Another Collision with the Brown Act?

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). Read more!

Compare and Contrast CUSD and City Land Acquisition Practices

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!

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!

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 -

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.

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.

Potential Legal Conflict -

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!

CUSD Forensic Audit of San Juan Hills High School

On Thursday, 12/18, I attended a meeting at the Ed Center to discuss the SJHHS forensic audit initiated by the CUSD Board. This meeting occurred just two hours before the widely-publicized meeting of the Board that included an evaluation of the Superintendent. While the mood in the meeting was calm, it was clear that some participants were preoccupied with the larger meeting that was to follow.

Accompanied by another parent, the purpose of the meeting was to introduce the auditor-investigators and establish a line of communication. Members of the community have collected a large volume of information -- perhaps more information than exists at CUSD. We discussed this information and offered to share it. In part, it's the same information you see in these pages and the related group website.

Most of our discussion focused on the scope of the upcoming investigation. I urged the auditors to focus on areas of the SJHHS project that might yield financial claims for CUSD against the developer (Whispering Hills LLC), or project contractors (e.g., the environmental firm and the architect). Political blame can be handled by others (including me, sure enough), but the District should focus on money.

The complaint filed with the California Attorney General outlines more than $10 million in questionable expenditures. At the end of our meeting, we pointed to that complaint as a road map for detailed investigation and volunteered our full support. Read more!

Update: Assignment and Assumption of Development Agreement for Whispering Hills

The San Juan Capistrano City Council met on Tuesday night to consider the request to approve assignment of the Whispering Hills Development Agreement to a new entity called Rancho San Juan Development LLC. The Council did not approve the request when a motion by Councilman Hribar failed for lack of a second from any other member.

Council did pass a voice motion to reconsider the request at Council's next meeting on January 20, 2009.

Written comments were supplied to Council by me and by the developer. The developer's letter is evidence that the sole purpose of the requested assignment is to shield the new "member", Woodbridge, from past liability. One can speculate that there is some year-end tax structuring involved as well, though the letter is silent on this point.

Ellen Addonizio, President of the CUSD Board of Trustees, spoke as a private citizen and requested that the City allow time for CUSD Trustees to look into the transfer.

Sue Palazzo, a member of the CUSD Board of Trustees was also present in the audience.

I spoke briefly to draw Council's attention to my letter and to remind them that the Development Agreement was just one element of a complex set of agreements pertaining to Whispering Hills. I suggested that the public interest would be served by delaying consideration of the matter for a reasonable period of time to allow consideration of all of the developer obligations, including those obligations to the County of Orange and the school district. I closed by expressing my support for seeing the Whispering Hills development be completed as planned, assuming the public's interest is respected.

A representative of Woodbridge also spoke and urged the Council to approve the assignment, in fact stating the City was obligated to deal with the request "within 30 days". The City Attorney disputed this statement, at which point the matter appeared to be decided.

Comments from the dais provide a few insights. Apparently, the relationship between the City and CUSD is not warm. In fact, one council member spoke of being "blown off" and "ignored" by the school district in the past. In another case, it was noted that CUSD used its governmental authority to override City land use restrictions on the San Juan Hills High School site. Apparently, this was viewed as being a heavy-handed and contrary to public will expressed in a ballot measure.

It is clear that CUSD leadership has some fence-mending to do with this Council.

Time is short for the school district to act to protect any claims it may have against Whispering Hills. The City is, strictly speaking, not a party in the relationship between CUSD and the developer and it may not unreasonably thwart the transfer of the Development Agreement.

However, Councilman Allevato did raise the issue that the County of Orange is a third party beneficiary under the Development Agreement. Is the County aware of the impending transfer? Read more!

Assignment and Assumption of Development Agreement for Whispering Hills Estates

On the Tuesday agenda, the San Juan Capistrano City Council is being asked for a second time to approve an assignment of vested rights and obligations set forth in an agreement between the City and Whispering Hills LLC to a new legal entity. The original Agreement was executed in July of 2005 and became effective on August 19, 2005.

