PURPOSE

The purpose of this report is to provide for the City Council�s consideration, a proposed, real property lease between the City of Burbank and the Family Service Agency for property located at 2721 W. Burbank Blvd.; and to request City Council and Redevelopment Agency Board approval of necessary budget amendments and a related cooperation agreement.

BACKGROUND

On May 9, 2006 the City Council approved the acquisition of real property located at 2721 W. Burbank Blvd. in an effort to assist the Family Service Agency by helping to provide a permanent facility.   The property included a 7,906 square foot parcel improved with a two-story building of 6,892 gross square feet, built in 1987.  There are 15 to 16 on-site parking spaces, with additional on-street parking.  The property was acquired for $1,950,000. 

As discussed in the staff report of May 9, 2006, the City Council has historically shown its ongoing commitment to and support of the non-profit service providers in Burbank.  More specifically, in Fiscal Years 04-05 and 05-06, Community Development Block Grant funding totaling $1,034,900, was awarded to assist in the expansion and rehabilitation of the Burbank Temporary Aid Center facilities; and since 1994, the City has leased the former Fire Station 13 to the Boys and Girls Club to further its mission in serving Burbank�s youth.  Similarly, the City Council has established a goal of helping the Family Service Agency find a suitable new location from which they can continue and expand operations. 

The Family Service Agency was established in 1953 to strengthen the Burbank community�s families by providing low and no-cost professional, clinical and psycho-educational services.  The Family Service Agency provides a myriad of community services including:  individual, couples, and family counseling; daily school-based outreach services to a variety of local middle and high schools; teen substance abuse and anger management programs; family violence intervention programs; child abuser�s treatment programs; parenting and senior peer support programs; and community outreach services.  In addition to all of these programs, the Family Service Agency is Burbank�s largest provider of Los Angeles County Probation Department-approved domestic violence intervention services.  While the Family Service Agency offers impressive programming, which meets the community need, their current 2,000 square foot facility is a limiting factor for providing expanded services to Burbank families, youth and adults in distress.  The property, at 2721 W. Burbank Blvd. meets the needs of the Family Service Agency and will allow them to maintain, grow and increase its community support. 

Since the property was acquired, as directed by the City Council, staff has been negotiating the proposed lease between the City and the Family Service Agency.  As a result of these negotiations, the primary issues covered in the lease are highlighted below:

• Term of lease will be ten years with two ten-year options to extend, for a possible total term of 30 years;

• The lease rate will be $1,000 per month, with a waiver of rent for the first three years;

• In exchange for discounted rent, the Family Service Agency will provide annual goals and performance measurements for youth, families and seniors outreach and service;

• Should the lease options be exercised, the rent will be adjusted per the Consumer Price Index at years 10,15, 20, 25 and 30;

• The lease also includes the option for the Family Service Agency to buy the property within the first ten years of the lease for $2.05 million (the price the City paid for the property $1.95 plus the anticipated cost of initial major systems improvements, estimated at $100,000);

• In the event the Family Service Agency exercises its option to purchase the property, the City will retain a variable percentage of the property�s equity;

• In the event the Family Service Agency exercises its option to purchase the property, a use restriction will be recorded with the grant deed, providing a 55-year restriction of use consistent with the Family Service Agency�s mission;

• Family Service Agency will fund all tenant improvements including interior Americans with Disabilities Act (�ADA�) requirements;

• Family Service Agency will be responsible for all routine maintenance and upkeep;

• City will fund and/or install an elevator for required ADA access and will ensure ADA compliance on the front and/or rear entrances to the building shell; and

• During the term of the lease, the City will be responsible for all major systems repairs or replacements.

ANALYSIS

While most of the above stated proposed deal points are fairly straightforward, there are three proposed areas requiring additional discussion:  1) community service standards in exchange for reduced rent; 2) terms for the Family Service Agency to exercise its option to purchase the property and the City�s equity sharing provision; and 3) the City�s responsibilities for major systems.

COMMUNITY SERVICE STANDARDS

As previously discussed, the purpose of including community service standards in the proposed lease is to help ensure measurable community benefit in exchange for reduced rent.  There are seven major points included as part of the community service standards and they are explicitly discussed in both Article 2 (Use of Premises) of the proposed lease and Attachment 1 of the proposed Grant Deed (Exhibit C of the proposed purchase and sale agreement, which is Exhibit B of the proposed lease).  The following summarizes these primary requirements:

• The Family Service Agency shall comply with all local, state and federal requirements in providing non-discriminatory services and programming to all segments of the Burbank community, including the provisions of the Unruh Civil Rights Act, California Civil Code Section 51;

• Subject to availability, funding restrictions and the needs of a particular client, the Family Service Agency shall not withhold or deny services solely based on an individual�s or family�s ability to pay for such services;

• The Family Service Agency shall provide the level of treatment necessary for each client regardless of income of the client and will provide services on a �sliding scale� fee basis;

• The mission of the Family Service Agency is to help strengthen our community by providing affordable, professional clinical and education services to those in need.  At least once a year the Family Service Agency will submit its goals for the upcoming year and outline its outreach to youth, families and seniors.  In addition, measurement standards for each program will be identified and all will be submitted to the City Manager or her/his designee;

• Once per year the Family Service Agency shall submit a compliance report showing how it met its goals and carried out its mission during the previous year.  Additionally, their annual audit shall be provided to the City.  Again, this information will be submitted to the City Manager or her/his designee;

• The Family Service Agency will submit, upon request by the City, its objectives, strategic plan, yearly reports, pertinent financial reports, quantitative data, and a breakdown of income levels served that illustrate that it is serving the community in accordance with the requirements of the proposed lease; and

• Both the City and Family Service Agency will uphold the clients� rights to privacy and confidentiality and the City shall not be entitled to review any documents that would in any way violate the client�s privacy rights.

