| ITEM #: 21. DATE: 07/08/2024 AI #:2106 |
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CITY COUNCIL ACTION REPORT
| SUBJECT: | DEVELOPMENT AGREEMENT WITH ESTRELLA NORTH LLC FOR THE RAINBOW VALLEY WATER RECLAMATION FACILITY EXPANSION |
| STAFF PRESENTER(S): | Barbara Chappell, Water Services Director |
SUMMARY
Development Agreement with Estrella North LLC regarding the expansion of the Rainbow Valley Water Reclamation Facility.
STRATEGIC PLAN ALIGNMENT
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RECOMMENDATION
ADOPT RESOLUTION NO. 2024-2412 APPROVING THE DEVELOPMENT AGREEMENT FOR RAINBOW VALLEY WATER RECLAMATION FACILITY (RVWRF) EXPANSION; PROVIDING DIRECTION, AUTHORIZATION, AND AN EFFECTIVE DATE . (Barbara Chappell, Water Services Director)
FISCAL IMPACT
CIP Project # 60077 Rainbow Valley WRF Expansion is currently programmed in the FY2025-FY2029 CIP with a total project budget of $46,158,800. Per the Development Agreement, Estrella North LLC will be responsible for $31.2 million of the project and the City has budgeted for the remaining $15 million. The developer will be reimbursed for their contribution with development impact fees as they are collected when building permits are issued. The reimbursement to the developer will occur after the City has received enough development impact fees to pay for associated annual debt service payments. If either the project budget or associated debt service costs exceed the amounts included as a part of the calculation of the development impact fees, the fees will be updated in accordance with state statute.
BACKGROUND AND PREVIOUS ACTIONS
The City and AMCOR Investments Corporation, the original owner/developer of the Estrella Property, entered into that certain agreement dated August 11, 1986, and certain amendments, addendums, and supplemental agreements (collectively referred to as the “Master Agreement”) thereto, in connection with the development of the Estrella Property as a large mixed use master planned community formerly known as Estrella Mountain Ranch, and now known as Estrella. The Master Agreement, which is binding on all successors and assigns to the Estrella Property, states in part: “Amcor shall plan, design and construct such water and sewer treatment facilities as Amcor reasonably deems necessary to service the Estrella Property” subject to reimbursements from applicable sources as described in the Master Agreement, including development fees.
Subsequent to the Master Agreement, the City and AMCOR and/or its successors-in-interest entered into a series of agreements related to the provision of water and sewer service to the Estrella Property, including an agreement dated December 8, 2003 between Sun MP, LLC, an Arizona limited liability company titled the Goodyear-Sun MP Rainbow Valley Water Reclamation Facility Agreement (referred to as the "2003 RVWRF Agreement"), the Land Use Agreement and Perpetual Easement Restricting Land Uses Adjacent to the Rainbow Valley Wastewater Reclamation Facility and Providing for Noise and Order Setbacks, recorded in the official records of Maricopa County on March 6, 2006, as Instrument Number 2006-0299531 (referred to as the "Order Control Easement"), and the Development Agreement for Expansion of Rainbow Valley Water Reclamation Facility recorded in the Official Records of Maricopa County at document 2020-0498396 (referred to as the "2020 RVWRF Amendment").
Estrella North LLC and its affiliate (collectively “Estrella North’) acquired a portion of the Estrella Property, and upon its acquisition became parties to, among other agreements, the Master Agreement, the 2003 RVWRF Agreement, and the 2020 RVWRF Amendment, pursuant to which Estrella North became responsible for funding the design and construction of improvements to expand the Rainbow Valley Waste Water Treatment Facility (the “Facility”) as needed to serve the Estrella Property subject to reimbursements as provided 2003 RVWRF Agreement, and the 2020 RVWRF Amendment.
Subsequent to the Master Agreement, the City and AMCOR and/or its successors-in-interest entered into a series of agreements related to the provision of water and sewer service to the Estrella Property, including an agreement dated December 8, 2003 between Sun MP, LLC, an Arizona limited liability company titled the Goodyear-Sun MP Rainbow Valley Water Reclamation Facility Agreement (referred to as the "2003 RVWRF Agreement"), the Land Use Agreement and Perpetual Easement Restricting Land Uses Adjacent to the Rainbow Valley Wastewater Reclamation Facility and Providing for Noise and Order Setbacks, recorded in the official records of Maricopa County on March 6, 2006, as Instrument Number 2006-0299531 (referred to as the "Order Control Easement"), and the Development Agreement for Expansion of Rainbow Valley Water Reclamation Facility recorded in the Official Records of Maricopa County at document 2020-0498396 (referred to as the "2020 RVWRF Amendment").
Estrella North LLC and its affiliate (collectively “Estrella North’) acquired a portion of the Estrella Property, and upon its acquisition became parties to, among other agreements, the Master Agreement, the 2003 RVWRF Agreement, and the 2020 RVWRF Amendment, pursuant to which Estrella North became responsible for funding the design and construction of improvements to expand the Rainbow Valley Waste Water Treatment Facility (the “Facility”) as needed to serve the Estrella Property subject to reimbursements as provided 2003 RVWRF Agreement, and the 2020 RVWRF Amendment.
