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CAO 00-17 ,. . ..- ,.---" y" CITY OF MIAMI BEACH TRANSMITTAL FORM: REQUEST FOR LEGA~ OPINION . .1 COO OD- I SUBJECT: Murray Dubbin City Attorney Jorge M. GOnZal~~ City Manager 0 PUBLIC/PRIVATE PARTNERSHIP CONSERVANCY AGREEMENT C.M.O. Number: 2-9/00 TO: FROM: DATB: September 29, 2000 .- -- -" ,.,' , I am forwarding the attached memorandum to you for your handling. As indicated.4irectly below, please respond to this office with a copy of your opinion to the department, when applicable. .:~ As soon as possible, please return the completed Legal Department this office. ,- ;- ,.".-" ~ (,'") Transmittal.~o~ to (""-. ~. Thank you for your prompt attention to this matter. JMG :.lcd Attachment F:\CMGR\$ALL\LISA\LEGAL.FRM\LEGAL-OP.~~ c: Nancy Liebman Mayra Diaz Buttacavoli Kevin Smith patricia Walker TO: Jorge M. Gonzalez City Manager DATE: FROM: As per your request, attached is the Legal Opinion you requested regarding the above- referenced subject. Attachment c: Nancy Liebman Mayra Diaz Buttacavoli Kevin Smith Patricia Walker LBGAL DBPARTMENT TRANSMITTAL FORM: LBGAL OprNrON RBCEIPT AND ASSrGHMBNT INP'ORMATrON , CITY OF MIAMI BEACH Office of the city N1anager Interoffice Memorandum m To: Murray Dubbin City Attorney Date: September 29, 2000 Subject: Jorge M. Gonzalez\ ~ City Manager U' U REQUEST FOR LEGAL OPINION - PUBLlCIPRIV ATE P ARTNERSmPI CONSERVANCY AGREEMENT From: This is a request for a legal opinion. Can the City of Miami Beach enter into an agreement, like the attached, if the Botanical Gardens is going to receive General Obligation Bond funding? Please advise as soon as possible. Thank you. JMG:MDB:lcW~ Attachment c: Nancy Liebman Mayra Diaz Buttacavoli Kevin Smith Patricia Walker F:\CMGRISALL\LISAILEGALIBOT ANICA.AGM } ~ . \c .. , , - PUBLIC/PRIVATE PARTNERSHIP DRAFT CITY/CONSERVANCY AGREEMENT 1. A public/private partnership can take many forms, but the most important . issue in any such partnership is how the two entities share control of the activity and how they share funding. 2. Preparation of a draft agreement was suggested by Michael Spring of the Miami-Dade Department of Cultural Affairs and James Quinlan of the Miami Beach Department of Arts, Culture and Entertainment. They thought a Draft could provide a vehicle for focusing thought on the key elements, which need to be decided by the City and the Conservancy. They provided Bruce Davidson, Chair of the Committee on Governance and City Relations, with several agreements of a similar nature, and he drafted this Agreement. 3. While the entire Draft Agreement would be subject to review and adjustment between the parties, the most important elements are: ~ Control over development, operation and programming for the Garden ~ Funding obligations of the City and the Conservancy, respectively ~ Term of the Agreement ~ How the Agreement is terminated The Conservancy stands ready to discuss an Agreement between it and the City and commends this Draft Agreement as a starting point. , . II!! " t. 1 AGREEMENT BETWEEN THE CITY OF MIAMI BEACH AND THE MIAMI BEACH GARDEN CONSERVANCY ThiS Management and Operating Agreement (the "Agreement") is entered into this day of , 2000 by and between the City of Miami Beach, a municipal corporation of the State of Florida (the "City"), and the Miami Beach Garden Conservancy, Inc., a not-for-profit Florida corporation (the "Conservancy") . RECITALS: Whereas, the City is the owner in fee of the Miami Beach Botanical Garden located at 2000 Convention Center Dr., Miami Beach, Florida 33130 (the "Garden''); and Whereas, the Conservancy is an organization with members committed to promotion of the Garden as a horticultural, educational and cultural arts venue; and the Conservancy and its precedents have, for the past three years, raised funds and volunteered time to improve the Garden's contribution to a higher quality of life in Miami Beach; and Whereas, the City requires citizen participation in the development and operation of the Garden so that there can be a strong "public-private partnership" of efforts and funding to fully realize the Garden's potential; and Whereas, the Conservancy is ready, willing and able to raise substantial grant funds and private individual and corporate contributions for development and operation of the Garden and to operate, and develop the Garden in a 1 . '. . , manner that will dramatically increase the programmatic scope of the Garden's contribution to the community, provided that it has a long term stake in the development and operation of the Garden; and Whereas, the City has at its disposal $1.5 million from a General Obligation Bond fund, specified for development of the Garden and desires that these funds be spent in the context of a Master Plan for the Garden which would require funding substantially greater than the $1.5 million; and Whereas, the City requires that the Garden's day to day operations be managed effectively and with a focus on the long term development of the Garden; and Whereas, the City desires that a citizen-based organization manage the day to day and long term development of the Garden while the City retains oversight control consistent with City ownership of the Garden and City obligation for the General Obligation bond funds to be used in developing the Garden; Now, Therefore, in consideration of the promises and mutual covenants and obligations herein contained, and subject to the terms and conditions hereinafter stated, the parties hereto understand and agree as follows: 1. Garden: The City, as owner of the Garden located at 2000 Convention Center Drive, Miami Beach, Florida, more fully described in Exhibit A, attached hereto and made a part hereof, authorizes the Conservancy to occupy the 2 ... Garden and to manage and operate the Garden on behalf of the City, subject the terms and conditions contained herein. 