01-415Council File # G1� �"��S
Resolution #
Green Sheet # ��� e�b'O
�tl���,ll��f
Presented By
Referred To
Committee: Date
�
AUTHORIZING APPLICATION FOR TAE TAX BASE REVITALIZATION ACCOUNT
FOR THE U.S. BANK OPERATIONS CENTER PROJECT
6
7
8
9
10
11
12
13
14
15
WHEREAS, the City of Saint Paul (the "CiTy") is a participant in the Livabie Communities AcYs Housing Incentives
Program for 1996 as determined by the Metropolitan Council and is, therefore, eligible to make application for funds under
the Taac Base Revitalization Account; and
WHEREAS, the City has identified the U.S. Bank Operations Center Project as a clean-up project within the CiTy that
meets the Taac Base Revitalization AccounYs purposes and criteria; and
WHEREAS, the clean-up project costs are estimated at $2,400,000; and
WH�REAS, the City has the institutional, managerial and fmancial capability to ensure adequate project administration;
and
16 WHEREAS, the City certifies that it will comply with all applicable laws and regulations as stated in the contract
17 agreements; and
18
19 WHEREAS, the City agrees to act as legal sponsor for the project contained in the Tax Base Revitalization Grant
20 Application submitted on May 1, 2001;
21
22 BE IT RESOLVED, that the City of Saint Paul is hereby authorized to apply to the Metropolitan Council for this funding
23 and to execute such agreements as are necessary to implement the project on behalf of the applicant.
24
Requested by Department of:
Adoption
By:
Approved by Mayor:
by Council
i�_ - .�I�/� _/l
BY. ��
Plannin & Economic• evelo ment
By:
�
Approved by Fina a rv'ces
By:
Form Approved by City A�
^\�� ���
g .L�:t � i.(.
Approved by Mayor for �ubmission to Council
. �7 `i (/
J < �rL�
B . /l�/La
J
Adopted by Council: Date � ��� ,
�
DEPARTh1ENT/OFFICE/COINCIL: DATE INITIATED GREEN SHEET NO.'111ZSO OI�
PED April 16, 2001 •
CO\TACT PERSON & PRONE: Ir[TtAL/DA7E INITIAllD.1TE
Craig Blakely � ] DEPARTMENT DIR. i CITYCOUNC[L
biUST BE ON COU\CIL AGEVDA BY (DATE) A��C� ? CITY AITORNEY CITY CLERK
NUJTBER 3 FNANCIAL SERV DIR. FINANCIAL SERV/ACCTG
Apri125th FOR 4 MAYOR(ORASST.) CIVILSERVICECOMMISSION
ROUTING
ORDER
TOTAL N OF SIGNATURE PAGES _(CLIP ALL LOCAT[0�.�'S FOR SIGNATURE)
ncrio� xe�uESTEn_ Resolution granting City Council approval for submission of an application to the I��et Council
for a grant for contamination cleanup for the USBank project.
RECOMb1ENDATIONS� Approve (A) or Reject (R) PERSO\AL SERV[CE CONTRAC7'S MUST.4\SR'ER THE FOLLOWING
QUESTIO�iS:
P[.ANNING COMMISSION 1. Has [his persoNfirm ever worked under a con[ract for [h�s department?
C[B COMMTTT6E Yes No
CN[L SERVICE COMMISSiON 2. Has this person/firm ever been a ciry employee?
Yes No
3. Does [his person/firtn possess a skill no[ nortnall}� possessed by any current ciTy employee'
Yes No
Explain all yes answ�ers on scparate sheet and attach [o green shee[
INITIATING PROBLEDt, ISSUE, OPPORTUNITY (�Vho, Nhat, When, Nhere, Why):
On July 26, 2000, the HRA authorized execution of a Memo of Understanding for the US Bank project. That
Memo of Understanding indicated that the City was committed to applying for cleanup funds.
AD VANTACES IF APPRO{'ED
Grant funds likely to become available for cleanup of the site.
DISADVANTAGESIFAPPROVED:
None.
DISADVANTAGES IF NOT APPROVED:
The project will not move forward.
TOTAL AbIOUNT OF TR•li�`SACTION: COST/REVENUE BUDGETED:
FUNDING SOUACE:
ACCIVITY hUMBER:
FINANCIAL INFORbL1TION: (E%PLAI�
�. ��
Interdepartmental Memorandum
CITY OF SAINT PAUL
DATE: Apri125, 2001
TO: City Council Member Jay Benanav
/ �
FROM: Peter J. McCall �/
Assistant City Attorn'e
RE: US Bank Development: Environmental Legal Issues
CC: City Council Members
PED Director
U�'�
You have asked the City Attorney's Office to discuss the potential environmental liability issues for
the City of Saint Paut if the City Council approves the Environmental Indemnity for the US Bank
project. �
Dan Colton, an environmental attorney with the law firm of Leonard, Street and Deinard, has
submitted a memo to the HRA Board of Commissioners which describes the environxnental liability
issues for the I3RA in this project. Since both the HRA and City will be executing the same
Indemnity Agreement, the contractual liability issues aze the same for the City of Saint Paul as they
aze for the HRA. For that reason, I incorporate Mr. Colton's memo into this memo and in reading
the contractual liability portion of Mr. Colton's memo the name of the City of Saint Paul can be
added to the HRA.
If you have any further questions, please contact our office.
ctyM�o
LEONARD, STREET AND DEINARD �`_ `�l �S
PROF£SSIOFAL ASSOCtAiIO\
IlsleyDaniel Colton
612-335-1836
daniel.colton@leonard. com
DA'1'b: April 25, 2001
TO: Commissioner Jay Benanav
FROM: Ilsley Daniel Colton
Leonard, Street, and Deinard
RE: US Bank Development: Environmental Legal Issues
CC: HRA Commissioners
HRA Executive Director
This la��� firm has been asked to discuss the potential environmental liability issues for the City
and the HRA if the HRA Board approves the proposed Redevelopment Agreement 4vith U.S.
Bank I�Tational Association ("US Bank") and Atlantic Financial Group, LTD ("Developer").
FACTS
The Site.
The project site consists of approximately 6-3/4 acres (the "Site"). In the late 1980's, the HRA
acquired a portion of the Site by condemnation. In 2000, as part of a redevelopment plan, the
HRA executed, under the threat of condemnation, a purchase agreement with River Properties of
St. Paul Limited Partnership ("River Properties") to acquire the balance of the project site. River
Properties represented that it had not used its property in connection with any hazardous
substances.
US Bm�k's Office Complex.
The proj ect �vill be constructed in rivo phases: phase I consists of the construction of an office
buildin� with approximately 150,000 net rentable square feet and an aboveground and
underground pazking facility; Phase II consists of the construction of a second office building
with at least 200,000 net rentable square feet and underground pazking. A below grade tunnel
will be constructed connecting the two buildin�s and the parking facility. The soils and
groundwater at the site will be remediated prior to and/or during Phase I construction.
TI:e Transaction.
Under the Redevelopment Agreement, the HRA will retain title to the Site and execute a Ground
Lease �vith US Bank for a term of 60 yeus. Upon execution of the Ground Lease, US Bank will
assi� its Ground Lease interests to the Developer who in turn will sublet the Site to US Bank.
$00 LAR"SON COMMONS jS0 ST. PEiEA SiREET SAItiS PAUL� MINNE50"fA SSIO2 Tei 65x-zaz-7455 Fnx 65i-zzx-76qq
2074661v1 LAW OFFICESSN MI1313EAPOLIS� SAIXT YAVL AND MAN8AT0
Commissioner Jay Benanav
April 25, 2001
Pa�e 2
� � - `-1 lS
The Developer will then retain Opus to remediate the Site and construct tl�e Phase I and Phase II
improvements.
Environmental Insurance PolicV• Under the Redevelopment Agreement, the Developer will
obtaiu, pay for, and maintain a 520,000,000 pollution legal liability insurance ("PLL") policy
�vith a minimum term of 18 years. The HRA has review and final approval rights �vith respect to
ihis policy. Tiic PLL policy �vill provide coti�erage for toxic tort and cle.nu�� claims a;s�°rted
a�ainst the DeveloQer, US Banl:, HRA or the City in connection with hazardous substances at the
Site. The HRA and City will be Second Named Insureds for these coverages iulder the PLL
policy. The PPL policy will also have a"cleanup cost cap" component that �vill cover cost over-
runs relating to Opus' cleanup of the "kno�vn" contamination "hotspots" identified at the Site.
