AGENDA ITEM NO. 8.13

CITY OF ELK GROVE CITY COUNCIL STAFF REPORT

AGENDA TITLE: Adopt resolution authorizing the City

Manager to execute an agricultural lease with Mahon Ranch for the property located at 10251 Grant Line Road [APN: 134-0190-009] (CEQA Exempt)

MEETING DATE: September 14, 2016 PREPARED BY: Julie Cline, Real Property Manager DEPARTMENT HEAD: Bob Murdoch, Public Works Director/

City Engineer RECOMMENDED ACTION: Staff recommends the City Council adopt a resolution authorizing the City Manager to execute an agricultural lease with Mahon Ranch for the property located at 10251 Grant Line Road, further identified as Sacramento County Assessor Parcel Number 134-0190-009.

BACKGROUND INFORMATION: In 2014, the City of Elk Grove purchased property located at 10251 Grant Line Road, just south of Grant Line Road at Waterman Road (the “Property”). The City is considering development of a new Multi-Sport Park Complex (the “Project”), for which the Property may support. In order to develop the Property, the City must first seek inclusion of the Property in its Sphere of Influence and then annex the Property, which currently lies within Sacramento County jurisdiction. Both actions require approval from the Sacramento Local Agency Formation Commission (“LAFCo”). At City Council’s direction, staff filed an application with the Sacramento Local Agency Formation Commission (“LAFCo”) to process a Sphere of Influence Amendment (“SOIA”), which would include the Project site in the City’s Sphere of Influence (“SOI”).

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Elk Grove City Council September 14, 2016 Page 2 of 4 Concurrently, the City was approached by the adjoining ranch operator (“Mahon Ranch”), who sought to lease the Property from the City for cultivation of a winter hay crop. In November 2014, pursuant to Resolution No. 2014-266, the City leased the Property to Mahon Ranch, beginning November 12, 2014, at a term lease rate of $2,500; City contract number C-14-555 (“Original Lease”). At Mahon Ranch’s request, and pursuant to Resolution No. 2015-144, the lease was renewed the following year, commencing August 1, 2015, at a term lease rate of $2,500; City contract number C-15-235 (“Second Lease”). Parallel to the annexation application process, and pursuant to City Council direction on September 23, 2015, staff is continuing design and preliminary engineering efforts in order to refine the proposed Project site plan. Mahon Ranch is seeking to renew its lease of the Property for one additional season of winter hay crop cultivation. The proposed lease term will commence on October 1, 2016 and expire on June 30, 2017 (“Term”); City may, at its sole option, extend the Lease for up to three additional one-year terms (the “Lease”). ANALYSIS: The Lease renewal under consideration proposes a fair market rental rate of $2,500 for non-irrigated, dry pasture farm land. The proposed lease rate is similar to the rate established in the Original and Second Lease of the Property between the City and Mahon Ranch. Staff has reviewed available excerpts from the California Chapter of the American Society of Farm Managers & Rural Appraisers 2015 Trends in Agricultural Land and Lease Values publication. The publication lists dry-non irrigated farm land rental rates from $15 to $25 per acre per year. The negotiated lease rate is at the upper end of the range at $25 per acre per year. Note, if the Property was fully irrigated, the lease rates would be significantly higher. The 2016 Trends Report is not available at this time; however, staff does not anticipate a major shift in the 2016 lease rates trends. Pursuant to Elk Grove Municipal Code Section 3.42.280(A), the lease of City-owned property in excess of One Thousand and 00/100 ($1,000.00) Dollars per year is to be by competitive proposals, unless the City Council determines that entering into a lease without competitive proposals is in the best interests of the City.

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Elk Grove City Council September 14, 2016 Page 3 of 4 Staff supports a determination that it is in the City’s best interest to forego a competitive bid process and enter into a lease of the Property with the adjoining land owner, Mahon Ranch for the following reasons:

• Mahon Ranch has leased the Property from the City since 2014 and has been a good steward of farming the land;

• Farming the property will reduce the cost of weed abatement while awaiting annexation and completion of environmental studies required in connection with development of the Property;

• Mahon Ranch will perform perimeter weed control and blade (level) the south, east and west perimeter roads at least once during the Term of the Lease;

• The suggested lease rate is consistent with the most currently available Trends in Agricultural Land and Lease Values publication (2015);

• The staff time and cost of creating a competitive bid process would likely exceed the lease revenue generated from an agricultural lease; and

• Leasing the Property, to the southerly adjoining Mahon Ranch, would eliminate large truck traffic typically associated with hay production, and movement thereof, along Grant Line Road.

