Gateway Center: Kiss Your Assets Goodbye.

In October 1991 the Gateway Center at Brea Blvd. and Imperial was launched as one of Brea’s first RDA projects. On March 7, 2017 the City Council, acting as the Successor Agency, terminated 100% of the city’s interests in the center in exchange for a check in the amount of $7.8 million dollars.

But wait… there’s more. Brea had to pass this revenue on to the Orange County Auditor-Controller to pay off all taxing entities (other agencies having a right to a portion of the proceeds). The City netted only $1.2 million. I’ll explain later where it went.

Not such a good deal.

In simple terms, staff provided Council with their recommendations, backed by just a 5 page Memorandum by Keyser-Marston, extolling what a great deal this was.

Since 2012 we’ve received an average of $354K annually from rental income (subject to the same pay off to all taxing entities). This one time payout would generate around 3.5 years income.

Instead, why didn’t we opt to continue collecting annual rent? Our participation agreement ran another 30 years… until 2048. Rents would have more than doubled by then but Keyser-Marston left that out.

What staff and Keyser-Marston also failed to disclose to Council was that we had a 25% equity stake in the Gateway Center. It would be triggered by either a refinancing or a sale (full or partial) of the property.

In 2005 Watt-Craig Associates Limited Partnership, per the timeline provided by staff, “sold majority stake in ownership to AFL-CIO Building Investment Trust (AFL-CIO) but continues to retain a small portion of the partnership interest.”

Staff’s claim, when pressed on the matter, is that only a 100% sale would trigger a payout to the city. Watt-Craig retained a 1% stake in Gateway. Who was the rocket scientist that thought this was okay and that we should walk away from around $16.2 million?

Conservatively, the Gateway Center is worth about $80 million… you do the math. Termination of the city’s interest robbed us of $20 million if the property sold today.

Who knows how much our equity would be worth if we simply let it ride?

You can fool some of the people…

Did no one on Council see these red flags? No, because they assumed staff had provided the full scoop. The deception of Council was anchored in their belief that the property owner, Watt-Craig Associates LP, had opened the discussion of a termination agreement.

Not so, even though the staff report, the Keyser-Marston memorandum, the fancy always to be trusted PowerPoint presentation and the Successor Agency Resolution SA 2017-02 all stated otherwise, “The Owner is proposing the buyout of the Successor Agency’s interest…”

It was disclosed, early last week, that this process was initiated by our Director of Development, David Crabtree, presumably at the suggestion of City Manager Bill Gallardo. It was also disclosed that protracted negotiations followed which lead to staff’s recommendations.

From where I sit, this smacks of premeditation and reinforces the notion that this was all fabricated to generate the revenue needed to balance an otherwise upside-down budget (see below).

I’ve made a series of thorough CPRA requests for all communications and documents relating to the termination of our participation in the Gateway Center project. The City’s initial response last week overlooked numerous responsive documents and the City Clerk, Lillian Harris-Neal, has promised to provide them as quickly as she can.

gatewayFollow the money.

You can’t. As is the custom, the revenue was dumped into the General fund where it vanished into thin air. Well, sort of.

It had been determined that the FY2016-17 budget, thanks to declining sales tax revenue, was coming up short somewhere between $800K and $1M – an alarming dilemma for a city that had “always” balanced it’s budget.

Subsequently, unanticipated revenue miraculously offset the shortfall and… voila, the budget was balanced after all. I can’t help but wonder how many preceding “balanced” budgets benefitted from similar fiscal skullduggery.

A couple more scary thoughts.

Not one of Brea’s commissions or committees has a resident member with expertise in commercial real estate or the taxing authorities.

Staff has been careful to keep City Treasurer Rios, Planning Commissioners McGrade and Ullrich (both with deep experience in commercial real estate and the taxing authorities) as much in the dark as they have Council.

We own Embassy Suites and lease land. Staff is contemplating to sell off another “legacy “ asset!