Cost cap insurance is typically not triggered until the cost over-runs exceed the estimated cost of
cleanup by 10 - I S%. The HRA and the City �viil be named insureds under the cost cap coverage
of the PLL policy.
Developer/US Bank Indemnit�& Release A�reement The City and the HRA, jointly and
severally, will enter into an Indemnity & Release A�reement ("Indemnity A�reemenP') with US
Bank and the Developer (which does not include Opus and any independent contractors). The
Indemnity Agreement will expire 18 years from the date of execution (ho�ve��er, claims which
ltave been brou�ht and are "pending" at the termination �vill remain intact). Under the Indemnity
Agreement, the City and HRA agree ro defend and indemnify US Bank and the Deceloper from
Losses (as defined in the Indemnity Agreement) they suffer in connection with hazardous
substances at the Site, and the City and HRA agree to release all claims they may have a�ainst
US Bank and the Developer with respect to such covered Losses. This Sndemnification includes
Losses suffered by US Ba;ilc or Developer as a result of their own future acts and/or omissions.
This indemnification excludes, however, Losses US Bank and the Developer suffer in connection
with diminution in the value of the Site and hazardous substances they bring onto the Site.
Under the Indemnity Agreement, the PLL policy is intended to stand in front of the City's and
the HRA's duty to defend and indemnify US Bank and the Developer.
Opus Indemnitv Aereement. As discussed above, the Developer will retain Opus to perform the
remediation at the Site and construct the buildings. The City and HRA �viil enter into a cross-
indemnity a�reement with Opus. Under this cross indemnity a�reement, Opus will a�ee to
defend and indemnify the City and the HRA for Losses that the City and HRA suffer as a result
of Opus' negligent acts or omissions with respect to the remediation of the Site and
implementation of the environmental contin�ency plan during construction. Opus will back up
its indemnification agreement by purchasing, amon� other types of insurance, a Professional
Liability and Contractor's Pollution Legal Liability insurance policy with limits of �a4,000,000
per occurrence and $8,000,000 annual aggre�ate. The City and HRA a�ee to limit Opus' out-
of-pocket liability exposure to $2,000,000, which limit will exist either above or below the
insurance policy. This means if the full insurance coverage of $8,000,000 is available, then the
City and HRA will receive the benefit of another $2,000,000 from Opus, for a total benefit of
$10,000,000; and if no insurance is available, I�RA and City will receive the benefit of only
$2,000,000. However, any deductible Opus pays on the insurance policy will not reduce the
$2,000,000 liability limit. Under the Opus cross indemnity agreement, the HRA �vill agree to
2074661v1
Commissioner Jay Benanav
April 2S, 2001
Page 3
a f _ `� �
provide a limited indcmnity to Opus for Losses Opus suffers in connection «ith claims made
a�ainst Opus alleging strict liability for hazardous substances existing on the Site.
Renzediatian of Tlte Site.
�'oltmtarv Response Action Plan (VRAPI. Based on environmental studies conducted by the
Developer's environmental consultant, the soil and groundwater at the Site are known to be
centaininatcd. Tlie Developer �vill rciai;i Opus to iniplcmeiii and complcic a VRAP io be
approved by the MPCA to clean up the Site. A draft VRAP �vas prepazed by the Developer's
environmental consultant and submitted to the MPCA for review and approval. �Vith respect to
the soils at the Site, the contaminants of concem are polynuclear aromatic hydrocarbons (PAH),
mercury and lead, and the soil cleanup goals in the VRAP are as follo��s: (1) for soils from
ground surface to 4.0 feet deep the goal is the MPCA's Tier II commerciaUindustrial cleanup
standard; and (2) for soils from 4A feet to 12 feet belo�v ground sur£ace and for all soils below
buildings (with the exception of the fist two feet of fill beneath any buildin�, which will be clean
fill) the cleanup goals are to be based upon a Site-specific risk-based cleanup standard that is
currently bein; revie�ved (for approvai) by the MPCA. �Vith respect to ground��'ater, the VRAP
proposes to provide for cleanup of the ground«�ater contamination throu�h "natural attenuation."
Re2ulatorv Assurances Under the Redevelopment Agreement, the Developer aarees that prior to
implementation of the VRAP, it will use its best reasonable efforts to obtain the followinJ
re�ulatory assurances from the MPCA: A No Association Detemiination Letter and a General
Liability Letter. The issuance of these assurances by the MPCA is a condition of closing, which
means the Ground Lease will not be executed until these assurances (which must be deemed
acceptable to the HRA) are obtained from the MPCA. Upon completion of the implementation
of the VRAP, Devetoper agrees to use its best reasonable efforts to obtain a Certification of
Completion for the entire Site from the MPCA. A Certificate of Completion certifies that an
MPCA-approved VRAP has been completed (and it affords certain liability protections under
MERLA to the HRA, US Bank, and the Developer, and the successors and assigns of these
parties). Furthermore, it is anticipated that certain additional PLL policy coverage extensions
�vill be triggered upon the issuance of the Certificate of Completion (e.g., toxic tort liability
protection for the residual contamination remainin� at the Site after completion of the VRAP).
Total CleanuQ Costs & Fundin�. The estimated cost to implement the VRAP is approximately
�1,600,000, plus a contingency of approximately $500,000, for a total of �2,100,000. In
addition, the Developer and the HRA have incurred costs of approximately $400,000
investigating and characterizin� the Site, desi�ing and developin� the VRAP, and negotiating
the various environmental documents associated with this transaction. Therefore, the total
estimated cost associated with the cleanup of the Site is approximately $2,500,000.
Under the Redevelopment Agreement, the F� will use its best reasonable efforts to obtain a
$Z,500,000 Department of Trade and Economic Development Agency (DTED) environmental
cleanup grant to cover the total cleanup project costs. However, if the HRA doesn't get any
DTED money or if the current estimated VRAP costs are low and the final VRAP cost exceeds
the amount of DTED money actually received (collectively "overage"), the parties a�ee io look
to the following sources of money in the following order to cover the overa�e.
2074661vt
Commissioner Jay Benana�
April 25, 2001
Page 4
I the PLL cost cap insurance policy to see whether it will cover any of the "cost
over run" portions, if there are any, of the overage; and if the insurance
doesn't cover it,
2 the Tax I�ZCrement Financing (but only up to a maximum of � 1,700,000 — �vhich
is the Developer's total cap on cleanup liability exposure); and if this is not
enough io cover tl�e overa�e,
3 the Hazardous Substance Subdistrict (HSS) (which will generate approximately
S6S0,000 of tax increment); and if this isn't enou�h,
lastly: the HRA's general funds.
p�_y�S
The exception to tliis cost allocation structure relates to the construction and cleanup of
contaminated soils in the boundary street. The HRA and the Developer will share 50/50 the cost
of constructing the boundary streets and remediatin� contaminated soil in the location of the
boundary streets. If the total cost of cleanup exceeds the DTED grant amount, the City must pay
for one-half of the cost associated with cleaning up the boundary streets witn its HSS increment
and then its general funds.
Construction Activities & Environntental Contingency P[an.
Opus will commence construction activities concurrent with its implementation of the VRAP.
The current Phase I design includes a significant amount of soil excavation work at the Site.
After Parcel A has been remediated, the desi�n plans indicate that approximately 48,000 cubic
yards of soil will be moved from Parcel A and placed as fill in the boundary streets. In addition,
Opus will be constructin� a long underground tunnel. Given that the Site is known to be
contaminated, it is not unlikely that "unknown" or "unexpected" contamination will be
encountered during this dirt work activity. Therefore, Opus will perform its constnxction
activities pursuant to an MPCA-approved environmental contingency plan. The environmental
contingency plan dictates the actions to be taken in the event hazardous substances are un-
expectantly encountered: who to contact, how to characterize, and how to manage the
contaminated soils.
What environmental liability will the City and the HRA be subject to if the HRA approves the
Redevelopment Agreement, the US Bank/Developer Indemnity Agreement, and the Opus
Indemnity Agreement?
DISCUSSION AND ANALYSIS
I. Present Status ofHRA Enviror:mental Linbilitv
Currently, HRA is an innocent landowner with respect to the Site. Under both Minnesota and
federal environmental laws the HRA is not a responsible person for the release of hazardous
substances from the site solely as the result of purchasing the property throu�ah condemnation or
by agreement with an owner through threat of condemnation as part of a redevelopment plan .
