REPORT TO COUNCIL AND SUCCESSOR AGENCY
SUBJECT
Title
Adopt Resolutions of the City Council and the Successor Agency Approving a Compensation Agreement to Allow the Transfer of Certain Properties Used for Public Parking from the Successor Agency to the City, and Authorizing the City Manager to Take All Actions Necessary to Implement the Compensation Agreement
Report
BACKGROUND
The Successor Agency to the Sunnyvale Redevelopment Agency owns three public parking garages within the former redevelopment project area known as the Sunnyvale Town Center (within Block 18 of the Downtown Specific Plan). The activities of the Successor Agency are overseen by the Santa Clara County Oversight Board, which was put in place after the state abolished Redevelopment Agencies in 2012. The garages are the Successor Agency’s only remaining property and must be transferred to the City so the Successor Agency can be dissolved. To transfer the property, the City must enter into a “compensation agreement” with Santa Clara County and all of the affected Taxing Entities (other government agencies). After extended discussions, County staff agreed to recommend approval of the draft compensation agreement in Attachment 3. Although titled a “compensation” agreement (the term used in the redevelopment dissolution law), this agreement does not require the City to provide monetary compensation.
EXISTING POLICY
Community Vision Goal IX: Dynamic Downtown: To create and support a strong and attractive traditional downtown which serves as the community’s central marketplace, common gathering place and symbolic center.
Land Use and Transportation Policy LT-12.6: Create a strong, identifiable downtown that offers regional and citywide shopping opportunities and entertainment.
Downtown Specific Plan Policy C-1.4 Provide adequate access to parking in the Downtown while promoting trip reduction through parking management practices.
ENVIRONMENTAL REVIEW
The proposed actions are not a “project” that requires environmental review under the California Environmental Quality Act (CEQA) because it can be seen with certainty that there is no possibility that these actions will have a significant effect on the environment (CEQA Guidelines, Section 15061(b)(3)). These actions are administrative in nature and will not result in any physical changes to the development projects that were studied in the Downtown Specific Environmental Impact Report certified by the City Council on August 11, 2020 (State Clearinghouse No. 2018052020).
DISCUSSION
History of the Sunnyvale Town Center Redevelopment
The Sunnyvale City Council established the Redevelopment Agency (RDA) on November 19, 1957 (Resolution No. 2600) to encourage and finance the redevelopment of the City’s downtown. Like other RDAs throughout the state, the Sunnyvale RDA utilized a funding mechanism called “tax increment financing” that redirected a share of property tax revenue into the redevelopment project.
The Sunnyvale RDA engaged in relatively small-scale activities until the Sunnyvale Town Center Mall project of the mid-1970s. To build the mall, in 1978 the RDA used eminent domain and direct sales to acquire privately owned parcels in the downtown area between Washington, Mathilda, Iowa, and Sunnyvale Avenues. This area is commonly referred to as “Sunnyvale Town Center,” also designated “Block 18” in the Downtown Specific Plan. As part of the mall development, the RDA transferred 24 acres within the Town Center to the mall developer, Ernest W. Hahn. To support the mall, the RDA constructed a large 2-story parking garage on two blocks of RDA-owned property between Mathilda and Town Center Lane (now Taaffe St.).
The mall opened in 1979 with Macy’s and Montgomery Ward as anchor tenants. The J.C. Penney building was added to the east side of the mall in the early 1990s. Unfortunately, the mall struggled to compete with other regional malls and was in decline by the late 1990s. In 1998, Hahn’s company, Sunnyvale Town Center Associates, sold the mall to American Mall Properties (AMP), except for the parcels belonging to Macy’s, J.C. Penney, and Montgomery Ward, which were separately owned. The following year, the RDA entered into an agreement with AMP to renovate and expand the mall. Part of this agreement included a land swap whereby the RDA transferred 5.33 acres to AMP, and AMP transferred 4.07 acres to the RDA (including the surface parking lots next to Macy’s and J.C. Penney).