2. Term: The term of this Agreement shall be for three (3) years, and an indefinite number of subsequent five (5) year terms, commencing on October . 1, 2000. Renewal for each additional five-year term shall be deemed to occur unless either party non-renews the Agreement pursuant to Section 12.B., below. 3. Goals and Priorities: A. The Garden shall be managed and developecl as a multi - purpose community resource centerecl on an outstanding botanical garden which provides: . Enjoyment of a beautiful botanical garden . Education for children and adults . A unique and enjoyable venue for visual and performing arts . A catalyst for community promotion of beautification and ecological improvement of the City . A popular and memorable tourist destination B. The parties intend that the activities programmed in and pertaining to the Garden continuously increase in scope and number so that the Garden favorably impacts an increasing number of residents and visitors C. During the initial term of the Agreement, the City and Conservancy will work to leverage the City's operating budget contribution and General 3 '" ~ . Obligation Bond funding to promote substantial public and private grant support and individual/corporate contribution support. D. It is the intent of the parties that the City's initial support of the Garden (exclusive of the General Obligation Bond fund amount) be the indexed equivalent of the initial annual funding commitment but that this amount will increase commensurate with the volume of programs and residents/interested persons served by the Garden activities. E It is the further intent of the parties that public/private grant and individual/corporate contribution support increase over time so that both public funds and private funds are major factors in the promotion of the Garden. F. During the initial term of this Agreement the parties shall ensure that the General Obligation Bond funds are utilized in a manner that complies with the intent of the Bond funding agreement and aligns with the long term Master Plan for the Garden which is expressed in the Scope Requirements attached hereto as Exhibit 1 and made a part hereof. Regardless of the terms herein the City shall have the right to retain such control over the use of the Bond funds and operations of the Garden as is necessary to meet its obligations under the Bond Indenture. 4. Budget and Funding for the Garden: A. Operating Budget: The Conservancy shall prepare and present on June 1 of each year a line item annual operating budget for the Garden for 4 .. ~ . the next fiscal year for the City's inspection and comment. Said budget shall include a projected income and expense statement and projected year-end balance sheet and statement of projected sources and applications of funds. Additionally, the budget shall include but not be limited to the following detailed projections: 1) Gross revenues by categories from all revenue sources derived from or upon the Garden, including the requested City contribution. 2) Operating expenses of the Garden 3) Administrative, labor and general expenses 4) Marketing, advertising and promotion expenses 5) Energy costs, to the extent not supplied by the City. 6) Regular repairs and maintenance, to the extent not performed by the City. B. Prowammatic Plan: Accompanying the Budget shall be the Garden's programmatic plan for the next fiscal year, detailing the then-known activities planned and the number of residents and visitors anticipated to be impacted. C. City's Budget Review Options Durina a Term of the Agreement: So long as the Conservancy's budget provides for increased programmatic offerings compared to the prior period and increased revenue from sources other than the City's operational contribution described in Section 4.B., below, the City shall accept said budget during the 5 , . ~ . second through the fourth years of an Agreement term. It is recognizect however, that the City may terminate the contract on account of default in the event of the Conservancy's budgetary non- performance as provided in Section 10.8., below. D. The City's Contribution: The City shall provide: 1) During the initial term of this Agreement, $ , indexed to the Consumer Price Index during the second through the fifth years of the Agreement for the operating budget of the Garden which shall be used by the Conservancy in substantially the manner as provided in the annual operating budget provided pursuant to Section 4.A., B., above. The City's contribution shall be paid quarterly, beginning on the first business day of the fiscal year. 2) During subsequent terms of this Agreement, the City's contribution shall be equal to at least the indexed initial amount, subject to the intent of the parties provided in Section 3.0., above. 