However, the HRA can become subject to liability under these statutes if, after acquisition of the
2074661v1
Commissioner Jay Benanav
Apri125, 2001
I'ane 5
property, it (or any party in a contract relationship with it) enga�es in conduct that "associates"
HRA witl� the hazardous substances currently existing at the Site. Therefore, it is important that
all future actions taken at the Site not "associate" the ARA with the contamination. If the HRA
Uecomes "associated" with the contamination, it is strictly, jointly and severally, liable for the
contamination.
It is for this �cason that the IIRA is requiring thc D:,eclopc, to o'�lain a�o /�ssociation
Dztermination Letter from the MPCA. This letter in effect will state that the MPCA has
reviewed the VRAP, the Environmental Contin�ency Plan, and the Developer's construction
design plans and finds that these "proposed activities" if undertaken in accord with the VRAP,
the Environmental Contin�ency Plan, and the design plans will not "associate" HRA (or the
Developer or Opus) with the existing contamination at the Site. US Bank's and HRA's future
operation and maintenance activities, among other activities, at the Site will also be included as
"proposed actions" within the letter. If Opus fails to follow the plans, or US Bank takes future
action at the Site inconsistent with the MPCA's letter, the HRA is subject to liability for the
existin� contamination.
This office has made no investigation of HRA's acts since it acquired o�vnership of a portion of
the site and we have not been informed of any conduct by HRA that could result in liability for
claims of damages or losses. Under Minn. Stat. § A66.0�, subd. 1, the liability of the HRA for
damages caused by a petroleum release is limited to $300,000.00 when the claim is for one
claimant and $1 million for any number of claims arising out of a single occurrence. These
limits are doubled when the claim arises out of the release of a hazardous substance, such as
mercury and lead.
2. Contractual Liabilitv
The documents that contain the environmental liability obligations for the HRA and the City are
the Redevelopment Agreement, Ground Lease, Indemnity Agreement and Opus Agreement. The
following discussion summarizes the environmental liability of HRA and the City as contained
in these documents.
A. Liability for Propert�and Personal Injurv Arisine From Remediation Work
��_��S
If during the course of the remediation work Opus is negligent in the performance of its �vork;
e.g., Opus releases hazardous substances into the environment or fails to follow the VRAP and
leaves unacceptable amounts of residual contamination at the Site or under the boundary streets,
Opus will be liable for all claims of property damage and personal injury arising from such
conduct up to a certain dollar amount, as discussed above. Under the US Bank/Developer
Indemnity Agreement, the HRA and the City will be required to indemnify and defend US Bank
and the Developer from any Loss arising from Opus' conduct. In turn, pursuant to the Opus
Indemnity Agreement, the HRA and the City will be able to tender defense and indemnity of
such claims to Opus. As discussed above, Opus a�ees to indemnify and defend HRA and the
City against such claims up to a cap of $2,000,000 (excluding the insurance coverage).
2074661vt
f
Commissioner Jay Benanav
April 2�, 2001
Page 6
B. Liabilitv for Pronerty and Personal Iniurv Arisine From Existina Residual and Future
Contamination
� t — � 115
Any claims for third party liability for property damage or personal injury that arises from
kno�vn ai.3�or unl:nown existin� and fiiture residual contamination �vill be submitted to the PLL
insurance company for covera�e and should be covered by such insurance. Hotive��er, upon the
c�;haustion of tl�c �20,000,000 PLL insurznce co��era�e or denial oi tlic clairi �; thc inst:rai�ce
company, the HRA and the City will be liable to defend and indemnify the Developer and US
Bank. Under the Developer/LTS Bank Indemnity Agreement, the HRA and City are also
responsible for Losses that the Developer or US Bank suffer due to their own acts and/or
omissions (except with respect to hazardous substances they bring on the Site). For example, if
five years from now US Bank decides that it wants to add to the Phase I building or dig an
additional tunnel, any costs US Bank incurs relating to additional cleanup of impacted soils will
be the responsibility of the HRA and the City. Furthermore, if the MPCA orders additional
cleanup at the Site, this too will be the responsibility of the City and the HRA. Finally, although
the Ground Lease requires the Developer and US Bank to comply with all environmental laws, if
they don't the HRA and the City are required to defend and indemnify them for penalties, fines,
orders or other Losses arisin� out of their noncompliance. This concept also applies to the
Developer's or US Bank's failure to comply tvith the MPCA's regulatory assurances; e.g., the
No Association Determination Letter. Moreo��er, if US Bank fails to timely file a PLL insurance
claim the HRA is still liable for the losses associated �vith the claim.
The statutory caps found in Chapter 466 do not apply to daims submitted to HRA and the City
imder the Indemnity Aa eement, and therefore the HRA has unlimited liability for such claims.
However, the HRA and the City should have the benefit of the No Association Determination
Letter and the Certificate of Completion from the MPCA. Provided all parties comply with these
MPCA documents, the exposure of the HRA and the City should be limited to the defense of
claims —�vhich the PLL insurance policy should cover. If, however, US Bank takes action at the
Site �vhich is inconsistent with the No Association Determination Letter, then the HRA arguably
becomes a responsible party and its liability increases beyond just the defense of claims.
C. Liability for Clean Up Costs
It is expected that DTED will award a$2,500,000 environmental cleanup grant to cover the
entire cost of the remediation work. However, if DTED does not make the full award or if the
total cost of cleanup exceeds the DTED grant, then it is expected that the parties will look to the
followin� funding sources: the $20,000,000 environmental `cost cap' insurance, the $1,700,000
of tas increment financing, the $650,000 of HSS, and then HRA's general funds. In addition,
HRA is responsible for any future clean up costs that are required under federal or state law.
If you have any questions or comments with respect to this summary, please do not hesitate to
contact me at the above-referenced telephone number.
cc: Pete McCall
Robyn Hansen
2074661v1
Council File # G1� �"��S
Resolution #
Green Sheet # ��� e�b'O
�tl���,ll��f
Presented By
Referred To
Committee: Date
�
AUTHORIZING APPLICATION FOR TAE TAX BASE REVITALIZATION ACCOUNT
FOR THE U.S. BANK OPERATIONS CENTER PROJECT
6
7
8
9
10
11
12
13
14
15
WHEREAS, the City of Saint Paul (the "CiTy") is a participant in the Livabie Communities AcYs Housing Incentives
Program for 1996 as determined by the Metropolitan Council and is, therefore, eligible to make application for funds under
the Taac Base Revitalization Account; and
WHEREAS, the City has identified the U.S. Bank Operations Center Project as a clean-up project within the CiTy that
meets the Taac Base Revitalization AccounYs purposes and criteria; and
WHEREAS, the clean-up project costs are estimated at $2,400,000; and
WH�REAS, the City has the institutional, managerial and fmancial capability to ensure adequate project administration;
and
16 WHEREAS, the City certifies that it will comply with all applicable laws and regulations as stated in the contract
17 agreements; and
18
19 WHEREAS, the City agrees to act as legal sponsor for the project contained in the Tax Base Revitalization Grant
20 Application submitted on May 1, 2001;
21
22 BE IT RESOLVED, that the City of Saint Paul is hereby authorized to apply to the Metropolitan Council for this funding
23 and to execute such agreements as are necessary to implement the project on behalf of the applicant.
24
Requested by Department of:
Adoption
By:
Approved by Mayor:
by Council
i�_ - .�I�/� _/l
BY. ��
Plannin & Economic• evelo ment
By:
�
Approved by Fina a rv'ces
By:
Form Approved by City A�
^\�� ���
g .L�:t � i.(.
Approved by Mayor for �ubmission to Council
. �7 `i (/
J < �rL�
B . /l�/La
J
Adopted by Council: Date � ��� ,
�
DEPARTh1ENT/OFFICE/COINCIL: DATE INITIATED GREEN SHEET NO.'111ZSO OI�
PED April 16, 2001 •
CO\TACT PERSON & PRONE: Ir[TtAL/DA7E INITIAllD.1TE
Craig Blakely � ] DEPARTMENT DIR. i CITYCOUNC[L
biUST BE ON COU\CIL AGEVDA BY (DATE) A��C� ? CITY AITORNEY CITY CLERK
NUJTBER 3 FNANCIAL SERV DIR. FINANCIAL SERV/ACCTG
Apri125th FOR 4 MAYOR(ORASST.) CIVILSERVICECOMMISSION
ROUTING
ORDER
TOTAL N OF SIGNATURE PAGES _(CLIP ALL LOCAT[0�.�'S FOR SIGNATURE)
ncrio� xe�uESTEn_ Resolution granting City Council approval for submission of an application to the I��et Council
for a grant for contamination cleanup for the USBank project.
