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Hotel project is confusing mess

Until last week, I did not realize the extent to which it’s possible to tell the truth while at the same time mislead the public and the press. However, as a Pacific Grove resident following the city’s handling of Project Bella issues, I got a good lesson in omitting material facts during the hearing in which the City Council decided not to pursue reimbursement of costs from Project Bella’s developer.

Project Bella is the upscale hotel proposed to replace the current American Tin Cannery and parking lot — ATC for short —  a block from the aquarium. The 4.88-acre parcel was to become a 160-suite “world-class destination and innovative leader in conservation and sustainability,” with “state-of-the art design recycling vast amounts of water and energy,” including a “museum celebrating Pacific Grove’s extraordinary culture,” and providing “three hundred permanent high quality hotel jobs.” At least, that’s what the official Voter Guide said last spring in its “Argument In Favor of Measure X,” signed by two past mayors and the current PG mayor. Along with others who voted for Measure X, I was enthusiastic about this project and the revenue it would generate.

On April 19, 2016, PG residents voted 3,016 to 2,111 for Measure X, thereby rezoning the ATC property to allow hotel use. A city-commissioned fiscal report estimates an additional $3 million to $4 million revenue annually to city coffers. The ATC site is owned by an entity related to the Cannery Row Co. and is under an option to be leased for 99 years to a limited liability company with “Domaine” as part of its name.

The obfuscation begins with three limited liability companies (LLC), each with “Domaine” as part of their name.

  1. Domaine Hospitality Partners, LLC, is the Delaware company that proposed Project Bella and which sponsors the fancy Project Bella website. Domaine Hospitality Partners enchanted me, others, and the City Council with its promises for an upscale hotel. On February 17, 2016, the City Council voted unanimously to authorize the city manager to negotiate a master reimbursement agreement with Domaine Hospitality Partners, LLC to cover the city’s cost for more consultants, to accelerate completion of the city’s Local Coastal Plan (hereafter “the February agreement”). The February agreement was authorized but never signed.
  2. Domaine Pacific Grove, LLC, is also a Delaware company, reportedly owned by Domaine Hospitality Partners, LLC. Domaine Pacific Grove, LLC signed a reimbursement agreement with the city in June (hereafter “the June agreement”) but the City Council never authorized it and the only way to get a copy is to make a public records request. The June agreement differs from the February agreement in two material ways: [a] it does not require Domaine to pay for LCP acceleration costs, and [b] it is an agreement with Domaine Pacific Grove, LLC, instead of Domaine Hospitality Partners, LLC.
  3. Domaine Hospitality Partners, LLC is a recently formed California company. Except for having the same name, it appears unrelated to the Delaware Domaine Hospitality Partners, LLC and irrelevant to ongoing Project Bella issues.

Now let’s look at “omitting material facts.” The City Council agenda report for Feb. 1, 2017 states: “While City staff twice amended its agreement with EMC Planning [a private land use planning consulting business] to reflect the additional professional services required for the LCP effort, a reimbursement agreement for LCP costs was never reached with Domaine Hospitality.” That’s completely true. What the agenda report doesn’t disclose is that PG’s mayor signed the June agreement instead of the February agreement, although the City Council never authorized him to do so. The February agreement was authorized by the City Council, was with Domaine Hospitality Partners, LLC, and would have required Domaine to reimburse the city for LCP acceleration costs.

The June agreement was not authorized by the City Council, does not require reimbursement of LCP acceleration costs, and is with Domaine Pacific Grove, LLC. Because only the June agreement got signed, the agenda report can accurately state, “a reimbursement agreement for LCP costs was never reached with Domaine Hospitality.” Accurate, but omitting significant material facts.

The Feb. 1 agenda report recommends the council “direct staff not to pursue reimbursement from Domaine Hospitality for costs associated with the Local Coastal Plan.” Four reasons are given:

