Hyatt Regency Miami

Wednesday, February 29, 2012 – Orchid C

Preparing for the Next Preparing for the Next Phase of Your LRAPhase of Your LRA

LRALRA OverviewOverview

Michael A. Houlemard, Jr. Executive Officer, Fort Ord Reuse Authority

What What ReallyReally Is an LRA? Is an LRA?

City, Jurisdiction, or Joint Powers Authority

Funded by local resources (taxes, levies, exactions, fees, etc.)

Risk averse, often with general fund envy

Not always sophisticated in understanding financial markets

Tasked with reusing marginal properties

Fort Ord ExperienceFort Ord Experience

Fort Ord Reuse Authority (FORA) was created by state law in 1994

Broad powers to plan, oversee, finance, and implement base reuse programs

24-member Board of Directors Responsibilities over 45 square miles June 30, 2014: Authority Act expires

Applications/Use of Insurance Applications/Use of Insurance (Fort Ord)(Fort Ord)

General Liability Pollution Legal Liability Cost Cap/Risk Management “Additional Insured”

2012 ADC WINTER FORUM | PAGE 6

The Fort Ord StoryThe Fort Ord Story

Anticipated Cost of Remediation/Grant Amount from Army

Cost-Cap Insurance Policy

Army’s Obligation for Costs in Excess

LRA’s Obligation for Costs in Excess(unlimited)

Environmental Services Environmental Services Cooperative AgreementCooperative Agreement

Elected to complete munitions removal Cost Cap insurance policy ensures

completion of remediation program Pollution Legal Liability policy addresses

post-cleanup liability Would/Could this be done today?

2012 ADC WINTER FORUM | PAGE 8

Preparing for the Next Preparing for the Next Phase of Your LRAPhase of Your LRA

LRAs in a Post-Cost-Cap WorldLRAs in a Post-Cost-Cap World

Michael Miller – Drinker Biddle & Reath LLP

2012 ADC WINTER FORUM | PAGE 9

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

Possible Solutions(1) No DoD Risk

(2) All DoD Risk

(3) Hybrid

(4) “Other”

2012 ADC WINTER FORUM | PAGE 10

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

(1) No DoD Risk:

Oakland Army Base (2002)

“Costs in excess ofthe [Army’s] maximum funding

obligation will not be paid.” § B.5.1.

2012 ADC WINTER FORUM | PAGE 11

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

No DoD Risk

Anticipated Cost of Remediation/Grant Amount from Army

Cost-Cap Insurance Policy

LRA’s Obligation for Costs in Excess (unlimited)

LRA’s Obligation for Costs in Excess (unlimited)

Army’s Obligation for Costs in Excess

Army’s Obligation for Costs in Excess

2012 ADC WINTER FORUM | PAGE 12

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

(2) All DoD Risk

Lowry Air Force Base (2002)

“The funding obligation of the LERA . . . is limited to: funds

actually received by the LERA from the Air Force . . . plus [] funds paid to the LERA or named insured from

the insurer(s) . . . pursuant to the Cleanup Cost Cap . . . .” § 401.C.

2012 ADC WINTER FORUM | PAGE 13

LRA’s Obligation for Costs in Excess(unlimited)

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

All DoD Risk

Anticipated Cost of Remediation/Grant Amount from Army

Cost-Cap Insurance Policy

Army’s Obligation for Costs in Excess

LRA’s Obligation for Costs in Excess(unlimited)

Army’s Obligation for Costs in Excess(unlimited)

2012 ADC WINTER FORUM | PAGE 14

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

(3) HybridCamp Bonneville (2011)

Area 1: LRA has risk

Area 2: (i) Contingent fund established by Army; (ii) if costs exceed, parties will amend agreement to provide LRA with additional funding

Area 3: Parties agree to discuss additional funding as needed

2012 ADC WINTER FORUM | PAGE 15

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

Hybrid

Area 1:

LRA has risk

Initial GrantArea 1

LRA’s Obligation(unlimited)

2012 ADC WINTER FORUM | PAGE 16

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

Hybrid

Area 2:

(i) Contingent fund

established by Army;

(ii) parties will amend

agreement to provide LRA

with additional funding Initial GrantArea 2

Army’s Obligation

Amend Agreement to Provide LRA with Additional

Funding

2012 ADC WINTER FORUM | PAGE 17

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

Hybrid

Area 3:

Parties discuss additional

funding as needed

Initial GrantArea 3

To Be Addressed

After Further Investigation

2012 ADC WINTER FORUM | PAGE 18

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

(4) Other(a) Thorough Delineation

= No DoD risk(b) Conservative Estimates

= Any excess funds returned to DoD(c) DoD takes layer of risk,

remainder left with LRA(d) LRA takes layer of risk,

remainder left with DoD

2012 ADC WINTER FORUM | PAGE 19

Costs in Excess of Initial GrantCosts in Excess of Initial Grant

Mike Miller – Partner, Drinker Biddle & Reath LLPMike Miller – Partner, Drinker Biddle & Reath LLP

Mark E. Kleiner, PE

Potential Financial AssurancePotential Financial Assurance AlternativesAlternatives

Preparing for the Next Preparing for the Next Phase of Your LRAPhase of Your LRA

2012 ADC WINTER FORUM | PAGE 20

A Little Bit of HistoryA Little Bit of History

Time Period (Roughly)

Remedy Basis Cost Cap Insurance Market

Environmental Liability Due Diligence

Financial Assurance

Pre-Late 1990s Post-Decision Documents

Not Readily Available

Design Reviews Not Required

Late 1990s – Early 2000s

Pre-Decisional Documents

Multiple Carriers and Broad Coverage

File Reviews DOD Covers Excess

Early 2000s – Late 2000s

Pre-Decisional Documents

Fewer Carriers and Less Coverage

File Reviews/ Minimal Gap Sampling

DOD Pushes Excess to LRA

Late 2000s – Present

Pre- and Post-Decision Documents

Not Available File Reviews/ Robust Gap Sampling

Various Alternatives

2012 ADC WINTER FORUM | PAGE 21

Strategies/Financial AssuranceStrategies/Financial Assurance

Comprehensive Due Diligence Engage Regulatory Agencies Conservative Estimating to Cushion Initial

Grants Contingent Funds Phased Approach – Not a one-time

transfer

2012 ADC WINTER FORUM | PAGE 22

Funding for Comprehensive Due Funding for Comprehensive Due DiligenceDiligence

OEA Grants Economic Development Agency Grants Low Interest Loans Tax Incremental Financing If Not an NPL Site

USEPA Brownfield Grants State Brownfield Grants

Contractors

2012 ADC WINTER FORUM | PAGE 23

Lessons LearnedLessons Learned

Not a Take-It-or-Leave-It Must Have Redevelopment Plan with

Tenants in Hand Horse Trading Bounding Risk Through DD