3) Two hundred and forty (240) days prior to the end of any term of this Agreement, the Conservancy shall provide the City with its pro forma operating budget for the next term, including its assumptions for the City's contribution. If the City disagrees with either the pro forma operating budget or its contribution, it shall notify the Conservancy two hundred ten (210) days prior to the end of the term of the Agreement. If the parties cannot agree to either the pro forma budget or the City Contribution, the 6 . " Conservancy shall either conform to the City request or provide notice of non renewal pursuant to Section 12 8.(2), below. 3) During the initial term of this Agreement, the City shall continue to provide general landscaping, building maintenance, insurance and utilities support. This support shall include, without limitation, general non-botanical garden maintenance of the Garden grounds, maintenance of the primary functional elements of the buildings, water, gas and electricity and insurance against loss by windstorm or flood or other disaster. The level of this support shall be generally consistent with the support heretofore provided to the Garden and consistent with standards of maintenance for building and grounds that are intended to provide long term use. With respect to landscape maintenance, the City work crews shall perform services at the direction of the Conservancy but within the level of services previously provided. With respect to building maintenance, the City shall perform such services both on a scheduled maintenance basis and upon notification by the Conservancy of needed repairs/maintenance. 4) Two hundred forty (240) days prior to. the end of the first term and each term thereafter, the Conservancy shall specify to the City of what general landscaping, building maintenance, insurance and utilities support it requires during the subsequent five-year term as 7 . . part of the pro forma budget described in 4.A., above, and the parties shall agree as to such services in conjunction with their agreement as to the City's contribution during the next term. E. The Conservancy's Contribution: 1) The Conservancy shall use its best efforts to obtain public/private grant funding and indiVidual/corporate contributions for the support of the Garden. 2) During the initial term of this Agreement, it is the intent of the parties that Conservancy initiated funding grows on a continuing basis. The City's evaluation of the Conservancy's performance in this regard shall be a factor in the City's determination whether to renew the Agreement for an additional term. 3) During successive terms of this Agreement, the Conservancy shall include in its pro forma presentation the funding that it anticipates raising and the City shall use such representations in evaluating whether to renew the Agreement. D. General Obligation Bond Funds: A Steering Committee comprised of a representative of the City, appointed by the Commission, a representative appointed by the Conservancy, and a representative of the Department of Arts, Culture and Entertainment (ACE) shall direct the use of the General Obligation Bond funds. It is the intent of the parties that such 8 t '- . funds be used as part of a Master Plan that incorporates the scope requirements attached hereto as Exhibit 1. 5. Restrictions Pertaining to the Operation and Use of the Garden: A. General: All activities undertaken at the Garden shall be to advance the purposes set forth in 3, above. B. Acting on the City's Behalf: The Conservancy shall maintain and operate the Garden on behalf of the City and will have sole authority and responsibility to schedule use pertaining to or within the Garden. C. Accounting for Garden Activities to the Citv: The Conservancy shall provide a report biennially of the events scheduled in and pertaining to the Garden and, with each such report shall report on the activities which actually occurred and the number of persons participating in those activities during the previous quarter. D. All Funds to be Used to Advance the Garden: Any commercial activity at the Garden shall be undertaken for the purpose of furthering the purposes set forth in 3, above. All revenues received by the Conservancy in connection with the operations of the Garden shall be dedicated exclusively to support the operation or improvement of the Garden. No portion of the net earnings resulting from the activities of the Conservancy at the Garden may inure to the benefit of any private individual. In the event that revenue pertaining to the Garden exceeds expenses during an annual accounting period, the Conservancy shall contribute such excess, allowing for a reasonable contingency fund for 9 . , I . operations, to an Endowment Foundation for the benefit of the Garden. E. Professional Management Standards: The Garden shall be operated by the Conservancy in accordance with professional standards for management of botanical garden facilities and shall prioritize serving non-profit garden, educational and cultural organizations and their members/patrons. F. Continuous City Oversight: The City manager or his/her disagree (initially and until further notice, the ACE) shall provide oversight of the Conservancy's activities such that the City is assured that the purposes intended by this Agreement are being achieved and the Garden is being operated in the best interests of the City. 6. Books and Records: The Conservancy shall keep and maintain records devoted exclusively to its operations and management of the Garden, which shall be open for examination and audit by City authorized personnel, at the City's expense, during the ConselVancy's ordinary business hours. The Conservancy agrees that all documents, records and- reports maintained and generated pursuant to this Agreement shall be subject to the provisions of the Public records law, Chapter 119, Florida Statutes. 