Committee advances changes to America's Cup lease; shifts security to city-funded collateral, insurance and liquidated damages

The Budget and Finance Committee advanced a resolution amending the America's Cup Lease and Disposition Agreement (LDA), authorizing procurement of a specialized insurance policy and approving a revised security structure the city says will reduce its immediate exposure compared with the original host agreement.

Chair Carmen Chu explained the amendments of the whole before the presentation: the revisions narrow the list of force majeure excuses (removing unusually severe weather and fire as automatic excuses for delay under the original LDA) and add reporting requirements for the Port Director and America's Cup project managers to provide quarterly updates on fundraising, transfers and any draws on city cash collateral.

Mike Martin, the America's Cup project manager in the Office of Economic and Workforce Development, summarized negotiations and the proposed security package. He said the host and venue agreement originally required a $32,000,000 security instrument. Under the proposed revisions staff have structured a $9,800,000 security package in three parts: a $2,400,000 immediate cash collateral deposit, a new listing of up to $5,000,000 in liquidated damages (structured as an exposure that increases over time), and a potential replenishment mechanism to restore cash collateral if drawn down. Martin said the plan also relies on a manuscript insurance policy to address coverage gaps not served by traditional builders’ risk policies; the resolution authorizes procurement of an insurance policy of about $1,000,000.

Martin reviewed ACOC fundraising: approximately $13,000,000 in receipts and pledges to date, $6,100,000 already paid to the city, $1,200,000 in cash on hand and $2,200,000 in pledges receivable through January 2014. He said the organizing committee projects outstanding solicitations around $10,000,000 and an additional $5,000,000 in prospective gifts through year-end, but staff said a conservative projection might be $3,000,000.

Severn Campbell, Budget and Legislative Analyst, reiterated the city’s exposure: the immediate $2,400,000 cash collateral and about $1,000,000 to pay the insurance premium would come from OEWD general fund appropriations and are intended to be reimbursed by the America's Cup organizing committee (ACOC), but the analyst cautioned that availability of reimbursements is not certain. In response Martin and other staff said the current appropriation includes event funding and that staff believe there is capacity to make the payments and to seek reimbursement; staff also said reimbursements have been received through June 30 for earlier event costs.

No public comment was recorded in committee. The Committee accepted the amendment of the whole and moved the underlying item as amended to the full Board with a recommendation, both actions recorded as taken "without objection." The resolution requires quarterly reporting to the Budget and Finance Committee and the Comptroller’s Office on fundraising and any draws on cash collateral.

The full Board will consider the amended LDA and the authorization to procure insurance and fund security instruments at a future meeting.