AMP declared bankruptcy in 2002 without starting the mall renovation. Over the next decade, the City endured two failed redevelopment projects in the downtown. While the Sunnyvale Town Center redevelopment was stalled, some progress occurred during the 2000s, including the construction of three RDA-owned parking garages. In 2004, the owner of the former J.C. Penney property agreed to sell their parcel to the developer, which was essential for plans to re-establish the downtown street grid. Separately (not part of the RDA project), Target opened a new store in 2009 on the site of the former Montgomery Ward. Two office buildings on Mathilda Ave. were completed after the project entered receivership in 2011. Separate office and mixed-use projects were also completed on the north side of Washington Avenue, outside of the RDA area.
Redevelopment Dissolution
In 2012, the State of California enacted legislation to end all California redevelopment agencies. The movement to abolish RDAs was spurred by school districts and other local “taxing entities” to stop the diversion of property taxes to RDAs. The California Supreme Court upheld the legislation. As a result, RDAs were replaced by “successor agencies” subject to the authority of “oversight boards” that were charged with winding down the affairs of the RDAs. Disputes between Sunnyvale and Santa Clara County over various issues resulted in several years of litigation, with the last matter concluding in 2021.
Cityline Project
On December 10, 2015 (RTC 15-0444), the City Council and the Successor Agency approved the transfer of the Town Center redevelopment project to STC Venture LLC, a joint venture consisting of J. P. Morgan Asset Management Fund, Sares Regis Group of Northern California, and Hunter Properties, Inc. On June 30, 2016 (RTC 16-0551), the Successor Agency approved an agreement with STC Venture titled the 2016 Modified and Restated Amended Disposition and Development and Owner Participation Agreement (abbreviated “MRADDOPA”). Since then, STC Venture has completed the Minimum Project called for by the MRADDOPA and is working with the City on plans for the final buildout of the Project area. STC Venture adopted the brand “Cityline” for the Project.
The Three Successor Agency Garages
Upon dissolution of the RDA, the Successor Agency became the owner of all property owned by the former RDA. Other than the three parking garages, all Successor Agency property was transferred either to the City or to STC Venture. These transfers included Plaza Del Sol (to the City) and the surface parking lot next to Macy’s (to STC Venture).
The three garages owned by the Successor Agency are:
• PD-1, 325 S. Taaffe St. (APN 209-34-021), also known as “Pear” or the Cityline Flats “F” garage, located on Block 1, Lot 3, of the Town Center project area.
• PD-2, 225 S. Taaffe St. (APN 209-34-025), also known as “Orange” or the Cityline Flats “E” garage, located on Block 2, Lot 4, of the Town Center project area.
• PD-5, 379 S. Sunnyvale Ave. (APN 209-35-013), also known as the “Penney’s garage” or the AMC/Whole Foods garage, located on Block 5, Lot 2, of the Town Center project area.
PCE Contamination
The groundwater underneath Town Center Block 5 (the Penney’s garage) is contaminated by a plume of perchloroethylene (PCE) from a former dry cleaning business. The contamination was discovered in 2007 and underwent aggressive remediation efforts for several years. Currently, the PCE levels are low enough that the Regional Water Quality Control Board only requires monitoring; however, the Regional Water Quality Control Board has not issued a "no further action" letter because the PCE levels are still higher than the threshold levels. The Successor Agency and STC Venture share monitoring costs 50-50 in accordance with the MRADDOPA. The PCE plume poses no hazard to users of the garage or adjacent open space. However, PCE vapor can accumulate in enclosed spaces and pose a long-term risk to building occupants without adequate ventilation or vapor barriers.
Garage Transfers
In 2018, the City attempted to transfer the garages on Taaffe Street from the Successor Agency to the City. However, the California Department of Finance disapproved the transfer because it did not serve a governmental purpose, as it involved contractually dedicated parking for adjoining businesses and apartment residents. Although the construction of the garages was not funded with tax increment financing, Santa Clara County argued that, in return for approval of the transfer, the City should pay compensation to the Taxing Entities for these private uses in the event the City ever receives revenue from the garages in the future.
Since 2018, the City Attorney and County Counsel’s office have continued to discuss options for transferring the garages in order to wind down the Successor Agency. After receiving direction from City Council at a closed session on March 18, 2025, the parties were able to reach agreement on a “compensation agreement” that involves no payment or future revenue sharing with the Taxing Entities. The County has also agreed that the City can be reimbursed for the cost of a 10-year environmental liability insurance policy via the Recognized Obligation Payment Schedule (ROPS), which is the legal mechanism that allows tax increment financing to be used for the Successor Agency’s enforceable obligations. Upon approval by the Taxing Entities and the California Department of Finance-which the County has agreed to support-the parties will execute the agreement, and thereafter the Successor Agency will transfer the property to the City. Upon transfer of the garages, the City will assume all liability for the properties associated with the PCE contamination, and the Successor Agency, the County, and the Taxing Entities will be released from liability.