7. Conservancy Employees: In the performance of this Agreement, the conservancy and its employees and agents shall not be deemed to be agents, employees, partners, joint venturers or associates of the City and shall not attain any rights or benefits under the Civil Service or Pension ordinances of 10 ~ . the city or any rights generally afforded classified or unclassified employees of the City; further they shall not be deemed entitled to the Florida Workers' Compensation benefits as employees of the City. 8. Indemnity: Subject to the limitations of ~ 768.28 Florida Statutes, the Conservancy shall indemnify, defend and hold the City harmless against any and all claims, liabilities, losses and causes of action which may arise out of the Conservancy's activities under this Agreement, arising out of negligent acts or omissions to act on the part of the Conservancy, including any Conservancy officer or employee; from and against any orders, judgments, or decrees which may be entered against the City; and from and against all costs, attorneys' fees, expenses and liabilities incurred by the City in the defense of any such claims or in the investigation thereof. 9. City Events of Default: Any of the following situations may be deemed by the Conservancy to be an event of default by the City: A. Failure by the City to pay the full sum in Section 4.B. (1) by the prescribed deadline. B. The City's annual contribution representing less than the amount specified in Section 4.B. (1), above. C. Failure by the City to provide support and maintenance in a timely fashion pursuant to Section 4.B. (3), above. D. A substantial failure to observe any other material provision of this Agreement. 10. Conservancy Events of Default: Any of the following situations may 11 " \ ~ ,. be deemed by deemed by the City to be an event of default by the Conservancy: A. Conduct of substantial activities at or pertaining to the Garden, without prior agreement by the City, which do not conform to the goals and priorities provided in Section 3, above. B. Commission of waste of the Garden property and assets. C. Failure to provide at least 75% of the non-City funds committed to pursuant to Section 4.A. D. A substantial failure to observe any other material provision of this Agreement 11. Notice of Default, Opportunity to Cure, Dispute Resolution: A. Notice: In the event of a default by one party, the party desiring redress shall provide written notice specifying the nature of the default(s). B. Cure: The party against whom the default is alleged shall have sixty (60) days from receipt of the notice to cure the default. C. Dispute Resolution: In the event a party disputes an alleged default or that an alleged has been cured, or any other dispute arising under this agreement, the matter shall be referred to the Garden Dispute Resolution Committee (the "GDRC"). The GDRC shall consist of one person designated by the City Manager, one person designated by the Conservancy, and one person chosen by those two individuals. The Committee will undertake such fact finding as it deems appropriate, 12 f '\". ., . mediate the dispute as it deems appropriate, and in any case make a finding within twenty (20) days of the initial referral of the dispute to the Committee. This time limitation may be extended by a majority of the Committee, but in no event may it be extended beyond sixty (60) days of the initial referral. The Committee shall act by a majority of its members. The resolution by the Committee shall be binding on the parties. 12. Termination or Non-Renewal: This agreement may be terminated or Non-renewed as follows: A. By Reason of Default: In the event of an uncured event of default and final decision by the GDRC, if such decision is requested, the complaining party may terminate this Agreement with thirty (30) days written notice. B. By Reason of Non-Renewal: This Agreement may be non-renewed, with One Hundred Eighty (180) written notice: 1) By the City upon action by the City Commission 2) By the Conservancy upon action by its Board of Directors 13. Disposition of Assets Upon Termination or Non-Renewal: A. Return of Premises: The Conservancy shall have vacated the premises upon the date of termination or non-renewal of this Agreement. B. Tangible Personal Property: Tangible personal property purchased, contributed or created for use at or pertaining to the Garden shall be deemed owned by the City. 13 " ,_. )II C. Programmatic Materials: Materials created for educational and programmatic purposes and pertaining