adopted by the Goodyear City Council approving the Fourth Amendment, the city conveyed 7,339 square feet of the Booster Station Site, by quit claim to Microsoft, upon Microsoft’s payment of the fair market value of the property being conveyed. The appraised value of the entire Booster Station Site is $259,414, and Microsoft paid the city $85,960 for the portion of the Booster Station Site it acquired.
The city owns and operates a Booster Station Site that is surrounded by Microsoft’s property. Microsoft approached the city about acquiring the Booster Station Site to facilitate the development of Microsoft’s property. The Fourth Amendment to Infrastructure Development Agreement for Project 10-11 recorded on June 28, 2023, in the official records of Maricopa County, Arizona at recording number 20230337588 (hereinafter referred to as the “Fourth Amendment”), included terms and conditions for the city’s conveyance of the Booster Station Site and the city-owned improvements thereon to Microsoft. Under the terms of the Fourth Amendment, Microsoft was entitled to acquire the Booster Station Site, which included the city-owned improvements thereon, upon Microsoft’s request subject to Microsoft remitting the costs associated with the city’s development of replacement facilities at a different location.
The city subsequently determined that the Booster Station Site needed to remain in operation until the replacement facilities have been completed because the Booster Station Site is needed to provide the fire flow necessary to support Microsoft’s existing development. Microsoft and the city have agreed to further modify the current amended version of the Infrastructure Development Agreement for Project 10-11 IDA relate to terms specifically applicable to Microsoft’s acquisition of the Booster Station Site and the city-owned improvements thereon. However, prior to the negotiation of the terms of this Fifth Amendment, Microsoft asked the city to convey a small portion of the Booster Station Site to facilitate the development of its property. Because the conveyance of the portion of the Booster Station Site Microsoft wanted to acquire did not house any of the Booster Station Site improvements and was not needed for the operation of the Booster Station Site, and pursuant to the authority granted in the resolution adopted by the Goodyear City Council approving the Fourth Amendment, the city conveyed 7,339 square feet of the Booster Station Site, by quit claim to Microsoft, upon Microsoft’s payment of the fair market value of the property being conveyed. The appraised value of the entire Booster Station Site is $259,414, and Microsoft paid the city $85,960 for the portion of the Booster Station Site it acquired.
STAFF ANALYSIS
The proposed amendment will allow for the city’s continued operation of the Booster Station Site until the replacement facilities have been completed under terms consistent with the intent of the Fourth Amendment.
Microsoft remains responsible and will fund through an escrow account the costs of the design and construction of the replacement water facilities, comparable to what exists on the Booster Station Site, and the costs associated with the management of the escrow account. However, because the city intends to increase the size of the storage tank, Microsoft’s financial obligation for the cost of constructing the replacement water facilities is based on the Basis of Estimate Report PHX 15 Utility Relocation Design prepared by Brown and Caldwell on behalf of Microsoft. According to the Brown and Caldwell Report, which has been approved by city staff, constructing the replacement water facilities is estimated to cost $3,165,589 (the “Estimated Construction Costs”). The estimate of design costs is $379,870 (the “Estimated Design Costs”), which represents 12% of the Estimated Construction Costs. Microsoft will deposit $3,545,459 (the total of the Estimated Construction Costs and Estimated Design Costs) and the estimated costs of the escrow into an escrow account.
Under the terms of the Fifth Amendment, the city is responsible for designing and constructing the replacement water facilities, which are to be completed within five years of the effective date of the escrow agreement, which will be established under the terms of the Fifth Amendment. (A copy of the escrow agreement that will be used is attached as an exhibit to the Fifth Amendment.) The city is responsible for all costs incurred in the design and construction of the upgraded replacement water facilities in excess of $3,545,459. The city will pay the invoices as they come due and then will submit requests to the escrow agent for reimbursement, which are to be based on the percentage of the Owner’s obligation for the replacement water facilities in comparison to the total amounts of the contracts entered for the design and construction of the replacement water facilities. The final payment request will be the difference between the $3,545.459 Microsoft is to pay toward the cost of the replacement water facilities and the amount of the disbursements that had been made to the city.
To facilitate the development of its property, Microsoft asked the city to grant temporary easements over the remaining Booster Station Site and over existing city right-of-way providing for the installation of brine pipelines. The Fifth Amendment commits the city to granting these temporary easements provided they do not interfere with the city’s operation of the Booster Station Site and do not interfere with the city’s operation of any other public infrastructure improvements.
In addition, Microsoft has asked the city to allow Microsoft to remove an existing water line and terminate the water line and access easement where the water line is located. The water line is currently serving the Booster Station Site. Accordingly, under the terms of the Fifth Amendment, Microsoft will construct a temporary water line to replace the water line to be removed and will provide the city a temporary water line and access easement for the water line. Once the replacement water line is constructed and the city has received the temporary water line and access easement, the city will terminate the easement for the water line that is to be removed and Microsoft will responsible for disconnecting and abandoning the water line pursuant to city’s requirements for abandoning existing water lines.
Once the replacement booster station site is completed and in operation and the city has been fully reimbursed the $3,545.459 the city will convey, on an AS-IS basis by Quit Claim Deed, the Booster Station Site and all city-owned improvements thereon to Microsoft in exchange for Microsoft’s payment to the city of $173,454, which represents the difference between the appraised value of the Booster Station Site of $259,414 and amount ($85,960) Microsoft paid the city for portion of the Booster Station Site the city previously conveyed to Microsoft. Upon the conveyance of the remainder of the Booster Station Site, Microsoft shall be responsible for removing all improvements conveyed to Microsoft in the Quit Claim Deed and the temporary water line and access easement granted to the city for the replacement water line will be terminated by the city. Upon the termination of the temporary water line and access easement, Microsoft will responsible for disconnecting and abandoning the water line pursuant to city’s requirements for abandoning existing water lines.
