Roper is retired executive vice president and chief financial officer at SAIC and lives in La Jolla. Wright is retired CEO of the San Diego Regional Economic Development Corp. and lives in San Diego. Garcia is a partner in Urban Interventions and lives in Bankers Hill.
Will Rogers said it best: “If you find yourself in a hole, stop digging!”
To San Diego’s mayor and City Council , with respect to the proposal to resolve only a portion of the 101 Ash Street building claims, we urge you to stop digging!
The city of San Diego is in a hole of its own creation — a hastily conceived real estate deal that has already cost the taxpayers tens of millions of dollars — and now the mayor is proposing to keep digging.
Case in point: the infamous 101 Ash Street office building, where we’ve discovered that the then-mayor and city staff misrepresented to the then-City Council the existing condition of the building before executing a 20-year deal to obtain it in 2017. No one had even performed the independent inspections that any San Diegan would do buying a home! They bought the aging building “as is,” claiming it only needed a $10,000 power wash before city employees would quickly move in.
No independent appraisal was performed and, as a result, the city overpaid for the building. City leaders promised San Diego taxpayers a net savings of $44 million in rent to avoid holding a public referendum to approve a long-term debt issuance, and they hurriedly entered into an expensive lease-to-own transaction from a newly formed entity that obscured the identities of the parties to the transaction.
The City Council then decided to appropriate funds for an extensive remodel that cost an extra $30 million, due to obsolete building systems. That work unleashed encapsulated asbestos and delayed the move-in by employees. After nearly three years, employees began moving in, only to have the county health authorities declare the building unfit for occupancy due to high levels of asbestos.
In the meantime, the city had paid out $23 million in lease payments for an empty building. Belatedly, the city filed a lawsuit asking to stop the payments until the building could be made fit for occupancy. Of course, the special purpose entity that “sold” the building to the city, and the financial entity that funded the transaction, filed counterclaims against the city for nonpayment and violation of its lease-to-own contract.
And more lawsuits flew — from a citizen claiming that the lease-to-own transaction violated the California Constitution and thus seeking to void the lease-to-own contract, and from contractors, contractors’ employees and city employees who claimed that they were harmed by the unsafe environment. And then legal discovery found that a real estate broker who claimed to be working pro bono for the city was actually paid $4.4 million in secret arrangements by the property sellers. A pretty deep hole. And the city is still digging.
Just last month, Mayor Todd Gloria tried to rush through a settlement that pays the developers and bankers $86 million, and lets them off the hook for any liability in this sordid mess. And this deal does not even begin to resolve how the citizen lawsuit will be addressed, let alone mention the resolution of myriad contractor and city employee lawsuits. Or any new lawsuits sure to be filed.
This hastily announced proposal contains no resolution for the ultimate rehabilitation or disposal of the office buildings, or for how the city intends to provide office space for Downtown city employees — the primary reason for acquiring the building in the first place.
Most importantly, this proposal only loosely defines the sources for the initial payments of $86 million, and a roughly similar amount for rehabilitation of the 101 Ash Street building, which will undoubtedly escalate over time. Simply put, the mayor wants the council to “borrow from Peter to pay Paul,” with no clear idea of how to ultimately repay Peter. Our very rough estimates say that the city could be on the hook for $300 million more before this is over.
In any event, city residents and taxpayers, who have grown weary of financial fiascoes that inevitably result in increased taxes and reduced city services, will become responsible for these and additional unknown claims and property costs.
Digging this hole is reminiscent of the irresponsible city employee pension underfunding scheme, followed by the ill-advised attempt to convert the pension plan to mitigate the problem, which only caused the multibillion-dollar shortfall to be much larger.
The city needs an independently derived master facilities plan, timetable and budget before we dig ourselves deeper into this financial morass.
Until then, the City Council should vote no on the proposed settlement agreement.
