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Bill McCrone has a question for the folks at City Hall, and it’s a simple one: What’s the hurry?

Specifically, why are city officials renegotiating lease terms with Chris Shake for the Fisherman’s Grotto on Fisherman’s Wharf, where the city lease doesn’t expire until 2021. And why are they renegotiating lease terms with the Surfside entity for the London Bridge Pub property at the foot of the wharf, where the current lease still has 20 months to run.

Those renegotiations are the topic of a closed-door meeting of the council tonight.

McCrone is a former planning commissioner and longtime critic of the city’s leasing practices at the wharf, which he has researched extensively. In a letter to the city, he notes that the City Charter requires the city to collect fair market value on its properties. He asks how the city can calculate fair market value so far in advance.

“The California Constitution and numerous other state and federal laws prohibit government officials, elected or appointed or employed, from giving away public property for less than adequate compensation to the public.  If you extend these two outrageous ‘ground’ leases or enter into new leases at less than FMR (market value), you will be defrauding the public and giving public property to private persons for free,” McCrone wrote.

McCrone, a retired lawyer, also argues that Surfside holds the master lease on the pub property and profits handsomely by subleasing the property, performing little or no service of value in the process. He says that’s a violation of city regulations.

Surfside, headed by the Cannery Row Co.’s Ted Balestreri,  “is doing nothing more than managing a well seasoned property but receives 60% to 70% of the rent for management.  Five % to 10% is the market rate for commercial property management.  No matter how you paper it, extending Surfside’s management for more than 10% of gross rents is a fraud on the public,” McCrone wrote.

“The good ole boys are at it again.  The dust has hardly settled on the recent election before they have once again forced their noses under the tent to reap enormous public subsidy for their commercial operations.  The reasons to refuse this premature negotiation are now more numerous than they have been the past two or three times the Council has refused their requests.”

The Partisan emailed various city officials this morning to ask why the city would consider renegotiating the leases early. City Manager Mike McCarthy replied only that that was something under consideration. The Partisan could not determine late Tuesday what if any action the council had taken.

The City Council two years ago began efforts to reform leasing practices at the city-owned wharf, largely because several longtime leaseholders were operating at sweetheart rates bestowed on them decades ago. In some cases, those leaseholders are profiting handsomely by subleasing the properties, with none of the profit going to the city.

Wharf tenants responded with a public relations campaign accusing City Hall of seeing to out local businesses and replacing them with chain operations able to pay more. The businesses also complained that the city was seeking the shorten the length of the leases, making it difficult for the tenants to obtain financing. A handful of leases have expired during the debate and the city is negotiating with Bay Area firms to fill a couple of the spaces, but city officials maintain they recognize the value of unique, local operations.

The merchants’ resistance to various reform measures was fortified in November when longtime Councilmember Libby Downey, a leader of the reform effort, lost her re-election bid. She was ousted by Dan Albert Jr., the former school official who received considerable financial support from wharf interests. For practical purposes, the wharf interest generally enjoy support from a council majority.

In his letter, McCrone argues that any council member who has received more than $500 from wharf interests should recuse themselves.

“You ought to pass an ordinance to limit campaign contributions,” McCrone wrote. “Your self-serving failure to do so has initiated a strong sentiment among citizens to take this issue to the polls with a charter amendment.”

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IMG_0686It is encouraging to see the number of interested parties responding to the accurate piece by Alan Haffa and Libby Down about the Monterey City Council’s action to finally re-exert control over Fisherman’s Wharf for the benefit of the public after 60-plus years of heavy subsidy for the good ole boys on the wharf. Some of the responses, however,  show the persistence of a great deal of misinformation foisted on the public by the Wharf Lords who are now seeing the end of the free lunch they have enjoyed at the public’s expense for 60 years.

Keep in mind that many of the existing terrible ground leases on the wharf will continue for another 25 years (until 2041) due to the incompetence of city staff and council in 1991 when they agreed to extend the leases for 50 years without any rent increase since 1977.

I will not repeat the long essays that I have posted in the past two years, which set forth the facts, rents, and accurate history of the wharf, but refer you to the Partisan’s archives (see Archive box on right side of page) where a search under my name will reveal the articles. Several items discussed above require further edification here:
(1) SAFEWAY LEASE. My recollection is that Safeway was paying about $12,000 per year in ground lease rent when its ground lease expired. The city had leased bare ground to Safeway in the 60s and Safeway developed the land, building and lot at its sole expense. That is the way a ground lease is supposed to work – the developer/tenant pays all cost of improvement and operation, in return for which the tenant pays the landowner a reduced rent to reflect that all the capital comes from the tenant. Into the bargain is the reversion of the property, with all improvements, to the landowner at the end of the lease term, when each party gets the full benefit of her bargain. The Safeway deal was a “Righteous Ground Lease,” good for the public and good for Safeway.

The city initiated negotiations to continue a “building lease” with Safeway at fair market rent (including gross percent) for another 25 years. Negotiations were successful except for one point. Safeway insisted that it have the unfettered right to assign the lease to anyone it chose in the event Safeway elected to leave the premises. This, of course, was unacceptable to the city, which had every right to vet any proposed assignee tenant, and in particular a need to ensure that whoever occupied the premises be a retail food store. Safeway was unwilling to budge from its most unreasonable condition, and the negotiations ended.

