CCIG Response to Oakland Works

May 7, 2013

BY ELECTRONIC MAIL AND HAND DELIVERY

Honorable Rob Bonta
Mr. Andre Boutros
Mr. James C. Ghielmetti
Honorable Loni Hancock
Honorable Rebecca Kaplan
Honorable Patricia Kernighan
Honorable Lynette McElhany
Mayor Jean Quan
Honorable Larry Reid
Mr. Douglas Remedios
Honorable Nancy Skinner

Re: Letter from OaklandWORKS Dated April 26, 2013 regarding CTC Funding Allocation for the Oakland Army Base Redevelopment Project

Ladies and Gentlemen:

CCIG Oakland Global LLC, a member of Prologis/CCIG Oakland Global LLC
(“Developer”), the developer for the City of Oakland’s Army Base Redevelopment Project (“Project”), submits this response to the letter dated April 26, 2013 from OaklandWORKS asserting the need for additional economic review and environmental mitigation planning for the Project.

As an initial matter, we note that the author of the OaklandWORKS letter, Brian Beveridge, submitted a very similar letter to the Federal Highway Administration (“FHWA”) on January 29, 2013 in connection with the City’s receipt of federal TIGER II Grant funds for the Project. There, Mr. Beveridge sent the letter on behalf of a different group, the West Oakland Environmental Indicators Project (“WOEIP”). After reviewing the WOEIP letter and a detailed response by the City, the FHWA rejected Mr. Beveridge’s assertions on all issues, including his allegations regarding financial mismanagement of the Project and an insufficient opportunity for public participation. Copies of that correspondence, including the FHWA’s response dated March 20, 2013, are attached as Exhibit 1.

By its letter dated April 26, OaklandWORKS seeks a “full and comprehensive public reckoning” of financial and environmental mitigation planning for the Project with the stated purpose of “building a consensus of support” for the Project within the community.

The OaklandWORKS letter, however, misstates key facts and creates numerous false impressions. Below, we provide some important background on the planning process for the Project and address each of Mr. Beveridge’s issues, in turn.

Background
In reviewing the OaklandWORKS letter, it is important to appreciate the numerous
approvals and agreements that have established the mitigation required for, and the public and community benefits to be provided by the Project, as well as the negotiations over many years, with multiple public and private stakeholders, that led to their adoption.  Among other planning documents, the Project is subject to a Master Plan (Base Reuse Plan), a Lease Disposition and Development Agreement (which includes a Community Benefits Package) between the City and the Developer (“LDDA”) and a Cooperation Agreement, which collectively exceed the requirements of applicable laws and provide an unprecedented benefit package to the Oakland community. This package was negotiated among multiple stakeholders, over two years, and, in the absence of unlimited funds, necessarily balances the interest of those stakeholders. The participation, cooperation and agreement of these many stakeholders in the overall mitigation and benefits package are evidenced by their respective signatures on the Cooperation Agreement executed concurrently with the approval of the other documents. This agreement plainly documents the important and hard-won “consensus of support” sought by OaklandWORKS.  Significantly, the signatories to the Cooperation Agreement include Mr. Beveridge, the author of the OaklandWORKS letter, in his role as Co-Director of the WOEIP. A copy of the Cooperation Agreement is attached as Exhibit 2.

Mr. Beveridge and OaklandWORKS had the opportunity to participate in each of the above processes and, as explained below, will have the ability to continue their participation through the City’s public participation process as the Project moves forward.

Project Funding
The OaklandWORKS letter raises two issues related to the project funding: (1) the ability of California Capital & Investment, Inc. (“CCIG”) to deliver the project on-time and on budget (specifically referencing an audit of the Fox Theater project on which the California Capital Group (an affiliate of CCIG, “CCG”) served as the City’s project manager) and (2) concern over the City’s capacity to take on additional public debt to complete the Project.

