Council Special Meeting

MINUTES CITY COUNCIL SPECIAL MEETING CITY OF MONTEREY Wednesday, March 23, 2011 4:00 - 5:30 p.m. 7:00 - 11:00 p.m. COUNCIL CHAMBER, FEW MEMORIAL HALL OF RECORDS MONTEREY, CALIFORNIA Councilmembers Present: Councilmembers Downey, Haferman, Selfridge, Sollecito, Della Sala Absent: None City Staff City Manager, Assistant City Manager, City Attorney, Assistant Director Present: Plans and Public Works, Chief of Planning, Engineering, & Environmental Co, Police Chief, Community Services Director, Recreation & Community Services Director, Housing & Property Manager, Senior Assistant City Clerk CALL TO ORDER Mayor Della Sala called the meeting to order at 4:03 p.m., noting that staff recommendation for the evening's Redevelopment Agency item is to continue it to the April 5th Meeting. Adjourn to Redevelopment Agency 1. Receive Report and Recommendation to Authorize $102,000 Housing Set-Aside Funds to Fund Six (6) Community Service Grants for Non-profit Organizations providing Housing Services in FY 2011/2012. (<name_dept> - <number_series>) Action: Continued to April 5, 2011 On a motion by Councilmember Downey, seconded by Councilmember Sollecito, and carried by the following vote, the City Council continued this item to the April 5, 2011 meeting. AYES: 5 COUNCILMEMBERS: Downey, Haferman, Selfridge, Sollecito, Della Sala NOES: 0 COUNCILMEMBERS: None ABSENT: 0 COUNCILMEMBERS: None ABSTAIN: 0 COUNCILMEMBERS: None RECUSED: 0 COUNCILMEMBERS: None Adjourn to City Council PUBLIC COMMENTS Mayor Della Sala opened public comment on items not on the agenda and seeing no requests to speak closed public comments. STUDY SESSION 2. Receive Report and Consider Public Testimony Regarding the Fisherman's Wharf and Wharf II Leases (City Attorney - 704-07) Action: Received reports and public testimony City Attorney Mall introduced the item, stating that reports presented tonight are based on lease decisions made decades ago and opined that she has not found any basis of corruption or City Council Minutes Wednesday, March 23, 2011 fraud from the actions taken by previous Councils and that could be acted on legally in court to change the existing leases. Housing and Property Manager Marvin stated his interpretation is that the existing wharf leases are valid and were properly negotiated, stressing that the City went to arbitration to determine what fair market rent was for several concessions. Mr. Marvin asked the Council to work with leases as written and to focus on the future, citing the need to develop policies for addressing all aspects of lease negotiations and management. Mr. Marvin displayed lists of Wharf 1 and 2 leases indicating those that are currently on a monthly basis and those that are about to expire. Mr. Marvin stated the City needs to start now to prepare itself for those future lease negotiations by conducting a fair market rent analysis, developing policies that are compliant with the City's Charter, and developing a model to be used for all lease negotiations. Mr. Marvin added that the update to the Wharf Master Plan is also part of this preparation. Mr. McCrone provided the Council with a report, opining that the tidelands and wharf buildings belong to the public and based on his opinions the public is not getting a fair return on these properties. Mr. McCrone provided the Council with a history on the tidelands and wharf. Mr. McCrone stated he does not have to prove in court corruption or fraud in the past, only that the City did not get adequate revenue for the public's property. Mr. McCrone stated that the City does not believe it owns the wharf buildings and therefore uses fair market rent for unimproved land. Mr. McCrone stated the City does own the buildings and should be using fair market value for ground leases and that that is one reason why the City is not getting a fair return on these properties. Mr. McCrone compared similar property leases in Santa Cruz, indicating that the City should be getting almost twice the revenues it currently receives. Mr. McCrone indicated the City also loses money by paying all common area maintenance (CAM) charges and by not passing all or a portion of the CAM charges on to its concessionaires. In addition, Mr. McCrone stated that the City pays for rest room maintenance, garbage, and other services that are not passed on to wharf concessionaires. Mr. McCrone stated that approval of 50-year leases and the selling of subleases for profit where the City gets no consideration also does not give the public a fair return. Mr. McCrone projected in comparison that by using fair market value for ground leases, instead of for unimproved land, the City could be missing approximately $2.6 million a year. Mr. McCrone closed by providing a list of possible legal actions the City or others could take to rectify the current situation. Mr. Boustani, the City's outside attorney on this matter, stated that the issue is not that the City is not getting a fair return on these leases. Mr. Boustani stated the issues are who owns the wharf buildings and does the City have the legal power to change the existing contractual obligations. Mr. Boustani stated that in his opinion, and in the opinion of many well-known real estate attorneys with which he consulted, the City does not own the wharf buildings. Mr. Boustani stated that if the City made a mistake decades ago, that that is not grounds for terminating a lease. He stressed that looking narrowly at the revenue income is not looking at the entirety of the lease transaction. Mr. Boustani indicated that past and current Councils look at revenues as well as and other non-monetary reasons or conditions in making a determination that the lease benefits the public. Mr. Boustani stated that every attorney he showed this issue to unanimously stated the buildings are owned by the tenants and can be taken down by the tenant after the expiration of the lease. In regards to litigation, Mr. Boustani stated that this case would have been difficult in 1992, but in 2011 it would be more difficult and very expensive. Mr. Boustani closed by stressing litigation brings with it other risks as well, citing in example that the City could wind up owning the buildings and not being able to receive higher rents and that the litigation and appeal costs for over 30 cases could be