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EAA Land Purchase Update Dec 2008


Deal or No Deal? SFWMD Debates US Sugar Corporation Land Purchase


Rae Ann Wessel, SCCF Natural Resource Policy Director

On December 2 the South Florida Water Management District (SFWMD) Governing Board was briefed by staff and hired contractors regarding the purchase of land from US Sugar Corporation (USS). On Dec 16 the SFWMD is scheduled to make a decision about going forward with a contract to purchase 180,000 acres from USS. The deal has been changed since the original proposal announced by the Governor last June. The current deal contemplates buying only the land not the whole Corporation. US Sugar Corporation will retain the railroad, citrus processing plant, sugar mill and other corporate assets. The purchase and sale agreement was approved by the US Sugar Board of Directors on December 8th which effectively sets aside a competing offer by the Lawrence Group of Tennessee for purchase of US Sugar Corporation. The SFWMD Governing Board is scheduled to act on the contract December 16, 2008.

Details of the Contract


The current proposal calls for a payment of $1.34 billion for a minimum of 180,000 acres of which 83% is in sugar cane production and 17% in citrus. Closing is proposed to occur no later than September 25, 2009 and is subject to the SFWMD obtaining bond validation and acceptable financing.

Seven Year Assignable Lease


The contract provides an assignable lease that allows USS to continue its agricultural operations for seven years through June 30, 2016. USS would pay SFWMD rent of $50. per acre for the first six years and no payment for the seventh. USS will not plant new crops after the fifth year. USS may sublease for agricultural production without SFWMD consent and retain all rent payments. They may also assign the lease to another party with the District’s explicit consent.

USS may terminate the lease after the third year and the SFWMD may re-lease the land. The contract allows for the District to receive the first 10,000 acres with appropriate notice and allows for release of up to 3,000 acres for transfers to municipalities or other government entities. An additional 30,000 acres may be released in year six on or after 2015.

Environmental Contamination Clean Up


The contract holds US Sugar responsible for cleanup of pollutants to commercial standards which were estimated in the due diligence report to be $16.5 million. US Sugar will pay the District 130% of the total cost to clean up the contaminated lands to commercial standards - $21.5 million. In turn the contract calls for the District is to perform the clean up but to the much higher ecological standard (except in the case of Arsenic in which the commercial standard is higher than the ecological standard).

The contract requires US Sugar to provide $10 million in escrow to secure their obligation to remediate contamination and to assure their performance under the lease.

Other Conditions of the Contract


USS will be responsible for all costs and expenses associated with their operations and are required to pay all property taxes and assessments, control exotic and invasive plants, implement and comply with Best Management Practices (BMP). USS may not place any lien on the property but may grant lenders a security interest in their crops.

The contract has a “go shop” provision in which USS may entertain other offers for the land until the bond validation. In such an event the SFWMD would be paid a termination fee of $40.2 million if they choose not to match the offer. USS is allowed a corporate reorganization following the execution of the agreement.

The District’s inspection period continues through January 15, 2009 and may terminate without penalty if inspections reveal matters that are unacceptable. The District has the right to relocate or abandon portions of the railroad retained by US Sugar and has the right of first refusal to purchase the sugar refinery and railroad for one year after closing.

Due Diligence


As part of the due diligence to evaluate the USS purchase the District engaged firms to conduct appraisals, provide Environmental and Engineering Assessments and sought a Fairness Opinion. As a result of those assessments on the entire holdings of USS Corporation the District changed their offer from a total buyout to an acquisition of 180,000 acres of land and infrastructure to meet the need for storage and treatment of water for Everglades restoration.

Appraisals


To arrive at the $1.34 billion price the District engaged Anderson & Carr, Inc and Sewell, Valentich, Tillis and Associates for appraisals. They recommended a value of $1.3 billion and $1.37 billion respectively.

The two appraisals used different values for land uses but they were considered overall within an acceptable range. Values included:

For sugar cane land: $4,500 to $7,500/acre
For transitional land (residential/commercial) $14,500 to $32,000/acre
For mining acreage (12,965 acres) $20,000 to $27,500/acre
For citrus groves $4,937 to $9,009 / acre

Environmental Assessment


Ten firms lead by Professional Services, Inc. conducted the Phase I and II Environmental Audit to assess contamination on the entire 292 square miles of property. Their assessment indicated that 52% of the 187,000 acres poses no significant environmental risk however, approximately 20% is considered a Category 2 Moderate Risk and approximately 27.5% was classified as Category 3 posing a Significant Risk. Contaminants found in the lands to be purchased include a nasty mix of: arsenic, copper, selenium, DDE, DDD, DDT, dieldrin, and toxaphene, chlorinated pesticides and petroleum.

The contract calls for USS to pay the district for the cost of cleaning the land to the commercial standard while the District must clean up the land to the ecological standard. The commercial standard is a DEP standard designed to be protective of human health as defined in Chapter 62.777 of the Florida Administrative Code.

The ecological standards are based on how the land will be used (ie as a stormwater treatment area -STA or reservoir) and are designed to be protective of the species that would be expected to use the area. The standards come from a document called the Sediment Quality Assessment Guidelines (SQAG) that have been accepted and used by DEP the past 10 years to establish threshold affects and probable affects of contaminants on benthic invertebrates. For most contaminants the ecological standard is an order or two of magnitude lower (more restrictive) than the commercial standard. Arsenic is the only exception where the commercial standard is more stringent.

Engineering Assessment


Key findings of the assessment by Shaw Engineering Inc. indicates approximately 128,650 acres are actively farmed for sugarcane and 22,240 acres are in Citrus. Citrus Greening and Canker have destroyed approximately 20% of the total citrus farming.

