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Agenda Item - 2022-12-20 - Number 8.03 - Resolution 22-45, Declaring Public Necessity to Acquire Real Property for the WTP503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO, OR 97034 WWW.LAKEOSWEGO.CITY Subject: Wastewater Treatment Facility Project: (1) Adopt Resolution 22-45 to Declare a Public Necessity; (2) Amend Interim IGA with Portland; and (3) Authorize Additional Consultant Spending Meeting Date: December 20, 2022 Report Date: December 13, 2022 Staff Member: Anthony Hooper, Deputy City Manager Department: City Manager’s Office Action Required Advisory Board/Commission Recommendation ☒Motion ☐Approval☐Public Hearing ☐Denial ☐Ordinance ☐None Forwarded ☒Resolution ☒Not Applicable ☐Information Only Comments: ☐Council Direction☐Consent Agenda Staff Recommendation: (1) Adopt Resolution 22-45 (2) Authorize City Manager to sign First Amendment to Interim IGA with City of Portland and (3) Authorize an additional $200,000 in consulting services. Recommended Language for Motions: (1) Move to adopt Resolution 22-45; (2) Move to authorize the City Manager to sign the First Amendment to the Interim Intergovernmental Agreement with the City of Portland; and (3) Move to authorize an additional $200,000 in Project consulting services for the wastewater treatment plant project. Project / Issue Relates To: Council initiative of collaborating with the City of Portland to make a financially and environmentally responsible long-term investment in a wastewater treatment plant. Issue before Council (Highlight Policy Question): ☒Council Goals/Priorities ☐Adopted Master Plan(s) ☐Not Applicable 8.3 Page 2 503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO, OR 97034 WWW.LAKEOSWEGO.CITY ISSUE BEFORE COUNCIL Shall the City Council move forward with real estate acquisition and relocation of existing businesses by commencing the eminent domain process needed for development of the wastewater treatment plant project? BACKGROUND The existing Tryon Creek Wastewater Treatment Plant (TCWTP) was built in 1964 and is owned by the City of Portland and operated by its Bureau of Environmental Services (BES). The TCWTP is old and is almost at the end of its useful life cycle without substantial reinvestment. The cities of Lake Oswego and Portland have been actively exploring the option of designing, building, financing, operating, and maintaining (DBFOM) a new wastewater treatment facility to replace the existing Tryon Creek plant under an innovative progressive public-private partnership (P3). On December 18, 2018, the City Council approved Resolution 18-55 for a special procurement procedure to solicit proposals for the DBFOM of the TCWTP Project. The City selected EPCOR Foothills Water Partners (EFWP) and the Council authorized entering into a Preliminary Services Agreement (PSA) for the DBFOM of the TCWTP on May 4, 2021, to work towards a Project Agreement. At the last Council Meeting on September 27, 2022, staff anticipated coming back to the Council for a “go/no go” decision on the Project Agreement with EFWP in December. However, staff is recommending that the City explore the possibility of extending the work under the PSA with EFWP for a period of up to 12 months and, in tandem, advance designs to a 90% level. EFWP and the City have yet to reach an extension and amendment of the work agreement. In November, EFWP completed updated renderings based on 60% designs, which are shown in visuals 1 and 2. The design includes solar panels shown in blue on the roof. Visual 1: Bird’s Eye View of the Potential Design of the New Facility Page 3 503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO, OR 97034 WWW.LAKEOSWEGO.CITY Visual 2: Close-up View of the Potential Administrative Building DISCUSSION Preliminary Services Agreement Extension and Amendment; Project Pricing The 60% design package submittal is near completion; however, EFWP’s latest proposed pricing to implement the rest of the Project (which includes finalizing designs, construction, financing, operations and maintenance of the new facility for a period of 30-years) is approximately $723.8 million (Construction: ≈$184.9 million; O&M for 30 years: ≈$179.4 million; Financing: ≈$359.5). The PSA “affordability cap” is $484.4 million. Thus, EFWP’s latest price proposal exceeds the affordability cap by about $239.4 million (49.4%). EFWP states cost escalation is due to factors beyond its control, such as inflation and interest rate increases. Macroeconomic forecasts suggest that inflation and interest rates may decline in the coming year. Additionally, under an extension and amendment of the PSA, EFWP could continue developing the designs to 90%, allowing them to