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IMG_0690Monterey City Councilman Timothy Barrett frequently aligns with colleagues Libby Downey and Alan Haffa but has taken a sharp turn to oppose their effort to reform the city’s archaic leasing policies for the city-owned Fisherman’s Wharf.

Barrett has distributed what he is calling an “information paper” to argue essentially that the city treats commercial tenants at the wharf unfairly even though several are operating under below-market rental agreements negotiated decades ago.

Unfortunately for Barrett and others who have taken up the tenants’ cause, he sabotages his argument with erroneous information, including a huge exaggeration of the taxes generated by the wharf merchants.

Early in his paper, Barrett features a list of “incontrovertible facts.” One is that the city is spending some of the wharf income on impermissible expenses. He writes that state law requires all income derived from tideland properties to be expended in the tideland zone but he cites no examples of money improperly spent. The implication is that wharf income must be reinvested in the wharf, though state law and city policy clearly allow for the money to be used for other tideland purposes such as harbor dredging.

The heart of his case that the city is impermissibly profiting from the wharf and not reinvesting all the rental income into the wharf for maintenance, improvements or other expenses. He argues that the wharf enterprises are subsidizing the city and suggests it should be the other way around.

What’s wrong with his argument is simply this. If all the income from rental property had to be plowed back into the property, what would be the point of owning the property? Would any commercial landlords intentionally adopt a break-even business plan? The city could operate the wharf as a non-profit venture by offering discounted rental rates, but it would need to offer leasing opportunities to all comers and require them to provide a public service component beyond the catch of the day.

Which brings up another of Barrett’s “incontrovertible facts.”

Without much thought, apparently, Barrett writes this: “Incontrovertible Fact: Wharf 1 generates approximately 25% of the City of Monterey sales tax revenues. Sales tax revenues accrue to the General Fund where they support City services such as fire and police, services which benefit the entire community.”

The problem here is that the wharf generates only 4 percent of the city’s sales tax revenue, according to City Manager Mike McCarthy in a memo to the council last week. Not 25 percent. Not 10 percent. Four percent.

Barrett must not have thought about the scale of the wharf operations – a dozen or so restaurants, some gift shops, some fishing and cruising operations – and compare it to the scale of the rest of the sales tax-generating businesses in the city. Such as Del Monte Center, downtown, the Fremont and Lighthouse business corridors and, of course, Cannery Row.

You may have seen Barrett’s 25 percent figure repeated in a letter to the editor of the Herald the other day. That doesn’t mean it’s right.

Finally, Barrett falls for a big piece of the PR campaign being waged by the wharf merchants in support of the status quo. They have argued, without evidence, that the city’s effort to modernize the leasing structure would bring in chain restaurants and eliminate some of the unique and local operations there.

Barrett writes, “On multiple occasions during comments delivered to the Monterey City Council, proponents of the City’s Leasing Policies / Guidelines have indicated a desire to see corporate chains on Wharf 1 where locally owned and headquartered businesses now exist.”

I emailed Barrett over the weekend and again Monday to ask him if he could cite specifics. I haven’t heard back from him. Downey said Monday that she has not heard any city representatives say anything of the sort. She and Haffa, the chief proponents of reforming the lease policies, have made it clear repeatedly that they want the city to maintain the local character of the wharf.

The council takes up the issue of wharf leases again Tuesday night. With Barrett’s defection from the reform camp, it seems likely that the wharf interests will continue to chip away at the reform measures and that people who signed wharf leases years ago will continue subleasing the properties to others for multiples of what they are paying the city. It amounts to profiteering at the expense of taxpayers.

There’s a lot of tradition in a place like Monterey, the good kind and the not so good.

Here’s Barrett’s white paper and the city manager’s response.

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pu161ccd73a48f7d274937e3f79228a2a6 2ON THE WATERFRONT! This just in! …stop… Monterey tries to slide two stinking wharf fish past the public on the consent agenda. …stop… Sweetheart deals still to be had for members of the private Wharf Club. …stop… The malodorous pile of bureaucratic offal on Fisherman’s Wharf continues to grow. …stop… Where is Father Karl Malden when we need him?

