Chevron proposes development plan for tank farm

San Luis Obispo officials and Chevron are negotiating a deal that would make a slew of public improvements to the area near Tank Farm Road, but the city and the developer have yet to agree on how to pay for the work.

At issue is how the corporation would be repaid for more than $11 million in infrastructure costs that would be the responsibility of future developers, not Chevron.

The company is asking the city to consider a special deal that would help bear the brunt of those costs in the beginning stages of development and share the risk of future development.

Chevron is getting ready to develop a portion of its 300-acre, mostly barren property on San Luis Obispo’s southern end. It’s an area the city has long been keen on annexing.

Included in the development plan is about $17.4 million in proposed infrastructure improvements, such as widening Tank Farm Road to four lanes with bicycle lanes and installing needed water and sewer pipes.

Chevron is only responsible for $6.3 million of those costs. The remaining $11.1 million would fall to other developers included in the Airport Area Specific Plan approved by the city in the 1990s. Chevron represents about 12 percent of the total development area.

Chevron would front the overall cost and is asking the city to agree to reimburse those costs as they are collected from other developers.

Such development agreements are fairly common, said Assistant City Manager Michael Codron. However, the city is also being asked to give Chevron a break on initial costs by charging reduced fees for permit and plan checks, spreading out required affordable housing fees over multiple years vs. a lump sum payment at the time of development, and possibly sharing the tax revenue from a potential hotel on the site. These savings would go toward reimbursing Chevron.

“That is the creative financing part of this,” Codron said.

Chevron’s plan includes 27 acres with 433,000 square feet of business floor space, 26 acres with 370,000 square feet of service and manufacturing use, 265 acres of open space or public facilities and 14 acres of streets, sidewalks and other frontage improvements to be built in five phases over a 25-year period.

“The project is feasible only if the gap between the fair share and the actual expenditures is closed,” Chevron’s project manager Bill Almas said.

Codron said the city would eventually be reimbursed for those concessions as additional development occurs in the area.

The request comes at a time when the city continues to struggle financially. The City Council approved $2.7 million in operating cuts for the 2011-12 budget year and $3.3 million for the 2012-13 fiscal year, beginning July 1 and ending June 30. City administrators are also in the process of negotiating with employee groups for $4.5 million in pay and benefit cuts over the next two fiscal years.

“It comes down to an investment decision,” Codron said. “It allows for the project to bear those infrastructure costs, which are public infrastructure costs, and move forward.”

Codron acknowledged that giving Chevron a break in fees would mean less money in the city’s general fund to spend on other needs.

“At the same time, the public is gaining $11 million in new infrastructure, and new development is being supported, which will bring more sales tax and property tax into the city,” Codron said.

The City Council recently expressed support in pursuing a development agreement with Chevron, saying that the improvement Chevron was proposing would impel additional development in the area.

Codron said the city would like to have an agreement drafted by the time the project’s environmental impact report is complete.

The environmental impact report analyzing the proposed project is expected by year’s end. Included in the report are two separate development plans — one if the property is annexed into San Luis Obispo and the other if it is not.

The tank farm was the scene of a spectacular oil fire in 1926 that left the site heavily contaminated with spilled oil. Almas said the Chevron Corp. is committed to cleaning up the area even if it is not developed.

Reach AnnMarie Cornejo at 781-7939. Stay updated by following @a_cornejo on Twitter.