Two portions of the Projects will be funded in part by the requested Trade Corridor Improvement Fund (“TCIF”) grant: (a) the City’s construction of approximately $247 million in new public infrastructure improvements (streets, utilities, wharf and rail) necessary for the development of the City’s and the Port’s respective portions of the former Oakland Army Base property (the “City Project”) and (b) the Port’s construction of Phase 1 of the new port rail terminal that will serve development to be located on the City and Port properties (the “Port Project”). While the City Project and the Port Project are the subject of the same Project Baseline Agreement, they are the subject of two different funding allocations. The California Transportation Commission is set to make its decision on the allocation for the City Project on May 7, 2013.

The development of the infrastructure included in the City Project will permit the development of approximately 1,000,000 square feet of rail-served trade and logistics facilities, a redeveloped bulk commodity wharf, new rail service, and two recycling facility sub totaling 200,000 square feet and additional 14+ acres of ancillary maritime services by a third party, all to be located on the City’s portion of the former Oakland Army Base property. The trade and logistics uses , wharf and specific rail improvements are the subject of the LDDA between the City and the Developer and meet the intent and spirit of the TCIF program.

It should be understood that the on-time and on-budget delivery of the City project will be facilitated by the oversight of the City; the skills and experience of CCIG and the joint venture contractor formed by Turner Construction, Top Grade Construction and Flat Iron Construction (the “Contractor JV”); and the contracting structure established by the LDDA. The LDDA requires the City to retain CCIG as its project construction manager for the development of the City Project and for CCIG, in turn, to enter into a design build contract with the Contractor JV, which contract includes a guaranteed maximum price to be approved by the City prior to the commencement of construction and which will be based on approximately 65% construction documents. CCIG and its principals and affiliates have an established track record of facilitating the delivery of private and public projects and the contractors involved in the Contractor JV have a vast amount of experience with respect to the delivery of public infrastructure projects such as the City Project. The parties involved believe that this G-Max structure of the contract is the best method to establish price certainty and that the design-build structure minimizes the opportunity for delay in project delivery.

The reference to the Fox Theater audit in conjunction with an expression of concerns over CCIG’s project experience evidences a gross misunderstanding of that document, and the Fox Theater project. While it is true that the ultimate cost for the Fox Theater project exceeded the initial budget, that is primarily due to the fact that the City elected on several occasions to increase the scope of the project as CCIG and the City continued to identify and obtain new funding sources, which was consistent with city policy and the overall objective of the project. In effect, the City paid more for the project because it elected to procure a larger and better project as it had originally envisioned but out of an abundance of caution opted for a more modest approach until all tenants were secured and additional funds were secured. The city did in fact authorize more project and scope. Further, the audit and the City’s response made it clear that there were no failures or issues related to CCG’s management of the project. Rather, the primary criticism put forth by the audit was the failure to establish the final project scope prior to the execution of the contract. As set forth above, this criticism is not applicable to the City Project because the design-build contract will be based on a static, well-defined project scope.

With respect to the second concern, neither the City nor the Port will be required to incur any public debt in conjunction with the delivery of the City Project or the Port Project.  The proposed funding for these projects has been previously discussed and disclosed in public forums in conjunction with the City’s and Port’s application for and pursuit of the TCIF grant funds, the Cost Sharing Agreement entered into between the City and the Port in support of the application for the TCIF grant funds and the LDDA.
The following chart summarizes the sources of funds (listed in millions) for the
development of the City Project and the Port Project:

The TIGER grant was awarded to the Port in 2012 (TIGER IV funding) and the Port and City funds are either currently in hand or will be funded through the City’s proposed sale of the “North Gateway” portion of the former Oakland Army Base property. The balance of the project is proposed to be funded by the TCIF grant and private matching dollars provided through the LDDA and the development of the North Gateway property. While it is true that the City and the Port would be liable for the repayment of any “unmatched” TCIF funds, the City addressed this risk through various provisions included the LDDA and the applicable ground leases. Under the Baseline Agreement, the City and the Port would have until August of 2020 to deliver evidence of the required matching funds. The various sources of the matching funds are outlined in the table above. It is understood that the “Private Match” funds will be supplied by the developers’ construction of vertical improvements on the City property (logistics and recycling facilities). The LDDA requires the Developer to pay up to $5 million in liquidated damages if it fails to timely execute the ground leases upon the completion of the City Project and other conditions precedent, which obligation is guaranteed by Prologis, L.P. and CCIG.