Trader Joe’s (Foothill Partners) then stepped up to negotiate a 66-year ground lease reflecting a much higher rent, but still recognizing that the capital of Foothill would be razing the Safeway building and constructing a new retail center that would include retail food. Both the original Safeway lease and the Foothill lease were well within reasonable commercial parameters for landowners. Those leases literally have nothing to do with the wharf leases, and nothing in common. They are apples and oranges to each other, and as fruit and widgets to compare with the aquarium tidelands lease.

(2) ACTUAL RENTS. This discussion would be much more illuminating if the city would release the actual rent figures (master and sub-lease) for the wharf. The city attorney has an opinion that such figures are confidential, but that is just her opinion. When a merchant leases public tidelands trust property from the public, it has no right or expectation that its sales figures will be kept confidential to hide the facts from the public. Yet that would apparently be the purpose of this city policy. It is unfortunate that it will take a lawsuit to obtain the transparency that is required for the public to evaluate the horrendous job the city’s property management has done since 1977 on these sweetheart leases on the wharf. No doubt the thinking is that a lot of problems would be unnecessarily created by telling the public the truth.

There are ways to get rent figures without the city’s cooperation. Based upon a city-commissioned appraisal in 2008, and disclosure of the tax and rent rolls by the Monterey County Assessor’s Office in 2012, we can closely estimate that the Balesteri lease (for three discrete retail spaces), which has just been terminated, earned between $905,386 and $1,000,000 in annual gross sales last year. Balesteri paid the City 3% of gross sales per year – $22,635 in 2008; and $18,511.49 in 2010. Fair market value for those premises is 8 – 10% of gross sales. Thus Mr. Balesteri received a subsidy from the pubic (mostly in the form of sub-lease rent retained) at the high end of $77,000 per year. It is understandable that he wanted to continue that windfall, for which he never paid anything whatsoever.

Balesteri is a small operator compared to the Shakes and Mary Alice Cerrito. According to a written sublease available at the city, Chris Shake received sublease rent from Fisherman’s Grotto in the amount of $27,563 PER MONTH in 2010, over and above the rent he paid to the city. Cerrito proposed to sublease the old Gilbert’s restaurant for in excess of $20,000 per month in 2015. I do not have figures from her current sublease to the Shakes, but it is fair to estimate that they pay her in excess of $20,000 per month from their new restaurant. Most tenants on the wharf pay fair market rent, but they pay it to sub-landlords, not the public. That is an outrageous ripoff. The new City Council policy will require a provision in new building leases that all sublease rent be paid to the city and the public.

(3) OWNERSHIP/REMOVAL OF BUILDINGS. The ownership of the buildings on the wharf is misunderstood concept number 1, and it seems to be intractable. The public owns the tidelands by constitutional grant in perpetuity. Under the law, the landowner owns the land and everything on it, including buildings, nails, and roof tile. The Wharf Lords repeatedly claim they own the buildings, a claim utterly devoid of the truth. If you own a real estate interest, you have a deed to prove your interest and you pay real property tax to the county. If you own personal property, you have a bill of sale and a title document to prove your interest, and you pay personal property tax to the county. The wharf merchants have neither. It would seem that the old propaganda axiom pertains – if you tell a lie often enough, the people will believe the lie over the truth.

It would appear that the claim that the merchants can remove the buildings when they leave is another intractable lie that won’t go away. The ridiculous lease provision saying that the tenant can remove the buildings they built within 90 days of termination of the lease is, and for over a decade has been, void. A California Court of Appeals decision (County of Santa Barbara vs. Channel Islands Marina) has established conclusively that such provisions in a tidelands lease are void because Coastal Commission approval of a demolition could never be obtained within 90 days, as a matter of law. Moreover, the Coastal Commission would never approve a demolition without receiving a conjoined permit request to replace the building with a new structure. Finally, no merchant is going to spend the million dollars required to demolish, which would be an utter waste of money.

As Alan Haffa says, the buildings revert to the public upon expiration of the lease, which is the modest benefit of a poor bargain struck by the council many years ago. Nothing whatsoever is due the tenant, who has received the generous benefit of its one-sided bargain in the form of many years subsidy in rent.

The hard won gains for the public that were voted for by Alan and Libby are at risk in the the November election. The Wharf Lords will spend heavily to get another tool like Councilman Ed Smith elected to change the balance on the council and roll back the public gains so that the ripoff on the wharf can continue indefinitely. Vote to return Alan and Libby to their seats on the council and preserve our waterfront to be operated for the benefit of the public, not the private business profiteers on the wharf.

McCrone is a retired lawyer and former member of the Monterey Planning Commission and other bodies. He has written extensively on the wharf leases, which are the subject of a sophisticated and misleading public relations campaign on behalf of wharf tenants who are attempting to prevent reform measures from going into effect.

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lsRAISING 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.

imagesIt 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:

  1. 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.

images-1Monterey 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.”

images-2On 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?

e8ef760b6fcba0804e5204919f26a771And 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.

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I am a Vietnam veteran, an appellation in which I take considerable pride. I served as a captain in the Army during campaigns in 1970-1971. I was a combat engineer and a Ranger, earning three Bronze Stars, a Combat Infantryman Badge, and three campaign ribbons among other awards. My war service was one of the two most important formative experiences of my life. I don’t talk about it much, except with those who were there with me.