In addition, Microsoft asked the city to terminate drainage easements located on Microsoft’s property that had previously been granted the city. Although this is not included in the Fifth Amendment, Resolution 2024-2417 approves the termination of the drainage easements upon the determination by the City Engineer or his designee that the drainage easements are not needed to accommodate storm water run-off from adjacent streets.
Staff is recommending the adoption of Resolution 2024-2417 approving the termination of drainage easements approved by the City Engineer or his designee and approving the Fifth Amendment to the Infrastructure Development Agreement for Project 10-11 for the following reasons:
· The terms of the Fifth Amendment are consistent with the intent of the Fourth Amendment in that Microsoft will pay the cost of designing and constructing replacement water facilities comparable to the existing facilities.
· It allows for the existing Booster Station Site to remain in operation until the replacement facilities are completed, which is required for there to be required fire flows, a life safety requirement.
· It provides for a process for the city’s receipt of the funds to pay towards the costs of the design and construction of the replacement water facilities and for the payment to the city for the remainder of appraised value of the Booster Station Site
· It includes terms that will facilitate Microsoft’s continued development of its property at no cost to the city
Microsoft remains responsible and will fund through an escrow account the costs of the design and construction of the replacement water facilities, comparable to what exists on the Booster Station Site, and the costs associated with the management of the escrow account. However, because the city intends to increase the size of the storage tank, Microsoft’s financial obligation for the cost of constructing the replacement water facilities is based on the Basis of Estimate Report PHX 15 Utility Relocation Design prepared by Brown and Caldwell on behalf of Microsoft. According to the Brown and Caldwell Report, which has been approved by city staff, constructing the replacement water facilities is estimated to cost $3,165,589 (the “Estimated Construction Costs”). The estimate of design costs is $379,870 (the “Estimated Design Costs”), which represents 12% of the Estimated Construction Costs. Microsoft will deposit $3,545,459 (the total of the Estimated Construction Costs and Estimated Design Costs) and the estimated costs of the escrow into an escrow account.
Under the terms of the Fifth Amendment, the city is responsible for designing and constructing the replacement water facilities, which are to be completed within five years of the effective date of the escrow agreement, which will be established under the terms of the Fifth Amendment. (A copy of the escrow agreement that will be used is attached as an exhibit to the Fifth Amendment.) The city is responsible for all costs incurred in the design and construction of the upgraded replacement water facilities in excess of $3,545,459. The city will pay the invoices as they come due and then will submit requests to the escrow agent for reimbursement, which are to be based on the percentage of the Owner’s obligation for the replacement water facilities in comparison to the total amounts of the contracts entered for the design and construction of the replacement water facilities. The final payment request will be the difference between the $3,545.459 Microsoft is to pay toward the cost of the replacement water facilities and the amount of the disbursements that had been made to the city.
To facilitate the development of its property, Microsoft asked the city to grant temporary easements over the remaining Booster Station Site and over existing city right-of-way providing for the installation of brine pipelines. The Fifth Amendment commits the city to granting these temporary easements provided they do not interfere with the city’s operation of the Booster Station Site and do not interfere with the city’s operation of any other public infrastructure improvements.
In addition, Microsoft has asked the city to allow Microsoft to remove an existing water line and terminate the water line and access easement where the water line is located. The water line is currently serving the Booster Station Site. Accordingly, under the terms of the Fifth Amendment, Microsoft will construct a temporary water line to replace the water line to be removed and will provide the city a temporary water line and access easement for the water line. Once the replacement water line is constructed and the city has received the temporary water line and access easement, the city will terminate the easement for the water line that is to be removed and Microsoft will responsible for disconnecting and abandoning the water line pursuant to city’s requirements for abandoning existing water lines.
Once the replacement booster station site is completed and in operation and the city has been fully reimbursed the $3,545.459 the city will convey, on an AS-IS basis by Quit Claim Deed, the Booster Station Site and all city-owned improvements thereon to Microsoft in exchange for Microsoft’s payment to the city of $173,454, which represents the difference between the appraised value of the Booster Station Site of $259,414 and amount ($85,960) Microsoft paid the city for portion of the Booster Station Site the city previously conveyed to Microsoft. Upon the conveyance of the remainder of the Booster Station Site, Microsoft shall be responsible for removing all improvements conveyed to Microsoft in the Quit Claim Deed and the temporary water line and access easement granted to the city for the replacement water line will be terminated by the city. Upon the termination of the temporary water line and access easement, Microsoft will responsible for disconnecting and abandoning the water line pursuant to city’s requirements for abandoning existing water lines.
In addition, Microsoft asked the city to terminate drainage easements located on Microsoft’s property that had previously been granted the city. Although this is not included in the Fifth Amendment, Resolution 2024-2417 approves the termination of the drainage easements upon the determination by the City Engineer or his designee that the drainage easements are not needed to accommodate storm water run-off from adjacent streets.
Staff is recommending the adoption of Resolution 2024-2417 approving the termination of drainage easements approved by the City Engineer or his designee and approving the Fifth Amendment to the Infrastructure Development Agreement for Project 10-11 for the following reasons:
· The terms of the Fifth Amendment are consistent with the intent of the Fourth Amendment in that Microsoft will pay the cost of designing and constructing replacement water facilities comparable to the existing facilities.
· It allows for the existing Booster Station Site to remain in operation until the replacement facilities are completed, which is required for there to be required fire flows, a life safety requirement.
· It provides for a process for the city’s receipt of the funds to pay towards the costs of the design and construction of the replacement water facilities and for the payment to the city for the remainder of appraised value of the Booster Station Site
· It includes terms that will facilitate Microsoft’s continued development of its property at no cost to the city