Further, if the Developer or its designees enter into the ground leases, these documents include Minimum Project obligations requiring the ground lessee to construct a minimum scope of improvements with a specified time period and to pay up to $5 million in liquidated damages if the obligations are not met. The liquidated damages are similarly guaranteed by credit worthy affiliates of the ground lessees. The City believes that the Minimum Project is sufficient to satisfy the “Private Match” allocation and, if necessary, that the liquidated damages are sufficient to allow the City to reposition the property and secure a successor developer to fulfill the obligations under the Baseline Agreement allocated to the “Private Match” funding sources.

Lastly, in response to the allegation in the Mr. Beveridge’s letter that the Oakland Army base project “lacks financial oversight,” again Mr. Beveridge fails to understand or disclose the true facts related to the project. The City has implemented a process where it meets weekly with CCIG to review project costs and invoices; the project invoicing is reviewed by Williams Adley, an independent auditing firm; the project will be subject to audit by Caltrans staff in conjunction with the use of the TCIF grant funds and the agreements with CCIG and the Contractor JV will require compliance with all City and State audit requirements.

Emissions Reduction and Public Participation
The OaklandWORKS letter asserts that, since the City’s approval of the 2002
Environmental Impact Report (“EIR”) for the Project, “the City and the developer refuse to discuss their plan to protect the children and senior citizens of West Oakland.” Likewise, it implies that three mitigation plans, a Diesel Reduction Plan, Criteria Pollutant Plan and a Truck Management Plan required by the 2002 EIR were eliminated or reduced in the current approvals. These allegations are simply and demonstrably untrue yet Mr. Beveridge has elected to continue to wrap himself in misrepresentation and myth.

First, since December 2008 alone, there have been no less than 144 public meetings, hearings and public outreach events with respect to the Project. These events are listed on Exhibit 3.  Second, each of the plans referenced by OaklandWORKS are part of the Standard Conditions of Approval and Mitigation Monitoring and Reporting Program (“SCA/MMRP”) adopted by the City in connection with the City’s approval of the 2012 Initial Study/Addendum (“IS/Addendum”) for the Project under the California Environmental Quality Act (“CEQA”).

The 2012 CEQA Process and the SCA/MMRPs
In 2012 the City evaluated several proposed changes to the Project under CEQA and, consistent with Section 15164(a) of Chapter 14 of the California Code of Regulations (“CEQA Guidelines”), prepared CEQA addendum for the Project.  The City’s IS/Addendum analyzed, among other things, the project and cumulative effects of 17 environmental aspects of the 2012 Project against existing physical conditions:  Aesthetics; Agriculture and Forest Resources; Air Quality; Biological Resources; Cultural Resources; Geology and Soils; Greenhouse Gas Emissions; Hazards and Hazardous Materials; Hydrology and Water Quality; Land Use and Planning; Mineral Resources; Noise; Population and Housing; Public Services; Recreation; Transportation/ Traffic; Utilities and Service Systems. With specific regard to air quality, the IS/Addendum included a robust study and comparison of construction- and operation-related air quality impacts of the 2012 Project and what was studied in the 2002 EIR for the area, including a quantification of construction emissions. The study followed all current methodologies and protocols recommended by the Bay Area Air Quality Management District (BAAQMD).