reduce and remove certain contingencies within their current pricing. As such, there is value in delaying the “go/no go” decision until sometime next year in the hope of receiving better pricing based on reduced inflation and interest costs, and reduction of design and construction-timing contingencies. A critical part of the project is to determine the feasibility of constructing and operating a wastewater facility at similar or below the projected cost of upgrading and operating the existing TCWTP. This includes a financial analysis to assess if the impacts to customer rates is the same or less than upgrading and continuing to operate the existing plant. If the City were to terminate for cause at this time, EWFP would not receive 35% of its total preliminary services fee because the affordability cap would not be met; Lake Oswego and Portland would each be responsible for paying about $2.3 million to compensate EWFP for its services to date. The cities would own the 60% design plans, plus all other work products completed since April 2021; these work products could potentially be leveraged towards delivering the new facility in a new procurement manner. If the PSA were extended and amended to allow EFWP to continue its design work, staff currently anticipates the post-60% design work would be paid on a pay-go (monthly) basis. Page 4 503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO, OR 97034 WWW.LAKEOSWEGO.CITY The extension of EFWP’s services is still under discussion; staff is hopeful an amendment of the PSA will be presented to the City Council in February. Land Acquisition Since early 2021, the City has designated the properties of 99, 101, and 113 Foothills Rd as the site for a new wastewater treatment facility. The location is approximately 6 acres in size and is shown in visual 3. Visual 3: Designated Location of New Facility or Expanded TCTWP Facility Why Purchase 99, 101, and 113 Foothills Ahead of a “Go/No Go” Decision on the EFWP Project Agreement for a New Plant? The parcels are needed for a new or upgraded wastewater treatment plant. As noted, the existing TCWTP is nearing the end of its life cycle and that plant must be either replaced or upgraded. Consideration was given to building the new facility on the existing TCWTP site. That is not feasible because the existing plant needs to be fully operational while the new plant is being built. All of the possible options for replacing or upgrading require additional land that is near the existing TCWTP. The site is large enough for a new or upgraded plant, close to the existing pipes and outfall to the river, and is safer from flooding. The existing piping infrastructure is all funneled to the existing TCWTP site, which is at a lower elevation than the surrounding areas to leverage gravity, and it is necessary to locate a new plant nearby to leverage the existing gravity system and existing sewer mains to the plant. • A new plant is estimated to require six acres of land, and its construction will occur while the existing plant remains in operation. Upon completion of construction, the Page 5 503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO, OR 97034 WWW.LAKEOSWEGO.CITY gravity sewer mains to the existing plant would be switched over to the new plant. The outfall location will remain the same. • To upgrade the existing TCWTP identified in the 2014 TCWTP Facilities Plan, Portland forecasts an estimated additional two to three acres of land outside of the current treatment plant property boundary would be required. Additionally, Portland's construction contractor will need a staging area should the TCWTP be upgraded, and the remaining acres of land will improve project constructability. Ownership and Businesses on Site: These three properties have multiple businesses on-site: 1) 99 Foothills Rd (Owner - RAF Investments, LLC): There is Omni Garage Door and Aesthetic Earth Landscaping, plus, 8 businesses that are primarily one or two-person businesses that range from a real estate broker to an attorney to a construction management consultant. In addition, there are 2 businesses that rent parking spaces. 2) 101 Foothills (Owner - Lan & Bill Investments LLC): Erickson’s Automotive and Lannie’s Marine, Inc. These businesses have been at their current location for approximately 33 years. 