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DISCUSSION
City of San Bernardino
Request for Council Action
Date: May 1, 2024
To: Honorable Mayor and City Council Members
From: Charles A. Montoya, City Manager
Department: City Manager's Office
Subject: City Hall Renovation Project Step 1 (Ward 1)
Recommendation:
It is recommended that the Mayor and City Council of the City of San Bernardino:
1. Authorize the City Manager to move forward with Step 1 of the San Bernardino City Hall Renovation Project; and
2. Authorize the execution of the Joint Exercise Power Agreement between the City of San Bernardino, and the San Bernardino City Housing Authority; and
3. Adopt Resolution 2024-090; of the City of San Bernardino authorizing the creation of the City of San Bernardino Financing Authority and certain other matters pertaining thereto; and
4. Adopt Resolution 2024-091; declaring intent to issue tax exempt obligations to be used to reimburse the City for expenditures it may incur prior to the bond issuance.
Executive Summary
The renovation of the historic San Bernardino City Hall is a complex and multi-step project requiring: (1) the creation of a new government entity, the City of San Bernardino Public Financing Authority; (2) the retention of design consultants and industry professionals experienced in architecture, large scale construction projects, civic center design, municipal project management and financing; (3) procurement of a construction contract or construction manager; and (4) the issuance of lease revenue bonds to finance the project. Most importantly, the project can only succeed through collaboration between staff, the Mayor and City Council, and the San Bernardino community. This staff report focuses on Step 1 of the City Hall Renovation Project:
creating the San Bernardino Public Financing Authority, which will establish the administrative structure required to issue lease revenue bonds in the future. There is no fiscal impact associated with establishing a financing authority, nor does it obligate the City to release bonds in the future.
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Background
San Bernardino City Hall (“City Hall”) was designed to be the focal point the Century City project, a 93-acre urban renewal project meant to transform downtown San Bernardino into a thriving center of economic activity. The design of City Hall was awarded to Gruen and Associates where renowned architect Cesar Pelli served as the lead partner in charge of the project. Also, at Gruen and Associates was Norma Sklarek, the first African American woman in California to become a licensed architect. Sklarek served as the director of architecture and was responsible for coordinating the technical aspects of the City Hall project. Completed in 1972, City Hall’s distinctive design garnered acclaim, earning recognition in various publications and was named one of the 49 most outstanding city halls by the American Institute of Architects and Library of Congress in 1982.
While City Hall is an iconic building for the City, it was built prior to the more rigorous building codes. As a result of the 1971San Fernando earthquake (or “Sylmar Earthquake”), the Uniform Building Code (UBC) was updated in 1973 to prohibit the use of non-ductile concrete construction, which is the type of construction that was used for City Hall. Structures of this type exhibited poor performance during the Sylmar Earthquake, suffering significant structural damage and/or failure. To evaluate the building’s safety, the City has commissioned multiple seismic assessments of City Hall. Evaluations by URS Corporation in 2007 and IDS Group in 2015 identified critical deficiencies, including weak first-story columns, insufficient lateral resistance, and seismic vulnerability due to its location near fault lines. All seismic assessments concluded that City Hall would need to be retrofitted.
In response to these seismic risks, City Manager Mark Scott recommended vacating City Hall in 2016, relocating staff to surrounding structures such as Vanir Tower and the 201 Building.
On June 6, 2018, the Mayor and City Council approved an agreement with CannonDesign to perform a Facilities Condition Assessment (FCA) for 185 City-owned facilities, with the City Hall building being assessed first. The assessment included:
•Seismic and structural elements.
•Mechanical components, such as HVAC systems and elevators. •Plumbing and fire protection systems.
•ADA compliance.
•Environment issues.
The CannonDesign’s FCA report identified critical deficiencies in all categories listed above and estimated approximately $22 million in renovation costs, $2.2 million in ADA improvement costs, and $8 million in retrofitting costs. It’s also important to note that the amounts listed above do not include project contingency, management, or inspection costs. For the seismic assessment, CannonDesign utilized a report that was conducted by Z&K Consultants, which reiterated many of the same findings that were in IDS Group’s seismic evaluation.
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On January 31, 2024, the Mayor and City Council received an informational report that provided an overview of the City Hall Renovation Project, the site history, a review of the seismic retrofit and renovation assessments, the design build process, and potential financing options. This report builds on the January 31, 2024, study session, specifically requesting Council to authorize several actions related to the process of issuing Lease Revenues Bonds (LRB) to funds the renovation of City Hall.