Therefore, staff recommends entering into a Lease of the Property with Mahon Ranch, for the cultivation of a winter hay crop, at a term lease rate of $2,500, commencing on October 1, 2016, and terminating on June 30, 2017; and authorizing the City Manager to extend the Lease for up to three additional one-year terms, at City’s sole option. ENVIRONMENTAL REVIEW The California Environmental Quality Act (Section 21000, et. seq. of the California Public Resources Code, hereafter CEQA) requires analysis of agency approvals of discretionary “projects.” A “project,” under CEQA, is defined as “the whole of an action, which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.” The proposed lease (Project) is defined as a project under CEQA. Staff has reviewed the Project to determine the required level of review under CEQA. The proposed Project is exempt from CEQA pursuant to State CEQA Guidelines Section 15304 (Minor Alterations to Land). This exemption applies to minor public or private alterations in the condition of

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Elk Grove City Council September 14, 2016 Page 4 of 4 land, water, and/or vegetation which do not involve removal of healthy, mature, scenic trees except for forestry or agricultural purposes. The Project consists of a lease agreement between the City and a private party to use the subject property for agricultural purposes. The site has historically been used for agricultural purposes. No expansion of use beyond its historical operation is proposed. Therefore, the Project qualifies for this exemption and no further environmental review is required. FISCAL IMPACT: The proposed Lease of the Property for agricultural use helps to reduce the overall maintenance cost to the City, eliminating the City’s need to perform weed abatement, which is estimated at a cost of $100 to $300 per acre, depending on the type of weed control method employed. ATTACHMENTS: 1. Resolution 2. Lease Agreement

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ATTACHMENT 1

A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ELK GROVE AUTHORIZING THE CITY MANAGER TO EXECUTE AN AGRICULTURAL LEASE WITH

MAHON RANCH FOR THE PROPERTY LOCATED AT 10251 GRANT LINE ROAD [ASSESSOR PARCEL NUMBER 134-0190-009-0000] (CEQA EXEMPT)

WHEREAS, on August 27, 2014, the City Council authorized the purchase of

approximately 99 acres of land located at 10251 Grant Line Road (the “Property”); and

WHEREAS, on November 14, 2014, City Council authorized the City Manager to enter into an agricultural lease with Mahon Ranch, for one season of winter hay crop cultivation, for the property located at 10251 Grant Line Road (the “Property”); and

WHEREAS, in January 2015, City Council directed staff to file an application with

the Sacramento Local Agency Formation Commission (LAFCo) to process a Sphere of Influence Amendment (SOIA) to include the Property in the City’s Sphere of Influence (SOI); and

WHEREAS, on July 8, 2015, City Council authorized the City Manager to enter

into an agricultural lease with Mahon Ranch, for one season of winter hay crop cultivation, for the property located at 10251 Grant Line Road (the “Property”); and

WHEREAS, parallel to SOIA process, and pursuant to City Council direction on

September 23, 2015, Staff is continuing its design and engineering efforts for future development of the Property; and

WHEREAS, thereby, Mahon Ranch seeks to renew its lease of the Property for one (1) additional season of winter hay crop cultivation, commencing on October 1, 2016 and terminating on June 30, 2017; and

WHEREAS, the City may, at its sole option, extend the lease for up to three (3)

additional one-year terms, upon mutual consent of the parties; and

WHEREAS, in an effort to reduce maintenance-related expenses of the Property, until such time Property is developed, the City seeks to renew the lease on the Property with Mahon Ranch for cultivation a winter hay crop; and

WHEREAS, for the reasons presented, entering into the proposed lease without

seeking competitive proposals is in the best interest of the City; and WHEREAS, entering into the proposed lease is exempt from review under the

California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines Section 15304, Minor Alterations to Land.

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NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Elk Grove finds that leasing of the Property without seeking competitive proposals is in the best interest of the City, finds that leasing the property is for the common public benefit, and hereby authorizes the City Manager to execute a lease agreement and extension thereof, for up to three (3) additional one-year terms, with Mahon Ranch in substantially the form presented with the accompanying staff report.

PASSED AND ADOPTED by the City Council of the City of Elk Grove this 14th day of September 2016. GARY DAVIS, MAYOR of the

CITY OF ELK GROVE ATTEST: APPROVED AS TO FORM: JASON LINDGREN, CITY CLERK JONATHAN P. HOBBS,

CITY ATTORNEY

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ATTACHMENT 2

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