But every Veterans Day, I think about it – a lot. Some people think about it on Memorial Day, but that day has always meant the end of school and the beginning of a wonderful summer to me, not a day to remember the dead. Veterans Day comes in the fall when the days are shorter, there is a chill and a hint of rain in the evening air, and a fire in the fireplace is in order. For me it is a somber event, a time to reflect. It is when I give thanks to the heavens above, or more precisely the god of luck, that I am still alive and able to enjoy the fruits of a life well lived. And it is when I think of my best friend, Henry, who has missed the last 43 years.

You don’t know Henry Mershon Spengler III, and that is your loss. A finer fellow you could not meet. He and I entered West Point from neighboring high schools in northern Virginia on July 1, 1964, our jaws firmly set to follow in our fathers’ footsteps. They fought WWII for the duration, Pearl Harbor to V-E Day. They were the “greatest generation” who had made the world safe for democracy.

Henry and I became fast friends and four years passed swiftly. We were good students (if less than perfect cadets) and graduated high enough in class standing to select the Corps of Engineers as our branch. We had followed the distant war in Asia intently, knowing we would be tested there. Gen William Westmorland gave us his confidential speech the day before he traveled to Washington to inform Congress of the “termites” that had evaded an extermination that only more troops would provide. We knew we would be the leaders of the “more troops.” I didn’t know then that that’s what the generals always say.

We graduated on June 5, 1968. The college class of ’68 was on the cover of Time magazine that week, celebrated as the first bloom of the Baby Boom and the best and the brightest college class in decades. We were filled with optimism and confidence, and our hearts were on fire to serve our country in this time of need. Some of my more cynical classmates were known to remark that “war is our business, and business is good!” But all this was dampened a bit by the fact that, some ten hours before we threw our hats in the air for the last time, Bobby Kennedy lay dying from an assassin’s bullet on a kitchen floor in Los Angeles.

Henry and I married our high school sweethearts and spent a summer relaxing before reporting to Ranger School in Georgia. We were each other’s “ranger buddy,” tasked with pushing and pulling each other through the nine-week ordeal. Henry carried me to an ambulance station when I passed out from heat stroke during a nighttime march.” He was by my bedside when I awoke at dawn. I was able to catch enough of Henry when he fell from above me during a mountain nighttime exercise. When we graduated with the coveted Ranger Tab, we were the brothers that neither of us ever had.

After other training courses, we reported to our first duty assignment – me to Panama, Henry to Germany. We were out of touch for about 18 months, when coincidently we met again during leave in Arlington, Virginia,” in September 1970. Quite unbeknown to the other, we had both developed an interest in changing our course within the ‘Army. Flight school to be on the cutting edge of the modern Army seemed attractive but law school also attracted our interest. Hendry chose flight school, I chose law, which required a combat tour before matriculation. So I went off to Vietnam and Henry to flight school.

When I returned a year later, Henry was outbound to fly Hueys in Vietnam. We didn’t plan it that way, but I ran the gauntlet first and survived. Henry went second, and perished.

He was shot down in May 1972 by freakish small arms fire at 3,000 feet. He was initially listed as Missing in Action, but only because he went down near the Cambodian border where our considerably weakened ground force could not get to him. He fell at a time when the war was virtually over for us, at the last stage of Nixon’s peace with honor withdrawal. Henry was the very last engineer officer killed in action in that long and miserable war. His remains were not found until 1992, when he was brought home to be buried at the Arlington National Cemetery.

More times than I could possible count, I have pondered the question: ”Why Henry and not me?” It would have been much easier to kill me. I was in the front lines during the last major battle of the war, and I know that many NVA soldiers had me in their sights at one time or another. I was no better a soldier than Henry, just luckier I guess.

If you have ever watched documentaries of war veterans telling their stories, you will note that everyone who lost a dear friend says the real heroes are the ones who didn’t come back. And we feel guilty. What did I do to merit this gift of the past 43 years of life?

You have missed a lot, Henry. Your beloved Redskins won two or three Super Bowls and Washington has finally gotten a baseball team to replace the Senators – a National League team no less. We have had two presidents” who were members of the Class of ’68 (Yale, just down the road you know). Their reviews are mixed and place in history uncertain, but they avoided service to their country. The Cold War has ended. The Army is much more professional, but no longer “of the people,” which I think is not a good thing.

What you won’t miss are the endless years of war that have consumed us for much of the past 15 years. But you know how we fought to save the world from communism? It was not a direct by-product of our loss in Vietnam, but we can now safely project that communism is on the way out as emerging economies and more educated populations raise their expectations to share in the good life that freedom brings.

So was it worth it, Henry? Did your sacrifice make a difference? Did it preserve our freedom in some way?

I always visit the Vietnam Memorial in Washington when I am there, drawn to it like a moth to the fire. I despise it – a subterranean black wall amid a city full of proud white monuments that celebrate our history and national successes. Why was our sacrifice denigrated to below ground, our valor stolen by defeat? As a classmate once said: “Our blood was just as red; our fallen comrades are just as dead.” And I always cry, sometimes uncontrollably, when I locate and finger Henry’s name at the near end of the wall. To go there is almost an act of masochism for me.

