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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 12/17/2002 - FIRST READING OF ORDINANCE NO. 187, 2002, AUTHORIZ AGENDA ITEM SUMMARY ITEM NUMBER: 18 DATE: Decemberl7, 2002 FORT COLLINS CITY COUNCIL FROM: Steve Comstock SUBJECT : First Reading of Ordinance No. 187, 2002, Authorizing the Modification of the Meadow Springs Ranch Grazing Lease With Natural Fort Grazing Association, Inc. RECOMMENDATION: Staff recommends adoption of the Ordinance on First Reading. EXECUTIVE SUMMARY: Natural Fort Grazing Association, Inc. ("NFGA"),has asked if the City is willing to restructure the current ten-year grazing lease to a lease that is year to year with an option to renew for the following year up to the ten year term. 40 While a ten-year term arrangement is preferred by the City and the NFGA, recent changes in the property tax treatment of publicly-owned property that is leased and used by private parties have raised new issues related to the structure of leases such as the grazing lease.Because the value of the grazing lease is assessed as the current value of the entire term, the value of a ten-year lease is high throughout the life of the lease, even though the lease itself is terminable by the parties with notice at any time. If the grazing lease is not restructured,the value of the last year of a ten-year term lease would be taxed nine times rather than once annually. Given that the current lease is terminable with notice, staff does not believe that modifying the lease to constitute a series of one-year terms, as opposed to one ten-year term, will result in negative impacts to the City as the lessor. The restructuring would continue to allow a long-term relationship, but would make the lease more financially viable for the lessee. Because the Utility believes the continued lease of the property for grazing purposes is beneficial, staff is recommending that the modification of the lease to providc for successive one-year terms, rather than one ten-year term, will result in an overall benefit to the City. ORDINANCE NO. 187, 2002 OF THE COUNCIL OF THE CITY OF FORT COLLINS AUTHORIZING THE MODIFICATION OF THE MEADOW SPRINGS RANCH GRAZING LEASE WITH NATURAL FOR GRAZING ASSOCIATION, INC. WHEREAS, in late 1990, the City purchased that certain real property commonly known as the Meadow Springs Ranch (the 'Property"); and WHEREAS, since purchasing the Property, the City has leased it each year for livestock grazing purposes; and WHEREAS,in October,2000,City staff issued a request for proposals to lease the Property for livestock grazing purposes for a term of approximately ten (10) years, and in response, the City received two proposals which were reviewed,resulting in the proposal of Natural Fort Grazing,Ltd. ("NFG") being selected; and WHEREAS,City staff and NFG representatives have negotiated a Grazing Lease Agreement (the "Lease"), which Lease is on file in the office of the City Clerk; and WHEREAS,the original term of the Lease is for nine years,seven months and sixteen days; and i WHEREAS, in January 2001, the City Council adopted Ordinance No. 192, 2000, �1�► authorizing the execution of the Lease; and WHEREAS, due to changes in the tax treatment of private leases of public property, NFG has requested that the City agreed to a modification of the Lease so as to provide for a series of one- year terms, rather than one term for the entire lease period; and WHEREAS, staff has determined that there will be no detrimental effect on the City as the lessor in making such a change,since the Lease currently allows either the City or NFG to terminate the Lease in any event with 30 days notice; and WHEREAS, Sections 23-111 and 23-114 of the Code of the City of Fort Collins authorize the City Council to lease, for a definite term of more than two years, any and all interest in real property owned by the City which is part of a City utility system, provided the City Council first finds,by ordinance,that the lease is in the best interests of the City, that the lease will not materially impair the viability of the City's affected utility system as a whole, and that the lease will be for the benefit of the citizens of the City. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: f Section 1. That the lease of the Property to NFG pursuant to the terms of the Lease ! modified as described in this Ordinance,is in the best interests of the City,that he Lease as modified will not materially impair the viability of the City's Wastewater utility system as a whole, and that the Lease as modified will be for the benefit of the citizens of the City. i Section 2. The Mayor is hereby authorized to enter into an amendment modifying the i Lease so as to provide for a series of annual terms for the remainder of the original Lease term, on behalf of the City. Introduced and considered favorably on first reading and ordered published this 17th day of December, A.D. 2002, and to be presented for final passage on the 7th day of January, A.D. 2003. Mayor ATTEST: City Clerk Passed and adopted on final reading this 7th day of January, A.D. 2003. Mayor ATTEST: City Clerk NATURAL FORT GRAZING ASSOCIATION November 20, 2002 City of Fort Collins Wastewater Utility Department 3036 E. Drake Road Fort Collins, Co. 80525 Attn: Steve Comstock,Manager Dear Steve, As we have discussed at great length the past month, Natural Fort Grazing Association and the city have been placed in an unfortunate and difficult situation regarding the unexpected possessory tax issue. Had either party known this was to be an issue we would have taken the opportunity to negotiate and structure the lease differently when renewed in December, 2000. As you know, the association has remained in compliance the past two years and is currently in compliance with all terms of the lease. Likewise,we have cooperated fully with the city the past 3 years in significantly adjusting grazing numbers and grazing time frames during the drought of 2000 and 2002 to insure the resource is properly managed. The 10-year term of the lease while very much desired by both parties now presents a significant and unplanned financial burden on the association. The billed possessory tax due for 2001 is approximately$13,600 and I anticipate 2002 will be nearly the same. This amounts to a 16% increase in the annual lease payment. As discussed, long-term leaseholders are essentially penalized for their term. The assessors value the lease for tax purposes based on the full term ($85,800 annual payment x 10 years =$858,000) in year one with a year falling off as each year passes. You pay tax on the last year of the lease, for example, 10 times. While the tax cannot be eliminated we can reduce the annual tax bill considerably, approximately 75% annually, based on my calculations. As such,we would ask that the city restructure the existing lease, effective 12-29-2000, to a - Year to Year Lease—with a renewal provision that allows for an automatic annual renewal thru the original term date of 12-31-2010, as long as we are not in violation of existing lease terms. This will allow the assessors the ability to tax only for the exact amount of rent paid in any one year. We would both still benefit from the security of the original 10 year arrangement so long as previously agreed to conditions are met as is now the case. We are not asking the city to pay all or part of the possessory tax or change any other lease condition. Your consideration of this request is very much appreciated and we look forward to your response. Please feel free to let us know if additional information is need or if we can answer any questions. Time is of the essence and we appreciate your prompt attention. Best Regards, Patrick Stratton President, Natural Fort Grazing Association