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IV. RISKS TO THE CITY AND OPTIONS FOR MITIGATING RISKS Risk factors affecting the fiscal impact to the City's General Fund and options to consider for mitigating these risks are as follows: Securing a funding source to off -set the estimated annual approximate $429, 000 General Fund deficit to be generated by the Medical Center. Given the City's need to maintain its revenue base, the City may want to consider options for mitigating the deficit. One option is to include provisions in the Development Agreement that obligates Kaiser to make a payment -in -lieu of taxes of $429,000 per year. 2. Another option would be for Kaiser to make a lump -sum contribution to a "fiscal mitigation fund." The fund amount would be sized so that a combination of interest earnings plus a small portion of the principal would be sufficient to fund the annual $429,000 gap. Assuming average interest earnings of 3% per year, this approach would likely require a contribution in excess of $14 million. 3. A third option is to negotiate an interim mitigation payment and a provision that would relieve Kaiser of this annual funding obligation if and when the 380,000 square foot retail center is built on the property to the north of the Medical Center. Limited Realization of Construction Tax Revenues. The City's ability to capture the sales and use tax revenues generated by the purchase of construction materials is important to off -set a portion of projected recurring General Fund negative impacts. We recommend, at a minimum, that the Development Agreement provide clear language regarding the obligation that the City be recorded as the point of sale for the acquisition of all construction materials and that this provision be vigorously enforced. The City could further protect itself in the event construction tax revenues do not fully materialize by including provisions in the Development Agreement obligating Kaiser to make payments in -lieu of construction taxes if actual revenues are less than the $1.2 million that is projected. Keyser Marston Associates, Inc. Page 20 \\Sf-fs1\wp\19\19096\19096.036\003-001.doc; March 2009