If you can’t beat ’em, scare ’em

The Merry-Go-Round won’t be surprised if a lot of highfalutin rhetoric flows from the dais Tuesday night as the Russo/Gilmore administration makes its pitch for a “companion measure” to the citizen-sponsored initiative re-zoning Neptune Pointe to open space.

We need to take this action to ensure the safety of the General Fund, expect Mayor Marie Gilmore to say.

We have a “fiduciary duty” to put the measure on the ballot, expect Vice Mayor Marilyn Ezzy Ashcraft to chime in.

We’re just adhering to the wise precedent set by Mayor Appezzato, expect Councilman Tony Daysog to offer.

Balderdash.

In fact, when you rip off the rhetoric, the “companion measure” shows its true colors:  It’s nothing more than a device designed to scare Alamedans away from voting for the Neptune Pointe initiative.  The message to voters may be subtle, but it’s unmistakable:  If you pass the initiative, the City will get sued; we’ll then have to cut City services to be able to pay lawyers to defend the suit, and if (read: when) the City loses, you’ll have to pay higher taxes so the City can satisfy the judgment.

Is any of that true?

In our previous post, we discussed the litigation risk to the City if the Neptune Pointe initiative passes – a subject that City Attorney Janet Kern was supposed to, but failed to, assess in the “initiative impact report” prepared for Council.  Staff now appears to have abandoned altogether the “tortious interference” theory City Manager John Russo threw out to disconcert the audience at the Mastick Senior Center.  But they’ve never explained whether – or why – they believe that either GSA or Tim Lewis Communities could make a stronger case for inverse condemnation that the facts seem to support.

Maybe Ms. Kern is saving her views on the merits for the Council meeting.  (It wouldn’t be the first time City staff sprung a last-minute legal “analysis” on the citizens to sell a spurious staff recommendation).  But if she can’t identify a potential claim that has a solid basis in law and fact, there’s no reason to consider a “companion measure.”  Absent a real risk to the municipal fisc, the initiative can go it alone.

But since Council seemed so eager on June 3 to have a “companion measure” placed on the ballot, we’ll take a look at how staff proposes to protect the City from the prospect of financial ruin.

Despite what you may hear from Mr. Daysog (who should know better, since he signed the ballot argument for the “companion measure” to the Beltline initiative), the current measure is far different than the one submitted to, and adopted by, the voters, in 2002.

For one thing, what was known as Measure D was triggered only if and when a court entered judgment requiring the City to compensate the existing property owner for the “fair market value” of the property.  By contrast, the current measure is triggered by the mere filing of an inverse condemnation suit against the City.

This is a significant difference.  Until judgment is entered, ownership of the property remains with the plaintiff (the railroad, in the case of the Beltline, and either GSA or TLC, in the case of Neptune Pointe).  The City incurs no costs to maintain or improve the property.  Its financial obligation consists solely of paying legal fees to defend the case.

The premise of the proposed companion measure is that the City won’t be able to foot the bill for the lawyers without “diverting funds from existing services such as City parks, libraries, police, fire, and other City services.”

Oh, yeah?  According to Ms. Kern, “Legal defense costs are likely to amount to hundreds of thousands of dollars.”  We must confess to a feeling of professional jealousy toward the lawyers who can get away with racking up such enormous charges on an ordinary inverse condemnation case.  But we guess the City of Alameda hires only the best of the bar.

Even so, it is hard to take seriously an assertion by the Russo/Gilmore administration that the only way to pay the legal fees would be to take funds away from existing City services.  Wasn’t it just yesterday – or maybe it was June 3 – that the Mayor was bragging about the $24.7 million General Fund reserve balance resulting from her shrewd management of the City’s affairs?  Yes, we know that the City Finance department is predicting that these reserves will be exhausted by fiscal year 2017-18, but, according to the Mayor, the bean counters cry wolf all the time.

Moreover, this is an administration that prides itself in its ability to come up with clever ways both to pay ordinary expenses and to fund extraordinary items.  For example, every budget cycle starts out with a projected deficit in the General Fund, but then, thanks to the sharp eye of City Finance Director Fred Marsh, staff manages to find cash hidden in cubbyholes in City Hall (technically, balances in other City funds) to cover the shortfall between revenues and expenses.

And when the politicians want to move forward with a project their supporters really crave, they just borrow the money.  Want a $3 million Emergency Operations Center, Chief?  You got it – and we’ll re-finance debt to pay for it.  Want a $5 million new fire station no. 3 to go along with the new EOC, Chief?  You got that, too – and we’ll issue new bonds to pay for that one.  Where it’s the fire department’s will, the Russo/Gilmore administration always finds a way.

