HomeMy WebLinkAbout09/30/1974 Item #G-947
CITY OF NEWPORT BEACH
yr `f T" OFFICE OF THE CITY MANAGER
y Svc ^ "r COUNC-1
t September 30, 1974
or t"'W'Q,at HEAC.i
COUNCIL AGENDA NO.
G-9
TO: MAYOR AND CITY COUNCIL
FROM: City Manager
SUBJECT: AUDIT OF THE STATE TIDELANDS GRANT
RECOMMENDATION:
That the City Council receive the report from the State Lands
Division and order it filed with the understanding that:
(t) The staff will meet with the State authorities to work
out the details if necessary for "bunching" receipts and for preparing
an allocation system for expenses on tidelands.
(2) The staff will resubmit the list of capital improvement
projects to the State.
(3) The lease with all of the Balboa Bay Club improvements,
except slips, are on uplands and that the lease does not provide for uni-
lateral adjustments of rents; and
(4) The staff will await the receipt of a formula from the,
Division of State Lands to compute the value of an offshore mooring fee. .
DISCUSSION
On September 20 the City received the results of an audit from
the Division of State Lands concerning several municipal operations. For
the most part the audit report (copy attached) is self-explanatory, but
several items need further clarification. The purpose of the audit was .
to review the City's operation with respect to the City's crude oil sale
and the acquisition of gasoline and diesel fuel. In this regard, the State
Auditor determined that the City's procedures were proper. However, the
State Auditor made several comments or suggestions concerning non -oil
operations, which should receive further review or clarification by the
City. These items are as follows:
I. Revenues and Expenditures. It was suggested by the Auditor
that the City g or up receipts coming in frau certain tideland sources to
make it easier to audit ail tideland revenues. In addition, it was sug-
gested an appropriate allocation system for tideland expenses be established
Page -2- fs
to determine the true contributions of each City department. AB 3611
(the beach aid bill), if signed by Governor Reagan, will require the
City to establish an allocation system for each City department parti-
cipating in a tideland operation. Because expenses in Newport Beach
have exceeded revenues with respect to tideland matters, the City has
had no need to prepare an allocation system. AB 3611, however, will
provide this incentive if signed by the Governor. With respect to the
"bunching" of receipts, the Finance Officer believes that it would-be
too time-consuming and costly for the City to undertake. It should be
understood that all receipts are properly accounted for, but in the
absence of "bunching" it take an auditor several hours to trace a
given receipt. It would, however, take the City more than several hours
to set up an adequate "bunching" procedure. However, the Finance Of-
ficer will meet and work with the State Auditor to resolve this suggestion.
II. Capital Improvements. The State has suggested that the City
submit a complete list of capital improvements from the inception of the
tidelands grant. Actually, in 1973 the City submitted a report to the
California Legislature and the State Lands Commission which listed the
capital improvement projects. Sections of this report will be duplicated
and resubmitted to the State.
III. The Balboa 8a Glub Lease. The State Auditor suggests that
an appraisal be made on t e land occupied by the Balboa Bay Club in order
to determine the value of the lands and what, therefore, the fair rental
value should be. This suggestion appears to overlook two pertinent facts.
First, all of the land occupied by the Balboa Bay Club (except boat slip
area) was granted to the City by The Irvine Company in 1928 and is, there-
fore, classified as uplands rather than tidelands. The State Lands Di-
vision, therefore, would have no jurisdiction in this matter. Secondly,
the lease between the City and the Balboa Bay Club was consummated in
1948, and there are no provisions, unless by mutual consent, for adjust-
ment of the rent to the City. This lease has been in existence for 26
years, and known to the State Lands Division, yet no comment had been
made to this lease in previous audits. Finally, it should be pointed out
that in any review of fair rental, it must be recognized that all improve-
ments constructed by the Balboa Bay Club will become the property of the
City upon the termination of the lease in 1998. However, the staff of
the City will cooperate with the State Lands Division and report new de-
velopments to the City Council.
IV. Offshore Mooring. The State Auditor suggests that the City
may be in violation of the gift" clause of the California Constitution
and the Tideland Granting Statutes by virtue of the relatively low charge
of $1.20 per vessel foot per year for the offshore moorings. The State
recommended that this matter be further investigated and that a fair rental
value be determined for offshore moorings for lands granted to the City of
Newport Beach. The report further suggests that the rate be increased to
$6.00 per foot per year, but the report does not justify the $6.00 rate.
