ITEM #: 16. DATE: 07/10/2023 AI #:1580 |
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CITY COUNCIL ACTION REPORT
SUBJECT: |
DEVELOPMENT AGREEMENT FOR KING RANCH |
STAFF PRESENTER(S): |
Roric Massey, City Attorney |
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SUMMARY |
Development Agreement for King Ranch addressing water supplies required for development and resolving the dispute regarding contributions towards the cost of Cotton Lane Bridge. |
STRATEGIC PLAN ALIGNMENT |
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RECOMMENDATION |
ADOPT RESOLUTION NO. 2023-2330
APPROVING THE FORM OF A DEVELOPMENT AGREEMENT FOR KING RANCH, CONDITIONALLY AUTHORIZING ITS EXECUTION, PROVIDING DIRECTION AND AUTHORIZATION, PROVIDING FOR THE TERMINATION OF THE APPROVALS AND AUTHORIZATIONS PROVIDED IN THE RESOLUTION; AND PROVIDING AN EFFECTIVE DATE
(Roric Massey, City Attorney) |
FISCAL IMPACT |
The proposed agreement provides the city with the recovery, either by direct payments or the value of amenities requested by the city, for improvements the city previously constructed, and it provides for the payment for the reservation of existing city water supplies to be used for the development of King Ranch. Finally, the proposed development agreement will facilitate the sale and the development of King Ranch. Although a fiscal impact analysis has not been conducted on this specific project, all new development will have an ongoing fiscal impact on the city. The development will be responsible for construction of all infrastructure necessary to serve the site and will generate one-time revenue for the city through payment of permits, construction sales tax and development impact fees. Longer-term fiscal impacts include increased demands for municipal services, the costs of which may or may not be offset by increased property values/tax levies, city sales tax, state shared revenues and the increased demand for commercial and retail development. Any areas that will be maintained by the city are constructed by the developer and then conveyed to the city two years after construction. |
BACKGROUND AND PREVIOUS ACTIONS |
The property known as King Ranch, which currently consists of approximately 1861 acres of land generally bounded by the Gila River to the north, was rezoned to Preliminary PAD by Ordinance 2004-927 adopted on December 13, 2004. On August 22, 2005, Council adopted Ordinance 2006-960 rezoning the King Ranch Property to Final PAD, and Resolution 2005-997 approving and adopting the Development Agreement for King Ranch. The First Amendment to the Development Agreement for King Ranch was approved and adopted by Resolution 2006-1069 on August 28, 2006. On September 25, 2006, the King Ranch Final PAD was amended by Ordinance 2006-1027 and the Second Amendment to the Development Agreement for King Ranch was approved and adopted by Resolution 2006-1080. The Third Amendment to the King Ranch Development Agreement was approved and adopted on July 9, 2007, by Resolution 2007-1173. The Development Agreement for King Ranch, as it was amended, addressed various infrastructure obligations and contributions that were to be made in connection with the development of the King Ranch Property, including contributions towards the costs associated with the construction of the Cotton Lane Bridge, which included the costs of the bridge, bridge abutment protections, and the installation of irrigation piping for RID. |
STAFF ANALYSIS |
PURPOSE OF THE AGREEMENT
No development has occurred on the King Ranch property and the property is currently being marketed. King Ranch 2023 LLC, a Delaware limited liability company (“King Ranch 2023”) is expected to acquire the property. During the due diligence period, representatives of King Ranch 2023 and the seller of the Property (HE Capital KR, LLC, a Delaware limited liability company) were informed that the owner of the Property will be responsible for providing the City with a renewable supply of water that satisfied the requirements of the Arizona Department of Water Resources to increase the City’s water portfolio in the City’s Designation of Assured Water Supply in an amount sufficient to serve the Property. Although the obligation for making any contribution towards the Cotton Lane Bridge was disputed, because the King Ranch Development Agreement has expired, city staff informed representatives of King Ranch 2023 and the seller that the City would be seeking a contribution towards the costs of the Cotton Lane Bridge, which will be a primary source of access to the King Ranch property. King Ranch 2023 intends to apply to rezone and develop the Property and wanted some assurances that there will be a water supply available to serve the Property and wanted to resolve the outstanding dispute over the obligation for a contribution towards the cost of the Cotton Lane Bridge. The City does not have the water supply in its existing Assured Water Supply Designation to provide the Property with the 1484 acre-feet needed to support its development but anticipates that the water portfolio in the next modification of its Designation will include sufficient additional supplies to commit the 1484 acre-feet needed to support the development of the Property. The proposed form of the Development Agreement for King Ranch includes terms pursuant to which the City will make available up to 1484 acre-feet of the City’s water supply to serve the Property and includes terms that satisfy any obligations King Ranch 2023 has for the costs of the Cotton Lane Bridge.