RECOMb1ENDATIONS� Approve (A) or Reject (R) PERSO\AL SERV[CE CONTRAC7'S MUST.4\SR'ER THE FOLLOWING
QUESTIO�iS:
P[.ANNING COMMISSION 1. Has [his persoNfirm ever worked under a con[ract for [h�s department?
C[B COMMTTT6E Yes No
CN[L SERVICE COMMISSiON 2. Has this person/firm ever been a ciry employee?
Yes No
3. Does [his person/firtn possess a skill no[ nortnall}� possessed by any current ciTy employee'
Yes No
Explain all yes answ�ers on scparate sheet and attach [o green shee[
INITIATING PROBLEDt, ISSUE, OPPORTUNITY (�Vho, Nhat, When, Nhere, Why):
On July 26, 2000, the HRA authorized execution of a Memo of Understanding for the US Bank project. That
Memo of Understanding indicated that the City was committed to applying for cleanup funds.
AD VANTACES IF APPRO{'ED
Grant funds likely to become available for cleanup of the site.
DISADVANTAGESIFAPPROVED:
None.
DISADVANTAGES IF NOT APPROVED:
The project will not move forward.
TOTAL AbIOUNT OF TR•li�`SACTION: COST/REVENUE BUDGETED:
FUNDING SOUACE:
ACCIVITY hUMBER:
FINANCIAL INFORbL1TION: (E%PLAI�
�. ��
Interdepartmental Memorandum
CITY OF SAINT PAUL
DATE: Apri125, 2001
TO: City Council Member Jay Benanav
/ �
FROM: Peter J. McCall �/
Assistant City Attorn'e
RE: US Bank Development: Environmental Legal Issues
CC: City Council Members
PED Director
U�'�
You have asked the City Attorney's Office to discuss the potential environmental liability issues for
the City of Saint Paut if the City Council approves the Environmental Indemnity for the US Bank
project. �
Dan Colton, an environmental attorney with the law firm of Leonard, Street and Deinard, has
submitted a memo to the HRA Board of Commissioners which describes the environxnental liability
issues for the I3RA in this project. Since both the HRA and City will be executing the same
Indemnity Agreement, the contractual liability issues aze the same for the City of Saint Paul as they
aze for the HRA. For that reason, I incorporate Mr. Colton's memo into this memo and in reading
the contractual liability portion of Mr. Colton's memo the name of the City of Saint Paul can be
added to the HRA.
If you have any further questions, please contact our office.
ctyM�o
LEONARD, STREET AND DEINARD �`_ `�l �S
PROF£SSIOFAL ASSOCtAiIO\
IlsleyDaniel Colton
612-335-1836
daniel.colton@leonard. com
DA'1'b: April 25, 2001
TO: Commissioner Jay Benanav
FROM: Ilsley Daniel Colton
Leonard, Street, and Deinard
RE: US Bank Development: Environmental Legal Issues
CC: HRA Commissioners
HRA Executive Director
This la��� firm has been asked to discuss the potential environmental liability issues for the City
and the HRA if the HRA Board approves the proposed Redevelopment Agreement 4vith U.S.
Bank I�Tational Association ("US Bank") and Atlantic Financial Group, LTD ("Developer").
FACTS
The Site.
The project site consists of approximately 6-3/4 acres (the "Site"). In the late 1980's, the HRA
acquired a portion of the Site by condemnation. In 2000, as part of a redevelopment plan, the
HRA executed, under the threat of condemnation, a purchase agreement with River Properties of
St. Paul Limited Partnership ("River Properties") to acquire the balance of the project site. River
Properties represented that it had not used its property in connection with any hazardous
substances.
US Bm�k's Office Complex.
The proj ect �vill be constructed in rivo phases: phase I consists of the construction of an office
buildin� with approximately 150,000 net rentable square feet and an aboveground and
underground pazking facility; Phase II consists of the construction of a second office building
with at least 200,000 net rentable square feet and underground pazking. A below grade tunnel
will be constructed connecting the two buildin�s and the parking facility. The soils and
groundwater at the site will be remediated prior to and/or during Phase I construction.
TI:e Transaction.
Under the Redevelopment Agreement, the HRA will retain title to the Site and execute a Ground
Lease �vith US Bank for a term of 60 yeus. Upon execution of the Ground Lease, US Bank will
assi� its Ground Lease interests to the Developer who in turn will sublet the Site to US Bank.
$00 LAR"SON COMMONS jS0 ST. PEiEA SiREET SAItiS PAUL� MINNE50"fA SSIO2 Tei 65x-zaz-7455 Fnx 65i-zzx-76qq
2074661v1 LAW OFFICESSN MI1313EAPOLIS� SAIXT YAVL AND MAN8AT0
Commissioner Jay Benanav
April 25, 2001
Pa�e 2
� � - `-1 lS
The Developer will then retain Opus to remediate the Site and construct tl�e Phase I and Phase II
improvements.
Environmental Insurance PolicV• Under the Redevelopment Agreement, the Developer will
obtaiu, pay for, and maintain a 520,000,000 pollution legal liability insurance ("PLL") policy
�vith a minimum term of 18 years. The HRA has review and final approval rights �vith respect to
ihis policy. Tiic PLL policy �vill provide coti�erage for toxic tort and cle.nu�� claims a;s�°rted
a�ainst the DeveloQer, US Banl:, HRA or the City in connection with hazardous substances at the
Site. The HRA and City will be Second Named Insureds for these coverages iulder the PLL
policy. The PPL policy will also have a"cleanup cost cap" component that �vill cover cost over-
runs relating to Opus' cleanup of the "kno�vn" contamination "hotspots" identified at the Site.
Cost cap insurance is typically not triggered until the cost over-runs exceed the estimated cost of
cleanup by 10 - I S%. The HRA and the City �viil be named insureds under the cost cap coverage
of the PLL policy.
Developer/US Bank Indemnit�& Release A�reement The City and the HRA, jointly and
severally, will enter into an Indemnity & Release A�reement ("Indemnity A�reemenP') with US
Bank and the Developer (which does not include Opus and any independent contractors). The
Indemnity Agreement will expire 18 years from the date of execution (ho�ve��er, claims which
ltave been brou�ht and are "pending" at the termination �vill remain intact). Under the Indemnity
Agreement, the City and HRA agree ro defend and indemnify US Bank and the Deceloper from
Losses (as defined in the Indemnity Agreement) they suffer in connection with hazardous
substances at the Site, and the City and HRA agree to release all claims they may have a�ainst
US Bank and the Developer with respect to such covered Losses. This Sndemnification includes
Losses suffered by US Ba;ilc or Developer as a result of their own future acts and/or omissions.
This indemnification excludes, however, Losses US Bank and the Developer suffer in connection
with diminution in the value of the Site and hazardous substances they bring onto the Site.
Under the Indemnity Agreement, the PLL policy is intended to stand in front of the City's and
the HRA's duty to defend and indemnify US Bank and the Developer.
Opus Indemnitv Aereement. As discussed above, the Developer will retain Opus to perform the
remediation at the Site and construct the buildings. The City and HRA �viil enter into a cross-
indemnity a�reement with Opus. Under this cross indemnity a�reement, Opus will a�ee to
defend and indemnify the City and the HRA for Losses that the City and HRA suffer as a result
of Opus' negligent acts or omissions with respect to the remediation of the Site and
implementation of the environmental contin�ency plan during construction. Opus will back up
its indemnification agreement by purchasing, amon� other types of insurance, a Professional
Liability and Contractor's Pollution Legal Liability insurance policy with limits of �a4,000,000
per occurrence and $8,000,000 annual aggre�ate. The City and HRA a�ee to limit Opus' out-
of-pocket liability exposure to $2,000,000, which limit will exist either above or below the
insurance policy. This means if the full insurance coverage of $8,000,000 is available, then the
City and HRA will receive the benefit of another $2,000,000 from Opus, for a total benefit of
$10,000,000; and if no insurance is available, I�RA and City will receive the benefit of only
$2,000,000. However, any deductible Opus pays on the insurance policy will not reduce the
$2,000,000 liability limit. Under the Opus cross indemnity agreement, the HRA �vill agree to
2074661v1
Commissioner Jay Benanav
April 2S, 2001
Page 3
a f _ `� �
provide a limited indcmnity to Opus for Losses Opus suffers in connection «ith claims made
a�ainst Opus alleging strict liability for hazardous substances existing on the Site.
Renzediatian of Tlte Site.