The City’s final approval of the Project includes 69 pages of detailed conditions of approval and mitigation for the Project, including eight pages relating to air quality. These conditions and mitigation measures are summarized in the SCA/MMRP, included as part of the IS/Addendum and attached as Exhibit 4. The Diesel Reduction, Criteria Pollutant and Truck Management plans allegedly removed or reduced by OaklandWORKS are explicitly retained and required as part of SCA/MMRP Mitigation Measures 4.4-4, 4.4-5 and 4.3.7, respectively. See Exhibit 4.

Although the City provided opportunities for public comment on the IS/Addendum, it received very few comments concerning the document, and no party including OaklandWORKS, filed a legal challenge to the document.

Implementation of the SCA/MMRPs and Public Participation

The majority of the SCA/MMRP mitigation requirements are prescriptive and selfexecuting.  That is, the City is required to perform specific activities (i.e. water exposed surfaces during active construction, cover all trucks hauling soil, maintain and properly tune all construction equipment in accordance with the manufacturer’s specifications) or to refrain from performing specific activities (i.e. not exceed speeds of 15 miles per hour on unpaved roads or not exceed specified idling times for diesel-fueled commercial vehicles).  Compliance with these measures can be objectively measured and will be enforced by the City in its regulatory capacity as the Project’s CEQA lead agency. In addition to these self-executing measures, and as reference above, the SCA/MMRP identifies four categories of plans to be prepared with respect to air quality: a construction management plan; a truck diesel emissions reduction program for operations; an emissions reduction program for operations, including a transportation control measures plan; and a greenhouse
gas reduction plan.

The City has agreed to provide an opportunity for further public review and comment on those air quality plans that relate to the construction of the City’s horizontal/infrastructure components of the Project. See Exhibit 5. It is premature from both a project and a planning perspective, however, to prepare, much less seek further public input on air quality plans beyond those relating to construction of the City’s horizontal/infrastructure until there is more certainty as to the specific nature and scope of the Project’s ongoing operations – especially since the infrastructure work will not be completed until approximately 2017.

Air Quality Meetings Under The LDDA

In addition to the SCA/MMRP requirements under CEQA, the LDDA requires the City
and the Developer to cooperate in an air quality monitoring program during construction of the Public Improvements and Private Improvements to install and maintain air monitoring equipment in locations determined in consultation with the Port, the BAAQMD and the Alameda County Public Health Department (ACPHD).
In November 2012 the City and the Developer participated in a meeting to discuss the
proposed monitoring locations that included not only the listed public agencies, but also interested community members, including Mr. Beveridge. In January 2013, Architectural Dimensions, acting on behalf of the City, distributed a Fact Sheet detailing proposed air monitoring protocols, equipment and locations based on input provided at the November meeting and through subsequent communications. On March 20, the City and Developer met with approximately 20 stakeholders at the office of the Bay Area Air Quality Management District (BAAQMD) to discuss the required air quality mitigations and the path forward for implementation of those measures. In addition to BAAQMD staff, the participants at that meeting included the U.S. Environmental Protection Agency, the California Air Resources Board, the ACPHD and Mr. Beveridge. At that meeting, the parties agreed to further discuss the appropriate processes for collaborating on air quality issues and agreed that the City would continue its work in implementing the air monitoring required by the LDDA, which the City has done and continues to do.

Conclusion
Contrary to the assertions in the OaklandWORKS letter, the City and the Developer have in place sound and transparent structures to fund and manage the Project and have completed extensive and interactive public outreach with respect to environmental issues, especially air quality. Both the City and the Developer are obligated and prepared to implement the Project in full compliance with all SCA/MMRP requirements promulgated under CEQA and all LDDA requirements negotiated with the City and community stakeholders. Moreover, the City has agreed to provide for further public review and comment on all air quality plans relating to construction of the City’s horizontal/infrastructure components, as and when such publication is appropriate consistent with the Project timeline. The process and outcome represent the most complex, open and transparent undertaking of the city of Oakland in recent history.  We appreciate your consideration of this letter and look forward to working with the City to successfully implement the Project. Please contact me directly if you have any further questions/concerns or need any supporting documentation.

Respectfully,

Phil Tagami