In a further conversation with the State Auditor, it was determined that
this problem exists in a number of tideland operations throughout the State.
Page -3-
The State Division of Tidelands is, therefore, preparing a suggested
formula to determine the value of offshore moorings and this formula
should be available in November or December of 1974. It may, therefore,
be advisable for the City to await this formula from the State before
attempting to comply with this particular recommendation of the Granted
Lands Auditor. I believe it safe to say, however, that the City will
have to adjust these fees to be consistent with value received by the
mooring owners. If the City does not, we will be risking possible
revocation of-all the City's tideland trusts.
RLW:mm ROBERT L. WYNN
Attachment
Rat Request of International :Bay Cluing, Incor-
porated for Modification of Dead of 'Prost
and Furttner Assi^,nnent of Leasehold Estate
by Deed of ;.'scut
Lzororable mayor and nerticsers of the City Council:
International Bay Clues, incorVorated requests that the
_H yor and City Clark be authorized to execute a consent to assign-
s7a nt of leasehold costate by deed of trust substantially in the fork
:^lased hwsasait`s or
ins;nc n other si::zilar formas zaay be approved
-by ,your City Attorney,
Under curer of s.y priorletter of September 4, 1974 to
u vo.;r *' ty Attranay, :s. ^auris J0,aile I ancloded two Xerox copies
of the proposed consent to assignnent of leasehold estate by deed
D
of trust tag>_ther with its attach,"ents including acceptances by In-
ternational Bav Clubs, Incorporated, Citinaitional Devalo^..lent `.3'rnst
mid the proposed supplaz ntal dead of trust for ther wit,% its ex-
-bits. For '-*r. C°r zil°a further information I also enclosed copies
of the City's consent to assignzent of leasehold estate by d aO of
itzst dater September 2£i, 1965. That is the consent to the Union
nk deed of trust and is than form from which the proposed consent
o assign=ment was taken. I also enclosed for his inforn.ation a copy
? the :ecember 15, 1971 consent to assignment of ieaaehold estate
by duaac! of trust.
The proposed transaction for which your consent is ro-
gguteszted will not result in any nev loan proceeds to the Bay Club
(International :day Clubs, Incorporated). :"he' prrmI
is inter st solely-tv-accommdatw a proposed -=transfer of It e-19 zar,
i.ntarettt izL. the -loam vadea Februsr, 25, 197'Z pursuant- to the City•a
yoas.:Axlt: data&- -1911MTZrsr,
Aaccessor in intazest= to Usp Investorsto its loan participant,
Citinational Develop-ent Trust, a real estate inv stent trust con-
trolled by City National Corporation. I have: furnished Mr. 0311eil
,,-lith copies of the 1973 Annual :port of City National Corporation
,.-? lec,".ing stockholders' equity of over $34,001,000 and of the Citi -
=n ac :i :nal Developz..ant -rust Quarterly :report for the period ended
"R'+ .5 ®.._- "}.-_'•b^3'lLi�f �.`Ss' h--.+avu.c - _ 9L—psi.