If you don’t bird-dog the meeting agendas of the Monterey City Council, you would have missed items #11 and #12 on the consent agenda last week. Both pertained to the extension of sweetheart deals for longtime vendors on the wharf, and both demonstrated the continuing familial relationship between the city’s property management office (PMO) and the feudal wharf lords who have taken control of our waterfront.

Despite the many council hearings to set enlightened leasing policies for management of the wharf, over the past few months, these two items amply demonstrate that the city of Monterey is still incapable of dealing with the good old boys on the wharf at arms-length.

My written request to remove these two items from the consent agenda resulted in nearly three hours of public hearing, and a decision by the council to continue this to a later date for more information, instead of the rubber stamp the PMO intended.

Item #11 pertained to a request by a sub-tenant of “Wharf I Wharf Theater/Art Gallery Concession #10 Lease” to amend the lease to allow a “Gourmet Shop as Described in Resolution 9000” as a permitted use. Seems innocuous enough, doesn’t it? The PMO report describes a request to convert a storage space (probably 1,000 square feet under the main deck, but not identified in the report) into a “tea shop,” a retail use not permitted by Resolution 9000, but closely akin to a “gourmet shop” listed as a permitted use in Resolution 9000. The report claims that there are no direct fiscal implications and that the lease is “performing” with an annual rent “in excess of $40,000.” It concludes with a staff recommendation that no consideration be sought in exchange for this amendment, because it is good for the sub-tenant, the master leaseholder (DiGirolamo Enterprises), and the city. In other words, the PMO did not ask for any additional rent or other change to the lease for the benefit of the taxpayer, while expressing contentment with the leaseholder’s increase in profiteering off the public. Apparently it is entirely satisfactory to the PMO that DiGirolamo receive an additional $24,000 or so in sub-lease rent from the tea shop tenant while the public receives nothing.

What the PMO report concealed from the public and the council are several damning points material to any decision by the Council:

  • The lease for concession #10 is among the worst, if not the worst, example of profiteering off the public. It covers three floors of a building, last renovated sometime around 1971, but the master tenant only pays rent for the ground floor. So out of 11,200 leasable square feet on the premises, DiGirolamo only pays $.55/square foot for 4,461 square feet, or $2,454 per month. Versus this rent paid to the city, the existing sub-tenant pays $8,800 to DiGirolamo, who makes at least $6,400 per month off the public by profiteering. DiGirolamo is required by a written Covenant of Continuous Operation to conduct a theater activity for profit upon the premises. Instead, and in breach of his lease, the theater has been mostly dark for more than a decade and DiGirolamo has not paid one dime in rent for exclusive use of the theater (or for the 2,000 square feet of leasable space below the deck).
  • The PMO asked for no minimum rent whatsoever for the improved space conducting a new retail activity.
  • As a big kicker, DiGirolamo Enterprises has recently listed the sweetheart master lease (through 2041) for sale with a local broker for $1,795,000. Of course that is our money, given away by a past City Council in 1991.
  • And, lest we forget the purpose for this silly exercise, under Resolution 9000 a “Gourmet Shop” is prohibited from selling tea. By the way, the conversion of storage space below the wharf deck also violates the Wharf Master Plan.

We have examined at length the nature of the illegal and unconstitutional giveaway of millions of public dollars by the uninformed backroom deals in 1991. But like the layers of an artichoke, the perfidy of improper use of ground leases peels away with each layer of the problem revealed. It was not enough that the 1991 leases charged a rent way below market value, and created instant millionaires of the wharf lords with the ridiculously long terms, but the city gave away almost half of the leasable square footage on the wharf (all upper and lower floors) for nothing at all – not one dime in rent for this exclusive use of the public’s tideland trust property. As one result, DiGirolamo suffers no loss or cost for keeping the theater dark.

The only “alternative” offered by the PMO in its report is denial of the requested change in use. But if the council can deny the requested change of use amendment to the horrible ground lease, then numerous alternatives present themselves, none of which is disclosed by the PMO.

First and foremost, the city could extract conditions for its consent, such as: (a) charge fair market rent for the newly utilized retail space – maybe $2,000/month; (b) direct that all or 90% of sub-lease rent charged by the master tenant be paid to the city; (c) require that all leasable space in the building pay minimum rent; (d) require that the master tenant give up the 20-year option that extends the ridiculous lease from 2021 to 2041; or, finally, (e) require that the entire lease be upgraded to a building lease consistent with the new council leasing policies.