Surely, a management team as skilled as this one can put its hands on a couple hundred thousand bucks to pay the lawyers without cutting the recreation and park department budget.

But, no, the companion measure says, cuts are inevitable.  So the measure proposes the following “solution”:  If an inverse condemnation suit is filed, “the City Council shall be authorized to take such measures as are necessary to mitigate any possible detrimental impacts on its ability to fund necessary services such as provision of City parks, libraries, police, fire and other city services . . .”

Sounds prudent.  But wait a minute:  Doesn’t Council already have that authority?  Indeed, one could argue that it is Council’s duty – the Vice Mayor might call it a “fiduciary duty” – to make sure that the City can pay for the services it provides.  If there is an unanticipated drop in revenues, or an unanticipated rise in expenses, Council’s job is to make the required adjustments.  Does anyone doubt that it has authority to do so?  If not, why should paying legal fees to defend an inverse condemnation suit be any different?  We don’t need a “companion measure” authorizing Council to do its job.

And what’s with the repetition of the word “necessary”?  The companion measure authorizes Council to take “necessary” steps to protect “necessary” services.  It’s as if the Russo/Gilmore administration is afraid that, absent the measure, Council would take “unnecessary” actions to fund essential services.  Or that Council would decide to protect “unnecessary” programs.  We suppose that the current Council in fact might decide that keeping the fire department in the “basic life support transit” business is a “necessary” service and that keeping the City parks open is not, but they can do that anyway.  The addition of the adjective imposes no new constraint.

So if the authority conferred by the Neptune Pointe companion measure accomplishes nothing, why is it there?  The only answer can be that its purpose is to frighten the public into believing that a vote for the initiative will lead to a loss of City services.

The proposed companion measure then goes on to address what happens if the City loses an inverse condemnation suit.  Councilman Daysog, for one, claims that, by putting the Neptune Pointe companion measure on the ballot, the current Council simply would be following in the footsteps of its predecessor that adopted a companion measure to secure payment of any adverse judgment resulting from the Beltline initiative.  In fact, the two situations are very different.

For the Beltline, litigation between the City and the railroad that owned the property already was pending at the time the re-zoning initiative was submitted to the voters, and the risk of a judgment requiring the City to pay “fair market value” to the property owner was very real.  Indeed, the railroad had just won summary judgment invalidating the City’s right to buy the property at the 1924 price.  (The City appealed, and the story had a happy ending).

Moreover, a judicial ruling that the City had to pay the railroad the “fair market value” of the property would have had catastrophic consequences.  The “appraised fair market value” of the Beltline acreage was $20-25 million, an amount exceeding the entire $18.5 million police department budget.  It was thus hard to dispute that paying the judgment out of the General Fund would cripple City services.

So the Beltline companion initiative was written to give Alamedans the proverbial two bites at the apple.  If they wanted the property re-zoned to open space, they first could vote to pass initiative.  But the zoning would remain unchanged until a judge ruled that the City must compensate the railroad for “fair market value.”  At that point, the voters would be asked to approve “new or increased taxes, fees, and assessments” to satisfy the judgment.  Only if they were willing to take this second step would the re-zoning occur.

That isn’t the way the Russo/Gilmore administration has structured the companion measure to the Neptune Pointe initiative.  Unlike the Beltline approach, the current proposal locks the voters in at stage one.  Pass the initiative and the property will be re-zoned to open space right away.  Then, if GSA or TLC sues for inverse condemnation, Council will cut services and keep them at the lower level until, if the City loses the suit, the citizens vote to raise their taxes or staff finds a buyer willing to pay the City’s price for the property.  If voters don’t approve a tax increase, and no sale occurs, the citizenry will be stuck with diminished services and the City will be stuck with useless property – perhaps forever.

Sound pretty scary?  Sure does.  And somehow we suspect that this was not inadvertent.  If the purpose of the companion measure was simply to assure that funds would be available to pay an adverse judgment, why not draft it along the lines of the Beltline companion measure?  Maybe because that would rob the measure of its desired in terrorem effect.

But that’s not all.  Just as the proposed Neptune Pointe companion measure assumes that the City couldn’t pay legal fees to defend an inverse condemnation suit without cutting services, it assumes that the only way the City could pay an adverse judgment is by raising taxes (or selling the property).  For the Beltline property, a tax increase may have been the only option.  But the same can’t be said about Neptune Pointe.