  1. “A reimbursement agreement for LCP costs was never reached with Domaine Hospitality.” As discussed above, this reason for not pursuing costs is misleading because the unauthorized June agreement was substituted for the authorized February agreement. The June agreement omitted the reimbursement requirement, and it was an agreement with Domaine Pacific Grove instead of Domaine Hospitality.
  2. Public policy: “Consideration should be given to the prudence of accepting 3rd-party contributions, particularly those from project applicants, to fund City efforts that create regulatory review policies/procedures such as the LCP.” This public policy reason for not pursuing reimbursement is contradicted by the February 17, 2016, agenda report, which states: “The proposed agreement is structured to ensure City independence throughout the effort, as the City alone decides on the scope of activities to be undertaken and the discretion to be exercised. The City shall be reimbursed for its effort, but has not delegated or impaired its judgment.” Last week’s agenda report does not explain why pursuing reimbursement from the project applicant didn’t pose a public policy issue in February 2016, but now it does.
  3. Consultant EMC did not accelerate the LCP and therefore should not be compensated for acceleration. The agenda report itself seems to contradict that rationale by stating the work EMC did in 2016 “would have occurred over a longer period of time spreading the expense over two fiscal years.” Consultant work that would otherwise take two years is clearly “accelerated” if completed in a few months. Moreover, the city paid EMC $163,000 for acceleration costs. This rationale for not seeking reimbursement is illogical.
  4. “A project application for Project Bella has not been submitted to the City.” That statement is true only if it refers to a “complete” project application. An incomplete project application was submitted in 2015. The city sent Domaine Pacific Grove, LLC a notice of incomplete application dated November 9, 2015. It informs Domaine that if the city “does not receive revised plans within 180 days from the date of this letter, the project will be considered withdrawn.” The language used, “will be considered withdrawn,” is mandatory language under legal construction theories. No revised plans were submitted, so the city deemed the project withdrawn in May 2016 (180 days after November 9). Therefore, it appears the June agreement was moot when signed.

Next, let’s look at implications for the city of Pacific Grove. Domaine Hospitality, Partners, LLC, the Delaware company, is said to hold the option for a 99-year lease on the ATC site. However, because it is not registered to do business in California, the city needs legal review to determine whether Domaine’s option for the 99-year lease is valid. If it’s not, Cannery Row or whoever owns the site and granted the lease, by virtue of Measure X passing, now enjoys a great increase in its commercial value. It can be leased to any hotel developer. We have no guarantee at all of a LEED Platinum hotel or even one in good taste.

There is also the matter of fairness to PG voters. City leaders signed the Voter Guide argument for Measure X describing a “world-class destination and innovative leader in conservation and sustainability.” It’s not the city leaders’ fault that such a project now seems unlikely, but I think voters should be given a second chance to vote now that the rezoning could result in a very different type of hotel. The voters could force a new election by gathering a sufficient number of signatures. Measure X was put on the ballot with 1,326 signatures. A subsequent ballot measure will require a similar number of signatures.

Last week’s 7-0 vote by the Pacific Grove City Council to accept the city manager’s recommendation “not to pursue reimbursement from Domaine Hospitality for costs associated with the Local Coastal Plan” makes no sense to me. It eliminates any possibility the city might recover those costs through future negotiation, even though it can’t recover the costs through the June agreement. More basically, the motion was not to pursue reimbursement from “Domaine Hospitality.” The costs were incurred for Domaine Pacific Grove, LLC, which is the applicant for Project Bella, not Domaine Hospitality

I believe all seven Pacific Grove City Council members are honest and none expects to benefit financially from the city paying $163,000 of public funds for expenses the public was told would be reimbursed by Domaine. However, it appears to me that city leaders are not getting accurate direction and advice from the city attorney. With the confusion over which entity the city has been dealing with, the altered and unauthorized June agreement that the mayor signed (with the city attorney’s approval for form), and the circumstances that have changed since the voters approved the rezoning, I recommend the city retain independent legal counsel. We need to sort out the various Domaine entities, the status of the lease on the now rezoned ATC parcel, the city’s obligation to voters who were misled, and ways to remedy the situation the city now finds itself in.

Jane Haines is a retired lawyer who lives in Pacific Grove.

Comments on this entry are closed.

  • Bob Coble February 6, 2017, 10:56 am

    I agree that my home town, Pacific Grove, needs a smarter lawyer. However, it should also recall the mayor if he won’t resign, and perhaps the entire city council (well, those who misled the city in the first place) for foisting the Bella Project on the residents without properly vetting the developers.

    • john moore February 6, 2017, 12:01 pm

      I agree that Kampe and his council majority should be recalled, they never fail to fail. Two time council member, Dr. Dan Davis(Phd Mathematics, Cal Tech etc. etc.) should be encouraged to replace Kampe as mayor. He could put together a coalition that could resurrect Pacific Grove.

  • Jason Reed February 6, 2017, 11:16 am

    Wow!

  • Kristina Baer February 6, 2017, 11:21 am

    Jane,
    I am not a resident of Pacific Grove, however I’ve been following the ups and downs of this project, realizing that “all is not as it seems” re: the various agreements and management entities involved. I hope your comment and analysis will be published and made broadly available to the community.

    Once again, by publishing your in-depth commentary, the MBP is providing a much-needed service for which it deserves broad and wide recognition.

    Thanks.