Any one or more of those alternatives, and any variation thereof, would improve the plight of the public/taxpayer and mitigate the losses of past management giveaways. If the City Council is firmly committed to rectifying the abuses of sweetheart deals in the past, why would the PMO miss an opportunity to leverage a quid pro quo to mitigate the losses of past malfeasance? Why do we not have a PMO that is committed to going after these sweetheart leases like a junkyard dog would go after a juicy bone that was mistakenly given away for nothing?

Why indeed? Is it because the PMO still regards the good ole boys on the wharf as family whose ill-gotten gains are to be honored and confirmed? And that is where the ubiquitous Resolution 9000 rears its ugly head. The PMO intended to avoid all these questions by making this application all about Resolution 9000, instead of the economic consequences of amending the Concession #10 lease. The PMO has an entrenched habit of wheeling out 9000 whenever it suits a purpose to maintain the status quo on the wharf.

So let’s examine Resolution 9000, which was enacted in 1957. It is accessible at the City Planning Department web page – under Waterfront Master Plan. You might want to read it in your spare time – it’s a hoot. It is almost incoherent as presented on the web page – portions typewritten from 1957 intermixed with uses added in later years through 2003 and taped together in no particular order. It is reminiscent of a set of private clubhouse membership rules scrawled by the neighborhood boys on a cardboard wall in their tree house – no gurls, how much soda pop Spanky must bring to the Monday meeting, etc. I think of them as the Tree House Rules.

The Tree House Rules set forth, by my count, 25 approved uses on the wharf, from “retail fish markets” to “handcrafted artifact shops” and include “Acquariums,” (sic) “Theatre,” and “Wharf Theater,” which, in addition to theatrical productions is only allowed to show “documentary films related to the fishing industry.” Those uses do not include shoe stores, dress boutiques, Internet cafés, or jewelry stores.  You would no doubt not be surprised that the list of approved uses included only those uses already existent on the Wharf.

Without any preamble or recitation whatsoever as to claim of governmental power or necessity, Resolution 9000 goes on to describe in detail the products and activities that each permitted use is allowed. “Restaurants” are permitted to sell all manner of food or drink and “patented medicines.” Of all the shops, only “tackle shops” are permitted to sell “bandaids,” “Kleenix” or combs. “Gift Shops” are permitted to sell “appropriate items for gifts,” no food or drink except “candy…(and)… soda pop dispensed by coin-operated machines” and “no other items to be sold or served except those expressly above permitted.” Among the items “Candy Shops” are permitted to sell are “surprise grab gifts (includes combs, nail clippers, etc.),” but no soda pop.

You get the idea of the nonsense that is contained within the four corners of Resolution 9000. Any citizen of Monterey would be embarrassed to have a stranger or prospective tenant read this sloppy mess with its 60-year old typos. And if any prospective tenant were told that the Tree House Rules governed all leases, she would look at you like your hair was on fire and run the other way.

Yet the PMO treats this mess as though it was carved in two stone tablets and has used it to assist any wharf lord who wants special treatment. “Retail Fish Markets” and “fish stands” can sell tea, but not gourmet shops. The PMO has used it as a bludgeon to prevent the successful initiation of a highly desirable “Monterey Bay Sailing” sub-tenant for over nine years (this is the subject of Agenda item #12).

Where did Resolution 9000 come from in 1957? Nobody is around to tell us, but it is a pretty fair deduction that it was the product of squabbles between the wharf merchants who wanted to minimize competition on the wharf.   Chewing gum must have been a big money maker in 1957, hence it is on several restricted lists, but not on others. Same thing “soda pop.” And there must have been continuing disputes between “Wholesale Fish Markets” and “Retail Fish Markets,” the latter required to have “a dedicated cash register” and “product identification” and “price marking tags.”

So the folks on the wharf must have persuaded City Hall to enact legislation to limit competition and squabbles on the wharf. You can just see the good ole boys sitting around with staffers and whining about the price of soda pop. The fact that the city had no power to do so must not have occurred within the family that was the wharf merchants and the City Council and staff. And by freezing uses and competition on the wharf, the merchants became feudal lords able to exclude anyone else from the opportunity to profit (and profiteer) off the public land. That continues to this day.