DEVELOPMENT AGREEMENT TERMS.
Under the terms of the agreement, the property owner will be responsible for providing the city with a water supply to serve the property. However, rather than requiring the property owner to acquire a renewable supply of water that satisfied the requirements of the Arizona Department of Water Resources to increase the City’s water portfolio in the City’s Designation of Assured Water Supply (the “City’s Designation”), the City has agreed to allow the property owner to reserve the rights to up to 1484 acre-feet of the City’s water supply, subject to the Arizona Department of Water Resources approving a modification to the City’s Designation that includes an increase in the City’s available water portfolio such that there will be an additional 1484 acre-feet that can be reserved by King Ranch. The Owner will pay for the reservation over a five-year period with established deadlines for the acquisition. The cost is $13,300 per acre-foot for acquisitions made during the first two years, after which the cost is adjusted quarterly by the Consumer Price Index. The cost of the reserved water supply if the entire 1484 acre-feet were acquired during the first two years, is $19,737,200 ($13,300 × 1484). If the property owner fails to reserve the city’s existing water supply pursuant to the terms of the agreement, the city has no obligation to make its existing water supply available to serve the property, and the property owner will have to provide a water supply to the city. The development agreement makes clear that this obligation applies only to a water supply and does not impact the city’s ability to require the construction of water infrastructure or contribution towards the costs of water infrastructure. The agreement also includes terms for a $16,845,393 payment for the cost of the Cotton Lane Bridge (described above). The payment will be funded by the following sources. The owner will remit a $4,000 payment for each building permit until the obligation is satisfied. However, the city may request certain recreational amenities that will be open to the general public. In such cases, the value of the land conveyed to the city and the costs incurred by the owner in constructing recreational facilities on such land can be used to satisfy the $4,000 per building payment. If the bridge payment has not been fully satisfied within fifteen (15) years from the date the Arizona Department of Water Resources approves a modification of the City’s Designation, interest will accrue on the outstanding balance of 7% per annum compounded annually. The city will continue to collect the $4,000 per building permit. Because the development of King Ranch may not occur for years, there are risks that state laws and/or state water policies and/or federal policies may adversely impact the City’s designated water supply resulting in the city not being able to provide the reserved water to the property. If that occurs, the city will be responsible for liquidated damages. If the city is unable to deliver reserved water within twenty (20) years of the effective date of the Agreement, the city will pay $13,300 per acre-foot of the volume of the reserved water the city is unable to deliver adjusted annually based on the CPI for the Western Region. If the city is unable to deliver reserved water after twenty (20) years of the effective date of the Agreement, the city will pay $13,300 per acre-foot of the volume of reserved water the city is unable to deliver. The development agreement makes clear that it only addresses limited issues related to the development of the King Ranch property and that the city has the ability to impose additional requirements regarding infrastructure obligations and contributions towards the costs of infrastructure obligations during the development review process, including the ability to require the construction of or contributions towards the cost of the fire station(s) needed to serve the development, payments for capital expenditures for the operation of a fire station and payments towards the costs of operating a fire station.
TERMS OF RESOLUTION
This agreement is contingent upon King Ranch 2023 acquiring the King Ranch property. Accordingly, the resolution is only seeking the approval of the form of the attached Development Agreement and it provides the City Attorney or his designee with authority to make non-substantive changes to the agreement before it is finalized. It also sets forth conditions that must be satisfied before the City Manager can execute the agreement including the completion of King Ranch 2023’s acquisition of the King Ranch property. If the development agreement is not fully executed and recorded with the Maricopa County Recorder by October 8, 2023, the authorizations to execute the agreement terminate.
RECOMMENDATION
Staff is recommending the adoption of Resolution 2023-2330 and the approval of the Development Agreement for King Ranch, as it furthers Council’s requirement that growth pays for growth and resolves any dispute over the city’s ability to require a contribution towards the cost of the Cotton Lane Bridge. |
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