The City has not obtained an appraisal of the “fair market value” of the Neptune Pointe property, but, according to Ms. Kern, “Damage estimates range” from $3,075,000, the price in the sales contract between the GSA and TLC, to $5.6 million “based on the City’s Development Impact Fees Update and Nexus Study dated June 18, 2014.”

We’ll take the former figure, since we’ve always understood “fair market value” to be the amount a willing buyer would agree to pay a willing seller, not an artificial number concocted by City staff.  And we’ll subtract from it the amount the City knows it can get for the property from the East Bay Regional Park District, which already offered $1.5 million for the parcel and which has set aside Measure WW funds to buy it.  So call the net damage exposure $1.5 million.

This, of course, is far less than the hit to the General Fund the City potentially was facing in the Beltline case.  Indeed, $1.5 million represents about six per cent of the annual fire department budget (and less than three per cent of the combined police and fire budget) for the fiscal year beginning on July 1.

Former IAFF Local 689 president and current fire chief Mike D’Orazi surely would balk at the idea of reducing his department’s budget to pay for the Neptune Pointe property.  But it appears that a significant majority of Alamedans wouldn’t mind.  The last time City staff issued a “budget challenge” to residents in May 2013, 44 per cent of respondents voted for cutting the fire department budget by 5-to-10% and another 35 per cent supported cutting it by 2.5%.

That alternative won’t work for you?  Well, try this one:  As we discussed earlier, the current Council has approved spending $3 million on a new EOC and $5 million on a new fire station no. 3 (and, since the City is borrowing the money, interest brings the total cost to $12 million).  But Alameda voters didn’t vote for either the new EOC or the new fire station.  In fact, they refused to pass a Russo/Gilmore administration-sponsored initiative raising sales taxes to pay for them.  Now, suppose Alameda voters pass the initiative re-zoning Neptune Pointe to open space, GSA or TLC sues, and a judge rules that the City must pay $3 million (half of which it can immediately recoup from EBRPD) to the existing property owner.  How about scaling back on projects the voters didn’t think the City needs – like a new EOC or a new fire station — to pay for a project they do want – like enabling the Park District to expand Crown Beach State Park?

None of these alternatives, of course, requires a “companion measure” to go on the ballot with the Neptune Pointe initiative.  All they demand is a little creative thinking and political backbone.  And that, friends, is why you’ll be given the opportunity to vote on a companion measure this November after all.

Sources:

Companion measure: 2014-07-01 Ex. 1 to staff report – Fiscal Responsibility Measure

Staff report re companion measure: 2014-07-01 staff report re companion measure

Initiative impact report: Initiative Impact Report

Beltline Measure D: Measure D (Beltline)

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Budget, City Council, Development and tagged , , , , , , , , , , , , . Bookmark the permalink.

4 Responses to If you can’t beat ’em, scare ’em

  1. Steve Gerstle says:

    As much of a companion as Cain was to Abel.

  2. Karin Lucas says:

    Right on everything again, Bob. I would even argue that Neptune Pt. must be worth less than $3 million because TLC keeps asking for extensions to pay the purchase price. Until there is access for utilities over McKay Ave no buyer will actually be willing to pay the purchase price agreed on by TLC.

  3. Jim Smallman says:

    Bob, this is a beautifully constructed presentation. It exposes the Gilmore/Russo support for the Companion Measure for the misleading diversion that it is. Nice going! I’m confident that Alameda will see through this as they did for the Sweeney Park.

  4. Eugenie Thomson says:

    Bob, It is refreshing to read an analyses based on facts. Thank you.
    The Neptune Point measure is a zoning change to Open Space and reaffirming what folks voted for as per Measure WW in Nov 2008. Measure WW indicated that this site should be used for park expansion when it became available. City hall erred by not following up and changing their Housing Element which at the time of the GSA auction still had the site available for housing. City hall erred again on Independence Day eve 2012 by rezoning this site to housing without doing a site feasibility analysis, environmental document, nor did they check the County Assessor’s office. Had they checked the County assessor’s office they would have realised the site had not been split due to the problem of access and utility easements. (btw the Council resolution identifies the entire Federal parcel as housing, rather than identifying a portion of the Fed 7 acre parcel, very sloppy) .
    Zoning changes are done all the time by Council but now when the people ask for it they make a HUGE exception and introduce a change to the Municipal Code to reduce services if the City is sued. A likelihood of a lawsuit is possible with all the zoning changes. The City’s proposed companion measure can only be seen as an attempt to kill the Neptune Point measure and that companion measure would also be a use of our taxpayer money. Hopefully the City Council comes to their senses tonight, and does not go forward with the companion measure.
    Your article helps in showing the truth behind City Hall tactics. Appreciate all your hard work.

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