Out of bounds

It was what, in some circles, they’d call a “no-brainer”:  Having nearly finished its makeover of the Jack Clark South Course at the Chuck Corica Golf Complex, Greenway Golf proposed to spend millions of dollars of its own money to renovate the Earl Fry North Course as well.  All it wanted from the City in exchange was an extension of its lease.

On Tuesday, Council finally approved the deal – a year and a half after Greenway first proposed it.

What was the hold-up?

The short answer is that, after the Golf Commission unanimously endorsed the project in August 2016, a new Council took office, and the Triumvirate that has been running the show since then insisted on throwing a bone to their union buddies.  Newly elected Vice Mayor Malia Vella personally got involved in the negotiations with Greenway, and the City hired an outside attorney to make sure the unions got what they wanted.

The result was that, in exchange for the lease extension, Greenway was required to sign a Project Labor Agreement with the operating engineers’ and laborers’ unions.  Under that agreement, Greenway’s construction crew – all 12 of them – will be obligated to join a union and pay union dues during the course of the work.   Moreover, if the PLA follows the typical form, the company itself will be obligated to run the job according to union work rules.

Chalk up another victory for organized labor, and for the politicians who depend upon its financial support in their quests for office.

But there the benefits end, and the costs begin.

Let’s start with the City.

Pressed by Mayor Trish Spencer, Recreation and Parks Director Amy Wooldridge told Council Tuesday that the cost to the City “directly attributable” to the PLA requirement was $120,000.  But this appears to understate the financial impact.

There is no question that the amended lease provides less rent to the City over the existing 20-year term than the original lease did.  Unfortunately, Ms. Wooldridge’s presentation was unclear on the amount:  one of her slides stated that the “City contribution” under the amended lease included $1.9 million “for four years of reduced rent”; a later slide stated that the “City contribution” included $1.15 million as “Lease Revenue offset.”  So we went to the underlying documents; here’s what they showed:

Term Original lease Amended lease
Years 1-4 (2013-2016) $75,000/year. $75,000/year.
Years 5-8 (2017-2020) 8% of gross up to $4M and
12% of gross over $4M
with $300,000 minimum.
$75,000/year.
Years 9-10 (2021-2022) 10% of gross up to $4M and 12% of gross over $4M
with $350,000 minimum.
$175,000/year.
Years 11-20 (2023-2032) 10% of gross up to $4M and
12% of gross over $4M
with $350,000 minimum.
8% of gross up to $4M and
12% of gross over $4M
(3% on lower margin items)
with $300,000 minimum.
Years 21-25 (2033-2037) 10% of gross up to $4M and 12% of gross over $4M
with $350,000 minimum.
10% of gross up to $4M and
12% of gross over $4M
(3% on lower margin items)
with $350,000 minimum.
Annual increase to minimum
amount based on Bay Area CPI.
Years 26-50 (2038-2063) City entitled to all golf revenue (lease expired). 10% of gross up to $4M and
12% of gross over $4M
(3% on lower margin items)
with $350,000 minimum.
Annual increase to minimum
amount based on Bay Area CPI.

If  you add up the numbers (and use the minimums), the City will get $1.25 million ($2.2 million minus $950,000) less in rent in the first 10 years and $500,000 ($3.5 million minus $3 million) less in rent in the second 10 years under the amended lease than it would have received under the original lease.

If we understood Ms. Wooldridge correctly, she regards only $250,000 of this loss of rent as “directly attributable” to the PLA requirement.  She didn’t explain, and we can’t figure out, how she derived this lower number.  So be it.  But then Ms. Wooldridge cut down the lost rent even further by subtracting $130,000 “in recognition [that] during this period of negotiations Greenway did significant work on the South Course on the storm drain system that wasn’t anticipated and really that benefits all of Bay Farm Island.”

With all due respect, this argument makes no sense.  The issue is the financial consequences to the City from insisting that Greenway give the unions a PLA.  Ms. Wooldridge appears to be saying that the lower revenue to be received by the City over the next 20 years should be offset by the value of work done by Greenway during the last year and a half – even though that work was not related to the North Course, the amended lease, or the PLA.  But if that is true, why not subtract the value of all of the work Greenway has done on the South Course since 2016 and argue that the PLA requirement costs the City nothing?

And one more thing – that Ms. Wooldridge never mentioned.

In May 2017, the City hired an attorney named Michael Vlaming to “assist” – the word is the one used by Assistant City Attorney Alan Cohen – “in the negotiations with Greenway Golf.”  Mr. Vlaming is a Vallejo-based lawyer who specializes in drafting PLAs between local governments and construction trades unions.  Indeed, he was the lawyer engaged by staff in 2015 to put together a PLA between the City of Alameda and the Building Trades Council of Alameda County (for which his firm was paid, according to Mr. Cohen, a fee of $41,791.52).

