Thursday, October 1, 2009

CUSD Sued by Whispering Hills LLC - $6 Million Claim

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The Capistrano Unified School District was served with a lawsuit filed by Whispering Hills LLC, the development company operated by Dennis Gage in partnership with CALPERS, the California Public Employees Retirement System. The suit seeks to obtain $6 million from CUSD, a sum equal to the final payment due under the Purchase Agreement for the San Juan Hills High School site.

CUSD's past position on this matter has been that the District is not obligated to make the final payment until the Whispering Hills sub-division is built and CFD (or "Mello-Roos") bonds can be issued to raise the needed money. Of course, the sub-division is not yet built because Whispering Hills LLC failed to build it!

In a related transaction, CUSD owes the City of San Juan Capistrano more than $1 million in utility fees arising from the construction of SJHHS. The CFD Bonds were also intended for this purpose, but since no money can be raised, this bill remains unpaid.
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Thursday, June 25, 2009

Bellingham pipeline accident remembered with national proclamation

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I normally try to digest national news to make it relevant to Orange County and the San Juan Capistrano community. Since the tenth anniversary of the Bellingham (Washington) pipeline accident has just passed, it is appropriate to reference an article on the disaster in what remains of the Seattle Times newspaper. Please check it out:

http://seattletimes.nwsource.com/html/localnews/2009325482_blast11.html

An incident exactly like this in San Juan Capistrano is unlikely because of differences in geography. Our local geography is more dangerous because of the number of creek crossings, the population density and the potential seismic activity.

And then we have to consider the potential for development that brings digging such we witness along the Ortega Highway adjacent to the pipeline.

The pipe is still out there, operating. Most recently, it was dug up and re-buried at a deeper level in anticipation of widening of Ortega Highway. Today there is more grading, digging and water pipeline installation underway within 30 feet of the highway and less than 30 feet of the operating liquid fuel pipeline pipeline. Statistically, it is just this type of work that leads to pipeline ruptures.

Soon, the pipeline will fall within the San Juan Capistrano city limits, based on plans to acquire the Rancho Mission Viejo property at the corner of La Pata and highway 74.

Hopefully, everybody is being careful! Just don't ask questions.
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Tuesday, May 19, 2009

OC Grand Jury Says SJHHS Complaint is Criminal Matter

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The Orange County Grand Jury has formally responded to a complaint filed by CUSD parent and attorney Wayne Tate. The complaint raised issue with the circumstances surrounding the site selection and development of San Juan Hills High School (SJHHS). In the response, James Perez, Foreman of the Grand Jury described the nature of Tate's complaint to be "a criminal matter", and therefore not within the jurisdiction of the Grand Jury.

Acting on this development, Tate has renewed his formal complaint to the Orange County District Attorney Tony Rackauckas. In a letter sent yesterday, Tate stated:
In light of the foregoing, I respectfully request that the Orange County District Attorney (OCDA) commence a formal investigation into the allegations and claims set forth in my letters to the CAG and OCGJ. If some or all of the allegations and claims are true, then CUSD is out millions and millions of dollars which it could desperately use given the financial crisis CUSD and other school districts are facing as a result of the statewide financial crisis. The OCDA is uniquely qualified to investigate SJHHS and CUSD given its prior, extensive experience with CUSD, and its involvement with the fuel pipeline issue at SJHHS.

Tate's letter also provides background regarding the status of a complaint filed with the California Attorney General and candidate for Governor, Jerry Brown. Tate describes being notified by a Deputy Attorney General that the complaint was forwarded to the General Counsel or Chief Counsel of the California Department of Education for investigation. Contacted by me, Tate stated that CDE has not contacted or responded to him regarding the allegations.

It is not surprising that CDE would lack enthusiasm for this investigation. The complaint alleges that senior members of the CDE staff were complicit in decisions which led to excessive spending, diversion of public funds, cover-up of site deficiencies and general bungling associated with the SJHHS project. Tate's complaint specifically mentions Kathleen Moore, Deputy Director of Public School Construction at CDE, and Fred Yeager, her deputy.

Ms. Moore was appointed by Jack O'Connell, Superintendent of Public Instruction, yet another Democratic Gubernatorial prospect! Aside from leading the California public education establishment, O'Connell is a member of the State Allocation Board (SAB), which bears responsibility for allocating the state funds that were misspent at SJHHS. During the period of SJHHS development, Kathleen Moore was O'Connell's "designated representative" to the SAB, even acting on his behalf at SAB meetings. Other members of the SAB include Tom Torlakson, termed-out State Assemblyman who is an announced candidate to replace O'Connell as Superintendent.