In effect, the Tree House Rules created a private members-only club of white vendors, and their heirs, with control over the public’s Tidelands Trust property, seemingly in perpetuity.  You can’t try your hand at running a business on the wharf unless it is already there. The wharf became a “closed shop,” fortified by an officious city only too happy to codify the entitlements of favorite sons. Why bother to erect signs saying “no African-Americans and no Hispanics” when you can get the government to legislate de facto segregation?

Anyone who has any sense of the proper role and powers of government has only to read Resolution 9000 to realize that it is illegal as hell. Do you really think your city government has the power to tell a private retailer whether or not she can sell chewing gum? Or that no other store but a tackle shop can sell bandaids and kleenix? And do you think that government can turn over public property to a private association that excludes minorities?

Other than violating the Fourteenth Amendment and the Ninth Amendment, which reserves to our citizens the right to be left alone from unwarranted interference by government, Resolution 9000 clearly purports to interfere with interstate commerce, which is the exclusive province of the federal government. Beginning around 1957, the United States took exclusive control under its constitutional power to regulate interstate commerce, in aid of its commitment to extend civil rights to all citizens, regardless of race or color. It is a foregone conclusion that the Feds can regulate seating arrangements in a café in Biloxi, Mississippi because some part of the donuts sold there came across state lines. Same for chewing gum, the regulation of which is preempted by federal law absent proof of a compelling state interest.

There are many state and federal laws that prevent unfair competitive practices and restraint of trade, and none would allow a government to enact the Tree House Rules. And then of course, there is the fundamental axiom that municipal government cannot do things that are ultra vires of its powers.  Charter cities are not in the business of regulating internal affairs of a private business by telling them who has to have a “dedicated cash register” and a hundred other restrictions that are set forth in Resolution 9000.

So we have established that Resolution 9000 is illegal, unconstitutional, unenforceable, and silly nonsense. It should have been stricken from the books decades ago. The longer it remains in the PMO tool chest, the longer it will be before we can begin running the public’s wharf on an arm’s-length basis. And the longer it will take to locate new, energetic tenants to take up residence at our Fisherman’s Wharf.

No reputable retailer would touch a place controlled by Resolution 9000 with a 10-foot pole. That is one reason that Anthony Rappa couldn’t find an outside buyer for his master lease in 2013. And, unless it is promptly repealed (together with the Wharf Master Plan), that is one reason that DiGirolamo will have trouble selling its master lease for $1.795 million. The result is that the Shakes or James Gilbert will try to buy it, and thus push their stake in the wharf to over 50%.

I certainly have no sympathy for DiGirolamo, but if the lease is to be sold, let it be to an outlier who will bring some variety and energy to the wharf. Imagine what a boon the Wharf Theater could have been if DiGirolamo had the slightest incentive to bring customers down to an active theater venue.

Agenda item #12, concerning the hammer side of the Tree House Rules, used to hourly micromanage Monterey Bay Sailing and squeeze it out of business entirely, will have to wait for another investigative report. Similarly needed examination is the city’s refuge behind a private contract clause to circumvent the Public Records Act and deprive the public of full disclosure of the state of our wharf leases by refusing to disclose rental income information.

The strong implication from the recommended treatment of these items is that the city’s property manager will continue business as usual over the past 60-plus years, ignoring the council’s direction that there are to be no more sweetheart deals on the wharf or anywhere else.

Apparently the culture of concealment and backroom dealing to accommodate city favorites over the public interest will take years to overcome and constant vigilance by concerned citizens. Unless we citizens make known our dissatisfaction with the culture of conspiracy and nondisclosure fostered by the Tree House Rules and the PMO, we will have to continue to scrabble to stay ahead of the latest sweetheart deal. And unless the City Council begins to insist that it and the public receive full and accurate disclosure and intelligent debate of real property management matters, we will all continue to exist as mushrooms – kept in the dark and fed horse manure.

Willard P. McCrone is a member of the Monterey Planning Commission  and has twice served as chairman. He also has been a member of the Parks and Recreation Commission. He is a retired lawyer who lives in Monterey and he has written previously on wharf issues.

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