Within the crop areas the acquisition area includes:
  • 1,130 miles of major canals and 3,200 miles of local irrigation and drainage ditches
  • 1,945 miles of unpaved roadways
  • 11 roadway bridges
  • 330 miles of impoundment levees
  • 365 total pump station sites
  • 14 different runways located in the agricultural areas
  • 47 Buildings

The Fairness Opinion


New York based Duff & Phelps Corporation was hired to issue the Fairness Opinion which is not an appraisal but rather a professional, independent opinion issued by an investment bank that evaluates the economics of a transaction under current financial conditions to establish if the price is fair. The opinion is based on economics and does not consider environmental issues. Their assessment is that $1.3 billion is fair as an upper limit.

They noted that the two major crops of the EAA, sugarcane and citrus have serious long term issues. Sugar production has been constant because of quotas for domestic sugar. As a result sugar prices are higher in US than in the world. These quotas have kept the US Sugar industry in business and without them they suggest the possibly that it would not be economical to produce sugar in the US.

The future of Citrus is in similar straits. Historically Florida oranges have been used for juice. Today Brazil provides all the frozen juice with none coming from Florida. So they conclude it is reasonable to believe Citrus is not a long term industry in Florida.

They indicated that such a large purchase should be viewed and appraised as a bulk land deal and used the State purchase of Babcock Ranch as an example. They feel that a discount should be applied to the land values based on this representing a bulk purchase.

Issues & Questions


A number of significant issues were raised by both the Governing Board and public at the meeting on December 2. A central question being how much land is needed for restoration. The USS lands alone do not provide a connection from lake Okeechobee to the EAA reservoir and Holyland and Roetenberger tracts.

While the District staff is clear that no design has been established for conveyance and treatment they did evaluate two alternatives. One that would provide a connection via the Miami canal between the USS lands at the Lake the state owned propoerties of Talisman, Holyland and Roetenberger. This would necessitate a system of pumps and levees to move the water south. The other alternative, called the rocking chair alternative by District staff because of the shape of the connection would require trading lands with the Fanjuel family -the other large sugar producer in the EAA- who own the lands between USS and the state lands to the south. At this point none of the lands that would need to be swapped have been appraised or assessed for environmental, engineering or fairness as the USS lands have been.

Despite the fact the there has been no design established staff is promoting the idea that the system of managed storage and treatment would involve above ground storage 12- 15 ft deep with 35 ft high levees which sounds a lot like building another lake Okeechobee. Ultimatley the abilty to flow water south is dependent upon and contrained by the Tamiami Trail project also called Mod Waters- shorthand for modified water delivery. Currently US 41 through the Everglades acts as a dam to water flow. A project currently on the precipice of construction is a plan by the Corps of Engineers to bridge one mile of the roadway. While this will accommodate only a fraction of the flow volume that needs to flow south,-the preferred design would elevate 10 miles of US 41- it is a significant limiting factor to achieving flow south out of Lake Okeechobee to the Everglades.

The lease back provision of the contract has raised significant concern that has been highlighted by the agricultural community. The contract allows USS to lease back land from the state at the rate of $50 per acre annually. The state's appraiser valued these leases at $220 per acre annually which is consistent with the local market many agricultural individuals stated. The significant discrepancy in these values would create unfair competition in the form of a taxpayer subsidized sugar company.

In the contract USS is only required to pay for cleaning up the contaminated land to what are known as commercial standards while the District would perform the clean up to a higher/cleaner level the ecological standard. This places the majority of the burden on the taxpayers to clean up land contaminated by agricultural operations. Of the 180,000 acres over 20% is contaminated with copper, selenium, Arsenic, DDE, DDD, DDT, dieldrin, and toxaphene. Chlorinated pesticides, petroleum, and arsenic exceeded standard in soil at 47 locations with impacts to groundwater detected at 7 locations. Arsenic was detected at concentrations exceeding the commercial criteria across 6,000 acres. These are very serious health threats to human as well as wild populations and the contract should not shift the burden to the taxpayers.

Questions that need to be asked include:
  • How much land is needed for restoration?
  • What is the viability of trading land with Florida Crystals to aquire a connection from USS land at the lake to flow water south?
  • Why does the contract price the lease to USS at $50. per acre per year when the appraisal indicated the market value is $220 per acre?
  • Why is USS allowed to clean up contamination only to commercial standards while the District would need to clean up the land to much higher ecological standards?
  • Why are stricter standards of compliance with BMPs and water quality and quantity not specified in the contract before signing?

Deal or No Deal?


There are many legitimate concerns about the current contract. On the other hand there never has been and likely will not be anytime soon an opportunity as significant as this for addressing the water quantity, quality, timing and distribution in south Florida.

The solutions to the problems we face in the Caloosahatchee, Florida Bay and St Lucie estuaries as well as those of Lake Okeechobee and Everglades National Park are dependent upon being able to provide storage and treatment of water directed south of the Lake. The Everglades quite simply cannot be restored without the opportunity to reintroduce flow south out of Lake Okeechobee.

This complex transaction deserves careful evaluation by the Governing Board, yet the board has had less than 30 days to evaluate it. The contract calls for the inspection period to continue through January 15, 2009 so what’s the rush? We encourage the Governing Board to closely scrutinize the contract to assure the deal does not provide an unfair competitive advantage for USS by creating a taxpayer subsidized sugar company and that it is protective of the publics interests.

The Governing Board will be discussing this proposal on December 15 and 16 at their offices in West Palm Beach. You can view all documents regarding the purchase and view the video of the Dec 2nd meeting on the SFWMD Reviving the River of Grass website:
https://my.sfwmd.gov/portal/page?_pageid=2814,22134068&_dad=portal&_schema=PORTAL