  • Dan Turner February 6, 2017, 11:38 am

    These (the various Domainers) are obviously flim-flam artists. People of that type are very smart, in a sneaky, integrity-less manner, and I agree w/Jane that the only way to protect yourself from those sorts of knaves is with a smart lawyer. Or, a whole big legal firm of smart lawyers. Good luck, PG.

  • Luke Coletti February 6, 2017, 12:24 pm

    Jane mentions the official Voter Guide and the “Argument In Favor of Measure X”. However, she fails to mention my REBUTTAL TO ARGUMENT IN FAVOR OF MEASURE X, which was also included in the official Voter Guide (see text and link below).

    The subject property should not be rezoned until a new water source is available to Pacific Grove, which obtains water from California American Water Company (Cal-Am). Cal-Am is subject to a Cease and Desist Order (CDO) from the state of California, which ordered it to terminate all unlawful diversions from the Carmel River. The CDO also prohibits any intensification of water use at existing service addresses resulting from a change in zoning. The Bella Hotel zoning change and proposed 160 rooms and suites (divisible into 225 separate rooms, along with restaurants and retail) will surely result in an intensification of water use compared to the current use.

    Since being notified by the State in 1995, Cal-Am has continued to take substantially more water from the Carmel River than their license allows. This has left the river in ruin. Citizens have saved water to offset the effects of the drought and the impending CDO deadline, only to face rate increases so that Cal-Am can make up for lost billings.

    Clearly, the Bella developers feel assured that in spite of the CDO they can use more water. Additional water use could trigger further mandated cutbacks and yet the City and Water District persist with their dishonest water entitlement scheme. Bella developers get more water while we conserve and pay more. The argument in favor is silent about water but you shouldn’t be. A NO vote on Measure X is a YES vote for honest water.

    http://www.cityofpacificgrove.org/sites/default/files/general-documents/city-clerk/measure-x-voter-guide.pdf

  • Po February 6, 2017, 12:31 pm

    Thank you for this, Jane.
    As the french say, there is angouille sous roche…perhaps many angouilles even.
    The whole hotel deal sounded very fishy to me from the start. My main concern was water, and the replies and the promises did not make sense to me, recycling water was not inexpensive, especially for such a water guzzling project. Nor did the jobs promised make sense. Nor the claim that traffic would not be impacted. It sounded like we were being told exactly what we wanted to hear, and it sounded too as if the developers had a neverending budget where cost was not an issue.
    The speed at which the path was being driven told me that the city was complicit in the obfuscation and had its mind already made up in spite of the lack of clarifications about all of those issues.
    It seems like an attempt is being made to temper down any responsibility our elected officials hold in this fiasco by choosing to lose money on this deal rather than pursue repayment it at the risk of exposing themselves.

  • bill leone February 6, 2017, 12:38 pm

    While you’re at it Pagrovians, I suggest you also take a look at what has happened to your attempt to initiate campaign finance reform, which is at the heart of your problems. Any attempts to prevent private interests from raiding your public resources will be frustrated as long as you allow Fat Cats to finance sleaze-ball politicians.

    • john moore February 6, 2017, 2:29 pm

      PG has strict finance laws. In PG, everything is decided and dictated by the unions. The unions select and own the city atty. and city manager. The goal of Pacific Grove government by this group is to create million dollar pensions for the unions and staff(the city atty does not receive a city pension just tons of legal fees). As just two facts supporting my premise: A recent letter from the pension administrator noted that pensions for PG retired police officers are 25% higher than any other city in the county. In 2015 the pension administrator began adding an annual cost because of each city or county pension deficit; in the entire state, PG’s pension deficit was 600% higher than the next worst city or county based on population.(yes, 600%).
      PG now pays about 28% of its tax revenues on annual pension costs, but continues to add to its pension deficits by about $3M a year in a good year.

    • Dan Miller February 6, 2017, 2:46 pm

      That was a debacle. I was the only one on the council who voted against it. It had been crafted years ago and no one seemed to have a problem with it. Then, all of a sudden, unnamed council people told the city attorney they wanted it changed. If memory serves me Laredo’s son did that one. Straight out of law school and he is making $275 an hour when his dad throws him work for the city.

      • Dan Miller February 6, 2017, 2:47 pm

        In reply to Bill’s statement on campaign reform.

  • Jean February 6, 2017, 12:39 pm

    A commenter to a recent article in the Partisan wrote that the PG City Attorney’s latest professional services agreement was modified to require City Manager direction of all work he was to perform. Is this accurate? If so, it’s absurd, as Counsel works directly for the City Council. The Council cannot shirk its legal duty or responsibility by creating an intermediary in the City Manager. No attorney would accept this arrangement. Here, however, the problem is the Council, not its attorney.

