PROPOSED RESOLUTION AUTHORIZING THE CITY OF OAKLAND TO ENTER INTO A PREPAID LEASE OF NOT LESS THAN TWENTY YEARS IN AN AMOUNT NOT TO EXCEED $4,500,000 FOR BASIC RENT AND UP TO $400,000 FOR TENANT IMPROVEMENTS WITH THE FRUITVALE DEVELOPMENT CORPORATION FOR 15,000 SQUARE FEET OF SPACE IN THE FRUITVALE TRANSIT VILLAGE FOR THE CESAR CHAVEZ BRANCH LIBRARY

SCOPE

We have reviewed the accompanying Council Agenda Report and draft resolution. Our review was limited to evaluating the accuracy of amounts involved and the availability of funds. We did not attempt to evaluate the amount of space that the library will need, the feasibility of entering into a long-term lease at a time when rental costs for commercial properties are declining, or the additional operating expenses that this resolution does not address.

BACKGROUND

The Cesar Chavez Branch Library currently leases 3,655 square feet of space from the Spanish Speaking Unity Council at 1900 Fruitvale Avenue, but is scheduled to move into
15,000 square feet of space (4.1 times the existing space) at Fruitvale Transit Village upon its completion in approximately two years (2004). As part of the terms and conditions to secure financing from Citibank for construction of the Fruitvale Transit Village, the Fruitvale Development Corporation must pre-lease space to anchor tenants. The Corporation has asked the City, as one of the anchor tenants, to enter into a prepaid lease of not less than twenty years in an amount not to exceed $4,500,000 for rent, and up to $400,000 for tenant improvements. There will also be significant other related expenses, as shown at the bottom of this page, that this resolution does not address.

PREPAID RENT

The City will be required to enter into a 20-year lease and to make prepaid basic rent payments totaling $4,500,000. The first payment of $1,000,000 is due by September 2002, and the balance of $3,500,000 is due upon the Library's occupancy of the space, which is expected to occur no later than June 2004. The City will lose the $1,000,000 if the Council does not commit to prepaying another $3,500,000 during the FY 2003-05 budget cycle to continue the lease payments for the next twenty years.

The Oakland Public Library is expected to submit proposals to add $4,500,000 million to the Capital Improvement Project (CIP) budget, as summarized below:

Capital Budget	Funds Required
FY 2002-03	$1,000,000
FY 2003-04	3,500,000
Total	$4,500,000

TENANT IMPROVEMENTS

Tenant improvements are estimated to cost $400,000. This amount was previously appropriated from FY 99/00 Capital Improvement Project (CIP), but the Oakland Public Library spent $18,0000 for Public Art and Contract Compliance, leaving a balance of $382,000 available in Fund 5500, Organization 94500, Project B02800. The Fruitvale Development Corporation requests that the City Council restore the $18,000.

OTHER RELATED EXPENSES

There are also other related expenses that this resolution does not address. Public Works Agency staff estimates these to be:

Description	Amount
Patron Furniture, fixtures and Office Equipment - first year	$1,000,000
Annual Maintenance	111,600
Annual Staff	53,000

The Library will submit a FY 2003-04 Budget Program Change to request additional General Funding to cover the increased staff costs, Common area maintenance (CAM), facilities maintenance, furniture, fixture, and equipment charges.

CONCLUSION AND RECOMMENDATION

The costs involved in the project are significant. In our opinion, the City Council should approve the proposed resolution only after carefully evaluating: (1) the amount of space that will be needed for the Library; (2) the amount the City is being asked to pay in prepaid rent; (3) the fact that the first lease payment of $1,000,000 may be at risk; and (4) the potential source of funds for operating costs.

Issued by:

Roland E. Smith, CPA
City Auditor

July 1, 2002

Report Number: 02-101