SUBJECT: AN AGENCY RESOLUTION AUTHORIZING AN OWNER PARTICIPATION AGREEMENT WITH ADVANCING CALIFORNIA'S EMERGING TECHNOLOGIES (ACET) FOR THE DEVELOPMENT OF A HIGH-TECHNOLOGY BUSINESS INCUBATOR FACILITY IN THE COLISEUM PROJECT AREA, AND THE CONTRIBUTION OF $1,610,000 IN AGENCY FUNDS TO THE PROJECT

PURPOSE

In accordance with the Measure H Charter Amendment, which was passed by the voters at the General election of November 5, 1996, we have made an impartial financial analysis of the accompanying Agenda Report and draft Resolution. The purpose of our analysis was to evaluate the reasonableness of the proposed reimbursement funding agreement. In making our analysis we reviewed the Agency Agenda Report, Proposed Resolution, grant award from the U.S. Economic Development Administration, and the report issued by The National Development Council. We also discussed various matters with Agency staff.

Since our impartial financial analysis was not an audit, we did not apply Government Auditing Standards as issued by the Comptroller General of the United States.

SUMMARY

Advancing California's Emerging Technologies (ACET), a non-profit organization, began operations in 1998 and currently operates a high-technology business incubator at the former Alameda Naval Air Station. The proposed Resolution will enable ACET to relocate to a larger site located at Edgewater Drive and Pardee Lane in the Coliseum Redevelopment Project Area. ACET will purchase the vacant land from the Port of Oakland at the Fair Market Appraised Value based on an M.A.I. appraisal (plus normal closing costs), and construct an incubator facility on the site.

FISCAL IMPACT

The total cost of the project is estimated at $8,050,000, and will be funded as summarized below:

Source	Amount
U.S. Economic Development Admin. (EDA) grant	$6,440,000
Redevelopment Agency matching funds	$1,610,000

Total	$8,050,000

VIABILITY OF ACET

As pointed out in the Agency Agenda Report and the report by The National Development Council, ACET has serious financial and operational problems. Specifically, as of December 31, 2002, ACET:

had a net operating deficit of $151,000;
had a debt to equity ratio of 11.6 to 1.0 [3.0 to 1.0 is desirable];
and appeared to be overstaffed.

Moreover, ACET'S total assets exceeded its total liabilities by only $10,000:

Total assets

$126,000

Total liabilities

$116,000

Assets in excess of liabilities

$ 10,000 (1)

(1) This is commonly referred to as the fund balance.

ACET will find it difficult to raise funding for its operations. None of the $ 8,050,000 in project costs is available to cover operating costs. Moreover, once it begins operations at the new facility, ACET could be faced with weak lease rates and high vacancy rates. If the project fails, the Redevelopment Agency stands to lose the benefit of $1,610,000 that could have been invested in an operation that will survive for years to come.

CONCLUSION

The Council should be aware that this is a high-risk project, and should consider investing the $1,610,000 in a more stable operation.