What is there to say about the loss of Henry? He didn’t die in a foolhardy but glorious Pickett’s Charge, or on a sandy beach turning the tide of a world war. My answer to that question has evolved over time, as the world has, or has not, changed. I now look to the endless Middle Eastern wars that our nation’s politicians have pursued. Those politicians never fought a war or saw its terror, and have no children or other family at risk when they “put boots on the ground.” They have no skin in the game, like you and I did, Henry. And I realize that there can be but one answer.

Had we learned anything from the debacle in Vietnam, perhaps Henry’s death could have achieved something. But we didn’t. We are now engaged in an unwinnable war in Afghanistan that is virtually identical to Vietnam. No matter how long we stay there, and how many American lives are lost, the enemy will wait us out and take over when we leave, breaking the promises we have impliedly made to Afghan women, children, and the middle class, all of whom will either perish or return to the stone age when the Taliban comes back. And while communism is on the decline, Islam is more resilient and will  not give way to Western values. It has been around for 1,000 years, and will be with us long after we quit the battlefield.

So, much as it pains me, I have to tell you, Henry, that I fear you died for nothing – nothing at all. Your death is a black hole in my heart. As each year passes, that hole gets darker and deeper. I will join you sooner than I should, for some war wounds are not visible. But then at least, we can cap this gift of 43 years life that you didn’t get to enjoy.

Willard P. McCrone is a past member of the Monterey Planning Commission and 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.

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ls‘WHARFLORDS’ MAKE THE RULES

This is a David and Goliath story. Actually, it’s one Goliath and one bully trying to crush one David.

Captain Dutch Meyer, founder and proprietor of Monterey Bay Sailing, likes to say that he was young when he started trying to elbow a place for himself among the wharflords at the end of Fisherman’s Wharf in Monterey. Now, after eight years battling the city property manager’s enforcement of the wharf members-only scheme, he’s no longer young.

It is also a story about unconstitutional waste of public funds. Not the millions of dollars given away by the Monterey City Council in 1991 with the ridiculous long-term ground leases on wharf space, but the thousands of dollars being given away now – yesterday, today, and tomorrow, by allowing profiteering to continue on expired wharf leases.

This saga of an anti-competitive cartel and monopoly came to the fore with another consent item, No. 12, on the July 21 City Council agenda. It was pulled off of the consent agenda at my request and became a nearly two-hour hearing that was continued to Sept. 1 for resolution. (Item 20 on the Sept. 1 council agenda involves a closely related item. See details below.) How it turns out will be a significant step toward determining whether the public will be able to regain some measure of control over our waterfront in Monterey.

To understand the current situation, we need to review the history of the space known as Concession #21, currently occupied by Monterey Bay Sailing (MBS). It is at the far northeast corner of Fisherman’s Wharf, and has been used for some type of maritime activity since before 1964.

Records show it was originally used for a “diving bell” for tourists to have an underwater experience, and then featured a glass-bottomed boat operated by Sea Life Tours. According to the 1958 Wharf Master Plan, Concession #21 is authorized to accommodate three boats and one water space. Tony Rappa is the master leaseholder on a lease in effect from 1964 to 2041. He paid nothing for the lease and has rarely if ever conducted any economic activity there himself and has almost never paid any percentage rent to the city.

In 2003, Rappa floated the idea of conducting an amphibious shuttle from #21, and received approval to construct a six-foot wide floating dock alongside the pilings for passenger boarding at water level. The shuttle was short-lived. Rappa then sublet the space to Monterey Bay Sailing in 2003 after the failure of the shuttle.

NO OTHER PLACE TO RENT A BOAT

Monterey Bay Sailing has continuously occupied #21 since then and eventually grew into an entrepreneurial success. MBS offered the unique services of sailing lessons, membership, bareboat rentals and overnights, as well as sailing excursions on the bay. In our whole National Marine Sanctuary, there had been no opportunity to sail a boat unless you owned it. Indeed, no other entity in the Monterey Harbor offers boat rentals of any type, a highly favored use in the Wharf Master Plan and Resolution 9000.

Picture2It seemed the perfect maritime activity for the Marine Sanctuary, with a fleet of six sailboats creating less pollution in a year than the fuel-guzzling whale-watching boats create in a single day. From a fledgling new business, MBS had grown to a customer count of nearly 4,000 by 2007.

The growing success prompted Dutch to inquire about expanding his use to match the growing interest in bareboat sailing. The Monterey harbormaster, Steve Scheiblauer, confirmed that Dutch Meyer had the right to conduct these activities from Concession #21 in a Sept. 10, 2004, letter. Responding to the possibility of expansion of MBS uses and the physical plant, Scheiblauer made the ominous comment that, “Some of these matters have a history with the council, and would require a substantial amount of work with individual councilmembers to have any chance of being passed.” He did not identify the members.

Things went along swimmingly from there until Dutch applied for an expanded water space in 2007 to permit the berthing of a third small sailboat at the north end of the pier. This attracted the attention of the city’s property manager, Rick Marvin, who apparently had not noticed that MBS had successfully been conducting sailing operations for nearly four years at Concession #21.