to the operations of the Conservancy shall be deemed owned by the Conservancy. D. Compensation for Real Prooerty Imorovements: The replacement value of the real property improvements made to the Garden since the beginning of this Agreement shall be assessed under direction of the GDRC. The City shall pay the Conservancy an amount equal to the percentage of such value which is derived by dividing the total revenue of the Garden (including both the city and Conservancy contributions pursuant to 4, above), for the total period(s) of the Agreement by the Conservancy's fiscal contribution, within 30 days of the date of Termination; provided, however;. that the Conservancy shall be permitted to remove any or all of the botanical garden plant collection established during the operation of this Agreement, and the value of such collection shall be deducted from the amount paid pursuant hereto. 13. NOTICES: All notices or other communications which shall or may be given under this Agreement shall be in writing and shall be delivered by certified mail, addressed indicated hereinafter, or as the same may be changed from time to time. Such notice shall be deemed given on the fifth (5th) day after being posted or the date of actual receipt, whichever \s eaI1\er. 14 f ... << . '- ~ AS TO City: City Manager AS TO Conservancy: Executive Director 14. MISCELLANEOUS: A. Title and paragraph headings are for convenient reference and are not a part of this Agreement. B. In the event of conflict between the terms of this Agreement and any terms or conditions contained in any attached documents, the terms of this Agreement shall control. C. Should any provisions, paragraphs, sentences, words or phrases contained in this Agreement be determined by a court of competent jurisdiction to be invalid, illegal or otherwise unenforceable under the laws of the State of Florida, Miami-Dade County or the City of Miami Beach, such provisions, paragraphs, sentences, words and phrases shall be deemed modified to the extent necessary in order to conform with such laws, or if not modifiable to conform with such laws, then same shall be deemed severable, and in either event, the remaining terms and provisions of this Agreement shall remain unmodified and in full force and effect. D. This Agreement shall be construed and enforced under and in accordance with the laws of the State of Florida and aU obligations of the parties created hereunder shall be performed in Miami-Dade County, City of Miami Beach, State of Florida. 15 f ; , '- ' E. This Agreement constitutes the sole and only agreement of the parties hereto and correctly sets forth the rights, duties and obligations of each to the other as of its date. Any prior agreements, promises, negotiations, understandings or representations between the parties not expressly set forth in this Agreement are of no force or effect. F. No amendment, modification or alteration of the terms hereof shall be binding unless the same be in writing, dated subsequent to the date hereof and duly executed by the parties and approved by the Board of County Commissioners and the Mayor of Miami-Dade County. G. No waiver by the parties of any default or breach of any term, condition or covenant of this Agreement shall be deemed to be waiver of any other breach of the same or any other term, condition or covenant hereof, and no waiver shall be effective unless made in writing. H. In the performance of its obligations under this Agreement, the Conservancy shall observe and comply with all laws, statutes, ordinances, codes, rules and regulations of the United States Government, the State of Florida, the City of Miami Beach and the County of Miami-Dade, or any department or agency thereof. 15. CONDITION OF THE GARDEN: The City and the Conservancy acknowledge that they have examined the Garden and know it to be in condition to be operated as a Botanical Garden. The Conservancy and the City accept it in its present condition, subject to the terms and conditions of this Agreement, specifically referencing the City's obligations under Section 16 , ... .. " "e ^ " . 4.B(3), above. 16. ENVIRONMENTAL LAWS: The City represents that the Garden is in compliance with federal, state, county and municipal environmental law at the time of the execution of this Agreement. The Conservancy shall maintain, keep current and comply in full with any and all permits, consents and approvals required pursuant to federal, state, county and municipal environmental laws, shall comply with all environmental laws and shall not conduct or allow any use of or activity on the Garden that violates or threatens to violate any environmental law; provided, however, that the Conservancy's obligations pursuant to this Section shall not release the City from any obligations otherwise required by law or this Agreement, with specific but not exclusive reference to the City's obligations under Section 4.B.(3). The Conservancy shall promptly notify the City if it has actual knowledge of any material noncompliance or potential noncompliance with any environmental law or receives any written or oral notification from any governmental authority or any third party regarding any material noncompliance or threatened or potential material noncompliance with, or request for information pursuant to, any environmental law . 