BOARD AGENDA MEMORANDUM
SUBJECT:
Title
Memorandum of Understanding and Standby Letter of Credit with U.S. Army Corps of Engineer; Conservation Easement Monitoring Funding Agreement for $350,000 with the Land Trust of Santa Clara Valley; Mitigation Conservation Easement Deed for the Lake Silveira Compensatory Mitigation Preserve; and Open Space/Recreation Conservation Easement Deed to County of Santa Clara and City of Morgan Hill for the Upper Llagas Creek Flood Protection Project, Project No. 26174051, (Morgan Hill) (District No.1).
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RECOMMENDATION:
Recommendation
A. Authorize the Chief Executive Officer (CEO) to negotiate and execute the Memorandum of Understanding (MOU) with the U.S. Army Corps of Engineers (USACE) to ensure long term protection and financial assurance for the Lake Silveira Compensatory Mitigation Preserve;
B. Authorize the CEO to negotiate and execute any standby Letter of Credit agreements in the future to comply with the MOU requirements;
C. Authorize the CEO to negotiate and execute the Conservation Easement Monitoring Funding Agreement in the amount of $350,000 with the Land Trust of Santa Clara Valley, a California non-profit corporation, for perpetual duties and obligations as the Conservation Easement Holder in accordance with the Conservation Easement Management Plan for the Lake Silveira Compensatory Mitigation Preserve;
D. Authorize the CEO to execute and grant a Mitigation Conservation Easement Deed for the Lake Silveira Compensatory Mitigation Preserve (15.993± acres), Real Estate File No. 5010-229.1 to the Land Trust of Santa Clara Valley for the Project; and
E. Authorize the CEO to execute and grant an Open Space/Recreation Conservation Easement Deed (Real Estate File Nos. 5010-229.2 and 5010-244.1) to County of Santa Clara and City of Morgan Hill, subordinate to the Mitigation Conservation Easement Deed.
Body
SUMMARY:
The Santa Clara Valley Water District (Valley Water) is undertaking the Upper Llagas Creek Flood Protection Project (Project) in partnership with the U.S. Army Corps of Engineers (USACE) and the City of Morgan Hill (City) to provide 1% flood protection to approximately 1,100 homes and 500 businesses along West Little Llagas Creek, East Little Llagas Creek, and Llagas Creek. The Project is approximately 13.9 miles long and encompasses the City of Morgan Hill, City of Gilroy, and various unincorporated areas of Santa Clara County, including San Martin. A Project Map is attached (Attachment 6).
On March 13, 2018, the Board adopted the resolution authorizing acquisition of real property from the County of Santa Clara (County), a political subdivision of the State of California, for the Project for the amount of $1,350,650. The Board also approved the Purchase and Sale Agreement for Real Estate File No. 5010-229 to acquire real property (APNs 779-03-114, 779-06-030, and 779-49-014), commonly referred to as the Lake Silveira property, from the County and authorized the Chief Executive Officer (CEO) to execute the Purchase and Sale Agreement and Certificate of Acceptance for Grant Deed for 5010-229. Finally, the Board authorized the CEO to execute and grant an Open Space/Recreation Conservation Easement Deed for Real Estate File No. 5010-229.2 (APNs 779-03-114, 779-06-030, and 779-49-014) and Real Estate File No. 5010-244.1 (APN 779-06-032) to the County and the City.
Execution of the Lake Silveira Compensatory Mitigation Preserve for the Project is structured as follows:
(1) The County grants deed to Valley Water for the 52.932± acres Lake Silveira Property (Real Estate File No. 5010-229);
(2) Valley Water approves the Memorandum of Understanding (MOU) with the USACE to ensure long term protection and financial assurance for the Lake Silveira Compensatory Mitigation Preserve (Attachment 1);
(3) Valley Water’s CEO negotiates and executes any standby Letter of Credit agreements necessary in the future to comply with MOU requirements;
(4) Valley Water executes the Conservation Easement Monitoring Funding Agreement for a one-time payment of $350,000 with the Land Trust of Santa Clara Valley for perpetual duties and obligations as the Conservation Easement Holder in accordance with the Conservation Easement Management Plan (Attachment 2);
(5) Valley Water executes and grants a 15.993± acres Conservation Mitigation Easement Deed to Land Trust of Santa Clara Valley (Real Estate File No. 5010-229.1) (Attachment 3); and
(6) Valley Water executes and grants an Open Space/Recreation Conservation Easement Deed (Real Estate File Nos. 5010-229.2 and 5010-244.1) to County and City, subordinate to the Mitigation Conservation Easement Deed previously granted to the Land Trust of Santa Clara Valley (Attachment 4).
In accordance with 33 CFR part 332, 40 CFR part 230, Subpart J ("Mitigation Rule"), and 33 CFR 332.7(a)(1), the long-term site protection is required for compensatory mitigation sites where it must be provided through real estate instruments or other available mechanisms, as appropriate considering relevant legal constraints. The USACE allows for the long-term financial assurance to be provided in the form of a standby Letter of Credit issued to the USACE as a beneficiary. Should Valley Water fail to meet the terms of the MOU with the USACE, the USACE will be able to draw down on the Letter of Credit from the issuing bank to pay for expenses related to the Project. The issuing bank will seek reimbursement from Valley Water for the draw down amount in accordance to the terms of the banking agreement.