After the property is transferred and the Successor Agency has been reimbursed for the cost of the liability insurance policy, the Successor Agency can be dissolved in accordance with dissolution laws, as it no longer has any enforceable obligations, owns no property, and has resolved all litigation. To dissolve the Successor Agency, the City Council, acting as the Successor Agency, will adopt a resolution requesting dissolution. The request requires approval by the Oversight Board and the California Department of Finance.
Implementation of the Compensation Agreement
To implement the terms of the Compensation Agreement, the Resolutions in Attachment 1 and 2 will authorize the City Manager, and the City Manager in his role as Executive Director of the Successor Agency, to take all actions necessary to implement the Compensation Agreement including approval and execution of quitclaim deeds, certificates of acceptance, assignments, and covenants, conditions and restrictions and any other ancillary documents that are necessary to transfer the property and to assign the contractual rights and duties of the Successor Agency to the City. The Successor Agency is a party to several agreements that will be assigned to the City, including, but not limited to, the MRADDOPA and the Public Parking Ground Lease, as well as several other agreements related to public access, public parking, and other matters affecting the use and operation of the Project.
FISCAL IMPACT
Operation and Maintenance. The garages are maintained and operated by STC Venture pursuant to a 75-year Public Parking Ground Lease that will expire in 2082. Therefore, there is no immediate fiscal impact related to their maintenance and operations.
PCE Contamination on Block 5. After PD-5 is transferred to the City, the City will be responsible for 50% of the costs associated with the PCE plume on Block 5. These costs will be paid by the General Fund. Since FY 19/20 the Successor Agency’s share of the monitoring costs has been around $8,000 to $15,000 per year. In addition to annual monitoring, there will likely be one-time expenses for new monitoring equipment when necessary. Finally, it’s possible that annual costs could increase in the future due to new or stricter regulations, a rebound in PCE levels, or the migration of the plume under neighboring properties that requires additional monitoring or mitigation measures.
Insurance. If the City chooses to purchase environmental liability insurance at the end of the first 10-year term, previous quotes obtained by the City have been approximately $200,000 to $300,000 for a 10-year term. Note that insurance protects the City from liability to third parties but does not cover the City’s own costs of monitoring and remediation.
Fiscal benefits. The immediate benefit to the City is the value of owning and controlling the land and public infrastructure. In the long term, the City will benefit from having the flexibility to utilize the property in a manner that achieves the greatest benefit for the City, without the restrictions imposed on the Successor Agency.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
ALTERNATIVES
1. City: Adopt the Resolution in Attachment 1 to the report to approve the Compensation Agreement in Attachment 3 to the report to allow the transfer of certain properties used for public parking from the Successor Agency to the City, and authorizing the City Manager to take all actions necessary to implement the Compensation Agreement.
2. Successor Agency: Adopt the Resolution in Attachment 2 to the report to approve the Compensation Agreement in Attachment 3 to the report to allow the transfer of certain properties used for public parking from the Successor Agency to the City, and authorizing the City Manager to take all actions necessary to implement the compensation agreement.
3. Do not approve the Compensation Agreement.
STAFF RECOMMENDATION
Recommendation
Alternative 1. City: Adopt the Resolution in Attachment 1 to the report to approve the Compensation Agreement in Attachment 3 to the report to allow the transfer of certain properties used for public parking from the Successor Agency to the City, and authorizing the City Manager to take all actions necessary to implement the Compensation Agreement.
Alternative 2. Successor Agency: Adopt the Resolution in Attachment 2 to the report to approve the Compensation Agreement in Attachment 3 to the report to allow the transfer of certain properties used for public parking from the Successor Agency to the City, and authorizing the City Manager to take all actions necessary to implement the compensation agreement.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
_X_ Contract between public agencies
_X_ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: Rebecca Moon, City Attorney
Reviewed by: Matt Paulin, Director of Finance
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. City Resolution
2. Successor Agency Resolution
3. Draft Compensation Agreement