Many months before Tate filed his complaint with Jerry Brown, I personally wrote to Kathleen Moore to request that an investigation be conducted into the actions of her staff. Moore never responded to me directly, however I later learned that she forwarded my complaint to former CUSD Superintendent Woodrow Carter, for reasons I can only imagine.
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Saturday, March 7, 2009

Millions Added to the Cost of the SJHHS - Settlement with Developer?

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A revised Settlement Agreement is on the Board agenda for Monday, March 9. The whole subject is also featured in closed session just before the public meeting. Since the Board will consider layoff notices for over 400 district employees during the same evening, it appears likely that this matter will be continued until the next meeting. But one can never be sure...

The new Agreement is a significant improvement over earlier proposals because it no longer contains a mutual release of claims. Such a release would have undermined the work of the district's own Forensic Audit of the site acquisition, as well investigations underway elsewhere.

If that were the end of the story, I would have no reservations about recommending that that CUSD accept the settlement. Subject to each Board members' own assessment of the unusual financial risk associated with issuing public debt secured by undeveloped real estate (a very unusual move), this appears to be a good compromise. After all, there are a lot of good things in the proposal for CUSD, including the property line adjustments necessary to complete the school stadium.

But nothing is ever truly free and in this instance there is the matter of $2.264 million which is owed to the City of San Juan Capistrano by the district. This appears to be related to the agreement and it has apparently fallen through the cracks!

Back when the SJHHS site was purchased, it was understood that Whispering Hills Development would be responsible for costs associated with preparation of the site, including the cost of bringing "permanent" municipal utilities to the edge of the school site. This specific language is contained in the Purchase Agreement. Furthermore, the idea of seller-provided improvements was the main district justification for the high price paid for the land ($1,040,000 per acre).

Apparently, the developer arranged for the City to present this bill directly to the school district rather than treating it as a part of the larger Whispering Hills improvement. It remains unpaid. The Settlement Agreement now proposes to apply the Whispering Hills bond money in a new way and would appear to leave CUSD with the city's bill.

If this is allowed to stand, CUSD will have to reach into its purse for the $2.264 million and the price of this high school will rise yet again!
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Sunday, February 8, 2009

Another Collision with the Brown Act?

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The Settlement Agreement and Mutual Release for the SJHHS site has been returned to the Board agenda (huge file) on Monday night as Item #21. On this occasion, the agenda provides that the Board may act on the item.

I have urged Board members to refuse action on this item Monday night because such action would violate the Brown Act. Quoting the agenda item itself:
This agenda item was first brought to the Board on January 12, 2009 for information/discussion. Since that time, additional information (i.e., questions/issues/concerns) from the public and the Board has been received with comments submitted to the Board under separate cover. Staff is now bringing back the "Settlement and Mutual Release Agreement" item to the Board of Trustees for discussion/action.

The additional information referred to in this paragraph has not been made available to the public despite the fact that the questions were raised in public session. As the agenda states, the Board is expected to rely on this additional information to reach a decision. By failing to include this additional information in the agenda, the public is effectively denied an opportunity to meaningfully participate in the public meeting.

I requested a copy of this additional information on Thursday of last week. On Friday afternoon, I received an email response indicating that the materials would be available for me to pickup at the front desk of the Ed Center. Unfortunately, this notice did not reach me in time to arrange pickup before the Ed Center closed for the weekend. I appreciate and thank the staff for their cooperation, but I must point out that even if this information were in my possession, my private receipt is not public notice. Thus, the Brown Act issue outlined above still clouds any action taken on this item during Monday’s meeting.

An equally serious problem with item #21 is the fact that the public agenda is misleading (it contradicts the Agreement under consideration). From the agenda:
Given that WHLLC is now proceeding with the sale of the land located within the CFD to developers with significant home building experience and funding sources, the District is now in a position to issue the first series of CFD bonds.

This statement is utterly false. Subsequent paragraphs of the agenda, as well as paragraph 1 and paragraph 5 of the Agreement make it plain that issuance of the bonds is uncertain and all of the benefits for CUSD contained in the Agreement, including the stadium land transfer, are contingent on issuance of the bonds or dissolution of the CFD (at the sole option of the developer).
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Monday, January 26, 2009

Compare and Contrast CUSD and City Land Acquisition Practices

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Last week the City of San Juan Capistrano announced that it would purchase Rancho Capistrano from the Crystal Cathedral Ministries to add to the city inventory of open space. The City agreed to pay about $86,000 per acre for 116 acres of land. This is a great deal for the City and its residents!