Discussion
The renovation of the historic San Bernardino City Hall is a complex and multi-step project. The recommendations outlined in this report focus primarily on establishing the administrative structure required to issue lease revenue bonds, should the Council decide to issue bonds at a future meeting. The structure requires establishing a Joint Exercise of Power Agreement between the City of San Bernardino and the San Bernardino City Housing Authority, thereby creating a Joint Powers Financing Authority. It is important to emphasize that the Housing Authority that is being referenced is the City’s Housing Authority, not the Housing Authority of the County of San Bernardino (HACSB), which is a different public entity that is not associated with these actions. Additionally, staff recommend the Mayor and City Council adopt a Reimbursement Resolution to ensure the City retains the right to recover any pre-bond issuance expenses it may incur.
Necessary Administrative Structure to Issue Revenue Bonds:
Should the City Council desire to utilize lease revenue bond financing, it is recommended that the City of San Bernardino and the San Bernardino City Housing Authority enter into a Joint Exercise Powers Agreement (“JEPA”) for the explicit purpose of establishing a Joint Financing Authority (“JFA”) to issue bonds. This administrative structure is necessary in order finance the project in this manner.
Formation of a Joint Exercise of Powers Agreement
The Joint Exercise of Powers Act, Government Code section 6500 et seq. (“Act”) permits public agencies to enter into a joint exercise of powers agreement (“JEPA”) to form a separate governmental entity to jointly exercise powers common to the member agencies. (Government Code Section 6502). The parties to the JEPA may create a separate legal entity (i.e. a joint powers authority) under the JEPA to administer the agreement. Additionally, the joint powers authorities have the power of issuing bonds secured by local revenues. For this project, the bonds would be secured by lease revenues. This is a commonly utilized financing mechanism for cities throughout the State of California. The joint powers authority is proposed to be called the City of San Bernardino Financing Authority (“Financing Authority”) and the Financing Authority will issue the lease revenue bonds.
City of San Bernardino Financing Authority (“Financing Authority”) The governing body of the Financing Authority will be its Board of Directors, which will consist of the seven (7) members of the City Council. It is through the Board of Directors where the power of the Financing Authority is vested and exercised. The 2 0
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Financing Authority will also include Officers of the Authority, which will consist of the Mayor (Chairperson), Mayor Pro Tempore (Vice Chairperson), City Manager (Executive Director), Director of Finance (Treasurer), and City Clerk (Secretary). It is important to note that the Officers of the Authority have no voting power unless they are on the Board of Directors.
Any regular meeting of the Financing Authority’s Board of Directors shall be held at the same time and same location as regular meetings of the City Council and noticed in the same manner. The Board of Directors of the Financing Authority will conduct a regular meeting at least once each calendar year on the second Monday of December. The Financing Authority Board meetings will have separate agendas from the City Council meetings and will comply with Brown Act requirements.
Presented before the City Council are the following items related to forming the Financing Authority and the JEPA:
•Resolution No. 2024-*** Authorizing the creation of the City of San Bernardino Financing Authority and certain other matters pertaining thereto. •Authorization to execute a Joint Exercise Power Agreement between the City of San Bernardino, and the San Bernardino City Housing Authority.
Presented before the Commissioners of the San Bernardino City Housing Authority will be the following resolutions related to forming the Financing Authority and the JEPA:
•Resolution No. 2024-*** Resolution of the San Bernardino City Housing Authority authorizing the creation of the City of San Bernardino Financing Authority and certain other matters pertaining thereto. •Authorization to execute a Joint Exercise Power Agreement between the San Bernardino City Housing Authority and the City of San Bernardino.
If the Council adopts the above resolutions and authorizes staff to proceed with the creation of the City of San Bernardino Financing Authority, then on May 15, 2024, staff will present before the Board of Directors of the Financing Authority a resolution to approve the Financing Authority’s Bylaws:
•Resolution No. 2024-*** Resolution of the City of San Bernardino Financing Authority approving and adopting Bylaws, establishing regular meeting dates and authorizing certain other actions in connection therewith.
Reimbursement Resolution
While the Mayor and City Council may approve the issuance of lease revenue bonds to finance the renovation of City Hall at a future meeting, the City may incur costs associated with the project before the bonds are released. In order to use a portion of the bond proceeds to reimburse itself for these prior expenditures, the City Council will need to adopt a reimbursement resolution:
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•Resolution No. 2024-*** Resolution of the City of San Bernardino Financing Authority declaring its intent to issue tax exempt obligations to be used to reimburse expenditures prior to the issuance of such bonds.