In his Agenda Report, City Attorney Omar Sandoval indicates that the new entity, Rancho San Juan Development, LLC, is a “wholly owned” company formed by Whispering Hills LLC. This representation is being made by a City employee instead of the applicant owner. As such, it should be set aside. I urge the Council to consider the broader implications of this request.

Sandoval’s Report goes on to state that Section 4.2 of the Development Agreement provides, “that Whispering Hills LLC may assign any of its rights under the Development Agreement, subject to the prior written consent of the City, which consent shall not be unreasonably withheld.”

This is an incomplete characterization of Section 4.2. The actual language of that section is:

Assignments.

The rights and obligations of Owner under this Agreement may be assigned in writing in whole or in part as part of an assignment of all or a portion of the Property. Any assignment shall be subject to the provisions of the Agreement, and to the prior written consent of the City, which shall not be unreasonably withheld. During the Term, any assignee shall have those rights, benefits and obligations of Owner under this Agreement as expressly assigned with respect to the portion of the property owned by assignee. Immediately upon delivery by Owner to the City of the assignee’s written assumption of Owner’s rights and obligations under this Agreement with respect to any portions of the Property being assigned, Owner shall be released from all obligations as to any portions of the Property so assigned.

The italic format has been added by me to draw attention to text to be discussed below...

“...and obligations”

Any agreement involves obligations on the part of both parties. Sadoval’s Report fails to mention the obligations without which the Development Agreement would not exist.

“...in writing, in whole or in part as part of an assignment of all or a portion of the Property”.

The applicant owner has provided no evidence to the City of a sale other assignment of property appurtenant to the Agreement. This is a basic requirement for assignment to occur.

“...expressly assigned with respect to the portion of the property owned by assignee”.

Again, there is no evidence offered that the assignee owns any part of the subject property.

“... Immediately upon delivery by Owner to the City of the assignee’s written assumption of Owner’s rights and obligations under this Agreement with respect to any portions of the Property being assigned, Owner shall be released from all obligations as to any portions of the Property so assigned.”

Again, the portions of the property are not specified. But more importantly, does it not make sense that the City determine whether the obligations of the owner assignee have been fulfilled during its tenure as a party to the Agreement?

I request that City staff be instructed perform a detailed analysis of Owner obligations under the project FEIR, including the EIR amendment, CDP 04-01, TTM 16634, GPA-04-01, RZ04-05 and any other land use entitlements to determine Owner’s compliance before granting the requested assignment.

I request that the applicant be requested by the City to provide written details of the real property transaction that qualifies the requested assignment under the terms of section 4.2 of the Development Agreement, for consideration by Council the next time this request is heard.

___________________________


The subject Development Agreement contains two significant clauses that should be carefully considered by Council:

In paragraph 1.2, Interest of Owner, describing the underlying real property, the following appears:

“...and 34 acres of which real property are located in the unincorporated area of the County but within the City’s Sphere of Influence.” (capitalization from the original text).

In paragraph 10.12, the following appears:

“Third Party Beneficiary. The County of Orange is a Third Party Beneficiary of this Development Agreement pursuant to Section 6.8 herein.”

At section 6.8, a detailed “Public Benefits to and Easement Agreement with the County of Orange Relating to Avenida La Pata and Trail Improvements” appears. Multiple obligations on the part of Owner and County are documented.

Clearly, original Development Agreement pertained to areas outside of, but adjacent to the City, within the City’s “Sphere of Influence”. In fact, it was the City Planning Commission that championed the County’s interests in the original Agreement (see Matthews / Tomlinson correspondence, May 2002). It remains a matter of interest to the City whether these obligations to the County have been fulfilled.

I request that the applicant be requested by the City to provide written clearance from the County of Orange as evidence that Owner’s obligations set forth in the Development Agreement have been met. City staff should be instructed to independently confirm the evidence provided by the applicant.