Marvin belatedly developed an interest in regulating MBS. The harbormaster and the property manager decided that MBS should pay Transient Occupancy Tax (TOT) for the occasional overnight stays on MBS boats. Scheiblauer told Dutch that any opposition to paying TOT would have a negative impact on the proposed expansion. Then Marvin insisted that Dutch obtain a building permit for an under-deck storage shed that had been built around 1993, long before Dutch took possession.

The city’s formal response to the application was a letter from the mayor on Oct. 31, 2007, telling Dutch that his application could not be processed because the floating dock installed by Rappa in 2002 to accommodate the amphibious shuttle must be removed or re-authorized. This was nonsense. The properly authorized dock had been there for four years and was integral to sailing operations. Unlike the big tour/whale watching boats, much smaller sailboats had to be boarded at sea level, not wharf deck level, and the floating deck made that possible.

JOSEPH HELLER WOULD BE PROUD

The nonsense quickly multiplied when Dutch was told that he couldn’t get a building permit for the existing storage shed until the dock was removed. But he was also told that the dock could not be repurposed or removed until the building permit was issued.   Marvin had orchestrated a complete Catch-22, and used it to cast Meyer as a miscreant unwilling to follow the rules.

I got to know Dutch in the spring of 2008 as a student earning my bareboat captain’s license. He was then at a standstill with the city, hung on the horns of the Catch-22. I scoffed at his description of the dilemma. I had been a volunteer commissioner of one kind or another with the city for 20 years, and had known the city planning staff to be uncommonly cooperative and helpful to citizens seeking approval of legitimate projects. Thinking that this bottleneck was the result of misunderstanding or miscommunication, I agreed to act as his attorney in guiding this new use application to conclusion.

As it turned out, I could not have been more wrong. I have since discovered that the tour boat cartel, not the city staff, controlled that end of the wharf, as intended by the Wharf Master Plan and Resolution 9000, both of which were designed and intended to enforce the monopoly of the cartel. The cartel consisted of the original master leaseholders for whaling, fishing, and tour boat concessions at the northern end of the wharf – the Arcoleo, Bruno, and Shake families with sub-tenants such as the Ternullos and Blacks, who dated their “ownership” to 1964 and before. They are the reason no new boating activity had been allowed on the wharf in over 40 years.

Close up of male hand drawing way from A to B pointDuring our initial meeting with Marvin and Scheiblauer in August 2008 to develop a consensus for moving forward, Marvin for the first time wheeled out the Wharf Master Plan (1958) and Resolution 9000 (the Tree House Rules, 1957).   Having operated for four years, MBS was now discovered to have run afoul of these illegal documents. First Marvin told us that a “Minor Project/Change” application to wharf use was required. After submitting one in September 2008, Marvin told us “never mind,” that this has to be a “Major Project/Change” as he defined it. We submitted it in October 2008, even though it was exactly the same application as before but now was subject to Planning Commission review.

The “major use change” required was necessitated by the fact that Resolution 9000, while allowing “boat rentals,” did not mention sailboats, and the Wharf Master Plan did not allow Concession #21 to have six boats and two or three spaces like the other water concessions.

Marvin responded to the new application by still insisting on some form of overnight lodging tax, even though I had proven to him that extracting such a tax was illegal under the Monterey City Code. When I once again pointed that out to Marvin, he issued a Notice of Violation of the Wharf Master Plan on Nov. 13, 2008, stating that MBS had to cease and desist from operating as it had for 4 years.

The alleged violations were the subject of the pending application for a Major Use Change to the Wharf Master Plan. The only purpose for the Notice of Violation was to cast Dutch Meyer as an outlaw and to cloud his application with an “enforcement’ tag before the City Council.

TURNING A NON-ISSUE INTO AN ISSUE

The matter was then presented to the City Council in December 2008, with the discussion limited to a determination of whether overnight stays on the MBS sailboats (with showers) was an allowable use. Marvin’s recommendation was based solely on the point that overnight stays were not an allowable use because Resolution 9000 was silent on this point. Of course, it could have been said that whale watching was not mentioned and therefore was not allowed. But markets change, don’t they? The good ole boys in the cartel were permitted to adjust to changing markets, like whale-watching more than fishing, as they saw fit, just as long as newcomers like MBS were not given the same flexibility.

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A Monterey Bay Sailing boat at sunset

The council said “no overnights,” and referred the matter to the Planning Commission to review and recommend on the change/expansion of use.

Stated concisely, the MBS request was to be allowed to maintain the floating dock, berth two sailboats alongside, use a total of six boats, berth a third sailboat at the north end of the pier with a modest fend-off bar, and rebuild the storage shed in accordance with a building permit to be issued.

I should note that I discontinued my representation of MBS at this point due to failing health.

A word about the Wharf Master Plan is in order. It was first approved in 1958, soon after Resolution 9000. A complete copy of the plan maybe found at the city’s Planning Department website (under Waterfront Master Plan page). It is not as silly as the Resolution 9000, which I have dubbed the Tree House Rules, but it shares the same purpose – to restrict and define competition. Some benign features have been added over the years, such as sign and design guidelines, but its overriding feature is Appendix “C” – a list of tour/fishing boats by name for each water-related concession, and a limit of six boats per concession. Detailed rules are included for any changing of boats, which must be approved by the City Council. Why?