Project Background
The Llagas Creek Flood Protection Project was originally administered by the United States Natural Resources Conservation Service (NRCS), formerly known as the Soil Conservation Service (SCS). In 1999, the Corps was authorized by Congress to take the Project over from NRCS and construct the remaining portion of the Project. However, due to lack of federal funding, the USACE’s progress on the Project stalled. To get the Project back on schedule, the USACE approved Valley Water’s request to take over as the Project’s lead to administer the planning (preparation of the environmental documents) and design phases.
On September 22, 2009, the Board approved a cost-sharing agreement with the City of Morgan Hill (City) to prepare the environmental document and the design plans and specifications for the Project. This Board action set the course for Valley Water to take on Project tasks normally performed by the USACE, so as to advance the Project work. The City agreed to reimburse Valley Water up to $3 million of the total anticipated cost of these work efforts. On April 7, 2014, Valley Water received final payment in full from the City of Morgan Hill.
An Environmental Impact Statement/Environmental Impact Report (EIS/EIR) was prepared in 1982 that analyzed the original Llagas Creek Flood Watershed Project developed by the United States Department of Agriculture’s SCS in the late 1960s. Since the approval of the 1982 EIS/EIR, numerous changes have occurred within the Project limits, including increased urbanization and riparian habitat, changes in runoff conditions, the federal listing of steelhead, and state/federal listings of California Tiger Salamander as threatened species, and have resulted in refinements to the original Project design.
Modifications to original Project elements include:
1. Widening (generally by constructing against one bank) and deepening the channel in all reaches;
2. Construction of a geomorphically stable channel form that includes a sinuous low-flow channel, with geomorphic benches at bankfull elevation where the channel is widened;
3. Permanent maintenance access roads along the top of both banks;
4. Aquatic habitat enhancements;
5. Grade control structures;
6. Modifications to culverts and bridges;
7. Construction of a tunnel beneath Nob Hill through downtown City of Morgan Hill to bypass high flows from a portion of existing West Little Llagas Creek through the City’s downtown that can remain natural (as-is), thus preserving the existing vegetation and habitat;
8. New 1.25-mile-long diversion channel (Reach 7a).
Certification of the Final EIR and Adoption of the Findings and MMRP
The Draft EIR was completed, a Notice of Completion was filed with the California Office of Planning and Research (OPR), and the Draft EIR was released for public review on January 6, 2014. A public meeting to receive comments on the Project was held on January 15, 2014, within the 45-day public review period. Resource agencies requested additional time for review and comment, which Valley Water staff granted. Ten letters with comments were received from the public and agencies in addition to oral comments received at the public meeting. Formal responses to each comment were incorporated into the Final EIR.
On June 10, 2014, Valley Water’s Board certified the Final EIR and approved the recommended Tunnel Alternative as the Project.
Certification of the Final EIS
USACE San Francisco Regulatory Division released the Project’s Draft Environmental Impact Statement (EIS) for Public Review and 45-day comment period on December 31, 2015. The Public Review comment period ended on February 16, 2016. On November 30, 2018, USACE issued the Project’s Final EIS. Public Review closed on January 11, 2019. On March 26, 2019, USACE signed the Record of Decision.
Next Steps
Phase 1 (Reach 4, Reach 7a diversion, and the on-site mitigation - Lake Silveira) is scheduled to begin construction by Fall 2019. It is anticipated that staff will request Board adoption of the Phase 1 final plans and specifications and authorizing the advertisement of the Project for obtaining construction bids in May 2019. Award of the Phase 1 construction contract is anticipated for consideration by the Board at their July 9, 2019 hearing.
Phase 2 construction (all remaining reaches) is anticipated to be advertised once funding for this phase of the Project has been approved by the Board. Phase 2 final construction documents and permanent acquisition of the remaining 9 parcels required for construction are anticipated for completion by August 2019.
FINANCIAL IMPACT:
There is sufficient Project funding in the FY19 budget for the Conservation Easement Monitoring Funding Agreement for a one-time payment of $350,000 to the Land Trust of Santa Clara Valley for perpetual duties and obligations as the Conservation Easement Holder in accordance with the Conservation Easement Management Plan.
The cost for the standby Letter of Credit to be negotiated and executed by the Chief Executive Officer in the future shall be included in the annual operating budget at the time USACE requires such financial assurance to be established (currently anticipated in 2031 or 10 years after construction completion of the Lake Silveira Compensatory Mitigation Preserve). The current rate for a standby Letter of Credit is 1.25% of the principal amount. Staff anticipates that the USACE will require $71,500 (5 years x $14,300 per year, the annual monitoring costs) in principal for the Letter of Credit, which is equal to approximately $900 per year in banking fee at today’s rates. The future letter of credit rates may be higher than 1.25%, but staff does not anticipate the fee to increase materially.
In addition, there is sufficient Project funding in the FY19 budget for the acquisition of the Santa Clara County parcel, commonly referred to as Lake Silveira, in the amount of $1,350,650 that was previously approved by the Valley Water Board of Directors on March 13, 2018.
The Project’s property acquisition costs, including appraisal costs and fees, are eligible for 100% reimbursement by the Department of Water Resources (DWR) State Subventions Program.
CEQA:
On June 10, 2014, the Board certified the Environmental Impact Report for the Upper Llagas Creek Project, Resolution no. 14-67. The Notice of Determination is attached (Attachment 6).
ATTACHMENTS:
Attachment 1: MOU
Attachment 2: Monitoring Funding Agreement
Attachment 3: Mitigation Conservation Easement Deed
Attachment 4: OS/REC Conservation Easement Deed
Attachment 5: Notice of Determination
Attachment 6: Map
UNCLASSIFIED MANAGER:
Manager
Christopher Hakes, 408-630-3796