Where does this leave us today?

In deep shite. We have a new budget about to be proposed in the face of continued revenue decline.

Cuts have been made, without clear validation as to how and where considering that the city’s “soft cost” approach to accounting fails to consider labor as a cost.

Many fees have been increased thanks to the city’s ability to calculate labor and overhead down to an hourly rate.

Hang on… am I the only one who sees the contradiction? The city needs to convert to a true cost accounting system and to stop trying to solve the reduced income situation by handing is off to taxpayers to pony up even more.

Time to put on the brakes!

A FY2018-19 operating budget would go into effect in about 47 days. I’ve seen no report from that new fancy special strategic budget oversight committee.

The City Treasurer, Rick Rios, who has leveraged California statutes governing the authority and scope of responsibilities of an elected City Treasurer to reconstitute the office’s role as fiscal watchdog, has yet to see a single page of a proposed budget.

It’s time to put a halt to City Staff’s Ready-Fire-Aim approach to managing city business.

I suggest that Council approves a 30 day emergency stay by employing the proposed operating budget for the month of June only.

This breathing room will allow for Council to give staff more finite instruction, for the Budget Oversight Committee to actually do some oversight and give the City Treasurer the time and opportunity to do the job we elected him to do.

rock the boat

Moore On The Downtown Parking Structure.

Roy MooreYesterday, Roy Moore, weighed in on the downtown parking structure and unfunded pension liabilities… tying them together in a most sensible way. With permission, here is the heart of Roy’s message.

BreaNet, Issue #708

If I may, I would like to comment on the proposed parking structure to be built behind the Tower Building on Super Block A. In January 1999 the City Council approved construction of the buildings on Super Blocks A and B. At that time I argued for a parking structure.

We could have built it for five million dollars with Redevelopment money without disruption to existing businesses. The Tower Building would not have been empty for nine years. I still support such a parking structure. The Council has approved the concept but still is struggling with how to pay for it. It is apparent that tapping city reserves will be necessary.

I would submit that before this decision is made the City Council first formulate how to fund Brea’s unfunded liabilities. This most likely would have to look to these same reserves for a possible solution. This is no small problem. CalPERS currently reports that as of June 30, 2013 Brea’s unfunded liabilities are $108 million.

Although much has been done in recent years requiring city employees to contribute toward their maximum to cover their pensions it does not appear that this will totally solve the problem over the next 25 years.

Here is my recommendation for a possible solution.  Brea’s landfill is an asset that I believe will generate revenues until at least 2040. The determinant on when to close the landfill is the height of the “trash mountain”.

There are two reserve funds as a result of the landfill.

The Capital Mitigation Improvement Fund (560 Fund) currently has a balance of $5.16 million. This fund was created by the $10.5 million payment from the Orange County Waste Management for the eight year extension of the landfill. I believe there will be at least two more extensions.

The original amount has already been reduced by 50% to make improvements to Valencia Avenue (valid use of funds), pay two solar bond payments (supposed to be paid from electricity savings) and the Birch Street medians.

The second landfill fund is the Community and Economic Development Fund (140 Fund) which currently has a balance of $3.48 million and results from revenues received for out-of-county trash deposits in our landfill at $1.50/ton. This amounts to in excess of one million dollars a year.

I recommend placing a large percentage (at least 50%) of these two funds (current balances and future growth) into a special unfunded liabilities account to earn interest and be used to periodically pay down our unfunded liabilities.

So what does this leave to fund a new parking structure?

Assume a structure for parking only, no affordable housing and a not-to-exceed cost of $9.0 million: 560 Fund – $2.5 million, 140 Fund – $1.2 million, 110 Fund (General Fund) – $3.0 million, Redevelopment funds – $3.8 million.

This adds up to a healthy $10.5 million.

Note: the redevelopment funds may not be available and depends upon the State Legislature approval of Governor Brown’s trailer bill. Using long term financing could make up the shortage using the annual growth in the 140 Fund to make the payments.

