MEMORANDUM

TO: Pete Sprague, Assembly President

Kenai Peninsula Borough Assembly Members

THRU: Dale Bagley, Mayor

FROM: Colette Thompson, Borough Attorney

Max Best, Planning Director

Paul Ostrander, Land Management Officer

Roy E. Dudley, Land Management Agent

DATE: February 4, 2004

SUBJECT: Ordinance 2003-19-38, An Ordinance Authorizing the Acquisition of Lots 4, 5, 6, Block 2, Sumpter Subdivision for an Addition to the Sterling Senior Center and Appropriating $60,600 to Acquire the Property and Authorizing the Sale of the Subject Lots to the Sterling Area Senior Citizens

STAFF REPORT

The Sterling Area Senior Citizens ("SASC") desires to acquire Lots 4, 5, and 6, Block 2, Sumpter Subdivision to construct additional facilities including a fitness center, an adult daycare center, and phase I of their senior housing campus and allow enough area for a well and septic system. The vicinity map, Attachment A, and the site map, Attachment B, show the location of the subject property. The owner has verbally agreed to sell the subject lots for $60,000. The assessing department confirms that the sale price reflects market value.

The Sterling Area Senior Citizens requests the borough acquire the subject lots on behalf of the SASC. The SASC proposes to purchase the lots from the borough so that the borough can provide long-term financing and a reduced price of $50,000. The SASC will benefit from this transaction by receiving favorable long-term financing and a reduced price. This property would be restricted to public purposes as described in the ordinance.

However the sale of this property for $50,000, or $10,000 less than the amount paid by the borough, raises the issue of whether this constitutes an improper exercise of senior facility construction powers. As was discussed during consideration of the recent ordinance 2003-41, authorizing the sale of property to the Cooper Landing Senior Citizens, the borough does not have the power to construct senior facilities. It does have the power to acquire, manage and dispose of land, but this does not authorize the borough to make a gift of land. This sale, for $10,000 less than the price paid for the property by the borough, while not a gift of the land, raises the question of whether the sale would constitute an improper exercise of powers the borough lacks.

First, the code authorizes sales for other than fair market value upon a finding, supported by facts, that such a sale is in the best public interest. KPB 17.10.120(D). Second, the $10,000 reduction does not necessarily constitute a gift, as long as the borough receives substantial valuable consideration, which can consist of benefits other than money. Courts have found other such consideration may include a binding commitment to use the property for certain public purposes, and economic benefits expected to flow to the community from the private party's presence in the community. The assembly is cautioned that any other benefit treated as consideration in this sale must be an authorized borough function. The borough possesses the power to fund senior citizen programs and operations and accordingly could consider the benefit to the community that these facilities may provide to the extent they further such programs. Also, the borough has the ability to exercise economic development powers, to provide for emergency centers during disasters and to hold public meetings for borough purposes. In all, it appears legally defensible to authorize the sale as proposed, but only if the assembly finds that the other consideration provided adequately offsets the difference in cash paid for the property and that this sale, if for less than fair market value, is in the best public interest.

If it is found that it is in the best public interest to sell the land for less than fair market value, the administration is concerned about the precedent this would establish. Arguably, the same opportunity should be afforded to all entities that can show that they serve a public purpose and are willing to accept a property restriction. Through the acquisition of private property using funds from the Land Trust Fund and the subsequent re-conveyance of the property at less than fair market value with favorable terms many qualifying non-profit groups could acquire sufficient land to meet their long-term goals.

A draft sale agreement will be provided before the scheduled public hearing. The KPB Planning Commission will consider this ordinance at its regularly scheduled meeting of February 23, 2004, and the action taken will be reported to the assembly.