�'oltmtarv Response Action Plan (VRAPI. Based on environmental studies conducted by the
Developer's environmental consultant, the soil and groundwater at the Site are known to be
centaininatcd. Tlie Developer �vill rciai;i Opus to iniplcmeiii and complcic a VRAP io be
approved by the MPCA to clean up the Site. A draft VRAP �vas prepazed by the Developer's
environmental consultant and submitted to the MPCA for review and approval. �Vith respect to
the soils at the Site, the contaminants of concem are polynuclear aromatic hydrocarbons (PAH),
mercury and lead, and the soil cleanup goals in the VRAP are as follo��s: (1) for soils from
ground surface to 4.0 feet deep the goal is the MPCA's Tier II commerciaUindustrial cleanup
standard; and (2) for soils from 4A feet to 12 feet belo�v ground sur£ace and for all soils below
buildings (with the exception of the fist two feet of fill beneath any buildin�, which will be clean
fill) the cleanup goals are to be based upon a Site-specific risk-based cleanup standard that is
currently bein; revie�ved (for approvai) by the MPCA. �Vith respect to ground��'ater, the VRAP
proposes to provide for cleanup of the ground«�ater contamination throu�h "natural attenuation."
Re2ulatorv Assurances Under the Redevelopment Agreement, the Developer aarees that prior to
implementation of the VRAP, it will use its best reasonable efforts to obtain the followinJ
re�ulatory assurances from the MPCA: A No Association Detemiination Letter and a General
Liability Letter. The issuance of these assurances by the MPCA is a condition of closing, which
means the Ground Lease will not be executed until these assurances (which must be deemed
acceptable to the HRA) are obtained from the MPCA. Upon completion of the implementation
of the VRAP, Devetoper agrees to use its best reasonable efforts to obtain a Certification of
Completion for the entire Site from the MPCA. A Certificate of Completion certifies that an
MPCA-approved VRAP has been completed (and it affords certain liability protections under
MERLA to the HRA, US Bank, and the Developer, and the successors and assigns of these
parties). Furthermore, it is anticipated that certain additional PLL policy coverage extensions
�vill be triggered upon the issuance of the Certificate of Completion (e.g., toxic tort liability
protection for the residual contamination remainin� at the Site after completion of the VRAP).
Total CleanuQ Costs & Fundin�. The estimated cost to implement the VRAP is approximately
�1,600,000, plus a contingency of approximately $500,000, for a total of �2,100,000. In
addition, the Developer and the HRA have incurred costs of approximately $400,000
investigating and characterizin� the Site, desi�ing and developin� the VRAP, and negotiating
the various environmental documents associated with this transaction. Therefore, the total
estimated cost associated with the cleanup of the Site is approximately $2,500,000.
Under the Redevelopment Agreement, the F� will use its best reasonable efforts to obtain a
$Z,500,000 Department of Trade and Economic Development Agency (DTED) environmental
cleanup grant to cover the total cleanup project costs. However, if the HRA doesn't get any
DTED money or if the current estimated VRAP costs are low and the final VRAP cost exceeds
the amount of DTED money actually received (collectively "overage"), the parties a�ee io look
to the following sources of money in the following order to cover the overa�e.
2074661vt
Commissioner Jay Benana�
April 25, 2001
Page 4
I the PLL cost cap insurance policy to see whether it will cover any of the "cost
over run" portions, if there are any, of the overage; and if the insurance
doesn't cover it,
2 the Tax I�ZCrement Financing (but only up to a maximum of � 1,700,000 — �vhich
is the Developer's total cap on cleanup liability exposure); and if this is not
enough io cover tl�e overa�e,
3 the Hazardous Substance Subdistrict (HSS) (which will generate approximately
S6S0,000 of tax increment); and if this isn't enou�h,
lastly: the HRA's general funds.
p�_y�S
The exception to tliis cost allocation structure relates to the construction and cleanup of
contaminated soils in the boundary street. The HRA and the Developer will share 50/50 the cost
of constructing the boundary streets and remediatin� contaminated soil in the location of the
boundary streets. If the total cost of cleanup exceeds the DTED grant amount, the City must pay
for one-half of the cost associated with cleaning up the boundary streets witn its HSS increment
and then its general funds.
Construction Activities & Environntental Contingency P[an.
Opus will commence construction activities concurrent with its implementation of the VRAP.
The current Phase I design includes a significant amount of soil excavation work at the Site.
After Parcel A has been remediated, the desi�n plans indicate that approximately 48,000 cubic
yards of soil will be moved from Parcel A and placed as fill in the boundary streets. In addition,
Opus will be constructin� a long underground tunnel. Given that the Site is known to be
contaminated, it is not unlikely that "unknown" or "unexpected" contamination will be
encountered during this dirt work activity. Therefore, Opus will perform its constnxction
activities pursuant to an MPCA-approved environmental contingency plan. The environmental
contingency plan dictates the actions to be taken in the event hazardous substances are un-
expectantly encountered: who to contact, how to characterize, and how to manage the
contaminated soils.
What environmental liability will the City and the HRA be subject to if the HRA approves the
Redevelopment Agreement, the US Bank/Developer Indemnity Agreement, and the Opus
Indemnity Agreement?
DISCUSSION AND ANALYSIS
I. Present Status ofHRA Enviror:mental Linbilitv
Currently, HRA is an innocent landowner with respect to the Site. Under both Minnesota and
federal environmental laws the HRA is not a responsible person for the release of hazardous
substances from the site solely as the result of purchasing the property throu�ah condemnation or
by agreement with an owner through threat of condemnation as part of a redevelopment plan .
However, the HRA can become subject to liability under these statutes if, after acquisition of the
2074661v1
Commissioner Jay Benanav
Apri125, 2001
I'ane 5
property, it (or any party in a contract relationship with it) enga�es in conduct that "associates"
HRA witl� the hazardous substances currently existing at the Site. Therefore, it is important that
all future actions taken at the Site not "associate" the ARA with the contamination. If the HRA
Uecomes "associated" with the contamination, it is strictly, jointly and severally, liable for the
contamination.
It is for this �cason that the IIRA is requiring thc D:,eclopc, to o'�lain a�o /�ssociation
Dztermination Letter from the MPCA. This letter in effect will state that the MPCA has
reviewed the VRAP, the Environmental Contin�ency Plan, and the Developer's construction
design plans and finds that these "proposed activities" if undertaken in accord with the VRAP,
the Environmental Contin�ency Plan, and the design plans will not "associate" HRA (or the
Developer or Opus) with the existing contamination at the Site. US Bank's and HRA's future
operation and maintenance activities, among other activities, at the Site will also be included as
"proposed actions" within the letter. If Opus fails to follow the plans, or US Bank takes future
action at the Site inconsistent with the MPCA's letter, the HRA is subject to liability for the
existin� contamination.
This office has made no investigation of HRA's acts since it acquired o�vnership of a portion of
the site and we have not been informed of any conduct by HRA that could result in liability for
claims of damages or losses. Under Minn. Stat. § A66.0�, subd. 1, the liability of the HRA for
damages caused by a petroleum release is limited to $300,000.00 when the claim is for one
claimant and $1 million for any number of claims arising out of a single occurrence. These
limits are doubled when the claim arises out of the release of a hazardous substance, such as
mercury and lead.
2. Contractual Liabilitv
The documents that contain the environmental liability obligations for the HRA and the City are
the Redevelopment Agreement, Ground Lease, Indemnity Agreement and Opus Agreement. The
following discussion summarizes the environmental liability of HRA and the City as contained
in these documents.
A. Liability for Propert�and Personal Injurv Arisine From Remediation Work
��_��S
If during the course of the remediation work Opus is negligent in the performance of its �vork;
e.g., Opus releases hazardous substances into the environment or fails to follow the VRAP and
leaves unacceptable amounts of residual contamination at the Site or under the boundary streets,
Opus will be liable for all claims of property damage and personal injury arising from such
conduct up to a certain dollar amount, as discussed above. Under the US Bank/Developer
Indemnity Agreement, the HRA and the City will be required to indemnify and defend US Bank
and the Developer from any Loss arising from Opus' conduct. In turn, pursuant to the Opus
Indemnity Agreement, the HRA and the City will be able to tender defense and indemnity of
such claims to Opus. As discussed above, Opus a�ees to indemnify and defend HRA and the
City against such claims up to a cap of $2,000,000 (excluding the insurance coverage).