STAFF ANALYSIS
Since its acquisition, Estrella North has continued to develop the property it acquired within Estrella and has notified the City that the near-term plans for development within the Estrella Property require sewer treatment capacity in excess of the existing 0.75 million gallons per day (mgd) capacity at the RVWRF. Over the past eighteen months, city staff and representatives of Estrella North have been negotiating terms related to the operations of and improvements to the RVWRF, including the expansion of the RVWRF to provide an additional 1.25 mgd of treatment capacity.
The proposed development agreement (Exhibit 1) is the culmination of the work by city staff and representatives of Estrella North. The following is a summary of the key terms in the proposed development agreement.
Staff is recommending the adoption of the proposed Development Agreement for Rainbow Valley Water Reclamation Facility (RVWRF) expansion for the following reasons:
The proposed development agreement (Exhibit 1) is the culmination of the work by city staff and representatives of Estrella North. The following is a summary of the key terms in the proposed development agreement.
· Under the terms of the agreement, the City is responsible for the management of the project to improve and expand the RVWRF Facility.
· The project includes preparation of a facility master plan for the RVWRF; operational improvements for the existing 0.75 mgd capacity of the RVWRF; noise and odor improvements to the RVWRF; additional facility upgrades; and RVWRF expansion to increase treatment capacity by 1.25 mgd.
· The estimated costs of the RVWRF expansion, including the costs of the property needed for the expansion, and the city’s interest expense, is $46.2 million. Estrella North will contribute a maximum $31.2 million towards these costs and the city will contribute the remainder. Estrella North will also provide financial assurance in the form of a $15.6 million payment bond. The City intends to finance in whole or in part with bond funds.
· Payment and reimbursement terms are identified within the agreement, which include a required true up of the actual costs of the RVWRF expansion.
· The property needed for the expansion, as well as the ultimate buildout area, has been identified and terms requiring its conveyance are included.
· A 350-foot-wide setback easement around the RVWRF has been identified, which will prevent any development within setback easement.
· Estrella North will retain its right to effluent generated from the existing capacity of the RVWRF, and will have the right of first refusal to purchase effluent generated from the expansion of the RVWRF.
· The City and Estrella North will be entitled to a proportion of the 1.25 mgd expansion capacity based on their respective contributions towards the overall cost of the RVWRF expansion.
· The city will control its proportion of the RVWRF capacity and can commit that capacity to development outside of Estrella upon the approval of a final plat for the property.
· Estrella North is waiving its rights under A.R.S. § 9-463.05(F) that provides for the deferral of any new development impact fee and the deferral of the amount of any increase in a modified development fee for a period of time.
· The project includes preparation of a facility master plan for the RVWRF; operational improvements for the existing 0.75 mgd capacity of the RVWRF; noise and odor improvements to the RVWRF; additional facility upgrades; and RVWRF expansion to increase treatment capacity by 1.25 mgd.
· The estimated costs of the RVWRF expansion, including the costs of the property needed for the expansion, and the city’s interest expense, is $46.2 million. Estrella North will contribute a maximum $31.2 million towards these costs and the city will contribute the remainder. Estrella North will also provide financial assurance in the form of a $15.6 million payment bond. The City intends to finance in whole or in part with bond funds.
· Payment and reimbursement terms are identified within the agreement, which include a required true up of the actual costs of the RVWRF expansion.
· The property needed for the expansion, as well as the ultimate buildout area, has been identified and terms requiring its conveyance are included.
· A 350-foot-wide setback easement around the RVWRF has been identified, which will prevent any development within setback easement.
· Estrella North will retain its right to effluent generated from the existing capacity of the RVWRF, and will have the right of first refusal to purchase effluent generated from the expansion of the RVWRF.
· The City and Estrella North will be entitled to a proportion of the 1.25 mgd expansion capacity based on their respective contributions towards the overall cost of the RVWRF expansion.
· The city will control its proportion of the RVWRF capacity and can commit that capacity to development outside of Estrella upon the approval of a final plat for the property.
· Estrella North is waiving its rights under A.R.S. § 9-463.05(F) that provides for the deferral of any new development impact fee and the deferral of the amount of any increase in a modified development fee for a period of time.
Staff is recommending the adoption of the proposed Development Agreement for Rainbow Valley Water Reclamation Facility (RVWRF) expansion for the following reasons:
· The work that will be undertaken pursuant to this agreement provides a long-range framework for the development of the Facility, provides for the expansion of treatment capacity at the Facility, needed for the continued development within Estrella and outside the boundaries of Estrella.
· The project includes operational improvements and upgrades that are needed to address existing deficiencies and increase operational efficiencies, and including this work with the larger expansion project results in cost savings to the city.
· The city’s contribution towards the expansion costs was determined by a conservative analysis of anticipated development within Estrella in an effort to ensure the city would receive sufficient funds to cover the debt service from the bonds the city expects to issue to fund its contribution towards the project.
· The city will control a percentage of the capacity that results from its contribution, which it can commit to development outside of Estrella, which could facilitate development in the Rainbow Valley area.
· The project includes operational improvements and upgrades that are needed to address existing deficiencies and increase operational efficiencies, and including this work with the larger expansion project results in cost savings to the city.
· The city’s contribution towards the expansion costs was determined by a conservative analysis of anticipated development within Estrella in an effort to ensure the city would receive sufficient funds to cover the debt service from the bonds the city expects to issue to fund its contribution towards the project.
· The city will control a percentage of the capacity that results from its contribution, which it can commit to development outside of Estrella, which could facilitate development in the Rainbow Valley area.