The purchase is made possible by a public/private partnership between the City and a developer of “senior living” facilities. The developer will take 34 acres of Rancho Capistrano (apart from the City portion) for an undisclosed sum of money. Everyone involved in this deal is cheering. Why?

Well, it seems that Rancho Capistrano is essentially “landlocked”. The railroad and Oso Creek prevent unrestricted access to the property, except at an existing substandard and controversial rail crossing off Camino Capistrano. The present owners and the developer anticipated difficulty in convincing the CPUC and the railroad to cooperate in planning an improved crossing. The City negotiating team pointed out that the City could more persuasive and, like magic, the “value” of the property suddenly fell to wholesale!

This situation is identical that that which faced Dennis Gage (Whispering Hills LLC) when he sought to develop the landlocked property now known as Whispering Hills. There was no access from La Pata, the land was occupied by overhead electrical transmission lines, and there was no possible road access from San Juan Capistrano. Gage first offered to "give" land to the Capistrano Unified School District for a high school in order to get the district into the game. This gift of land became controversial because it required a modification to the City of San Juan Capistrano General Plan. The question was put on the ballot in 2002 as an advisory measure and the plan was defeated.

Responding to this defeat, CUSD turned around and paid Gage the astronomical price of $1,040,000 per acre for 50 acres of land, a price determined by comparing the raw land with construction-ready residential sites in Ladera Ranch and San Clemente. Then CUSD used its government authority to override the General Plan (in favor of Gage and the school, and to the dismay of the city), then threatened Rancho Mission Viejo Company with eminent domain to force sale of 35 acres of land to Gage (not CUSD) to get access to La Pata (this land is now the Villa Montana apartment site), and then pushed the CPUC to force SDG&E to move their overhead electrical transmission line so that Gage could optimize his residential development plan.

What did CUSD get in return for providing all this help? Nothing! In fact, it seems clear today that CUSD paid Gage about $900,000 per acre over market value to be involved in his development scheme. The only remaining question is why?

The Rancho Capistrano deal ($86,000 per acre) and the earlier Shea deal ($19,200 per acre) can serve as benchmarks by which to judge the CUSD site acquisition for San Juan Hills High School. All three properties have similar development challenges. All involve expenditure of public money to secure land for public use. The City expenditures are prudent and responsible.

The CUSD transaction was something else.
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San Juan Capistrano City Council Decision on Transfer of Development Agreement

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I went to the SJC City Council meeting on January 20 to follow-up on my correspondence regarding the Development Agreement for Whispering Hills.

On this occasion, Council approved the transfer of the DA unanimously. I don’t think any of the Council members saw an alternative.

The materials I had prepared ahead of the meeting were distributed to all Council members and the public by the City Clerk. In addition, the City Attorney prepared an analysis of his own that addressed the points I raised in my letter.

I spoke to refer the Council to the materials, draw their attention to the proposed Settlement Agreement before the CUSD Board of Trustees and suggested that they seek financial guarantees from the developer. I stated that if they approved the transfer, that in light of the Settlement Agreement, they would be ceding control of the City’s position in the deal to the school district.

I was the only person to speak.

Council questioned the City Attorney about his analysis and made a number of good inquiries that pointed out flaws in the original Development Agreement. However, in the end, they saw their duty to be representing the City’s interest in the Agreement – and it is a very narrow interest. Protecting the County, CUSD, etc., were not reasonable considerations. The Council was assured by the City Attorney that if any money due to the City were to be diverted (either by the developer or the school district) that the City would be in a position to withhold building permits.

Unfortunately, nobody from the school district was present at the meeting. Councilman Allevato expressed mild irritation about this, consistent with his comments from the prior meeting. Frankly, I share his frustration. It is difficult for a member of the public to ask Council to watch over the interests of the school district when nobody from the school district appears at the meeting. However, I also understand that CUSD has been busy since December with other matters.

In the end, the vote wasn’t in question. The decision was unanimous that Whispering Hills LLC should be allowed to transfer the Development Agreement to Rancho San Juan Development LLC. Of course, the resolution doesn't compel this transfer, so everyone will be left to guess when the transfer actually occurs, if ever.

The biggest surprise to me was that when the item was over, about 20 people got up and left the room, including the 5 from the developer. I wonder if there was that much interest in this arcane subject, or if instead, it was a convenient time to take a bathroom break!

During a break in the meeting, I had a brief discussion with the City Attorney and suggested that we had just witnessed the creation of the next “Suncal” debacle. He didn’t exactly disagree.

The whole matter is now in the hands of the school district.
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