2074661vt
f
Commissioner Jay Benanav
April 2�, 2001
Page 6
B. Liabilitv for Pronerty and Personal Iniurv Arisine From Existina Residual and Future
Contamination
� t — � 115
Any claims for third party liability for property damage or personal injury that arises from
kno�vn ai.3�or unl:nown existin� and fiiture residual contamination �vill be submitted to the PLL
insurance company for covera�e and should be covered by such insurance. Hotive��er, upon the
c�;haustion of tl�c �20,000,000 PLL insurznce co��era�e or denial oi tlic clairi �; thc inst:rai�ce
company, the HRA and the City will be liable to defend and indemnify the Developer and US
Bank. Under the Developer/LTS Bank Indemnity Agreement, the HRA and City are also
responsible for Losses that the Developer or US Bank suffer due to their own acts and/or
omissions (except with respect to hazardous substances they bring on the Site). For example, if
five years from now US Bank decides that it wants to add to the Phase I building or dig an
additional tunnel, any costs US Bank incurs relating to additional cleanup of impacted soils will
be the responsibility of the HRA and the City. Furthermore, if the MPCA orders additional
cleanup at the Site, this too will be the responsibility of the City and the HRA. Finally, although
the Ground Lease requires the Developer and US Bank to comply with all environmental laws, if
they don't the HRA and the City are required to defend and indemnify them for penalties, fines,
orders or other Losses arisin� out of their noncompliance. This concept also applies to the
Developer's or US Bank's failure to comply tvith the MPCA's regulatory assurances; e.g., the
No Association Determination Letter. Moreo��er, if US Bank fails to timely file a PLL insurance
claim the HRA is still liable for the losses associated �vith the claim.
The statutory caps found in Chapter 466 do not apply to daims submitted to HRA and the City
imder the Indemnity Aa eement, and therefore the HRA has unlimited liability for such claims.
However, the HRA and the City should have the benefit of the No Association Determination
Letter and the Certificate of Completion from the MPCA. Provided all parties comply with these
MPCA documents, the exposure of the HRA and the City should be limited to the defense of
claims —�vhich the PLL insurance policy should cover. If, however, US Bank takes action at the
Site �vhich is inconsistent with the No Association Determination Letter, then the HRA arguably
becomes a responsible party and its liability increases beyond just the defense of claims.
C. Liability for Clean Up Costs
It is expected that DTED will award a$2,500,000 environmental cleanup grant to cover the
entire cost of the remediation work. However, if DTED does not make the full award or if the
total cost of cleanup exceeds the DTED grant, then it is expected that the parties will look to the
followin� funding sources: the $20,000,000 environmental `cost cap' insurance, the $1,700,000
of tas increment financing, the $650,000 of HSS, and then HRA's general funds. In addition,
HRA is responsible for any future clean up costs that are required under federal or state law.
If you have any questions or comments with respect to this summary, please do not hesitate to
contact me at the above-referenced telephone number.
cc: Pete McCall
Robyn Hansen
2074661v1
Council File # G1� �"��S
Resolution #
Green Sheet # ��� e�b'O
�tl���,ll��f
Presented By
Referred To
Committee: Date
�
AUTHORIZING APPLICATION FOR TAE TAX BASE REVITALIZATION ACCOUNT
FOR THE U.S. BANK OPERATIONS CENTER PROJECT
6
7
8
9
10
11
12
13
14
15
WHEREAS, the City of Saint Paul (the "CiTy") is a participant in the Livabie Communities AcYs Housing Incentives
Program for 1996 as determined by the Metropolitan Council and is, therefore, eligible to make application for funds under
the Taac Base Revitalization Account; and
WHEREAS, the City has identified the U.S. Bank Operations Center Project as a clean-up project within the CiTy that
meets the Taac Base Revitalization AccounYs purposes and criteria; and
WHEREAS, the clean-up project costs are estimated at $2,400,000; and
WH�REAS, the City has the institutional, managerial and fmancial capability to ensure adequate project administration;
and
16 WHEREAS, the City certifies that it will comply with all applicable laws and regulations as stated in the contract
17 agreements; and
18
19 WHEREAS, the City agrees to act as legal sponsor for the project contained in the Tax Base Revitalization Grant
20 Application submitted on May 1, 2001;
21
22 BE IT RESOLVED, that the City of Saint Paul is hereby authorized to apply to the Metropolitan Council for this funding
23 and to execute such agreements as are necessary to implement the project on behalf of the applicant.
24
Requested by Department of:
Adoption
By:
Approved by Mayor:
by Council
i�_ - .�I�/� _/l
BY. ��
Plannin & Economic• evelo ment
By:
�
Approved by Fina a rv'ces
By:
Form Approved by City A�
^\�� ���
g .L�:t � i.(.
Approved by Mayor for �ubmission to Council
. �7 `i (/
J < �rL�
B . /l�/La
J
Adopted by Council: Date � ��� ,
�
DEPARTh1ENT/OFFICE/COINCIL: DATE INITIATED GREEN SHEET NO.'111ZSO OI�
PED April 16, 2001 •
CO\TACT PERSON & PRONE: Ir[TtAL/DA7E INITIAllD.1TE
Craig Blakely � ] DEPARTMENT DIR. i CITYCOUNC[L
biUST BE ON COU\CIL AGEVDA BY (DATE) A��C� ? CITY AITORNEY CITY CLERK
NUJTBER 3 FNANCIAL SERV DIR. FINANCIAL SERV/ACCTG
Apri125th FOR 4 MAYOR(ORASST.) CIVILSERVICECOMMISSION
ROUTING
ORDER
TOTAL N OF SIGNATURE PAGES _(CLIP ALL LOCAT[0�.�'S FOR SIGNATURE)
ncrio� xe�uESTEn_ Resolution granting City Council approval for submission of an application to the I��et Council
for a grant for contamination cleanup for the USBank project.
RECOMb1ENDATIONS� Approve (A) or Reject (R) PERSO\AL SERV[CE CONTRAC7'S MUST.4\SR'ER THE FOLLOWING
QUESTIO�iS:
P[.ANNING COMMISSION 1. Has [his persoNfirm ever worked under a con[ract for [h�s department?
C[B COMMTTT6E Yes No
CN[L SERVICE COMMISSiON 2. Has this person/firm ever been a ciry employee?
Yes No
3. Does [his person/firtn possess a skill no[ nortnall}� possessed by any current ciTy employee'
Yes No
Explain all yes answ�ers on scparate sheet and attach [o green shee[
INITIATING PROBLEDt, ISSUE, OPPORTUNITY (�Vho, Nhat, When, Nhere, Why):
On July 26, 2000, the HRA authorized execution of a Memo of Understanding for the US Bank project. That
Memo of Understanding indicated that the City was committed to applying for cleanup funds.
AD VANTACES IF APPRO{'ED
Grant funds likely to become available for cleanup of the site.
DISADVANTAGESIFAPPROVED:
None.
DISADVANTAGES IF NOT APPROVED:
The project will not move forward.
TOTAL AbIOUNT OF TR•li�`SACTION: COST/REVENUE BUDGETED:
FUNDING SOUACE:
ACCIVITY hUMBER:
FINANCIAL INFORbL1TION: (E%PLAI�
�. ��
Interdepartmental Memorandum
CITY OF SAINT PAUL
DATE: Apri125, 2001
TO: City Council Member Jay Benanav
/ �
FROM: Peter J. McCall �/
Assistant City Attorn'e
RE: US Bank Development: Environmental Legal Issues
CC: City Council Members
PED Director
U�'�
You have asked the City Attorney's Office to discuss the potential environmental liability issues for
the City of Saint Paut if the City Council approves the Environmental Indemnity for the US Bank
project. �
Dan Colton, an environmental attorney with the law firm of Leonard, Street and Deinard, has
submitted a memo to the HRA Board of Commissioners which describes the environxnental liability
issues for the I3RA in this project. Since both the HRA and City will be executing the same
Indemnity Agreement, the contractual liability issues aze the same for the City of Saint Paul as they
aze for the HRA. For that reason, I incorporate Mr. Colton's memo into this memo and in reading
the contractual liability portion of Mr. Colton's memo the name of the City of Saint Paul can be
added to the HRA.
If you have any further questions, please contact our office.
ctyM�o
LEONARD, STREET AND DEINARD �`_ `�l �S
PROF£SSIOFAL ASSOCtAiIO\
IlsleyDaniel Colton
612-335-1836
daniel.colton@leonard. com
DA'1'b: April 25, 2001
TO: Commissioner Jay Benanav
FROM: Ilsley Daniel Colton
Leonard, Street, and Deinard
RE: US Bank Development: Environmental Legal Issues
CC: HRA Commissioners
HRA Executive Director
This la��� firm has been asked to discuss the potential environmental liability issues for the City
and the HRA if the HRA Board approves the proposed Redevelopment Agreement 4vith U.S.