17. RIGHT OF ENTRY: The City shall, through its agents who are on officially assigned City business, and at all reasonable times, have the right to enter into and upon any and all parts of the Garden for the purpose of examining the same for any reason related to the obligations of the parties to this Agreement. -' .: : , oj .. A 1...t .~ B. The Conservancy is aware of the conflict of interest laws of the City of Miami Beach, Miami-Dade County Florida (Miami-Dade County Code Section 2-11.1) and the State of Florida, and agrees that it shall fully comply in all respects with the terms of said laws. 21. NON-DISCRIMINATION: The Conservancy agrees that it shall not discriminate as to race or ethnicity, gender, sexual preference, color, creed, . religion, national origin, age, physical or mental disability, or marital status in connection with its performance under this Agreement. Furthermore, that no otherwise qualified individual shall, solely by reason of his/her race or ethnicity, gender, sexual preference, color, creed, religion, age, national origin, marital status, or physical or mental disability, be excluded from the participation in, be denied benefits of, or be sUbjected to discrimination under any program or activity receiving federal financial assistance. 22. AUDIT RIGHTS: The City, at its own expense, reserves the right to audit the records of the Conservancy pertaining to this Agreement at any time during the term hereof and for a period of three (3) years after termination of this Agreement. 23. AWARD OF AGREEMENT: The Conservancy warrants that it has not employed or retained any person employed by the City to solicit or secure this Agreement and that it has not offered to pay, paid, or agreed to pay persons employed by the City any fee, commission percentage, brokerage 19 ~ , '.-. .. cI' '-- . ~ fee, or gift of any kind contingent upon or resulting from the award of this Agreement. INWITNESS WHEREOF, the parties hereto have caused this instrument to be executed by the respective officials thereunto duly authorized, this the day and year first above written. cm OF MIAMI BEACH, a municipal Corporation of the State of Florida MIAMI BEACH GARDEN CONSERVANCY, Inc. AlTEST: AlTEST: 20 '"' c , TO: FROM: SUBJECT: DATE: CITY OF MIAMI BEACH OFFICE OF THE CITY ATTORNEY MEMORANDUM Jorge M. Gonzalez City Manager C.M.O. # 2-9/00 CAD. # 00-17 Murray H. Dubbin City Attorney ~ Lawrence A. Le Q_ First Assistant CI ttorney ~ Use of Facilities Financed with the Proceeds of General Obligation Bonds by Section 501 (c)(3) Entities October 31, 2000 QUESTION: ANSWER: Whether the City of Miami Beach (the "City"), may enter into leases and management contracts with regard to the use by non-profit entities, recognized under Section 501 (c)(3) ofthe Internal Revenue Code of 1986 and the regulations promulgated thereunder (the "1986 Code"), offacilities financed with the proceeds of general obligation bonds. With respect to facilities financed with the proceeds of the $15,910,000 City of Miami Beach, Florida Loan from the City of Gulf Breeze, Florida Local Government Loan Program, Floating Rate Demand Revenue Bonds, Series 1985B and the $14,090,000 City of Miami Beach, Florida Loan from the City of Gulf Breeze, Florida Local Government Loan Program, Floating Rate Demand Revenue Bonds, Series 1985E (the "Gulf Breeze Loans"), the City may enter into leases or management agreements for the use of such facilities by non-profit entities recognized under Section 501 (c)(3) of the 1986 Code, provided that such leases or management agreements are with entities that are currently users of the facilities and they do not exceed the lesser of half the remaining life of the Gulf Breeze Loans, or twenty-five percent (25%) of the useful economic life of the facility (using the applicable ADR life for federal tax purposes). FACTUAL BACKGROUND: In 1999, the voters of the City approved the issuance by the City of $92,000,000 aggregate principal amount of general obligation bonds (the "G.O. Bonds"), secured by the full faith, credit and unlimited taxing power ofthe City. Pursuant to that authorization and Resolution No. 2000-23966, the City borrowed the first $30,000,000 of G.O. Bonds from the Gulf Breeze, Florida Local Government Loan Program in mid-2000. The Gulf Breeze Loans are documented by Loan Agreements, and among other closing documents, Tax and Non-Arbitrage Certificates executed on the date ofthe closing. The Loan Agreements provide, among other things, that the City will neither make nor cause to be made any investment or other use of the proceeds of the Gulf Breeze Loans, which would cause bonds (Le., the Gulf Breeze Loans), to be "arbitrage p,\A1'ft:p,Uvt.\CACl.HIC.)