This is where the plan runs afoul of any legitimate governmental interest. What conceivable public interest does Monterey have in organizing a private business market and telling the tenants who could have which boats? Or approve one boat over another? What could be the reason to limit the numbers of boats that could use a concession? If one operator could profitably operate eight boats, why would the city limit the number of boats to six? The obvious answer is that the cartel wanted to limit competition among the cartel members to a maximum of six boats each.

According to its City Charter, Monterey should treat each lease as a separate transaction. That objective was ignored in its entirety on Fisherman’s Wharf, where all leases look very much the same and the city in effect negotiated with the Wharf Association for a blanket ground lease. Clearly, the city should not be negotiating with a cartel of six private businesses to define and limit the competition. But that’s what the wharflords wanted in 1958, and that is what the City Council gave them.

THE CARTEL MAKES THE RULES FOR THE CITY

So the game was stacked against a new entepreneur wo wanted to introduce a new and popular recreational activity to the closed wharf kingdom. When the six operators received notice of the pending MBS application, they met in November 2008 and unanimously voted to deny the MBS use/change in its entirety. Various inane reasons, including the absurd claim that there would not be enough parking for the new use, were cited. Now that Marvin’s notice had rattled their cage about the growing nuisance of a competitive sailboat rental business in their midst, the cartel began a full-court press to not only defeat the new application, but to eliminate this minor competitor entirely.

Richard Ternullo of Monterey Bay Whale Watching voiced strong opposition, saying any change to the Wharf Master Plan would cause him the others to “alter our schedules or inhibit us from safe and free access to our berths.”

Chris Arcoleo, longtime naster leaseholder of Concession #18, wrote:

“The Shake Family just purchased a 100ft boat for almost one million dollars to compete in whale watching; we definitely do not need more competition on the wharf. In these hard economic times we feel that there is enough competition. … No one from the city staff talked to us about the issues or how it would affect my business. …. Resolution 9000 was put into effect just for this reason.”

Bob Massaro, wharf administrator for the Fisherman’s Wharf Association, complained that the association should have been consulted as part of the process and said, “Clearly the suggestion from the city that ‘competition is good’ may read well in a book about marketing but does not apply in the current condition of the economy.”Winch and rope, yacht detail. Close up horizontal shot

Peter Bruno, master leaseholder for concessions 19 and 24–26, offered that “competition may be necessary, but this should be between existing businesses and not with an unrelated business.” Clearly “unrelated” meant not part of the original boating cartel on Fisherman’s Wharf.
Obviously, the wharflords had an expectation that Resolution 9000 and the Wharf Master Plan were designed to protect them from competition. No matter that MBS sailboats held just one to six passengers, versus 30 to 100 passengers in the big tour boats. MBS had grown its business to nearly 4,000 passengers in 2007, and the cartel was worried about this minor competition though MBS was in a very different business. In the cartel’s myopic view, every passenger who wanted the unique sailing experience in the Maritime Sanctuary was a sale lost to the cartel.

None of those letters said anything about safety. They focused on convenience and competition. Of course MBS had an impeccable safety record during the four years it had already operated at the wharf and no one had complained about safety.

At the Planning Commission hearing in February 2009, about 10 MBS customers or members spoke in support of MBS. Ternullo and a couple of other cartel members spoke against, and focused on a claim of unsafe maneuvering conditions during times of rough water and surges, rather than too much competition. However, Harbormaster Scheiblauer testified that the MBS plan, with the continued existence of the floating dock, would not cause safety problems, as indeed none had occurred during the four years of operations so far.

The staff report from the Planning Department, by Principal Planner Kim Cole, debunked the objections from the cartel members. The claims of increased competition were dismissed with “Staff recommends a competitive environment for its leaseholds.” She recommended approval of the changes requested by MBS and noted:

“The project is consistent with the Wharf Master Plan that encourages marine oriented uses. The proposal requires only minor changes to the Wharf Master Plan.”

161ccd73a48f7d274937e3f79228a2a6 2

Fisherman’s Wharf

Concession #21 occupies the most northeastern corner of the wharf by the inner harbor entrance with a small office at wharf deck level and a 20-foot by 50-foot water space alongside. Dutch proposed adding a berthing space at the north end of the pier in a water space of 15 by 45 feet, with a two-foot floating platform to fend the small sailboat off from the pilings. With a maximum 12-foot beam for the largest sailboat, MBS berthing arrangements are well within the 20 by 50 foot water space leased by Concession # 21.

On the other side of the inlet/bay is Concession #18, Monterey Bay Whale Watching, with its two 20-foot wide water spaces to berth two much larger tour boats. The SeaWolf (70’ long, 21’6” wide) is typically berthed in the forward water space and exceeds the width of its leased space by 18 inches and exceeds the length by six feet. It is not charged any extra rent for exceeding its leased water space.

PLANNING COMMISSION SIDES WITH MBS

The Planning Commission rejected the protestations of the cartel and unanimously approved the MBS plan, as recommended by staff and sent its recommendation on to the City Council. And that’s where things began to get a little bit weird. The tour boat cartel no doubt upped the effort in the back rooms to defeat the MBS plan. As a result, the Planning Commission recommendation was altered by Marvin in several important respects when it was finally presented to the City Council on May 5, 2009.