Bank I�Tational Association ("US Bank") and Atlantic Financial Group, LTD ("Developer").
FACTS
The Site.
The project site consists of approximately 6-3/4 acres (the "Site"). In the late 1980's, the HRA
acquired a portion of the Site by condemnation. In 2000, as part of a redevelopment plan, the
HRA executed, under the threat of condemnation, a purchase agreement with River Properties of
St. Paul Limited Partnership ("River Properties") to acquire the balance of the project site. River
Properties represented that it had not used its property in connection with any hazardous
substances.
US Bm�k's Office Complex.
The proj ect �vill be constructed in rivo phases: phase I consists of the construction of an office
buildin� with approximately 150,000 net rentable square feet and an aboveground and
underground pazking facility; Phase II consists of the construction of a second office building
with at least 200,000 net rentable square feet and underground pazking. A below grade tunnel
will be constructed connecting the two buildin�s and the parking facility. The soils and
groundwater at the site will be remediated prior to and/or during Phase I construction.
TI:e Transaction.
Under the Redevelopment Agreement, the HRA will retain title to the Site and execute a Ground
Lease �vith US Bank for a term of 60 yeus. Upon execution of the Ground Lease, US Bank will
assi� its Ground Lease interests to the Developer who in turn will sublet the Site to US Bank.
$00 LAR"SON COMMONS jS0 ST. PEiEA SiREET SAItiS PAUL� MINNE50"fA SSIO2 Tei 65x-zaz-7455 Fnx 65i-zzx-76qq
2074661v1 LAW OFFICESSN MI1313EAPOLIS� SAIXT YAVL AND MAN8AT0
Commissioner Jay Benanav
April 25, 2001
Pa�e 2
� � - `-1 lS
The Developer will then retain Opus to remediate the Site and construct tl�e Phase I and Phase II
improvements.
Environmental Insurance PolicV• Under the Redevelopment Agreement, the Developer will
obtaiu, pay for, and maintain a 520,000,000 pollution legal liability insurance ("PLL") policy
�vith a minimum term of 18 years. The HRA has review and final approval rights �vith respect to
ihis policy. Tiic PLL policy �vill provide coti�erage for toxic tort and cle.nu�� claims a;s�°rted
a�ainst the DeveloQer, US Banl:, HRA or the City in connection with hazardous substances at the
Site. The HRA and City will be Second Named Insureds for these coverages iulder the PLL
policy. The PPL policy will also have a"cleanup cost cap" component that �vill cover cost over-
runs relating to Opus' cleanup of the "kno�vn" contamination "hotspots" identified at the Site.
Cost cap insurance is typically not triggered until the cost over-runs exceed the estimated cost of
cleanup by 10 - I S%. The HRA and the City �viil be named insureds under the cost cap coverage
of the PLL policy.
Developer/US Bank Indemnit�& Release A�reement The City and the HRA, jointly and
severally, will enter into an Indemnity & Release A�reement ("Indemnity A�reemenP') with US
Bank and the Developer (which does not include Opus and any independent contractors). The
Indemnity Agreement will expire 18 years from the date of execution (ho�ve��er, claims which
ltave been brou�ht and are "pending" at the termination �vill remain intact). Under the Indemnity
Agreement, the City and HRA agree ro defend and indemnify US Bank and the Deceloper from
Losses (as defined in the Indemnity Agreement) they suffer in connection with hazardous
substances at the Site, and the City and HRA agree to release all claims they may have a�ainst
US Bank and the Developer with respect to such covered Losses. This Sndemnification includes
Losses suffered by US Ba;ilc or Developer as a result of their own future acts and/or omissions.
This indemnification excludes, however, Losses US Bank and the Developer suffer in connection
with diminution in the value of the Site and hazardous substances they bring onto the Site.
Under the Indemnity Agreement, the PLL policy is intended to stand in front of the City's and
the HRA's duty to defend and indemnify US Bank and the Developer.
Opus Indemnitv Aereement. As discussed above, the Developer will retain Opus to perform the
remediation at the Site and construct the buildings. The City and HRA �viil enter into a cross-
indemnity a�reement with Opus. Under this cross indemnity a�reement, Opus will a�ee to
defend and indemnify the City and the HRA for Losses that the City and HRA suffer as a result
of Opus' negligent acts or omissions with respect to the remediation of the Site and
implementation of the environmental contin�ency plan during construction. Opus will back up
its indemnification agreement by purchasing, amon� other types of insurance, a Professional
Liability and Contractor's Pollution Legal Liability insurance policy with limits of �a4,000,000
per occurrence and $8,000,000 annual aggre�ate. The City and HRA a�ee to limit Opus' out-
of-pocket liability exposure to $2,000,000, which limit will exist either above or below the
insurance policy. This means if the full insurance coverage of $8,000,000 is available, then the
City and HRA will receive the benefit of another $2,000,000 from Opus, for a total benefit of
$10,000,000; and if no insurance is available, I�RA and City will receive the benefit of only
$2,000,000. However, any deductible Opus pays on the insurance policy will not reduce the
$2,000,000 liability limit. Under the Opus cross indemnity agreement, the HRA �vill agree to
2074661v1
Commissioner Jay Benanav
April 2S, 2001
Page 3
a f _ `� �
provide a limited indcmnity to Opus for Losses Opus suffers in connection «ith claims made
a�ainst Opus alleging strict liability for hazardous substances existing on the Site.
Renzediatian of Tlte Site.
�'oltmtarv Response Action Plan (VRAPI. Based on environmental studies conducted by the
Developer's environmental consultant, the soil and groundwater at the Site are known to be
centaininatcd. Tlie Developer �vill rciai;i Opus to iniplcmeiii and complcic a VRAP io be
approved by the MPCA to clean up the Site. A draft VRAP �vas prepazed by the Developer's
environmental consultant and submitted to the MPCA for review and approval. �Vith respect to
the soils at the Site, the contaminants of concem are polynuclear aromatic hydrocarbons (PAH),
mercury and lead, and the soil cleanup goals in the VRAP are as follo��s: (1) for soils from
ground surface to 4.0 feet deep the goal is the MPCA's Tier II commerciaUindustrial cleanup
standard; and (2) for soils from 4A feet to 12 feet belo�v ground sur£ace and for all soils below
buildings (with the exception of the fist two feet of fill beneath any buildin�, which will be clean
fill) the cleanup goals are to be based upon a Site-specific risk-based cleanup standard that is
currently bein; revie�ved (for approvai) by the MPCA. �Vith respect to ground��'ater, the VRAP
proposes to provide for cleanup of the ground«�ater contamination throu�h "natural attenuation."
Re2ulatorv Assurances Under the Redevelopment Agreement, the Developer aarees that prior to
implementation of the VRAP, it will use its best reasonable efforts to obtain the followinJ
re�ulatory assurances from the MPCA: A No Association Detemiination Letter and a General
Liability Letter. The issuance of these assurances by the MPCA is a condition of closing, which
means the Ground Lease will not be executed until these assurances (which must be deemed
acceptable to the HRA) are obtained from the MPCA. Upon completion of the implementation
of the VRAP, Devetoper agrees to use its best reasonable efforts to obtain a Certification of
Completion for the entire Site from the MPCA. A Certificate of Completion certifies that an
MPCA-approved VRAP has been completed (and it affords certain liability protections under
MERLA to the HRA, US Bank, and the Developer, and the successors and assigns of these
parties). Furthermore, it is anticipated that certain additional PLL policy coverage extensions
�vill be triggered upon the issuance of the Certificate of Completion (e.g., toxic tort liability
protection for the residual contamination remainin� at the Site after completion of the VRAP).
Total CleanuQ Costs & Fundin�. The estimated cost to implement the VRAP is approximately
�1,600,000, plus a contingency of approximately $500,000, for a total of �2,100,000. In
addition, the Developer and the HRA have incurred costs of approximately $400,000
investigating and characterizin� the Site, desi�ing and developin� the VRAP, and negotiating
the various environmental documents associated with this transaction. Therefore, the total
estimated cost associated with the cleanup of the Site is approximately $2,500,000.