3) 113 Foothills Rd (Owner – Mreen Family, LLC): Toklat Originals, Inc. is the primary business on-site. It manufactures and distributes horse saddles and other horse-related accessories. It has been at the current location for approximately 35 years. In addition to Toklat Originals, Inc., the site also houses ArborPro, Inc. (tree services), Skyline Northwest Corporation (manufactures and distributes swimming goggles), Lumberjack Baseball Club, LLC (office), and Foundations First Northwest, LLC (repairs building foundations). Relocation of Businesses: There are 18 businesses that need to be relocated, with eight being one- or two-person businesses. The City hired Universal Field Services in November 2021 to assist businesses with relocation efforts per ORS 35.510 and other related requirements. In response to requests from business owners, the City offered early relocation benefits and rental protection to all owners and tenants in March 2022. Typically, these benefits are only offered once a formal offer is made to the property owner. At that time the displaced owner and then tenant are provided with a notice of what they are entitled to and the formal relocation process starts. However, early relocation benefits were offered to facilitate tenant relocation efforts. There has been one tenant business that has already taken advantage of the early relocation benefits: it was paid $40,000 in relocation benefits and the owner is also being compenstated in a rental protection agreement (monthly payments in lieu of rent to reimburse the owner in exchange for keeping the leaseable space vacant). Next Step in Land Purchase: The next step in land acquisition is to commence the process for purchase of fee title and possession of the real property. This would be accomplished through either a negotiated purchase or eminent domain proceedings per ORS Ch. 35. See Why Adopt a Resolution of Public Necessity? discussion on the next page. Page 6 503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO, OR 97034 WWW.LAKEOSWEGO.CITY The LOWTP cannot move forward to the construction phase without the right of possession of the land. Although the design services timeline is recommended to be extended and completed to a 90% design, staff recommends land acquisition commence in order to: (1). Reduce Financing and Construction Cost and Contingencies. By acquiring the land now, there is less risk, which will likely translate to lower contingencies and reserve costs, which translates to lower long-term costs to the city’s ratepayers. Finally, there may be the potential to get more favorable financing through a Private Activity Bond with a partner like Business Oregon, which is only possible by having the land in hand. (2). Improved Relocation Efforts. Another key reason to purchase the land now is to allow for additional time for businesses to be relocated. There is limited industrial land available within Lake Oswego, which makes relocating existing businesses challenging and may require that some businesses be relocated nearby, in a neighboring city. Why Adopt a Resolution of Public Necessity? The Resolution of Public Necessity (Attachment 2) describes the public’s interest in acquiring land for the purpose of locating a new facility or upgrading and expanding the existing Tryon Creek Wastewater Treatment Plant. The Resolution is the first step of the property acquisition process under LOC Ch. 35 (Eminent Domain). Public Comment in Response to Proposed Actions: The City has received four letters from property owners that are located on the proposed site and over 60 additional e-mails from customers/residents, which will all be included as official written public comment for this agenda item and posted on our website as part of the meeting record. Why is it Necessary to Amend the Interim IGA with the City of Portland? On October 26, 2020, an Interim IGA (Attachment 1, Exhibit A) was executed to cover the procurement and design development period for a private entity to design, build, finance, operate and maintain a new wastewater treatment facility. The purpose for amending the interim IGA is to allow Lake Oswego to move forward with land purchase, which includes relocation of existing businesses. The key details of the amendment are: • 50/50 split between Lake Oswego and Portland on the costs for land acquisition and relocation of existing businesses. • Portland will give $5,923,000 of cash to Lake Oswego for the land purchase within 10 days of written notice (either to complete a purchase or as required to obtain a court order for immediate possession). • Portland will give Lake Oswego an additional credit of up to $5,077,000 of forgiven depreciation and assets in-progress that are owed to Portland from Lake Oswego to close-out the costs attached to Lake Oswego’s use of the Tryon Creek Wastewater Treatment Plant (TCWTP). Page 7 503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO, OR 97034 WWW.LAKEOSWEGO.CITY • Portland will have a 50% ownership interest in the Project Site should the cities ultimately decide to upgrade the existing plant instead of building a new