PURCHASE TERMS & CITY EQUITY SHARING

In the event that the Family Service Agency exercises its option to purchase the subject property, two options for completing the sales transaction have been provided.  The first option allows for a single payment of $2.05 million.  The second option allows the Family Service Agency to make principal-only payments over a 30-year term to the City.  The Family Service Agency may select either option at its discretion and the proposed lease provides a purchase and sale agreement and a loan agreement for both options.  With the potential approval of the proposed lease, the terms of a future sale to the Family Service Agency would also be approved. 

As previously mentioned, should the Family Service Agency exercise its option to purchase the subject property, the City would retain an equity share in the event of a resale.  The purpose of the City retaining an equity share in the subject property is twofold:  to protect the City�s investment; and to provide a balance of restrictions and incentives to encourage Family Service Agency to continue its service to the Burbank community on a long-term basis.  Staff recommends a straightforward approach that starts with a high percentage of profit participation in years one through ten (following the Family Service Agency�s acquisition from the City); then applies graduated decreases up to year 55.  In the simplest terms, the recommended equity sharing formula is as follows:

            Years 1 through 10                           60% profit participation

            Years 11 through 30                         40% profit participation

            Years 31 through 55                         25% profit participation

            Beyond year 55                                   0% profit participation

By way of an example, if the Family Service Agency exercised its option to purchase the property, then later in year eight decided to sell the property for $1.0 million more than what it paid the City (for example purposes only) the City would be entitled to $600,000 of profit participation.  To illustrate further:

Resale Amount                                  $3,050,000

Acquisition Price to City                   $2,050,000

Profit from Resale                             $1,000,000

X City�s Equity Share Rate                          60%

Total City Equity Share                     $   600,000

CITY�S RESPONSIBILITIES FOR MAJOR SYSTEMS

As previously proposed in this and prior reports, the City will be responsible for the major building systems (i.e. HVAC, electrical, roofing, etc.).  Staff has determined that due to the estimated construction valuation (for the interior rehabilitation work to be performed by the proposed tenant) an elevator or ADA-compliant lift is required.  Staff recommends the installation of an elevator and the estimated cost associated with an elevator could range between $65,000 and $70,000 (based on a two-stop, hydraulic system, 2,500-pound capacity).  In addition, both the front and rear building access points (two in total) must also be ADA-compliant.  Under normal conditions, an access ramp at the front building entry would be constructed to meet ADA requirements.  However, there is insufficient area to install an ADA-compliant ramp, so the front access point will include a bell or intercom system, from which a disabled person can alert staff inside the building that assistance is needed.  The rear entry is ADA-compliant. 

Lastly, after conducting a professional roof inspection, it has been determined that the roof should be replaced.  The cost of a new roof with an approximate 25-year life expectancy is estimated at $23,500. 

The cost associated with the installation of an elevator and the replacement of the roof and modifications to the building entry (to meet ADA requirements) totals roughly $100,000. 

FUNDING SOURCE

As in the case with funding the property acquisition, staff recommends funding the anticipated cost of initial major systems improvements of $100,000 by the City utilizing debt reimbursement funds from the Redevelopment Agency.  More specifically, staff proposes the Agency repay a small portion of its City Centre Project Area Loan for the purpose of funding these improvements.  While it is prudent to maintain as much Agency debt as possible in order to maximize the collection of tax increment revenue, currently there are not sufficient General Fund monies available for this cost without foregoing other needed City projects/programs.

CONCLUSION      

With the City Council�s commitment to the community�s non-profit organizations comes an opportunity to assist the Family Service Agency with its service to Burbank.  In exchange for this assistance, the Family Service Agency, the second oldest non-profit organization in Burbank (53 years of service), has the opportunity to continue and expand its service and value to the community.  The proposed lease agreement has been structured in a way to protect the City�s investment, yet allow sufficient flexibility for the Family Service Agency to operate and strengthen the community, for what could be a potential of 40 years.  All terms, conditions and requirements contained in the proposed lease agreement have been reviewed by and found acceptable to the Family Service Agency.   

FISCAL IMPACT

If the subject lease is approved, the amount necessary to fund the major systems improvements (estimated at $100,000) will be transferred from Fund 306.ND000.30004.0000 (Merged Project Area Fund, Unappropriated Fund Balance) to the City�s General Fund, Account 001.ND000.70005 (General Fund Capital Projects).

RECOMMENDATION

Staff recommends the City Council adopt the proposed resolutions approving the proposed lease between the City of Burbank and the Family Service Agency, appropriation of funds, and related cooperation agreement with the Redevelopment Agency.  Staff also recommends the Redevelopment Agency adopt the proposed resolution amending the FY 06-07 budget and approving the proposed cooperation agreement with the City.

LIST OF EXHIBITS

Exhibit A � Lease Agreement

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