prohibitive. Mr. McCrone and Mr. Boustani responded to Council questions on removal of wharf buildings and whether the City could win in court. Councilmember Downey stated the Council has talked about working on each wharf lease as they expire. Mayor Della Sala thanked both attorneys, noting that the Council is not making any lease or litigation decisions today. Councilmember Haferman stated the Council is looking at this matter seriously and indicated that the City released Mr. Boustani's confidential report as part of in the agenda report in order to share with 2 City Council Minutes Wednesday, March 23, 2011 the public those legal opinions. Mayor Della Sala opened public comment on this item. Bill Conners, Monterey City Attorney for 25 years, stated Mr. McCrone is wrong and provided answers to questions raised by Mr. McCrone. He stated that one consideration for wharf leases was that the pilings under the wharves were rotten and that concessionaires were given more or less consideration in their lease based on the type of pilings that they used to replace the rotted pillings, noting that those who installed concrete pillings were given more consideration in order to amortize their expenses. Mr. Conners stressed that the City went to arbitration and was forced to use the fair market rent as determined by that arbitration. Mr. Conners emphasized that there was no fraud and that lease negotiations were conducted legally and with input from the public and from people in the real estate industry. Mr. Conners noted the statute for making changes to these leases has long expired. He concurred with Mr. Boustani's opinion that the City only owns the tidelands and not the wharf buildings. Mr. Conners stressed that there was always a municipal purpose used to approve leases, citing the Monterey Bay Aquarium as an example of a cheap lease that financially is in the best interest of the public. Retired Councilmember Theresa Canepa stated she was offended by statements alleging past Councils failed to get a good return on the public's property. She stressed the City does not own the buildings on the wharf and that the wharves are like a city, comparing the City's maintenance of it to the City's maintenance of public streets. Joe Headley, representing the Monterey Peninsula Yacht Club, asked the Council as it develops a model for future lease negotiations create a different model for non-profit wharf concessions. Mr. Headley stated non- profits are different from commercial businesses and the City should not use the same market rate for non-profits as this takes money from the non-profits that they could put back into the community. In example, he noted that the Yacht Club brings $1.9 million to the local economy and generates $100,000 of transient occupancy tax. Mr. Headley stated the Yacht Club lease will soon expire and asks the Council for an expedited review. Sam Balesteri spoke out against Mr. McCrone's opinions, especially the one in regards to terminating his lease. Anthony Lombardo, representing Monterey Fish and Shake family concessions, opined that the City does not own the wharf buildings and concurred with many of the opinions in Mr. Boustani's report. He stated the City should work on the leases as they expire and doing otherwise could have the potential for the City to lose a lot of money. Mr. Lombardo provided a comparison of lease rates for Monterey Fish here and in San Francisco, indicating that Monterey actually receives more rental revenue from Monterey Fish for a smaller, older facility than the facility in San Francisco. Donald G. Hubbard, representing Surfside Inc. stated the Rogue building is separate and distinct from the wharf leases; it is not a tidelands lease. He indicated that one Rogue building lease included provisions for that building to revert back to the City upon termination of the lease. Mr. Hubbard stressed there were no sweetheart deals and any allegations to that effect are without basis in fact and are defamatory and should be disregarded. Barbara Bass Evans urged the Council to spend time to unravel this issue and protect the interests of the public. Seeing no further requests to speak Mayor Della Sala closed public comment on this item. City Manager Meurer stated he worked in Public Works at the time the pillings were rotten, noting that this situation started a long journey to improve the wharves. Mr. Meurer stressed that 1991 was also the beginning of a new era when the Council turned its vision to things like the Recreation Trail, San Carlos Beach, Catellus, and the Neighborhood Improvement Program while still maintaining a financially stable City. Mr. Meurer stated that in the future the Council will decide issues like does the City continue to support the fishing industry and the Yacht Club and what will be done with the wharf leases. Mr. Meurer expressed his opinion that looking backwards is not productive. He stated the City has a lot do in the future and can put the public 3  City Council Minutes Wednesday, March 23, 2011 lands to work for the public in the future by looking and moving forward. Councilmember Downey stated tideland leases appear to be specialty real estate issues and indicated the Council may need to consult an outside attorney when it discusses these issues. City Attorney Mall added that the City normally uses the California State Lands Commission in situations like these. Mr. Meurer stated that when Council begins its process that Council would first give staff policy directions and that hiring outside consultants could be one of those directions. Councilmember Downey thanked Mr. McCrone for bringing this issue to the attention of the Council and Mayor Della Sala thanked the public for their comments. REDEVELOPMENT AGENCY - PUBLIC APPEARANCE 3. Receive Report and Recommendation to Authorize $102,000 Housing Set-Aside Funds to Fund Six (6) Community Service Grants for Non-profit Organizations providing Housing Services in FY 2011/2012. (Plans & Public Works - 406-05) Action: In the afternoon session the Redevelopment Agency continued this item to the April 5, 2011 Meeting and adjourned the evening session of this meeting ADJOURNMENT Mayor Della Sala adjourned the meeting at 6:05 p.m. Respectfully Submitted, Approved, /s/ /s/ Catherine A. Raynor Chuck Della Sala Senior Assistant City Clerk Mayor 4