PURPOSE

The purpose of this report is to provide information to the City Council to consider a resolution approving the Acquisition Agreement and Escrow Instructions to purchase the property at 461 North Varney Street for the Magnolia Power Plant Project.

BACKGROUND

In the Spring of 2001, the Council approved the City�s participation in the planning and development of a new electric power generating facility called the Magnolia Power Project (�MPP�) to be located on the existing Burbank Water & Power (�BWP�) plant site.  Pursuant to that authorization, BWP joined with six other municipal utilities and filed an application for certification of the new facility with the California Energy Commission (�CEC�).  The application was filed by the Southern California Public Power Authority (�SCPPA�), a joint powers agency, on behalf of all the participants.  SCPPA will own the facility, while BWP will manage its construction and operation. Construction of the project is scheduled to begin in June.

Under state law, the CEC exercises broad authority in licensing new power plants with a capacity of 50 MW or more.  One of the conditions of approval requires that steps be taken to address noise impacts on single-family residential property located in the industrial area on the north side of Magnolia Boulevard, across from the BWP plant site within a 1000� radius of the new MPP.   The industrial area is zoned M-2.  Properties are mainly improved with small industrial buildings, though a few have 1930�s- and 1940�s-vintage residential structures on them.  Virtually all the residential structures have been converted to industrial or commercial uses.

As part of the licensing process for the Magnolia Power Project conducted by the CEC, SCPPA was required to perform noise studies to gauge the impacts of construction and operation of MPP on surrounding neighborhoods within a 1000� radius of the new MPP. 

In the course of the noise studies conducted by SCPPA in early 2001 it came to light that one property within the 1000� radius, the property at 461 North Varney Street, was being used for single-family residential purposes.  The CEC has determined as a condition of certification for the MPP that the residential use at 461 N. Varney must cease before construction of the MPP can begin. 

The subject residential property (Exhibit A) consists of a 5,500 square foot lot improved with a 992 square-foot dwelling constructed in 1940.  The property was appraised in February 2002 at $230,000 and reappraised for purposes of obtaining an Order of Immediate Possession (OIP) at $320,000 as of March 2003.  The owners of record are Victor E. and Mary L. Estrada. 

The City offered to purchase the property for the initial appraised value of $230,000 in an offer letter dated February 21, 2003.  In order to assure that BWP and SCPPA could satisfy the CEC requirements prior to the start of construction, the City Council adopted a Resolution of Necessity on Tuesday, March 11, 2003, to begin eminent domain proceedings to acquire the property.  However, negotiations continued after the filing of the condemnation case.  The Estrada�s, on Tuesday, March 25, 2003, agreed to sell the property for $352,000 (Exhibit B), which is 10% above the City�s appraised value of $320,000.

ANALYSIS 

The MPP will consist of a 242-megawatt (MW) natural gas-fired power plant with a peaking capacity of 310 MW.  The project will occupy four acres in the northeast corner of the BWP facility made available by demolition of the existing Magnolia Units 1 and 2.  It includes a combustion turbine generator, a heat recovery steam generator with a 150-foot exhaust stack, a steam turbine generator, switchyard upgrades, two underground 69 kV transmission circuits, a cooling tower, storage tanks, natural gas compressors, makeup water demineralizers, a zero liquid discharge wastewater treatment system, and other ancillary facilities.

The initial offer of $230,000 was made based upon an appraisal from February 2002.  In the course of attempting to obtain an OIP, the Court required the City to update the appraised value.  The original appraisal was based upon a determination by the City�s appraiser,  Otis Hackett, that the highest and best use of the property as of February 2002 was land value under the current zoning (M-2) to be developed for an owner-user small industrial use.  This conclusion was based upon a review of the sale of comparable properties as compared to the income generated by the current residential use.  The appraiser concluded, as the basis for this determination of highest and best use, that the industrial use would yield the highest return to land under the then-current market conditions. 

In the intervening year from February 2002 to March 2003, again, based upon a review of the relevant comparable sales, the appraiser determined that the residential market had improved so dramatically that the highest and best use (that use that would return the greatest economic benefit) had changed and is currently as a single-family home.  This conclusion is based upon the increase in the value and rents for comparable single-family homes in the last year.  The appraiser concluded that, according to the highest and best use as a single-family home, the property is now worth $320,000.

The revised offer was made to the Estrada�s within the condemnation filing, and they responded with a counteroffer 10% above the most recent appraisal which is $352,000.  Staff considers an offer within 10% of the appraised value to be within an acceptable range of fair market value, especially in a rising market, and that this amount is within a reasonable range of Fair Market Value.  The Estrada�s have executed the proposed Acquisition Agreement and Escrow Instructions attached as Exhibit C.

FISCAL IMPACT

There will be no ultimate fiscal impact to the City because the City�s expenditures for this acquisition will be reimbursed by SCPPA through an agreement with SCPPA to be approved at a later date due to SCPPA�s meeting schedule and timing of its ability to approve and agreement.  However, the City must pay the costs of the acquisition from City funds prior to reimbursement by SCCPA.  Because of the necessity to enter into escrow as soon as possible   and to eliminate the residential use in order to begin the MPP construction, staff is recommending that the City go forward with the acquisition using funds currently available. 

The cost of this acquisition includes the purchase price of $352,000, closing costs estimated not to exceed 1% of the purchase price which is $3,520, plus relocation expenses estimated to be within a range approximately $30,000 for relocation assistance payments, $3,000 for the City�s relocation consultant, and $10,000 for abatement and demolition.  Excluding minimal costs for outside legal counsel on conjunction with filing the condemnation action and obtaining a stipulated judgment from the Court to complete the condemnation action, the acquisition, the costs to acquire the property are estimated to be approximately $397,750.   The funds are available in account 461.PS000 11012 1003.  No further appropriation action is necessary.

RECOMMENDATION

Staff recommends that the City Council adopt the proposed resolution approving the proposed Acquisition Agreement and Escrow Instructions to acquire the property at 461 North Varney Street for $352,000, and appropriating funds for the acquisition.

EXHIBITS

Exhibit A          Map

Exhibit B          Estrada Counter-offer

Exhibit C          Proposed Acquisition Agreement

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