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.
Read more!
Monday, January 26, 2009
San Juan Capistrano City Council Decision on Transfer of Development Agreement
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. Read more!
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. Read more!
Sunday, January 18, 2009
Update 2: Assignment and Assumption of Development Agreement for Whispering Hills
This item returns on the San Juan Capistrano City Council Agenda as consent item #10 on Tuesday, January 20. The developer Whispering Hills LLC is seeking assignment of the Development Agreement to a new development company, Rancho San Juan Development LLC. Should the City Council approve this transfer, it appears likely that the city and taxpayers will be put at significant risk. There is at least $12 million of public money involved.
When this item last appeared on the Council agenda, CUSD Board President Ellen Addonizio and I spoke to request a delay until such time that the impact of the assignment could be determined. President Addonizio was concerned about the impact an assignment on rights and claims held by CUSD. I expressed a similar concern for rights and claims held by other agencies such as the City and County. The Council generously agreed to continue this matter for one month to provide time for more in-depth consideration of these issues.
Last week there was a new development in this story.
On Tuesday, January 12, the CUSD Board of Trustees was presented with a proposed Settlement Agreement and Mutual Release between the school district and the Whispering Hills developers. This Agreement has been secretly negotiated by school district staff and the developers since last summer. Nevertheless, the actual text of the Agreement was quietly slipped into the previously posted Board agenda after 4:00 PM on Friday night in order to minimize the public opportunity for review.
The Agreement has wide-ranging impact on the SJHHS school site, the relationship between CUSD and the developer, and the City. Should the proposal be accepted by the school district, the financial interests of the City and city taxpayers will be sacrificed for worthless property line adjustments being sought by CUSD.
From the City perspective, I’ll summarize the issues here:
“Effective Date” of the Development Agreement -
Joint Community Facilities Agreement -
Impact of the proposed Settlement Agreement on the City -
The issues outlined above can be confirmed by careful reading of the documents. In light of the proposed Settlement Agreement, the San Juan Capistrano City Attorney and Council should take additional time to consider the entire relationship with this developer.
In the larger picture, one has to question the viability of the Whispering Hills development. The transfer of the Development Agreement, coupled with the proposed Settlement Agreement, provide the developers with an opportunity to use public money to finance the transfer of the property, to “cash out” of the development leaving the local taxpayers, the City and the school district to deal with the long term deficits.
For this reason, I have urged the Council seek development guarantees or other financial assurances from the developers and to inquire more deeply into the financial viability of any party to the Development Agreement. This information, being critical to the deliberation of this subject matter by council, should be available to the public. Mere verbal assurances from the developers relayed by the City Attorney are insufficient.
Council members must keep in mind that while the Development Agreement is appurtenant to the land on which Whispering Hills is to be built, the JCF Agreement and the Mitigation Agreement are not. Most importantly, the cash proceeds of the CFD in the hands of the developers would far exceed the value of the undeveloped land and may be lost to the public forever. Read more!
When this item last appeared on the Council agenda, CUSD Board President Ellen Addonizio and I spoke to request a delay until such time that the impact of the assignment could be determined. President Addonizio was concerned about the impact an assignment on rights and claims held by CUSD. I expressed a similar concern for rights and claims held by other agencies such as the City and County. The Council generously agreed to continue this matter for one month to provide time for more in-depth consideration of these issues.
Last week there was a new development in this story.
On Tuesday, January 12, the CUSD Board of Trustees was presented with a proposed Settlement Agreement and Mutual Release between the school district and the Whispering Hills developers. This Agreement has been secretly negotiated by school district staff and the developers since last summer. Nevertheless, the actual text of the Agreement was quietly slipped into the previously posted Board agenda after 4:00 PM on Friday night in order to minimize the public opportunity for review.
The Agreement has wide-ranging impact on the SJHHS school site, the relationship between CUSD and the developer, and the City. Should the proposal be accepted by the school district, the financial interests of the City and city taxpayers will be sacrificed for worthless property line adjustments being sought by CUSD.
From the City perspective, I’ll summarize the issues here:
“Effective Date” of the Development Agreement -
The Development Agreement becomes effective when the Whispering Hills Community Facilities District (CFD, or Mello-Roos district) is formed. This CFD has been defined in a School Mitigation Agreement between CUSD and the developer but the CFD has not yet been formed. Thus, the Agreement that the developer seeks to transfer is not yet effective, even though it was written and accepted by the City almost four years ago.
Joint Community Facilities Agreement -
The Settlement Agreement proposed to CUSD directly and negatively effects the City’s rights under a Joint Community Facilities Agreement between the City and the developer dated July 1, 2005. The purpose of the JCF Agreement was to appoint CUSD as lead agency in managing the Whispering Hills CFD, issuing bonds and collecting taxes, in part on behalf of the City. In the JCF Agreement, the City has agreed to receive certain infrastructure improvement costs and fees related to Whispering Hills through the CFD instead of collecting them from the developer.
Impact of the proposed Settlement Agreement on the City -
Should the CUSD Board of Trustees accept the developers’ proposed Settlement Agreement, the City’s rights in the JCF Agreement will be diminished. The Settlement Agreement provides that the first $12.8 million dollars in CFD proceeds will be turned over to the developer for disbursement at his discretion. This is in direct conflict with the terms of the JCF Agreement that call for approximately half of this money to be deposited to a City Facilities sub-account according to a defined formula.Potential Legal Conflict -
Still worse, the proposal also provides the developers with the exclusive option to dissolve the CFD altogether! This would leave the JCF Agreement and the City without an assured source of development funds to complete infrastructure improvements in the area.
Should the CUSD Board of Trustees accept the developers’ proposal, this would appear to be a breach of the contract created by the JCF Agreement with the City.
The issues outlined above can be confirmed by careful reading of the documents. In light of the proposed Settlement Agreement, the San Juan Capistrano City Attorney and Council should take additional time to consider the entire relationship with this developer.
In the larger picture, one has to question the viability of the Whispering Hills development. The transfer of the Development Agreement, coupled with the proposed Settlement Agreement, provide the developers with an opportunity to use public money to finance the transfer of the property, to “cash out” of the development leaving the local taxpayers, the City and the school district to deal with the long term deficits.
For this reason, I have urged the Council seek development guarantees or other financial assurances from the developers and to inquire more deeply into the financial viability of any party to the Development Agreement. This information, being critical to the deliberation of this subject matter by council, should be available to the public. Mere verbal assurances from the developers relayed by the City Attorney are insufficient.
Council members must keep in mind that while the Development Agreement is appurtenant to the land on which Whispering Hills is to be built, the JCF Agreement and the Mitigation Agreement are not. Most importantly, the cash proceeds of the CFD in the hands of the developers would far exceed the value of the undeveloped land and may be lost to the public forever. Read more!
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