___________________________


In paragraph 1.3, Intent of the Parties, this appears:

“The development of the Project is intended to implement specific land uses, provide public infrastructure and generate revenues to the City, all in promotion of the health, safety and general welfare of residents of the City."

Similar language is used throughout the Agreement. It is obvious to anyone that this intent has not been yet accomplished by the Agreement.

I request that the applicant be requested by the City to provide written evidence of the financial capability of the Assignee to fulfill the remaining obligations encompassed by the Development Agreement.

I request that the applicant be requested by the City to provide a project schedule that demonstrates the feasibility that the project be completed within the remaining term of the Development Agreement.

___________________________

The Assignment and Assumption of Development Agreement attached to the Agenda item raises a number of troublesome issues:

Paragraph 1, “...right, title and interest”

This document is not an assignment of title in real property. It is not suitable for that purpose. There is no evidence of a necessary transfer of title in the real property.

This same erroneous language appears in City’s consent document attached.

Paragraph 2 and 3, cross indemnification of Assignee and Assignor

This document should contain indemnification for the City, a reasonable condition of granting the assignment. Neglect of obligations by Whispering Hills LLC that are unknown to the Assignee could result in a future claim against the City for negligent enforcement of the Agreement and City codes. Even a claim of fraud or conspiracy involving the Assignor and the City could be constructed. The assignment agreement should indemnify the City against such claims.

Similar indemnification should be provided to the County of Orange.

Paragraph 7, Successors and Assigns: Entire Agreement

The explicit language of this paragraph states that, “the Assumption Agreement constitutes the entire understanding among the parties with respect to the subject matter hereof.” This is deficient language in light of the absence of evidence that any real property is being transferred to the Assignee.

Signature Page

I want to draw Council’s attention to the fact that the two “sides” of this agreement are identical, except for the insertion of a new corporation at the top of the Assignee. The same officers have signed for both parties (neither Grant or McGowan are listed as owners). Thus, without hearing from the actual owners of Whispering Hills, LLC and Rancho San Juan Development, LLC, the City has no way to determine whether the assignment is even valid based on this document.

I request that the applicant be requested by the City to insert indemnification for the City into the Assignment and Assumption Development Agreement.

I request that the applicant be requested by the City to provide more complete documentation of the requested assignment in the Assignment and Assumption Development Agreement.

___________________________


A “Cooperative Agreement”, dated May 20, 2003 (Agreement No. D03-044) exists between Capistrano Unified School District, Whispering Hills, LLC and the County of Orange pertaining to obligations arising from the use of La Pata Avenue (“LANDFILL ROAD”) the school and the new residential development. This Agreement creates numerous obligations on the part of the applicant, including:

Whispering Hills, LLC (and CUSD) agreed to indemnify the County of Orange against claims arising from “loss or damage of persons or property” arising from use of La Pata Avenue.

Whispering Hills, LLC (and CUSD) agreed not to cause or permit toxic or hazardous materials to contaminate La Pata Avenue.

Whispering Hills, LLC (and CUSD) agreed to maintain specific forms of liability insurance and name the County as “also insured”, to cover liability arising from use of La Pata Avenue.

Whispering Hills, LLC agreed to provide numerous pieces of documentary evidence pertaining to the “as-built” improvements to La Pata Avenue, to maintain performance bonds, to file completion documentation, and to comply with various regulatory “flow-down” requirements.

I request that the applicant be requested by the City to provide evidence of satisfactory completion, release or reassignment of its obligations to County under the Cooperative Agreement dated May 20, 2003, and any successor or similar agreements.

I request that the applicant be requested by the City to provide evidence of agreement by CUSD that Whispering Hills, LLC be relieved of its mutual obligations under the Cooperative Agreement, or that a substitute party acceptable to CUSD has been bound contractually to the mutual obligations toward County.

___________________________

I think these are all reasonable requests to make of the applicant. In particular, I think it is incumbent upon the City to provide notification to the County and CUSD, and allow each party time to respond, make inquiries of the applicant, and process whatever replacement agreements are necessary to protect the interest of the public in this assignment. Read more!