(JIU..OO.......,...,..... bonds under Section 103 of the Internal Revenue Code of 1954 and the regulations promulgated thereunder" (the "1954 Code"). The 1954 Code is applicable to the Gulf Breeze Loans because the bonds that were issued to finance said Loans were issued by the City of Gulf Breeze, Florida in 1985, prior to the effective date of the 1986 Code. Subsequent to the closing ofthe Gulf Breeze Loans, several ofthe entities that use space in park and recreational facilities that will be constructed, reconstructed, rehabilitated and renovated with proceeds of the Gulf Breeze loans requested leases and/or management agreements for the use of such facilities. For example, UNlOAD has requested a lease for the portion of the Sixth Street Community Center that it uses, and the Miami Beach Garden Conservancy has requested a management agreement for the Miami Beach Botanical Garden. These non-profit entities claim that leases for a number of years are necessary to aid them in their respective fund-raising efforts. DISCUSSION: Under the 1986 Code, bonds are "private activity bonds" if they meet either (1) the private business use and private security or payment tests of Section 141 (b) of the 1986 Code (collectively, the "private business tests") or (2) the private loan financing test of Section 141(c) of the 1986 Code. Generally, the private business tests are met if (1) more than 10% of the proceeds of an issue is used in a trade or business carried on by a nongovernmental person (the "private business use test") and (2) the payment of principal or interest on more than 10% of the issue is directly or indirectly (a) secured by property used or to be used for a private business use or payments in respect of such property or (b) to be derived from payments in respect of property used for a private business use (the "private payments or security test"). These 10% limitations are reduced to 5% for private business uses that are not related or disproportionate to the governmental uses financed by the issue and for payments or security relating to such uses. Another test, the so-called "private loan financing test" generally is met if more than the lesser of 5% or $5 million of the issue is to be used to make or finance loans to nongovernmental persons. The effect of being a "private activity bond" is that unless the bond meets certain requirements and falls within limited permitted exceptions in the 1986 Code, the interest on the bond is included in the gross income of the bond owner. Under Section 145 of the 1986 Code it is possible to issue a "qualified 501 (c)(3) bond" issue, however, the requirements of Section 145 were not followed in this instance. Thus, if the 1986 Code were applicable, the facilities financed with the proceeds of the Gulf Breeze Loan could not be leased or subjected to a management contract on a long-term basis as has been proposed, because, with the exception of "qualified 501 (c)(3) bond" issues, non-profit entities are treated as "private activities." However, under the 1954 Code, Section 501 (c)(3) organizations which were not using more than twenty-five percent (25%) of the proceeds of bonds in unrelated trades or businesses were accorded governmental status and their bonds were not classified as industrial development bonds. See Section 103(b)(3)(B) of the 1954 Code. Thus, bond counsel to the Gulf Breeze, Florida Local Government Loan Program has been able to provide the City with a legal opinion (a copy of which is attached hereto) to the effect that the City may enter into leases or management agreements for the use of such facilities by non-profit entities (which are current users of the facilities financed with the proceeds ofthe Gulf Breeze Loans), recognized under Section 501 (c)(3) of the 1986 Code, provided that such leases or management agreements do not exceed the lesser FM~I(.I(S)u...OO""""'~", 2 of half the remaining life of the Gulf Breeze Loans, or twenty-five percent (25%) of the useful economic life of the facility (using the applicable ADR life1 for federal tax purposes). Thus, the term of each such agreement will have to be determined by the Administration, based on the facts and circumstances of the maturity schedule of the applicable Gulf Breeze Loan and the economic life of the facility. In order to insure that the entities are legally established under Section 501 (c){3) of the 1986 Code, it will be necessary to procure copies of (1) the Articles of Incorporation and Bylaws, or other organizational documents of each entity, (2) the Internal Revenue Service Letter of Determination evidencing the entity's status as a Section 501 (c){3) organization, and (3) a copy of the entity's latest Form 990 filing. These should be reviewed by the Office of the City Attorney prior to the execution of any leases or management agreements with such entities. With regard to the proposed agreement between the Garden Conservancy and the City that was attached to the request for this opinion, said agreement was preliminary, and will be dealt with in separate negotiations with the Garden Conservancy, as the specific terms of the proposed agreement are beyond the scope of this opinion. cc: Mayor Neisen O. Kasdin and Members of the City Commission Mayra Diaz-Buttacavoli Christina M. Cuervo Matthew D. Schwartz Kevin Smith Patricia D. Walker 1 Refers to regulations under the Internal Revenue Code (I.R.C. ~167(m)) which permits shorter or longer than usual life to be used for tax depreciation. Under certain circumstances. capital equipment may be depreciated over a period which may be up to 20% more or less than the applicable class life, rounded to the nearest half-year. Generally, Nonresidential Real Property is I.R.C. ~1250 property that is not Residential Rental Property or property with an ADR life of less than 27.5 years. I.R.C. ~168(e)(2)(B). The recovery period is 31.5 years for property placed in service before May 13, 1993. or 39 years for property placed in service after May 12, 1993. This information is furnished for background purposes only: The "ADR life" of each facility involved will have to be determined by an expert in the area of taxation. P:\ATfQ\LEYl.ICACMDI(.)t1)U...ao,.......hoiIiIl&.,. 