plant. If a new plant is built, then the land would be owned by the City of Lake Oswego. The Portland’s Council will consider approving the First Amendment to the Interim IGA on January 4, 2023. There is anticipated to be a required second reading on January 11, 2023. The First Amendment will go into effect after Lake Oswego’s approval and 30 days after Portland’s approval. With approval of the First Amendment of the Interim IGA, the City currently anticipates making offers to the respective property owners in the middle to late February. Additional Consultant Spending Staff is requesting an additional $200,000 in funding to cover consulting expense until staff can return in February for the Council to consider approving the extension to the PSA with EFWP if an agreement is reached. FISCAL IMPACT On May 4, 2021, the Council authorized the PSA. The preliminary services cost is about $7.2 million. EFWP is paying for these costs out-of-pocket; these costs will be rolled into the overall project cost if the Council approves a Project Agreement with EPCOR. If the Project Agreement is not agreed to, EFWP will be reimbursed for its preliminary services at different levels based on the reasons for terminating services, as set forth in the PSA. The City paid an application fee of $100,000 to the EPA to secure ear-marked funding as part of the WIFIA loan program. The City paid a total of $20,000 in right-of-entry fees to property owners to complete various environmental and geotechnical studies. There has been an additional $40,000 paid to a tenant for relocating its business elsewhere and $4,725 per month is paid to an owner starting in October 2022 to provide rental protection. There will be additional costs to relocate tenants and there may be additional rental protection agreements for the period while the owners are in possession. Lastly, the Council also authorized $1.4 million in consulting services for the preliminary services agreement period, which started in May 2021. After 17 months, the total spent on consulting is about $1.24 million with the remaining amount estimated to be spent in November and December. Portland shares in the cost per the terms of the Interim IGA. The updated table of consultant spending is included in Attachment 3. Staff is requesting authorization for additional $200,000 of work, which should cover services until the Council meeting in February, when the existing PSA (pending an agreement with EFWP) is considered by the Council and additional consultant funding is requested. ATTACHMENTS 1. First Amendment to Interim IGA with City of Portland, with Exhibit A – Interim IGA 2. Resolution 22-45: Resolution of Public Necessity 3. Consultant Spending Table First Amendment to Tryon Creek Wastewater Treatment Plant Interim IGA The City of Lake Oswego and the City of Portland Page 1 of 3 FIRST AMENDMENT TO TRYON CREEK WASTEWATER TREATMENT PLANT INTERIM INTERGOVERNMENTAL AGREEMENT This first amendment to the Tryon Creek Wastewater Treatment Plant Interim Intergovernmental Agreement (“the Agreement,” Exhibit A), executed by and between the City of Lake Oswego (“Lake Oswego”) and the City of Portland (“Portland”) on October 26, 2020, is effective as of the last date of signature below. Recital The parties wish to amend the Agreement to account for changed conditions pertaining to the acquisition of real property. Terms 1. The Agreement is amended as follows: a. Section 1.c is amended to read as follows, in its entirety: If Lake Oswego declines to proceed further with the P3 procurement process, declines to proceed with development of the PDA, terminates the PDA, or declines to proceed with development of a PA with the P3; or if Portland declines to participate further in the P3 procurement process due to an irreconcilable difference between the parties over the terms of the PA, the parties will proceed as follows (“the Exit Option”), unless otherwise agreed in writing: i. Portland will retain ownership of the Existing Plant and will provide wastewater treatment and disposal services under the terms of the 1984 IGA or any Replacement IGA agreed to by the parties; ii. Lake Oswego and Portland will each pay 50% of any payments due to the P3 under the PDA, plus Portland will pay or reimburse Lake Oswego for 50% of all costs Lake Oswego has incurred after the date of this interim IGA for the activities described in Section 1, including without limitation all reasonable consultant, design and outside legal costs. If this Exit Option applies under the terms of Subsection 1.d below, Portland will also pay or reimburse Lake Oswego for 50% of all costs Lake Oswego has incurred in the negotiation and development of a PA with the P3, also including all