Memorandum

City of Lawrence

City Manager’s Office

TO:	David L. Corliss, City Manager
FROM:	Diane Stoddard, Assistant City Manager
CC:	Cynthia Wagner, Assistant City Manager Toni Wheeler, Director of the Legal Department
Date:	January 25, 2011
RE:	Update Report on Discussions with BNSF regarding Santa Fe Station

The City Commission provided direction in August 2010 to continue discussions with BNSF to pursue an agreement on the transfer of the Santa Fe Station to the City, subject to a contingency regarding grant funding to address maintenance, preservation, and ADA issues. This direction was received after receipt of the news that the City was not successful with its Transportation Enhancement Grant application. The next opportunity for this grant source is presumably in 2012, with applications being due at the end of 2011.

In March 2010, the City received various draft documents from BNSF that would provide for three items: 1) the transfer of the Santa Fe Station to the City 2) a land lease on the property and 3) a lease between the City and BNSF for space for BNSF within the Santa Fe Station after the Station is transferred to the City. Staff reviewed these documents and provided correspondence back to BNSF regarding these documents in July 2010. Staff commented to BNSF its concern regarding to environmental liability issues, and other items in the original BNSF draft documents.

Based upon a recent discussion with my BNSF contact, it appears that they are not willing to negotiate agreements to facilitate the acquisition subject to a contingency of receipt of the grant funds. It appears that BNSF does not wish to dedicate additional time and cost related to working through the issues that the City staff has set forth with the BNSF documents if there is not a firm probability that a real estate closing is imminent.

There are other issues of concern to BNSF. BNSF’s standard lease has a 30 day notice period to end the lease. If there were a granting agency involved, BNSF would likely be favorable to having the lease coincide with the required term set forth by the granting agency. For example, with the Transportation Enhancement Grant, the Kansas Department of Transportation has indicated that it would require a 30 year term on the ground lease to fund the City’s project, if the City were successful with its grant application. Another issue of concern from BNSF is the utility bills. BNSF has indicated that it would be willing to have a larger land lease in exchange for the City taking full future responsibility for the utility bills. BNSF has relayed that it will not likely yield on issues related to liability and insurance.

Possible alternatives from this point include the following:

Wait until the City has received grant funds to proceed with finalizing the real estate transaction. This approach would meet BNSF’s desires to not dedicate substantial time and resources into a transaction that may not close. On the other hand, not having the acquisition complete, or at least fully negotiated, potentially distracts from the strength of any City grant application for funds to restore the building as most grant sources require City ownership of the building prior to the release of funds. Additionally, this would mean that the building would sit unimproved until some point in the future. BNSF has indicated that it will keep the building up to City code, but not improve the facility.
City proceeds with acquisition of the facility and the land lease absent a grant. Under this scenario, the City would proceed with acquiring the facility without a grant offer in hand. Under this scenario, the City would assume immediate liability for the building once the transaction is complete. This would include any ADA issues that need to be addressed. BNSF has indicated that this could be a viable scenario if the BNSF documents were largely executed “as is”. This leaves the substantial issues regarding the term of the land lease (30 days absent any other grant requirements) and environmental liability outstanding issues for the City. While BNSF may be wiling to discuss these items, BNSF has relayed it will not likely yield on standard issues related to liability and insurance.

Staff continues to seek grant opportunities for the Santa Fe Station. The City was recently successful in receiving a Federal Railroad Administration grant through the Kansas Department of Transportation. The City Commission will be receiving more details regarding this grant and formally considering its acceptance in the near future. Staff suggests that issue of acquisition of the Station be a topic during budget discussions for the 2012 budget.