3 10/23/00 10:11 ~~ 850 432 0677 MCPS ~002 ., . : LA'If 0FPlCI!S OF MILLER, CANFIELD, PADDOCK AND. STONE, P.L.C. A PROFESSIONAL LIMn'ED LL\IIn.m COMPAo"fY 25 WEST CEDAR. STRl!EI. SUllE SOD PSNSACOlA. FLOlUDA 32501 OP CCMlSEL R1CIWtD L LarT PA11lIaA I). Lan' &SOI469-1088 TEL.ECOPY ISOI43Ull577 N1No\HouIIlAY~ October 16, 2000 City of Miami Beach M.tam1 Beach. Florida Murray H. Dubb1n. Esq. Miami Beach. Flonda $15.910.000 crry OF MIAMI BEACB. FLORIDA LOA!f FROM THE CITY OF GlJ'Lll' BP~. FLORIDA LOCAL GOVERNl\IENT LOAN PROGRAM., FLOATING RATE DEMAND bv~uJli BONDS. SERIES 19858 AND $14.090.000 CITY OF MIAIII. IIEACII. FLORIDA LOAK FROM THE crrr OF GtJUl' BPJ!:EZB. FLORIDA LOCAL GOVERNMENT LOAN PROGRAM, FLOA'IDI'G RATE DEMAND REVENUE BONDS. SIl;RTR'-S 1985E Dear Lart1es and Gent1..-.-,. We have acted as bond counsel to the' Ctt;y of Gulf Breeze. FIor1da. in connection With the above-:rekr..uced loans to the City of M1am1 Beach. Florida (the "Governmental Unit". pursuant to the laws of the State of F1mida. particularly Chapter 166, Part I. and Chapter 163, Part I, P1or1da St.atl1~. as amended. (coUcct:lvcly. the .Act1 and other appl1cable provisions of Jaw, Resolution No. 2000-23966, (the "Authorizing Resolution"), and Loan Agreements dated as of June 1. 2000 (the ''Loan Agreements"), by and amorlg the Governmental Unit. SunTrust Bank. as Trustee (the 'Trustee; and Lane GUchr1st, Mayor. as Admintstrator (the "Administrator'") actmg on behalf of the City of Gulf Breeze, Florida (the .Sponsor"). Capit::l1i'7.ed terms used herem which are defined in the Loan Agreements shall have the m~mg!'j set forth therein unless the context hereof expressly requires otherwtse. Pursuant to the Loan .Agreements and the Tax ADd Non.Arbitrage CcrWlcatcs c:xccutccl on the date of the closings of the Loans. the Govemmental Unit has agreed that It wtl1 neither make nor cause to be made any Jnvestment or other use of the proceeds of the I~n~ wh:1ch would cause the Bonds to be "arbitrage bonds. under Sect10n 103 of the 1954 Code, as amended. and. the ..j .a"".,:J 14]00.) , regulations issued thereunder. and that it will comply wtth the reqU1rements of such Section and regulations throughout the term of the above-referenced Bonds. so as not adversely affect the tax-exempt status of the Bonds. The Govcmmental Unit also agreed not to make any disposition of property financed wtth the Loan proceeds tf such dIsPosition Is not accompanied by a Favorable Op:lD1on of Bond Counsel respecting the tax-exempt status of the Bonds. Such agreements are referred to herem as the wCovenants-. We understand that the Governmental Unit proposed to perm1t certain non-profit organizations (the -Charitiesj to rnake use of fadl1t1es owned by the Govem.mental Unit and financed in part with the proceeds of the Loans. You have asked our opinion concerning whether such uses would cause the Governmental Unit to violate the covenants in the Loan Agreements with respect "to the tax-exempt status of the Bonds. In part1cu1ar. of6.dals of the Govemmental Un1t have represented to us that portlonS of the Loan-financed facilities may be leased to or oth.erwtse used by the ChaIities under arrangements obl1gating the City to permit such. occupancy for periods not exceeding the lesser of (1) half of the remainJng llfe of the Loans or (1) twenty- five percent of the useful economic life (usmg the applicable ADR Ute for federal tax purposes). We further undersemd that the ChaI1ties wfil only be comprised of not- for-profit organizatlons determined by the Internal :Revenue ServiCe to be Tax- Exempt Organizations. and that the act1v1ties can1ed on at the Loan-flnlllnced facilities by the Charities wfil be for the public purposes of the Gcm:mmental Unit as well as far the charitable purposes for wh1ch such ChaI1t1cs are organJzed. and wtll not result in any unrelated business tncome wtthIn the me'",ntng of the prov1s1ons of the Internal Revenue Code. and the regu1aUons and rulings thereunder. pl::a1ing to Tax-Exempt Orgl"nt_tt.ons. For purposes hereof. the term "Tax-Exempt Orgl'lnt-=tion- means a not-far-profit organization or entity organized. and c::xisting under the laws of one of the states of the Untted States of Amer1c:a which Is an organiZat1on described 1n Section 501(c}(3) of the Code. exempt from federal1ncomc taxes under Sectfon 50l(a) of the Code or any successor provts1.on or simfiar import hereafter enacted and not a wprtvate foundation- Within the ~p".n1ng of Sectl.on 509(a) of the Code Based upon such understandings. we are of the opintnn ~ permittfng the ChaI1tics to utll1ze the Loan-financed facilities upon such conditions will not adversely affect the tax-exempt status of the Bonds. and will not cause the Governmental Unit to violate its Covenants. Respectfully submitted. MIller Canfield Paddock and Stone. P.L.C.