But this situation was different.  The City was going to be a party to the lease, not to the PLA.  Its own in-house legal staff was perfectly capable of negotiating a lease, and it didn’t need an outside lawyer to haggle over the terms of a side agreement between Greenway and the unions.  So who was Mr. Vlaming representing?  As far as we know, both of the parties to the PLA had their own counsel, and, presumably, if either of them wanted Mr. Vlaming’s legal expertise as well, they could have hired him themselves.  Or was Mr. Vlaming merely serving as a “facilitator” between the contracting parties?  If so, it surely was . . . generous of the City to provide his services.

The Merry-Go-Round tried to find out exactly what legal work Mr. Vlaming performed and who paid for it, but Assistant City Attorney Cohen declined to tell us.

Okay, one might say, it may have cost the City a few hundred thousand dollars to induce Greenway to enter into to a PLA – but look at all the benefits the City won for Alameda construction workers by getting the agreement!

Indeed, this was Councilwoman Marilyn Ezzy Ashcraft’s pitch at Tuesday’s meeting:

We’ve spent a lot of time on this Council talking about wanting jobs to come to Alameda, but well-paid jobs, and I don’t think that we should disparage the fact that these folks who are working to make this course a beautiful, lasting asset to our city are going to be paid union wages and benefits.  And this is something that in the Bay Area and this economy it’s especially important that people are making living wages, able to support themselves and their family, have medical coverage, that sort of thing . . . . I think we see this course will bring value to our City, and there’s no reason that the people who are helping bring that value aren’t paid and receive benefits so they can live here or wherever they live, in dignity.

Perhaps, in these comments, Ms. Ashcraft simply was indulging her penchant for pandering to potential supporters of her anticipated run for mayor.  (In case the “progressive” wing of the local Democratic party felt left out, she also included a paean – which we’ve omitted – to the Parkland, Florida high school students.)  But she misstated the case.

For one thing, as Ms. Wooldridge explained earlier in the meeting, Greenway’s construction crew consists of long-time employees who travel around the country to work on the company’s projects.  The PLA doesn’t create any “well-paid jobs” for Alamedans – it just provides more dues (from workers who live elsewhere) for the unions.  More importantly, Greenway promised from the beginning to pay its crew “prevailing” – i.e., union – wages for the North Course renovation.  The PLA doesn’t give these workers a raise – indeed, if anything, it causes them to take a pay cut, since they’ll now have to pay union dues.  And if the Greenway workers quit the union after the North Course renovation is complete – as they have the right to do – any union-run pension or retiree health plan is worthless to them.  But we’re sure that the 12 people on the Greenway crew appreciate Ms. Ashcraft’s concern for their “dignity.”

As for Greenway itself, we don’t suspect that it counts being forced into a PLA as a benefit.  The company had to pay its own attorneys to negotiate with the unions (and maybe Mr. Vlaming) over the terms of the agreement.  (According to Ms. Wooldridge, Greenway’s costs for attorneys’ fees “and some additional health care costs they may incur for their entire company” were $120,000.).  Moreover, the PLA undoubtedly will make the project more expensive to execute.  As we previously have reported, substantial academic research supports the conclusion that requiring a PLA increases construction costs in the range of 13-to-20 percent.

So it turns out that the only real beneficiaries of the PLA requirement are the construction trades unions – and the politicians who depend on them for campaign cash.  And the bucks aren’t insignificant:  Ms. Vella got $9,250 from construction trades unions in 2016, and what amounts to her “legal defense fund” received $2,000 from the sprinkler fitters’ union in December; Councilwoman Ashcraft took in $1,000 from the operating engineers’ union in 2016.  In addition, “Alamedans United,” the PAC promoting Ms. Vella and Ms. Ashcraft for Council, collected another $15,250 from construction trades unions in 2016.  The other member of the Triumvirate, Councilman Jim Oddie, got $6,850 in cash contributions from construction trades unions in 2014, and he has taken in $2,250 from the carpenters’ and electricians’ unions for his 2018 re-election campaign through the end of 2017.

(In case you were wondering:  Construction trades union contributions to Mayor Trish Spencer in 2014 or Councilman Frank Matarrese in 2016?  Nada.)

Now, we might have less of a problem with an outcome that benefits only the unions and their favorite politicians if the Council members who wanted to require a PLA had disclosed their desire openly and publicly at the outset.  But they didn’t.

Five months after the November 2016 election in which Ms. Vella was elected and Ms. Ashcraft re-elected to Council, Council held a closed-session meeting to talk about the Greenway lease.  Under the Brown Act, a legislative body is allowed to discuss a proposed real-estate transaction in closed session only if the discussion is limited to the price and terms of payment.  As then Attorney General Kamala Harris stated in an opinion letter issued in 2011, any discussion by the legislative body members of other deal terms must occur at a public meeting.