In a report prepared by Marvin and his boss, William Reichmuth, the classification for MBS was changed from “boats for hire” to “Sailing Activity Center,” with a definition that precluded Dutch from renting out his sailboats, a major feature of his business. In addition, the requested space at the north end of the pier was altered to a dimension unusable by MBS.

At the council hearing, the harbormaster (who is not a licensed Coast Guard captain) testified for the first time, directly contrary to his testimony before the Planning Commission, that he was very concerned about safety and the floating dock. Several licensed Coast Guard captains testified in rebuttal that the set-up was safe.

The members of the cartel raised their voices in front of the council, claiming they could not safely maneuver around #21 and that amateur bareboat captains who rented from time to time were creating hazards for collision. This was an entire fabrication, without even anecdotal evidence to support it. In over four years of operations, there was not one scintilla of evidence to substantiate a claim that the berthing and operation of sailboats off the floating dock at Concession #21 had created any safety hazard. Keep in mind that these much smaller, sailboats operated at 1 mph when leaving their berth.

When Dutch tried to correct the errors and deviations from the Planning Commission decision, Reichmuth abruptly but incorrectly claimed that Dutch was seeking a major change to the application and for that reason, the application should be referred back to the Planning Commission. What he must have meant was that the staff needed more time to devise a strategy for eliminating MBS as a competitor. Nonetheless, the council accepted his assessment and referred the matter back to the Planning Commission for further deliberations based upon the alleged “changes.”

Inexplicably, ten months went by before the matter was again presented to the Planning Commission in February 2010. During the year between the two Planning Commission hearings, the conclusion is inescapable that someone from the wharf got to the right city officials. Reichmuth, Marvin, and Scheiblauer presented a totally different report and recommendation than had been originally submitted and approved by the Planning Commission and again misrepresented the MBS application.

CITY OFFICIAL EMPOWERS HIMSELF TO KILL COMPETITION

Whereas the staff report in 2009 declared a city policy in favor of “a competitive environment for its leaseholds,” Marvin’s report in 2010 declared that his office was empowered to “address” issues such as “business competition and potential impact on long established wharf concessions.” No authority was cited for this policy (there is none), which is inimical to a landlord’s and the public’s best interests. Marvin’s report was, in effect, an admission that his primary purpose was to protect the monopoly of the cartel.

Next, Marvin proposed to eliminate the floating dock because the harbormaster now gave incorrect testimony to the effect that other boats needed #21’s water space in order to exit, and that the sailboats could be boarded from deck level without use of the floating dock. Marvin reduced the north water space to a size unusable by MBS. And he inserted a provision that Dutch could not mention whale watching or fishing in his advertising. Marvin now considered his portfolio of powers to include abridgement of free speech.

The Planning Commission saw this abuse of administrative power and rejected Marvin’s staff report and recommendation. Instead, it struck out most of Marvin’s language and reapproved substantially the same resolution that it had approved the previous year and sent it again to the City Council for final approval.

Once again, Marvin ignored the Planning Commission recommendation and rewrote Dutch’s application when he presented his own proposal to the council on April 6, 2010. Scheiblauer and Marvin presented the matter as a safety issue caused by MBS and succeeded in getting passed a resolution that ruined the MBS business for the benefit of the cartel.

Instead of a complete removal of the dock, the punitive conditions imposed at Marvin’s request allowed no berthing of boats at the dock, and only 30 minutes per boat to tie up for passenger boarding. No time was allowed at the dock for maintenance and upkeep of the boats. And Ternullo was allowed to exit through #21’s water space most of the time.

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This meant that Dutch, at times a one-man show, had to leave his office to pick up a boat at its mooring and then to return to the dock to board new passengers for no more than 30 minutes at a time. As many of his customers were walk-up, he would have to do this continuously during the day, with the attendant loss of walk-up passengers and horrible inefficiency in business operations.

IMAGINE IF THE CITY LET YOUR NEIGHBOR TAKE YOUR DRIVEWAY

The free speech prohibition was included, as was a provision that MBS was “not conferred the full rights of other concessions currently existing at the wharf” (welcome, stranger!). I will not describe the other silly and punitive provisions, other than that the MBS rent was increased even though it was prevented from reasonably using its water space.

To put this in perspective for the layman, imagine that your next-door neighbor buys a huge RV, which cannot be parked on the street. Since his driveway is already full with his family’s automobiles, and his double garage is full of junk, he goes down to talk to his buddies at City Hall for relief. Together they decide that they will fabricate a story that you are a lousy driver who should not be entitled to use your driveway except to drop off your elderly mother after church on Sunday. This allows them to confiscate your driveway and require that you can no longer park your cars there but, instead, must allow him to park his RV in your driveway.

MBS is required to pay full rent to the city for its water space, but isn’t allowed to use it. Ternullo gets to use it whenever he wants, and he pays nothing for it, to either MBS or the city (which wouldn’t dare ask for it).

