RAISING THE RENT ON MONTEREY BAY AQUARIUM IS PENNY WISE, POUND STUPID
You likely have read of the city of Pacific Grove’s attempt to levy an admissions tax on the Monterey Bay Aquarium. This occurs although the entrance to the aquarium is in Monterey and less than half of the aquarium is actually in Pacific Grove. But the aquarium has been so successful that public officials could not resist the lure of robust sales of entrance fees. All that cash is changing hands – why not get some for cash-strapped Pacific Grove?
Now it turns out that Pacific Grove is not the only city with avaricious impulses. The city of Monterey has now undertaken to raise the nominal rent ($1 per year) charged for the aquarium’s use of the “tidelands” portion of the property – the rocks and ocean that border the aquarium’s main building and to which the aquarium provides public access where none existed before. To that end, the Monterey City Council will hear a recommendation by staff on Tuesday Aug. 16 to employ an appraiser for the magnanimous fee of $31,500 to determine fair market rent for this tidelands property.
For the first time in 35 years, the city seeks to act on a lease provision allowing for review of the $1 rent every five years. It seems like when there is some cash ringing the registers, Monterey wants to “get me some” too. Of course, all that aquarium cash is plowed back into the costs of operation, education, and research, so it is hardly excess or available for other purposes. Not to mention the gazillion dollars the aquarium has brought to the Peninsula in the past 35 years.
There is, of course, more behind the scenes (there always is) than an unused, poorly drafted lease provision. For several years during the council’s long overdue upgrade of the wharf and waterfront leases, the wharf merchants and the Yacht Club have complained that they were being treated unfairly because the Aquarium was only paying $1 per year.
The comparison is absurd, however. The aquarium is a non-profit, public benefit corporation that owns the majority of the land it occupies. Pointing the finger are private vendors and a private club that own none of the land they occupy and operate either for profit or the benefit of private members only. The wharf merchants still pay less than fair market rent and have been subsidized for 50 years by the public. The Yacht Club is a non-profit mutual benefit corporation, whose use and activities benefit only its private members whose dues have been subsidized for 20 years by the city.
It is possible that the public, the council, and staff do not realize that the aquarium purchased the majority of land it uses outright and in fee from the former owners of the derelict Hovden Cannery, which occupied the site for many years. It is unknown whether Hovden paid any rent at all for the tidelands property around the fringe of the cannery. But some council members and the city staff, unaware of the institutional history of city and state involvement in the development of our world class aquarium, have decided to take a run at a piece of the aquarium’s non-profit pie despite the fact that the tidelands use there is only around the fringe, and greatly enhances public access to the bay at no cost to the public.
An examination of the facts is in order. Monterey entered into a written lease with Monterey Bay Aquarium (“MBA”) on March 10, 1981, for a term of 50 years for the purpose of creation of an aquarium and related research and educational activities. Characteristic of the city’s penchant for using leases drafted by the city attorney rather than a competent real estate lawyer, the lease is almost entirely boilerplate and is notable only for its brevity and unprofessional presentation. The only three paragraphs specifically tailored to this unique transaction involved one sentence for a 50-year term, identification of the use, and the following provision for rent:
- Rent: Lessee agrees to pay the sum of ONE DOLLAR ($1.00) per year as rent. Said rental amount shall be reviewed not less than every five (5) years in accordance with Monterey City Charter section 6.8 and said amount may be adjusted as set forth therein. In no case shall said rental amount be less than ONE DOLLAR ($1.00).
Nowhere in the lease is the concept of “fair market rent” mentioned. Section 6.8 of the City Charter no longer exists, and there is nothing in the lease suggesting that a successor ordinance will apply. All section 6.8 said was that a three- arbitrator process would be employed if the parties could not agree on rent – but 6.8 says nothing whatsoever about “fair market rent.” So there is “no there there” regarding a standard or criteria “set forth therein.”
It is a well understood and a universal rule of law that any ambiguity or confusion in a written document is construed against the drafter. That is the city. So what is the criteria for adjusting the rent? Cost of living? Assuming, for example, that the cost of living has doubled since 1981, a generous interpretation of this lease provision could increase the rent to $2 per year. But that’s pretty nonsensical, isn’t it? No less nonsensical would be to claim “highest and best use” or “fair market rent” when no such standard is alluded to in the lease.
Monterey enticed the aquarium development in 1981 with nominal rent for the tidelands, and now wants to renege when the aquarium has been too successful.