In this instance, it doesn’t appear that Council chose to abide by the Brown Act.  Since no minutes of closed-session meetings are published, we don’t know who said what.  But we do know that, at the next Golf Commission meeting, Greenway principal and chief operating officer Ken Campbell reported that the City had made a “request” for “Greenway to consider the feasibility of a possible project agreement to use union labor on the project.”  In fact, at Tuesday’s meeting, City Manager Jill Keimach confirmed that the PLA requirement was “based on previous discussion and direction by Council.”

We also know that the Council members who were pushing for the PLA weren’t content just with “discussing” it among themselves or “giving direction” to staff.

After the closed session, a sit-down was arranged between Greenway and representatives of Operating Engineers Local 3.  Ms. Wooldridge attended the meeting for the City.  But an elected City official also showed up – Vice Mayor Vella!

Needless to say, it was extraordinary for a sitting Council member to interject herself personally into negotiations between City staff and a third party over a real-estate transaction.  So what was Ms. Vella doing there?  We can’t imagine that she wanted to look over Ms. Wooldridge’s shoulder to ensure that the Rec/Park director followed her marching orders.  But her presence sent an unmistakable message that a Council member holding one of the four votes necessary to approve a lease amendment was supporting the union’s cause.

And there followed the decision – again, not openly discussed or publicly disclosed – to hire Mr. Vlaming to “assist” with the negotiations for the PLA.

All the while, the Golf Commission was waiting to see what had become of the proposal it had endorsed back in August 2016.  At the Commission’s September 2017 meeting, Mr. Campbell reported that, “[b]ased on the willingness of the unions and Greenway representatives to appreciate the uniqueness of the project, the parties have reached a tentative agreement on the primary terms of the PLA.”  He told the Commission that the “goal” was to present a proposed lease amendment to Council on October 17.

It didn’t happen.  The “complexities of the terms and proposal have required further review” by the parties’ lawyers, Mr. Campbell told the Golf Commission on November 14.  Two months later, on January 9, 2018, he reported that the lawyers had “completed review and drafts,” but one unspecified “final item on terms” remained to be resolved.  The lease amendment finally was presented to the Golf Commission on February 15.

We don’t know whether these extended negotiations resulted from demands by the unions for additional restrictions in the PLA – or by Greenway for additional concessions in the amended lease.  But there’s no evidence that the delay was caused by an effort to get a better project for the City or the users of the Golf Complex.

On Tuesday, Council ended up voting unanimously to approve the amended lease, and the air reeked of self-congratulation from all sides.  The Golf Complex probably isn’t a big deal for most Alamedans, nor should it be.  But the whole affair of the Greenway lease should trouble those concerned with how the current Council conducts the City’s business:  if our pro-labor Council members’ success in this instance enhances their confidence that they can operate behind closed doors to cater to their union allies, regardless of the cost to the City, what will they decide to do for an encore?

Sources:

Greenway lease: 2018-02-15 Ex. 1 to staff report – Original Lease Agreement2018-02-15 Ex. 2 to staff report – Lease Amendment2018-03-06 staff report2018-03-06 Presentation

Golf Commission meetings: 2016-08-23 G.C. minutes2017-09-12 G.C. minutes2017-11-14 G.C. minutes

Kamala Harris opinion: Cal. A.G. Op. 10-206

Campaign disclosure statements are available on the City website (http://docs.ci.alameda.ca.us/WebLink8/Browse.aspx?startid=310100&row=1&dbid=0)

About Robert Sullwold

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

5 Responses to Out of bounds

  1. Tawney says:

    I think every council meeting reeks of self congratulation among the 3.

  2. This is of concern Robert. Thank you for identifying the process and involvement of the various people. The actions of our current council appear to be a slippery slope at times, though a limited amount of people seem to care. Question. How does the current Golf Commission feel about using local unions that increase the costs and decrease the worker’s compensation? I’m not sure if I can answer that from your content here. I’m impressed that Greenway is willing to invest at the levels they are, thus I can understand the change in the payment structure to the city, but I sure hope someone is watching over the situation going forward. What matters to day though is that Tiger Woods is in the lead!!! 😉 Regards

  3. Steve Gerstle says:

    Public Works contracts out for much of its work. Are all of these contracts with companies that are wall-to-wall union? For example, was the cycle-track on Shoreline done with all union labor?

    Personally, as a union member, I find that my contribution of 1.75 percent of wages to my union is well worth the collective bargaining benefits that I receive. However, there are other issues raised here that are of concern.

  4. barbara thomas says:

    Ah, Chuck Corica is turning over at this point. He was so proud of how the Golf Course employees had rebuilt the course in the 1980’s, saving thousands. And making money for the City. Maybe we can cross-train our existing union employees, for example the union fire-fighters could do some greens work, or do police work, as in Sunnyvale.

  5. JohnP.TrumpisnotmyPresident. says:

    the very reason our golf course was in such poor shape was because the city tried to run a business that they had no idea how to run. the wrong type of trees were planted, the poor drainage was never addressed, the pro shop was mismanaged, and on and on.

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