Santa Clara City Desk
By Carolyn Schuk

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Agreements with Cedar Fair Clear Path for Stadium Construction, Parking

Last week the Santa Clara City Council approved an agreement, 4-2, with Great America theme park owner Cedar Fair that dismisses a pending lawsuit against the City, modifies the theme park's lease, and frees land for stadium construction - Cedar Fair gives up its claim to the stadium site, currently used for overflow parking, and provides 5,000 parking spaces during stadium events. The agreement also reduces Santa Clara's parking obligation to Great America from about 8,000 spots to between 6,500 and 7,000.

"We believe that the benefits of having a major theme park....right next to a 49ers football stadium is an advantage to Santa Clara and Silicon Valley and the best use of parking for both facilities [as well as] resolving a pending litigation issue," said City Manager Jennifer Sparacino at the January 10, 2012 City Council meeting.

In return, Cedar Fair will receive $12.5 million for stadium parking rights and a $250,000 advance from the 49ers for public safety. The initial $3.5 million payment to Cedar Fair will be made when the current litigation against the city is dismissed. The remaining $8.5 million payment will be paid by September of the first year in which NFL games are played at the Stadium.

The agreement was a "very complicated agreement to negotiate and requires significant cooperation among the parties," Santa Clara RDA attorney Karen Teterman told the Council.

The agreement lets the Santa Clara Stadium Authority (SA) use 5,000 - of the park's 6,500 - parking spaces for NFL events and 3,000 spaces for up to 15 non-NFL events annually. If another team plays in the stadium, the 49ers will pay Cedar Fair an additional $4.9 million.

The SA will have use of the parking spaces when the park isn't open, during NFL games (providing only one team plays at the stadium), and events after 5:00 p.m. Sunday through Thursday, except on holidays.

Great America has sole discretion over allowing stadium parking on summer weekends, holidays, and up to five additional days annually. Use for other events is subject to Cedar Fair's "reasonable discretion."

Stadium Parking Agreement Also Changes Great America Lease Terms

The parking agreement also included changes to the Great America land rent, extends Cedar Fair's lease in return for modest rent increases, and potentially reduces Santa Clara's share of the amusement park's profits in the future.

At the January 10, 2012 City Council meeting, City Council Members differed on the sufficiency of these changes to the park's lease agreement with the city.

Historically, Santa Clara's land use decisions have considered intangible benefits to the city as well as direct revenue. The city originally purchased Great America in 1985 - a move that was passed by the City Council 4-3, and by nearly three-quarters of city voters - to prevent the land from being sold to a developer. The base rent was fixed at $5.3 million in 1989 when the city sold park assets to Kings Entertainment.

"Our intent hasn't been to have a lease that reflects fair market value, but instead keeps the theme park in the city and the non-monetary value it provides," said Sparacino, who was part of the city team that negotiated the first agreements about the park three decades ago.

The new agreement is an improvement and calls for increases to Great America's base rent by 7.5 percent in 2039, and 5 percent in 2054 and 2064. Further, the revenue threshold at which the City receives additional rent for the land - called participation rent - increases by 15 percent in 2020, 2030 and every five years after that. The participation rent increases depend on Cedar Fair's continued investment - initially set at $10 million - in the park between 2012 and 2020.

The agreement also includes changes to the participation rent calculation that links increased city revenue to increased park business. But, the city hasn't collected any participation rent from the amusement park since 2006.

However, "these increases in ground rent most likely will not capture the full increase in property values during this time," the agreement notes - an observation that certainly didn't capture the difference of opinion in the discussion that followed.

Both Council Members Jamie McLeod and Will Kennedy objected that the lease agreement inadequately protected the city's future financial interests.

"There's a very limited gain with a pretty large trade-off and that trade-off may increase over time," said McLeod. "I've always thought the city's land is our ace in the hole. What we need to do is keep the value of that moving forward. Are we tying the hands of future councils for this huge parcel? I don't think this agreement protects the city to the extent that it could."

Holding the rent stable for 62 years is essentially a rent decrease," said Kennedy. "Sixty-two years ago was 1950. My rough calculation is that one dollar was worth eight or nine times what it is now." Assuming a similar rate of change in the future, Kennedy noted, would effectively reduce the city's rent from $5 million to $500,000.

"I don't understand how that could not have a general fund impact...I'm not saying raise the rent. I'm saying keep it the same, and in my world keep it the same means keep up with inflation.

"I don't think this is a very common provision - to bind ourselves this many years out without some provision for inflation," he added. "I see a little bit of a trend [toward] devaluing the land around the stadium. Five million dollars is about our whole library budget."

However, the other four council members present (Gillmor, Kolstad, Matthews, and Moore) didn't see it that way, pointing to the economic potential created by the stadium.

"All these agreements are heading us in the right direction and adding value to the general fund," said Council Member Lisa Gillmor. "The agreement will resolve a lawsuit - a very big positive for our general fund. The reduction in the city's parking obligation to Cedar Fair [benefits the City because] we've lost revenue in the area because of the huge parking agreement binding us."

Further, she continued, "The Stadium lease and Great America lease will be in tandem. We're encouraging Cedar Fair to invest in the park to be the kind of attraction the city wants to encourage - this agreement will encrouage CF to put in new attractions. Participation rent keeps up with inflation - the more successful they are the more successful the city is."

Finally, Gillmor said, the proximity of the park to the proposed stadium creates valuable synergy. "It opens a tremendous amount of opportunities to raise money for our general fund. Do you think Joe Montana would be interested in that land...without the stadium? This is creating value for our city."

A final question was whether the City was rushing into a deal and would get a better agreement by waiting.

"We have pending litigation [and] these agreements dismiss that litigation," explained Attorney Teeterman. "We've been working on these agreements for four years. I don't know that I could say with any certainty that if we delayed we'd get an agreement."

The agenda report and the terms of the agreements can be found at santaclaraca.gov/index.aspx?page=1504 and selecting the 1/10/12 Council Meeting Action Summary.