It is possible that city staff thinks that a new charter provision, section 6.4, applies by default of former section 6.8. That is contrary to the rules of interpretation, as stated above, but more importantly, 6.4 has no application to this pre-existing lease. Section 6.4 obligates the city to make all leases at fair market rent (a provision that the City Council has very belatedly begun to honor), but it has no application to pre-existing leases. A legislative act cannot alter the terms of an existing contract or lease. And it cannot supply a standard where none existed before.
So why would the city spend $31,500 for an appraisal when fair market rent is inapplicable to the aquarium lease? The appraiser would reach the same conclusion if given all the facts, as appraisers are bound to accommodate the actual circumstances and constraints of a given property in making a professional appraisal. It is difficult to imagine that any honest appraiser would come to any other conclusion but that the appropriate rental for these minor tidelands used by the aquarium is, and will continue to be, $1 per year.
Such a waste of money is difficult to comprehend. It will take some 300 years for the city to recoup the cost of this appraisal from the aquarium. But the precise language of this lease and the charter provision are only part of the reason the city has no legal basis to increase the tidelands rent by any appreciable amount. There is also state legislation and opinion/action of the State Lands Commission to consider.
On March 25, 1980, the State Lands Commission, with jurisdiction over all the tidelands granted to the City in 1919 and earlier, specifically found that the aquarium would provide a statewide public benefit and was therefore exempt from a prohibition of commercial revenue producing activities on the shore. It said that the proceeds for the public benefit activities conducted at the aquarium are not “profits” and are instead revenues needed to cover non-profit operating expenses. That was true then – and it is true now.
Also in 1980, the California Legislature passed a bill specifically authorizing the lease (which was to be at nominal rent), and that legislation remains in effect. On Aug, 29, 1986, then-City Attorney Bill Marsh confirmed in a letter to the State Lands Commission that:
“…the Monterey City Council decided that the overall benefits, both educational and economic, were significant and far outweighed any rent the City might anticipate from a lease.”
On Nov. 4, 1986, the State Lands Commission endorsed the lease (specifically describing the $1/yr rent) as in accordance with the state grant of tidelands property to the city of Monterey, and that “any rental derived by the City from the lease shall be deposited in the City’s Tidelands Trust Funds” to be expendable only for state-wide purposes…” (emphasis supplied). The commission also specifically found “That said lease is in the best interest of the State.”
On Aug, 13, 1992, then-City Property Manager Bob Humel wrote to the commission in support of the aquarium’s application to expand the facility with construction of a new wing (largely on tidelands property), confirming that the aquarium had “proven to be of significant value to the City, State and even a broader spectrum of visitors from other areas.”
It would appear that the city staff is ignorant of, or chooses to ignore, this written history and the acts and opinions of the state of California. Any action to alter the terms and rent of this lease would require consent of the State Lands Commission and an act of the Legislature. Such consent is most unlikely.
The staff report recommending this foolish expenditure addresses none of these issues. All it says is that an appraisal can be done, which is true. But why? And it says nothing about the likelihood of expensive litigation nor the black eye the city would get for the blatant appearance of greed and of reneging on its repeated pronouncements that the benefits delivered by the aquarium “far outweigh any rent” the city might receive. Has that changed?
And as usual, the staff report provides no context to evaluate tidelands rent. El Torito pays peanuts. Bubba Gump’s and the Fish Hopper pay more (they occupy more of the tidelands), but not significantly so compared to the rental value of the land and buildings they occupy. If the prospect of a rental rate of $100,000 per year were remotely possible, then perhaps the perfidy of the city could be explained, even if it could not be excused. But, even then, the state says it must only go to “state-wide purposes,” not the Monterey coffers. So what’s the point?
We could say the appraisal is a fool’s errand, a complete waste of money that could be spent to other useful purposes in our new Waterfront Master Plan. But it is also an embarrassment to our citizens that displays ingratitude for the massive economic and cultural benefits that the aquarium has bestowed on our community.
Let the council know on Tuesday (afternoon agenda) that we don’t want to be a party to biting the hand that feeds you.
Willard P. McCrone is a retired lawyer and former member of the Monterey Planning Commission. His research and writings led the City Council to start reforming leasing practices at the city-owned Fisherman’s Wharf, where numerous longtime leaseholders have reaped large profits by subleasing wharf space with no benefit accruing to the city.