reasonable consultant, design and outside legal costs; and iii. If acquisition of the Project Site has occurred, Portland’s contributions thereto under Section 1.c.ii above will result in a 50% ownership interest in the Project Site. The future use or disposition ATTACHMENT 1 First Amendment to Tryon Creek Wastewater Treatment Plant Interim IGA The City of Lake Oswego and the City of Portland Page 2 of 3 of the Project Site will be determined through mutual written agreement. b. Section 2.e is amended to read as follows, in its entirety: i. Except as provided in Section 2.e.ii below, the new cost-share arrangement will be based on plant flow utilization (total annual volume of flow treated) between Lake Oswego and Portland for all costs allowable under the PA, including, but not limited to, decommissioning the Existing Plant, capital improvements, pipe connections, any relocation of the pump station, financing, operations, maintenance, administration, overhead, insurance and security packages, reserve accounts, and all other cost categories set forth in the PA, together with all costs Lake Oswego has incurred after the date of this Interim IGA for the activities described in Section 1 and for the negotiation and development of the PA with the P3, including, without limitation, all consultant, design and outside legal costs. ii. Section 2.e.i above will not apply to the acquisition of the Project Site, as that term is defined in the PA. If acquisition of the Project Site is deemed necessary by Lake Oswego: 1) The costs thereof will be borne equally by Lake Oswego and Portland. 2) Portland will contribute $5,923,000 in cash to Lake Oswego (to be received upon 10 days’ written request by Lake Oswego) towards Portland’s 50% share of the cost of the Project Site acquisition. Portland will contribute the remainder of its 50% share in the form of a credit to Lake Oswego for the value of undepreciated assets at the Existing Plant, which will satisfy the terms of Section 2.i.i of the Interim IGA as they pertain to those assets. Provided, however, if Portland’s share of the real property acquisition cost is greater than the $5,923,000 cash payment plus the credit amount, then the remaining amount shall be a credit towards Lake Oswego’s final share of costs as calculated under Section 2(e)(i) herein. 3) Portland’s contributions under Section 2.e.ii(2) above will not result in any ownership interest in the Project Site or any liability therefor. First Amendment to Tryon Creek Wastewater Treatment Plant Interim IGA The City of Lake Oswego and the City of Portland Page 3 of 3 2. The remainder of the terms and conditions of the Agreement remain in full force and effect. 3. This amendment may be signed in one or more counterparts, each of which will be deemed an original and which, when taken together, shall constitute one and the same amendment. The parties agree that they may conduct this transaction by electronic means, including the use of electronic signatures. IN WITNESS WHEREOF, the parties have executed this amendment. For the City of Lake Oswego: _______________________________ Signature _______________________________ Name _______________________________ Title _______________________________ Date APPROVED AS TO FORM _______________________________ City Attorney’s Office For the City of Portland: _______________________________ Signature _______________________________ Name _______________________________ Title _______________________________ Date APPROVED AS TO FORM _______________________________ City Attorney’s Office Attachments: Exhibit A – Tryon Creek Wastewater Treatment Plant Interim Intergovernmental Agreement EXHIBIT A TO ATTACHMENT 1 Resolution 22-45 Page 1 of 2 RESOLUTION 22-45 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE OSWEGO DECLARING PUBLIC NECESSITY TO ACQUIRE REAL PROPERTY FOR THE WASTEWATER TREATMENT PROJECT WHEREAS, the City of Lake Oswego may exercise the power of eminent domain pursuant to the Lake Oswego Charter of 1964 and the laws of the State of Oregon, as amended, including but not limited to ORS 223.005, ORS 454.215, and ORS chapter 35; and WHEREAS, the existing Tryon Creek Wastewater Treatment Plant (“TCWTP”) is owned and operated by the City of Portland and serves the majority of the City of Lake Oswego and a portion of the City of Portland; and WHEREAS, the TCWTP was built in the mid-1960s and is in need of major upgrades and expansion to continue to reliably meet Oregon Department of Environmental Quality water quality requirements; and WHEREAS, the City of Lake Oswego and the City of Portland intend to either construct a new, more environmentally-friendly and sustainable wastewater facility, using modern technology (“Lake Oswego Wastewater Treatment Facility Project” or “LOWTFP”), or upgrade, modernize and expand the TCWTP (“Portland TCWTP Alternative Project”) (collectively, the LOWTFP and Portland TCWTP Alternative Project are referred to as the “WWTP Project”); and WHEREAS, the City of Lake Oswego has determined that the WWTP Project, which includes the collection, treatment, and disposal of public sewage, is an important public use and will be planned and located in a manner which will be most compatible with the greatest public good and the least private injury; and WHEREAS, the City of Lake Oswego has determined that it is necessary for public health, safety, and the general benefit and welfare of the City and the general public to acquire fee title to the real properties in Clackamas County identified as Tax Lots 21E02CB01800, 21E02CB02101, 21E02CB01500, and further depicted in Exhibit 1 attached hereto (collectively, the “Properties”), to design, locate, construct, and implement the WWTP Project; and WHEREAS, the City Council finds that declaration by resolution to acquire the Properties is necessary, and being fully advised, NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lake Oswego that: Section 1. The above recitals are incorporated into this resolution. Section 2. It is necessary and in the public interest for the City to acquire fee title to the Properties for the WWTP Project. Section 3. The City’s staff and the City’s legal counsel are authorized and requested to attempt to agree with the owners and, if applicable, other persons in interest, as to the just ATTACHMENT 2 Resolution 22-45 Page 2 of 2 compensation to be paid for the acquisition of the Properties and any applicable compensable damages, in accordance with applicable law. In the event that no satisfactory agreement can be reached, the City’s staff and City’s legal counsel are authorized to commence and prosecute condemnation proceedings and to take other steps as they determine are necessary to acquire the Properties. The City Manager and the City’s legal counsel may make stipulations, admissions, or agreements as they determine may be in the best interests of the City, and to take possession of the Properties at such time as appropriate in their judgment, without necessity of further City Council approval. This authorization is not intended to expand the jurisdiction of any court to decide matters determined above or determinable by the City Council. Section 4. The City expressly reserves its jurisdiction to determine the necessity or propriety of any acquisition, its quantity, quality, or locality, and to change or abandon any acquisition. Section 5. This Resolution shall take effect upon passage. Considered and enacted at the regular meeting of the City Council of the City of Lake Oswego on the 20th day of December, 2022. AYES: NOES: EXCUSED: ABSTAIN: ___________________________________ Joseph M. Buck, Mayor ATTEST: ___________________________________ Kari Linder, City Recorder APPROVED AS TO FORM: ________________________________ Evan P. Boone, City Attorney Pro Tem Exhibit 1:  Designated Location for Declaration of Public  Necessity at 99, 101, and 113 Foothills Rd.      Designated Location for Public Declaration of Necessity:   99 Foothills Rd. (tax lot 21E02CB01800)   101 Foothills Rd. (tax lot 21E02CB02100)   113 Foothills Rd. (tax lot 21E02CB01500)  Attachment 3:  Consultant Spending on Wastewater Treatment Facility Project Consultant Function Total Contract  Amount Total Paid  Since the Start  of Project Total Amount  Remaining on  Contract Total Paid since  EPCOR Agreement  (May 2021 through  end of Oct. 2022)      Illuminati Infrastructure  Advisors (Jill Jamieson)* Owner's Representative &  Financing Advisor $347,000 $338,000 $9,000 $205,000 Carollo Engineers Technical Advisor $1,132,000 $745,000 $387,000 $547,000 Hawkins, Delafield & Wood* Legal Advisor $824,000 $780,000 $44,000 $379,000 Universal Field Services Property Acquisition Services $168,000 $50,000 $118,000 $50,000 Jones Lang LaSalle (Jill  Jamieson ).  The contract  has  been terminated. Owner's Representative &  Financing Advisor $100,000 $88,000 N/A N/A WCX (No longer in Business)Owner's Representative  $10,000 $4,000 N/A N/A Argent Management  (Completed)2018 Feasibility Study $150,000 $150,000 N/A N/A FCS Consulting (Completed)Wastewater Rate Model  Update $8,000 $8,000 N/A N/A Total $2,739,000 $2,163,000 $558,000 $1,181,000 *The contracts for Illuminati Infrastructure and Hawkins, Delafield & Wood need to be amended, and are in progress.   There is an invoice  for Hawkins, Delafield, & Wood for $60,298.88 for October that has yet to be paid and requries a contract amendment that is in progress.  12‐13‐22