OSlEE L. liEOIT SGIR ZISTF3:'! sl%'
MillVAL Z. .. .-
INCORPORATED
L/ C/���G!�A/
SUITE 400
2323 NORTH BROADWAY
THOMAS J. O'KEEFE
P'O.8OX 6099
ORVILLE F. RECHT
RICHARD J. SCHWARZSTEIN
^ SANTA ANA, CALIFORNIA 927O6
SEP 3 1974
o Y
WALTER G. HOWALD
TELEPHONE E7I4] 835-1100
HENRY J. COOPERSMITH
September 24, 1974
=`aver Donald A, : omnis
a .rte=ber n of the City
Council yy
of Nall, port Bead:
�1
3300 :e-aport Boulevard
-_frx:ort Beach.. California
92650
Rat Request of International :Bay Cluing, Incor-
porated for Modification of Dead of 'Prost
and Furttner Assi^,nnent of Leasehold Estate
by Deed of ;.'scut
Lzororable mayor and nerticsers of the City Council:
International Bay Clues, incorVorated requests that the
_H yor and City Clark be authorized to execute a consent to assign-
s7a nt of leasehold costate by deed of trust substantially in the fork
:^lased hwsasait`s or
ins;nc n other si::zilar formas zaay be approved
-by ,your City Attorney,
Under curer of s.y priorletter of September 4, 1974 to
u vo.;r *' ty Attranay, :s. ^auris J0,aile I ancloded two Xerox copies
of the proposed consent to assignnent of leasehold estate by deed
D
of trust tag>_ther with its attach,"ents including acceptances by In-
ternational Bav Clubs, Incorporated, Citinaitional Devalo^..lent `.3'rnst
mid the proposed supplaz ntal dead of trust for ther wit,% its ex-
-bits. For '-*r. C°r zil°a further information I also enclosed copies
of the City's consent to assignzent of leasehold estate by d aO of
itzst dater September 2£i, 1965. That is the consent to the Union
nk deed of trust and is than form from which the proposed consent
o assign=ment was taken. I also enclosed for his inforn.ation a copy
? the :ecember 15, 1971 consent to assignment of ieaaehold estate
by duaac! of trust.
The proposed transaction for which your consent is ro-
gguteszted will not result in any nev loan proceeds to the Bay Club
(International :day Clubs, Incorporated). :"he' prrmI
is inter st solely-tv-accommdatw a proposed -=transfer of It e-19 zar,
i.ntarettt izL. the -loam vadea Februsr, 25, 197'Z pursuant- to the City•a
yoas.:Axlt: data&- -1911MTZrsr,
Aaccessor in intazest= to Usp Investorsto its loan participant,
Citinational Develop-ent Trust, a real estate inv stent trust con-
trolled by City National Corporation. I have: furnished Mr. 0311eil
,,-lith copies of the 1973 Annual :port of City National Corporation
,.-? lec,".ing stockholders' equity of over $34,001,000 and of the Citi -
=n ac :i :nal Developz..ant -rust Quarterly :report for the period ended
..:zysar D^xs,aisi �. �gcZnnis -- and %-a^-diners of the City CounC41
F,nptember 24, 1974
-'age _:'neo.
June 304 1974 refl4cting stockholders° equity of over S11,000,000.
City .'rational Corporation has assets in excess of $c42,000#000 and
Citinational Development -`rust has assets in excess of $2500100,000.
Subparagraph (d) of tete December 15, 1971 consent ,of the
Cite approves in advances assignzent by the lender of the loan and
security documents *,without additiorai.l consent by the City. In this
instance, however, the attorney for City national Mank: has revieved
the prior loan documents, including the Union sank lawn d-ocumenta-
tion, and has noted that the Union Bank loan deco vntation provides
for a division of the leasehold estate into two separate leaseholds
in the event of a default. Hes has therefore racor nded that the
consent from the City approve a similar provision in the event of
dafault on the proposed Citinational Daveilo-onent :rust loan docu-
mentation, she documentation provided refers solely to the iraprove-
ment of the security^ of Citinational as Lender by furnishing it with
more: complete and flexible security than was originally provided to
US, Investors,
As Fr, C• Feil will recall, the original loam made oxv-o^ap-
ruisrps 25e 1972r pursuant to the City's consent of Decenber 150 1971,
ms i^ the-amo=t o!'`39,SSt3,99pS as a 'wrapp-aros nde` loan of which
only- $3,054 FOOD wssv actually iuiuwd. The difference between the
funded portion and the Face amount of the note was held in reserve
for t -he possible pay-off of the underlying indebtedness to Union
ea:nk and others. The proposed loan documents reflect the sane in-
debtednese, that is the funded portion of the original LSF Investors
wrap-around note and deed of trust.
Although the terminology may secs unduly complicated# the
basic transaction is a relatively routine transfer of a note and
security between two institutional lenders with sore "clean-up" of
the security documents being made in connection with the transfer.
I understand that this will be placed on your Septenbler 30r 1974
agenda and I will plan to be present at that tine to answer any
questions you might have.
Thank you for your cooperation in this regard.
Vary truly yours r
Thorsas J. O'Keefe '� N
'w ar
Enc.
ccs Hr. Dennis 041-2eil, City Attorney
_-Y�. Robert L. Wynn,, City Manager =s 2e5 j
Mr. We D. .Pay