The bottom line is that it is possible to put in place a plan to cover our unfunded liabilities and also provide a new parking structure in the Downtown. How the financing is structured and whether any of the funds are a loan to the Downtown is up to Council.

For what it is worth that is my two cents on the subject. – Roy Moore

Moore on MadronaAs always, thanks Roy.

Brea Downtown Parking Structure.

Empty ParkingNot since the Madrona Project and the Drought Tolerant Rock Garden has there been a more divisive and misunderstood topic than building a parking structure on Superblock 1. It may all come to a head at last on June 16th when Council wades through the latest staff report and recommendations.

If the recent record setting discussion on Nextdoor (130 comments) is any indication, Breans have had little to consider but rumor and speculation. That’s about to change. On Tuesday evening the full staff report was posted on the city’s website. Tough to find, but I’ve downloaded it and you can get it here.

A Little History.

At their special meeting in April, Council reached consensus that it’s time to build the parking structure. With over a decade of meetings, closed door discussions, faltering negotiations, false starts and the loss of redevelopment funds designed to pay for it… Council finally drew a line in the sand.

With full agreement that the parking structure must provide a minimum of 300 additional spaces beyond those within the building’s footprint and setting a not-to-exceed limit on cost to build at $9 million bucks – Council ask staff to come back to them with answers to these three simple questions:

  • What parking structure design will best meet the public’s need?
  • How much will it cost to build?
  • Where will the funds come from to pay for it?

Sounds simple, right?

When you read the staff report you’ll likely be as shocked as I was.

Buried within the 50+ pages of cityspeak, hidden agendas, a blizzard of numbers that would boggle the mind of John Nash must be some answers. If you can find any, please post a comment here and share them with the rest of us.

If you came away with more questions than answers, I know I did, I hope you will step up and share them with Council on the 16th.

The only conclusion I am able to state with any certainty is this; somehow Council needs to back away from the politics and focus on building a sensible and affordable parking structure that serves the people first.

There is a lot more riding on this than simply solving a decade old problem.

Somewhere between $30 and $40 million dollars of private investment hinges upon Council making a prudent and expedient decision. Click here for a condensed presentation of what some of that investment would be.

New Improv

A novel idea?

From day one Council’s mantra has been, “Parking in downtown Brea will always be free.”

Free ParkingThe most contentious element in the equation has always centered around funding. The greatest objections have always been against spending General and 560 Funds.

The probability of ever getting our hands on even a fraction of the redevelopment money, millions, pilfered by the state remains uncertain.

Who besides me would be okay with paying a buck or two to use the new parking structure? Seriously, it’s cheaper than valet, faster than walking from Parking Structure 1. I’d even pay a couple of bucks a month on my water bill for a resident’s annual pass.

Okay… it’s just a thought.

Parting comment.

When you email Council or, better yet speak during Matters From The Audience, try to avoid hunting for the guilty parties, getting mired down in petty politics and making ad hominem attacks. This does not move the discussion forward, serves no useful purpose and will not advance any cause that benefits the community.

Take a stand. Make a difference. Contact A Council Member.

Addendum: June 15

Ask Council to be bold enough to ask the hard questions and demand truthful answers.

It would seem prudent (at least to me and several thousand of my closest friends and neighbors), considering all the facts that have emerged in recent days, that Council should: issue an RFP not-to-exceed $9 million for Option 2: purely parking, a trash facility suitable to supporting the food and beverage business and police annex.

No housing. No commercial. Simply the parking structure we’ve needed for many years.

Cost should be managed as follows:

  • $3.7 million from returned RDA
  • $1.5 million balance of Valencia Drive fund
  • $300 thousand from Gas Lamp Square

This remaining balance of $3.5 million Council may choose between funding with reserves or a bond. It will easily be REPAID via valet and cell tower revenue and the incremental increase in sales tax.

Net cost to city/tax payers is ZERO. How’s that for a parking structure plan?