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HomeMy WebLinkAboutRes2012-038 Sponsored by: Hunt r.. CITY OF SEWARD, ALASKA RESOLUTION 2012 -038 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, AUTHORIZING THE CITY MANAGER TO ENTER INTO AN EXTENSION OF THE GROUND LEASE WITH SEWARD SHIP'S DRYDOCK, INC. FOR THE REAL PROPERTY DESCRIBED AS LOTS 1 -A AND 3, BLOCK 7, FOURTH OF JULY CREEK SUBDIVISION SEWARD MARINE INDUSTRIAL CENTER, SEWARD SHIP'S DRYDOCK REPLAT, ACCORDING TO PLAT 2002 -22, SEWARD RECORDING DISTRICT, THIRD JUDICIAL DISTRICT, STATE OF ALASKA WHEREAS, the City (Lessor) and Seward Ship's Drydock, Inc. (Lessee) entered into the current Ground Lease in 1995; and WHEREAS, the Ground Lease was extended in 2010 to 2016 to reflect the investment by the Lessee in improvements to the shiplift facility by replacing the cathodic protection system; and WHEREAS, the Lessee has made several other upgrades to the ship lift facility; and ism WHEREAS, the Lessee has completed the shiplift controls upgrade, the hoist pawl upgrade, partial coating of the breakwater cells, and replacement of the cathodic protection system; and WHEREAS, the parties desire to extend the lease. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA that: Section 1. The City agrees to accept the improvements based on representations by Lessee that the work was completed and Lessee has expended $346,001.25 on the Shiplift Control System Upgrade and $409,164.32 on the Hoist Pawl Solenoid Upgrade. Section 2. The Ground Lease is hereby extended until June 30, 2040. The City Manager is authorized to enter into an Agreement to Extend Ground Lease in substantially the same form presented at this meeting. Section 3. This resolution shall take effect 30 days after adoption. CITY OF SEWARD, ALASKA RESOLUTION 2012 -038 PASSED AND APPROVED by the City Council of the City of Seward, Alaska, this 11 day of June, 2012. THE CITY OF SEWARD, ALASKA David Seawa t , ► ayor AYES: Valdatta, Bardarson, Shafer, Casagranda, Terry NOES: Seaward ABSENT: Keil ABSTAIN: None ATTEST: ( ohanna Kinney, CMC City Clerk (City Seal) � oI $'II t1.,, � . •�y OF S & V % . .. • U rys ••• • • F O F Pk .• . 44 0frawae* 1f Council Agenda Statement e. s Meeting Date: June 11, 2012 From: Mack Funk, Harbormaster dit Through: Jim Hunt, City Manager Subject: Seward Ship's Drydock Ground Lease Extension BACKGROUND & JUSTIFICATION The City of Seward has long pursued the development of the Seward Marine Industrial Center, and constructed improvements to the area, including a Syncrolift Shiplift System, Ship Transfer System, and related rails, dock, and breakwater. The current ground lease for a portion of the area immediately upland of the Shiplift Facility has been in effect between the City and Seward Ship's Drydock, Inc. (SSDI) since 1995. In 2010, the Lease was extended through June 30, 2016. The City Council authorized the possibility of future extensions through June 30, 2040. Lease extensions are based upon approved capital improvements to the Lease area or the City's Shiplift Facility operated by SSDI (Lease, Article 2). SSDI and the City went to binding arbitration in 2008. The question before the arbitrators centered on whether SSDI's proposed replacement of the cathodic protection system would constitute an "improvement" for purposes of extending the Lease term when the City contended that SSDI had not maintained or repaired the existing system that over the years deteriorated to a point where it no longer functioned. The panel of three arbitrators decided on December 23, 2008 that SSDI was, in fact, eligible for an extension through June 30, 2016 based on the investment made in a new Cathodic Protection system, to replace the older system, to protect the sheet pile breakwater below the waterline. To request an extension of the Lease term "...SSDI must submit to the City plans for an improvement ... [that] must include an estimate of costs and a schedule for installing the improvements." On the other hand, "The provision in the ground Lease that the improvement proposal is subject to approval by the City does not vest the Council with additional power over Ground Lease terms." (Arbitration decision) SSDI made numerous requests to extend the lease (several written attempts are documented over the past four years, but none are complete in accordance with the Lease). SSDI submitted the costs of three projects that may qualify for lease extensions: Shiplift Control System Upgrade ($346,001.25), Hoist Pawl Solenoid Upgrade (409,164.32) and Coating of Cells & Dock Piling ($609,738.37). The total submitted costs of the three projects, if valid, would qualify SSDI for extensions through 2040. However, each request raises significant questions. For both the Shiplift Control System Upgrade and the Hoist Pawl Actuator Upgrade, SSDI first requested city approval on July 29, 2009 (letter enclosed), but the request did not include a schedule. Apparently the City did not approve the request because it was not complete and did not meet the requirements in Article 2 of the Lease to ask for an extension of the term. The labor rate charged for this work is $44.10 per hour. The Coating of Cells & Dock Piling did not achieve the agreed upon goal of reaching 2 feet MLLW. "A professional acknowledged the paint was about as low as it could get. It was difficult to go to that level. In looking at the coating, he felt it was acceptable, even though it did not meet the council's guidance from March [2011]." (Excerpt from the City Council minutes September 26, 2011). The previous city manager recommended that the work be deemed complete. Several months later, the City Council accepted that recommendation, in March 2012, as part of the approval of the 5 -year extension of the Maintenance and Operating Agreement. However, the original estimated cost was $400,000 (compared to $609,738.37). Furthermore, 72% of the total cost of the project is labor and the labor rate associated with this work is claimed to be $63 per hour. SSDI is technically in default of the Lease as a result of four unresolved Notices of Default issued by the Alaska Department of Environmental Conservation. The City, as the owner of the land, may be held jointly and severally liable for contamination caused by SSDI at the site. The administration recommends allowing the Lease to continue, without waiving any rights of the City, with the understanding and expectation that environmental compliance matters will be dealt with and resolved between SSDI and DEC. The arbitration panel stated, "The City may not unreasonably withhold its consent to an improvement that SSDI proposes in connection with exercising the option to extend the Ground Lease." The panel also emphasized SSDI's responsibility to submit complete requests, including cost and a schedule for completion of acquiring, installing and constructing the improvement. No requests were sent to the City that comply with Article 2 of the Lease, and therefore no response was appropriate from the City. SSDI now asks for extensions to the Lease term to extend the term to June 30, 2040 without the need for compliance with Article 2. The administration has no objection, and recommends approval of an extension of the Lease term to June 30, 2040. According to the previous city manager, the ship lift facility is currently maintained in the best condition in the history of the Seward Marine Industrial Center (Agenda Statement September 26, 2011). CONSISTENCY CHECKLIST: Yes No N/A 1. Comprehensive Plan (document source here): Seward Zoning X Strategic Plan (document source here): Seward Marine Industrial Center X 2 ' Development Plan 3. Other (list): FISCAL NOTE The current rent collected from Seward Ship's Drydock, Inc. is $64,000 per year (plus tax). Finance Department: IY.A4t4A^G ATTORNEY REVIEW Yes_X - Limited No RECOMMENDATION Council approve Resolution 2012- O U authorizing the City Manager to enter into the Extension of the Ground Lease with Seward Ship's Drydock, Inc. through June 30, 2040 in substantially the form presented at this meeting.