Project Financing
Lease Revenue Bonds (LRB) as a Financing Mechanism
LRB’s are a type of bond that is secured by lease payments made by the party leasing the facility that was financed by the bond issuance. LRB’s are typically used by government agencies to finance the acquisition of, construction of, and/or improvements to facilities, such as city halls, courthouses, fire facilities, and other government buildings. Unlike revenue bonds that primarily use money generated by the project (e.g. a bridge toll) to pay the principal and interest on the bonds, in LRBs, a lessee (government agency) pays rent to use the facility. Those rental payments are then used to pay the principal and interest on the bonds. For the City Hall Project, the City would utilize a lease-leaseback financing structure, which would be structured as follows:
1. The City leases City Hall to its Financing Authority (“Authority”) for a nominal amount (~$1).
2. The Authority would then lease City Hall back to the City, with the value amortized over time.
3. The City’s lease payments are transferred to a trustee, who then uses those lease payments to pay the debt service on the LRB.
Unlike General Obligation bonds issued by a city, LRBs issued by a JFA do not require voter approval. It is important to note that LRBs are a popular tool at the disposal of local governments and special districts to finance large scale public infrastructure projects such as hospitals, airports, toll roads, education facilities, bridges, and civic facilities such as City Halls. In California, LRB’s are utilized by a wide variety of municipalities, and since 2016, one hundred and sixty-five (165) separate entities have issued three hundred and seventeen (317) LRB’s with a total issuance of $18B dollars.
Of those projects funded by LRB’s one hundred and fifty (150) ($9.5B) were described as Capital Improvement projects, seventy (70) ($4.4B) were described as a Public Building.
In the Inland Empire region, several cities have utilized LRB’s to finance public facilities projects, including city hall buildings. In the last 3 years, the cities that have issued LRBs through a Financing Authority for the construction of a new city hall include:
City of Lake Elsinore
•On May 10, 2022, up to $27 million in LRBs were authorized to be released for the construction of a 35,00 square foot city hall building.
City of Ontario
•On May 17, 2022, up to $110 million in LRBs were authorized to be released for the expansion of their Civic Center Campus, which includes the construction oof 2 0
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a 60,000 square foot city hall building, parking structure, and a 28,000 square foot fire station.
•On March 7, 2023, an additional $100 million in LRBs were authorized to be released to fund capital improvement projects.
City of Indio
•On June 15, 2022, up to $145 million in LRBs were authorized to be released for the construction of a new 37,000 square foot city hall building, a public safety campus totaling 44,000 square feet, and a library expansion/renovation totaling 8,800 square feet.
Next Steps:
Should the Mayor and City Council authorize the recommendations outlined in this report, staff will return to the council at subsequent meetings with actions specific to the following City Hall Renovation Project steps:
•Step 2 - Project Planning & Design
oAward Professional Services Agreements
oApprove Financing Authority Bylaws
•Step 3 - Project Procurement
oReceive Initial Estimate of Planning & Project Costs
oAward Construction Manager-At-Risk Contract
•Step 4 - Project Commencement
oApprove a Final Design
oAuthorize release of Lease Revenue Bonds
2021-2025 Strategic Targets and Goals
The approval of actions related to Step 1 of the City Hall Renovation Project aligns with all four of the Mayor and City Council Strategic Goals; Improved Operational & Financial Capacity, Focused, Aligned Leadership, and Unified Community, Improved Quality of Life, Economic Growth & Development.
Fiscal Impact
There is no fiscal impact associated with the authorization of a Joint Exercise Powers Agreement, the establishment of a City of San Bernardino Financing Authority, or the adoption of a reimbursement resolution. Should the Mayor and City Council authorize the staff to proceed with the project, staff will return to the council at subsequent meetings with recommended formal actions and their associated fiscal impact on the FY2023-24 and Biennial Budgets.
Conclusion
It is recommended that the Mayor and City Council of the City of San Bernardino:
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1. Authorize the City Manager to move forward with Step 1 of the San Bernardino City Hall Renovation Project; and
2. Authorize the execution of the Joint Exercise Power Agreement between the City of San Bernardino, and the San Bernardino City Housing Authority; and
3. Adopt Resolution 2024-090; of the City of San Bernardino authorizing the creation of the City of San Bernardino Financing Authority and certain other matters pertaining thereto; and
4. Adopt Resolution 2024-091; declaring intent to issue tax exempt obligations to be used to reimburse the City for expenditures it may incur prior to the bond issuance.
Attachments
Attachment 1 – Joint Exercise Power Agreement between the City of San Bernardino, and the San Bernardino City Housing Authority Attachment 2 – Resolution 2024-090; of the City of San Bernardino authorizing the creation of the City of San Bernardino Financing Authority Attachment 3 – Resolution 2024-091; City of San Bernardino Reimbursement Resolution
Ward:
First Ward
Synopsis of Previous Council Actions:
January 31, 2024 - The Mayor and City Council of the City of San Bernardino held an information workshop specific to the history and potential renovation strategies for City Hall. No action was taken.