The purpose of this public hearing is to consider the approval and adoption of the Development Agreement between Applied Materials, Inc. and the City of Sunnyvale. The Development Agreement is linked to the Arques Campus Specific Plan. There are accompanying reports on the Certification of the Final Environmental Impact Report for the Arques Campus Specific Plan and the Arques Campus Specific Plan.

The primary goal of the Arques Campus Specific Plan is to transform the project site into a state-of-the-art research and development campus by expanding the existing 521,000 gross square foot campus to a 1,114,600 gross square foot campus at build-out. There is a phased development plan.

The Development Agreement specifically notes the obligations and responsibilities of both parties regarding the implementation of the Arques Campus Specific Plan. The Development Agreement includes timeframes and specific amounts that the project sponsor (Applied Materials, Inc.) will pay to the City and also includes the development of a "TDM Kit" and a contribution by the project sponsor for community-wide benefit. A copy of the ordinance to adopt the Development Agreement is Attachment A. A copy of the Development Agreement is Attachment B.

Staff recommends approval and adoption of the Development Agreement between Applied Materials, Inc. and the City of Sunnyvale.

A Development Agreement is a tool used by some cities to assist in providing certain assurances for a developer and a city. A Development Agreement is essentially a contract between the city and the development that council approves through adoption of an ordinance. A Development Agreement outlines obligations of the developer and must describe the benefit to both the developer and the city. The City has entered into Development Agreements with other project sponsors, including Lockheed Martin Missiles and Space and Sares-Regis (Navair Manor).

Applied Materials has prepared a draft Development Agreement and has submitted it for City approval and adoption. The Development Agreement is related to the Arques Campus Specific Plan. City staff worked with Applied Materials during the preparation of the draft document.

While certification of the Final Environmental Impact Report and adoption of the Arques Campus Specific Plan are necessary in order to make the Development Agreement germane, approval of the Development Agreement is not necessary to implement the Arques Campus Specific Plan. The Specific Plan Implementation Conditions and the EIR Mitigation Monitoring Program address all project requirements. The Development Agreement, however, further addresses mutual benefits to both Applied Materials and the City of Sunnyvale, and includes additional project sponsor contributions to the City.

There are separate reports on both the certification of the Final Environmental Impact Report for the Arques Campus Specific Plan and the Arques Campus Specific Plan.

The Development Agreement for the Arques Campus Specific Plan identifies the terms and obligations of both parties as it relates to the implementation of the Specific Plan. The Development Agreement states the general and vested entitlements, including project phasing and approval, related to project implementation. It identifies the mutual benefits to both parties of the agreement, as noted in the next section.

In general, the terms of the agreement are:

• A 15-year guarantee of entitlements (with options for up to two 5-year extensions by mutual agreement);
• payment of $1 million per year for six years (for a total of $6 million) to cover mitigation of transportation and wastewater facility impacts and for Housing Mitigation Fees;
• the provision of a "TDM Kit"; and,
• a financial contribution for community-wide benefit.

Since the Development Agreement is enacted by ordinance, Applied Materials would be given certain assurances regarding entitlements and project phasing, and specific criteria applicable to development of the project.

Through changing economic cycles, the 15-year duration provides flexibility related to market conditions, while protecting the development options of the project sponsor.

By listing the specific amounts in the agreement, the project sponsor has protection against inflation since the payments are calculated in 1999 constant dollars. The agreement identifies costs and obligations of the project sponsor beyond the standard building and regulatory costs.

The city will benefit from a predictable and accelerated payment of mitigation fees (traffic, wastewater and housing). All mitigation will be paid over a six-year period, even though development could occur much later.

The City has the authority to flexibly allocate Applied Materials' annual payments for the designated projects. The payment schedule makes it predictable for the City to anticipate and program funds related to this project on a yearly basis.

The city will also benefit from the development of a Transportation Demand Management ("TDM kit") program. The City will use the "TDM Kit" when working with other developers to offset traffic impacts of new development. Although the utilization of this kit targets larger industrial and commercial properties, its impact could be a community-wide benefit.

The City will receive an additional $1,256,085 contribution that can be earmarked for transportation improvements, housing mitigation or used in a wide variety of ways as a community-wide benefit.

Staff will incorporate City-related capital improvements into the City’s Resource Allocation Plan (RAP) after execution of the Agreement and prior to payment of the initial annual contribution. The City will convey certain transportation funds through to the County of Santa Clara and the Valley Transportation Authority, agencies responsible for implementing the certain transportation improvements. The City will have the benefit of the annual payments that will be utilized at various times to complete the specific capital projects.

The proposed Development Agreement has benefits both for Applied Materials and the City of Sunnyvale. Staff finds that accelerated payment of the funds required for capital improvements and for community-wide benefit are significant contributions to the City. Use of the funds will have a positive and lasting benefit to the Sunnyvale community.

The Development Agreement incorporates specific funding amounts for mitigations (transportation and wastewater) identified in the Final Environmental Impact Report for the Arques Campus Specific Plan. In toto, Applied Materials is proposing to pay $6 million over six years ($1 million per year).

The Development Agreement includes a Housing Mitigation Fee ($3,177,815), a transportation fee ($1,368,500), a wastewater collection system fee ($197,000), and undesignated funding ($1,256,085).

The possible use or uses of the undesignated "community enhancement" contribution has not been established at this time. Staff will make a recommendation for the utilization of these funds to the City Council in the future. Several options, including providing additional resources to affordable housing may be considered.

Applied Materials will pay the City of Sunnyvale one million dollars each year for six years, beginning on or before January 1, 2000 and subsequent installments will be due and payable on or before the first day of January in the years 2001 through 2005.

Notice of the Development Agreement for the Arques Campus Specific Plan was published in the Sun newspaper, posted on the site and mailed to the property owners within 300 feet of the project site. In addition, notices were sent to individuals who have expressed an interest in this project

The staff report for this project was posted on the City of Sunnyvale's Website and a copy of the report was provided at the Reference Section of the City of Sunnyvale's Public Library. The City Council Agenda was posted on the City of Sunnyvale's Website. This report is scheduled for City Council Public Hearing on Tuesday, June 15, 1999.

4. Defer action at this time.

Alternative #1.

Prepared by:

Gail Price
Principal Planner

Reviewed by:

Trudi Ryan
Planning Officer

Reviewed by:

David Boesch, Jr.
Director, Community Development

Approved by:

Robert S. LaSala
City Manager