    • john moore February 6, 2017, 1:40 pm

      It is accurate, and the city atty. and the city manager crafted the agreement. Initially it had a provision that granted the city atty. immunity for any negligence. I pointed out that such a provision violated the Ca. Rules of Professional Responsibility and they removed it, but left in the provision that the city manager would decide referrals to the city atty. Keep in mind that the city atty is a part time contract atty.. That can’t and does not work because only a lawyer can decide in the first instance whether further legal analysis is required. PG needs a full time contract city atty. Contract because if a city atty. is in the city pension plan, that conflict is ruinous.

      The benefit to the city atty. of the city manager referral system, is that it provides a defense to any negligence claim, that he wasn’t properly directed by the city manager. Any “part time” city atty system has that flaw. The morning mail and the reports by all departments must be reviewed by the city atty. on a daily basis.

  • Helen Ogden February 6, 2017, 2:13 pm

    I voted against it. Sensed something ‘fishy’ from the start. One day as I was entering the PG Natural History Museum, the promoter had a table set up outside and urged me to vote YES. I told him I had already voted NO. He pressed on and asked me to ask my friends to vote YES. Moe Ammar was there with him and warned him off by telling him that I have my own opinions, and frequently write letters to the editor of the Monterey Herald. That was the end of that.

  • john moore February 6, 2017, 2:18 pm

    Luke makes excellent points. Dave Laredo is the part time contract city atty. for PG. He is also the lawyer for The Water Management District(and the Transit System). PG conspired with the Water Management District to provide water right away for the Bella. Luke contacted the State Water Agencies and revealed the scam. As a result of Luke’s work, the Water Agency reaffirmed that there will be no new hook ups until the CDO is lifted(which will be years, if ever). Once the Water resources Board rejected the water-for-the-Bella scam, Bella was no longer willing to finance the effort to transfer ocean project decisions to PG, because that created a significant delay and an inability to obtain financing. If the water scam had worked, the Bella people would be more than willing to finance the local control of ocean projects.
    FYI, the Bella re-zone is inconsistent with the PG general plan and would never be approved except by a PG controlled entity, tho still illegal.

  • Dan Miller February 6, 2017, 2:42 pm

    The amazing thing is the city council has refused to even ask for RFP’s for City Attorney for years. They just keep giving him what he wants and his mistakes are mounting up as are the costs to the public. When I was on the MST board we did an RFP and Laredo agreed to work for $100 an hour less then he does for PG.

  • john moore February 6, 2017, 4:42 pm

    In my experience, the ATP owners will fight like hell to keep the new hotel zoning. It is an incredible location. I opposed it because the quality advertised was not part of the new zoning, however it is legally possible to obtain the owners promise of a quality hotel and that should be done.

    On the other hand, the current attempt by the city to aid the owner of the small parcel adjacent to the Holman building for a projected 125 room hotel, a 4000 sq ft restaurant. and conference center is a great threat to the future of downtown Pacific Grove. The owner has a right to build a hotel, but not a hotel that is at least 75 rooms too large in this critical area. All of the access roads are one lane each way, The project will create gridlock and will utilize the public parking for several blocks. It is too be wedged between Lighthouse and Central right across the street from the public library. In my view this project must be substantially downsized and because it requires a “use permit” the city has that power as a condition of the building permit.

    Of the two hotel projects, the Bella is far better for Pacific Grove because it is located away from the city center and will replace the ATC, which is not sustainable. But the Quality must be as promised, no matter what.

  • Karl Pallastrini February 6, 2017, 7:36 pm

    Looks like Pacific Grove and Seaside are in a similar life boat. Both cities were so anxious to add dollars to the city coffers that they did not pay attention to the details, in which the devil is usually found. Both cities had the good intentions to solve revenues issues. A primary responsibility of the City Council (in my humble opinion) is to protect the assets of the citizens. It is interesting that legal guidance for both cities, for whatever reason, is troubling. There has to be rock solid checks and balances when a public entity ventures into the private sector. The legal costs are worth the investment, providing that the attorney(s) involved are paying attention, and actually know what they are doing. City taxpayers deserve no less. Part-time city attorneys are perceived as a bargain and effective for most city matters. Both Bella and Monterey Downs suggest that a very high level of expertise is in order to protect the City. If the part-time city attorneys do not have the experience, time, or expertise in these public/private sector adventures, then…by all means…a contract for services is in order to get the best possible representation in managing high dollar projects. You can be sure that the developers and their legals are looking at the cities as spiders approaching a fly.

  • MJB February 6, 2017, 11:46 pm

    If “the unauthorized June agreement was substituted for the authorized February agreement,” an obvious question would be, substituted by whom?