Under the Redevelopment Agreement, the F� will use its best reasonable efforts to obtain a
$Z,500,000 Department of Trade and Economic Development Agency (DTED) environmental
cleanup grant to cover the total cleanup project costs. However, if the HRA doesn't get any
DTED money or if the current estimated VRAP costs are low and the final VRAP cost exceeds
the amount of DTED money actually received (collectively "overage"), the parties a�ee io look
to the following sources of money in the following order to cover the overa�e.
2074661vt
Commissioner Jay Benana�
April 25, 2001
Page 4
I the PLL cost cap insurance policy to see whether it will cover any of the "cost
over run" portions, if there are any, of the overage; and if the insurance
doesn't cover it,
2 the Tax I�ZCrement Financing (but only up to a maximum of � 1,700,000 — �vhich
is the Developer's total cap on cleanup liability exposure); and if this is not
enough io cover tl�e overa�e,
3 the Hazardous Substance Subdistrict (HSS) (which will generate approximately
S6S0,000 of tax increment); and if this isn't enou�h,
lastly: the HRA's general funds.
p�_y�S
The exception to tliis cost allocation structure relates to the construction and cleanup of
contaminated soils in the boundary street. The HRA and the Developer will share 50/50 the cost
of constructing the boundary streets and remediatin� contaminated soil in the location of the
boundary streets. If the total cost of cleanup exceeds the DTED grant amount, the City must pay
for one-half of the cost associated with cleaning up the boundary streets witn its HSS increment
and then its general funds.
Construction Activities & Environntental Contingency P[an.
Opus will commence construction activities concurrent with its implementation of the VRAP.
The current Phase I design includes a significant amount of soil excavation work at the Site.
After Parcel A has been remediated, the desi�n plans indicate that approximately 48,000 cubic
yards of soil will be moved from Parcel A and placed as fill in the boundary streets. In addition,
Opus will be constructin� a long underground tunnel. Given that the Site is known to be
contaminated, it is not unlikely that "unknown" or "unexpected" contamination will be
encountered during this dirt work activity. Therefore, Opus will perform its constnxction
activities pursuant to an MPCA-approved environmental contingency plan. The environmental
contingency plan dictates the actions to be taken in the event hazardous substances are un-
expectantly encountered: who to contact, how to characterize, and how to manage the
contaminated soils.
What environmental liability will the City and the HRA be subject to if the HRA approves the
Redevelopment Agreement, the US Bank/Developer Indemnity Agreement, and the Opus
Indemnity Agreement?
DISCUSSION AND ANALYSIS
I. Present Status ofHRA Enviror:mental Linbilitv
Currently, HRA is an innocent landowner with respect to the Site. Under both Minnesota and
federal environmental laws the HRA is not a responsible person for the release of hazardous
substances from the site solely as the result of purchasing the property throu�ah condemnation or
by agreement with an owner through threat of condemnation as part of a redevelopment plan .
However, the HRA can become subject to liability under these statutes if, after acquisition of the
2074661v1
Commissioner Jay Benanav
Apri125, 2001
I'ane 5
property, it (or any party in a contract relationship with it) enga�es in conduct that "associates"
HRA witl� the hazardous substances currently existing at the Site. Therefore, it is important that
all future actions taken at the Site not "associate" the ARA with the contamination. If the HRA
Uecomes "associated" with the contamination, it is strictly, jointly and severally, liable for the
contamination.
It is for this �cason that the IIRA is requiring thc D:,eclopc, to o'�lain a�o /�ssociation
Dztermination Letter from the MPCA. This letter in effect will state that the MPCA has
reviewed the VRAP, the Environmental Contin�ency Plan, and the Developer's construction
design plans and finds that these "proposed activities" if undertaken in accord with the VRAP,
the Environmental Contin�ency Plan, and the design plans will not "associate" HRA (or the
Developer or Opus) with the existing contamination at the Site. US Bank's and HRA's future
operation and maintenance activities, among other activities, at the Site will also be included as
"proposed actions" within the letter. If Opus fails to follow the plans, or US Bank takes future
action at the Site inconsistent with the MPCA's letter, the HRA is subject to liability for the
existin� contamination.
This office has made no investigation of HRA's acts since it acquired o�vnership of a portion of
the site and we have not been informed of any conduct by HRA that could result in liability for
claims of damages or losses. Under Minn. Stat. § A66.0�, subd. 1, the liability of the HRA for
damages caused by a petroleum release is limited to $300,000.00 when the claim is for one
claimant and $1 million for any number of claims arising out of a single occurrence. These
limits are doubled when the claim arises out of the release of a hazardous substance, such as
mercury and lead.
2. Contractual Liabilitv
The documents that contain the environmental liability obligations for the HRA and the City are
the Redevelopment Agreement, Ground Lease, Indemnity Agreement and Opus Agreement. The
following discussion summarizes the environmental liability of HRA and the City as contained
in these documents.
A. Liability for Propert�and Personal Injurv Arisine From Remediation Work
��_��S
If during the course of the remediation work Opus is negligent in the performance of its �vork;
e.g., Opus releases hazardous substances into the environment or fails to follow the VRAP and
leaves unacceptable amounts of residual contamination at the Site or under the boundary streets,
Opus will be liable for all claims of property damage and personal injury arising from such
conduct up to a certain dollar amount, as discussed above. Under the US Bank/Developer
Indemnity Agreement, the HRA and the City will be required to indemnify and defend US Bank
and the Developer from any Loss arising from Opus' conduct. In turn, pursuant to the Opus
Indemnity Agreement, the HRA and the City will be able to tender defense and indemnity of
such claims to Opus. As discussed above, Opus a�ees to indemnify and defend HRA and the
City against such claims up to a cap of $2,000,000 (excluding the insurance coverage).
2074661vt
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Commissioner Jay Benanav
April 2�, 2001
Page 6
B. Liabilitv for Pronerty and Personal Iniurv Arisine From Existina Residual and Future
Contamination
� t — � 115
Any claims for third party liability for property damage or personal injury that arises from
kno�vn ai.3�or unl:nown existin� and fiiture residual contamination �vill be submitted to the PLL
insurance company for covera�e and should be covered by such insurance. Hotive��er, upon the
c�;haustion of tl�c �20,000,000 PLL insurznce co��era�e or denial oi tlic clairi �; thc inst:rai�ce
company, the HRA and the City will be liable to defend and indemnify the Developer and US
Bank. Under the Developer/LTS Bank Indemnity Agreement, the HRA and City are also
responsible for Losses that the Developer or US Bank suffer due to their own acts and/or
omissions (except with respect to hazardous substances they bring on the Site). For example, if
five years from now US Bank decides that it wants to add to the Phase I building or dig an
additional tunnel, any costs US Bank incurs relating to additional cleanup of impacted soils will
be the responsibility of the HRA and the City. Furthermore, if the MPCA orders additional
cleanup at the Site, this too will be the responsibility of the City and the HRA. Finally, although
the Ground Lease requires the Developer and US Bank to comply with all environmental laws, if
they don't the HRA and the City are required to defend and indemnify them for penalties, fines,
orders or other Losses arisin� out of their noncompliance. This concept also applies to the
Developer's or US Bank's failure to comply tvith the MPCA's regulatory assurances; e.g., the
No Association Determination Letter. Moreo��er, if US Bank fails to timely file a PLL insurance
claim the HRA is still liable for the losses associated �vith the claim.
The statutory caps found in Chapter 466 do not apply to daims submitted to HRA and the City
imder the Indemnity Aa eement, and therefore the HRA has unlimited liability for such claims.
However, the HRA and the City should have the benefit of the No Association Determination
Letter and the Certificate of Completion from the MPCA. Provided all parties comply with these
MPCA documents, the exposure of the HRA and the City should be limited to the defense of
claims —�vhich the PLL insurance policy should cover. If, however, US Bank takes action at the
Site �vhich is inconsistent with the No Association Determination Letter, then the HRA arguably
becomes a responsible party and its liability increases beyond just the defense of claims.
C. Liability for Clean Up Costs
It is expected that DTED will award a$2,500,000 environmental cleanup grant to cover the
entire cost of the remediation work. However, if DTED does not make the full award or if the
total cost of cleanup exceeds the DTED grant, then it is expected that the parties will look to the
followin� funding sources: the $20,000,000 environmental `cost cap' insurance, the $1,700,000
of tas increment financing, the $650,000 of HSS, and then HRA's general funds. In addition,
HRA is responsible for any future clean up costs that are required under federal or state law.
If you have any questions or comments with respect to this summary, please do not hesitate to
contact me at the above-referenced telephone number.
cc: Pete McCall
Robyn Hansen
2074661v1