Since that time, April 2010, Dutch Meyer has refused to sign a lease amendment setting forth those ruinous terms and conditions; and he has continued to operate as he did before the final council action. Marvin on several occasions threatened to sue and evict, and Dutch has responded by reminding Marvin where he may be found for service of process. It would be fairly safe to say that no court in this state would enforce such punitive and unlawful conditions, and Marvin knows it. Such a suit would also, not coincidently, open the city up to many defenses based upon the illegality of Resolution 9000 and the Wharf Master Plan and the voidable ground leases on the wharf. Blatant abuse of government power does not play well in front of juries.

The standoff of over five years now comes to another head in a context that proves that city officials held the best interests of the cartel paramount over the interest of the public.

NO ROOM FOR SAILBOAT BUT ROOM FOR 65-FOOTER

The subject of Item #12 on the City Council consent agenda of July 21 was a staff recommendation that the council approve and authorize a huge, new twin-hulled 65-foot long, 27-foot wide whale-watching tour boat at the east side of Concession #18, which would more than double the passenger capacity of Monterey Bay Whale Watching. The staff report prepared by the city property manager is the usual model of obfuscation, intended to inform the council of as little as possible. No alternatives to the property manager’s recommendation are presented and the only rationale provided is that the Wharf Master Plan allows six boats at Concession #18 and this increase of capacity is going to increase the gross percentage rent paid by the concession (4%?).

Knowing that this council has four new members unfamiliar with the safety issues presented by the confiscation of MBS water space, and unfamiliar with the meaningless and all but abandoned Wharf Master Plan, the property manager glosses over the fact that this heavy steel double-wide boat is five feet wider than any other boat utilizing the northeast berthing space, and is seven feet wider than the 20-foot water space rented by Concession #18. Having spent the past four years trying to squeeze Monterey Bay Sailing out if its rented water space and its business under the guise of safety claims, he does a 180-degree turnabout from 2010 with the mendacious claim that the small sailboats, while a continuing safety problem, would be unaffected by the huge boat addition.

After the item was pulled off the consent agenda, a spirited exchange of viewpoints ensued. Ten to 12 supporters and users of MBS spoke to the safety issue and the misrepresentations of staff and cartel supporters who said safety was not an issue with this much bigger boat. Funny how what goes around, comes around, isn’t it? Either the cartel and the harbormaster were wrong in 2010, or they are wrong now.

Several alternatives to Marvin’s proposal easily present themselves. First and foremost would be to deny the request. This behemoth does not come close to fitting within the boundaries of the water space rented by Monterey Bay Whale Watching. Presumably there is a reason the water spaces in this bay are limited to 20 by 50 feet. It is to allow the rear water space boats to get out. The width of the Blackfin prevents that.

Other alternatives that preserve #21’s water space would include a condition that the Blackfin be required to move out any time Ternullo’s rear boat needed to exit the bay. Another solution would require the Blackfin to moor on the west side of concession #18.

All of those are sensible responses to Ternullo’s request to squeeze the Blackfin into a space that is too small. Instead, Marvin again chooses to usurp MBS water space rather than instruct Ternullo to eliminate the impact of Blackfin.

ls-1WHO’S RUNNING THIS CITY ANYWAY?

When the City Council decided to continue the matter to a later date, it ordered that MBS and the cartel engage in mediation to resolve the dispute. But the dispute is entirely of Marvin’s and Ternullo’s making, in that they intend to continue the taking of MBS property. I can’t imagine what MBS could want from mediation other than to be permitted to earn a living by conducting business as requested five years ago and as is Dutch’s right. Why should Dutch be required to change his use of his driveway when the problem is entirely of Ternullo’s making in buying a boat that doesn’t fit in his own?

Since it is obvious that the cartel, rather than the city, controls Concession #21, perhaps this finally puts the onus on the cartel to discontinue its efforts to put MBS out of business. I’m sure that if the cartel tells Marvin to do so, the city will be only too happy to give Dutch what he needs to run a successful business.

So will David overcome Goliath and the bully? It could happen with this mediation. But the backroom control of Fisherman’s Wharf will not end until the new council leasing policies are fully implemented. That could begin to happen tomorrow with the advertising of the Concession #18 space for offers by qualified bidders. The only way that does not happen is if the “fix” is still in to reward the longtime tenants and profiteers with the largesse of the city through backroom politics.

It is one thing to bemoan the outrageous profiteering that past improvident Council policies and decisions have wrought and quite another to stand by cluelessly to stop it when that right to profiteering has ended. Fifty years of feeding from the public trough is quite enough, thank you.

By Marvin’s actions, the city and the public treasury have lost an estimated $100,000 (best guess) in sub-lease rent that the public has been entitled to since Sept, 30, 2014. That is a waste of public money, an unconstitutional giveaway of public property to private persons. Does it require a lawsuit to see that city officials serve the public interest by taking this cash into the public treasury?

I hope not.

McCrone is a retired lawyer and, until recently, a member of the Monterey Planning Commission. His research and writings led the City Council to start reforming leasing practices at city-owned Fisherman’s Wharf, where numerous longtime leaseholders have reaped large profits by subleasing wharf space with no benefit accruing to the city.

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NEWS ITEM: Monterey Mayor Clyde Roberson and City Councilman Alan Haffa propose to reappoint Paul Davis to the Planning Commission and appoint three new members, architect Daniel Fletcher, attorney Stephen Millich and neighborhood activist Mike Dawson. The new members would replace Willard McCrone, Luis Osorio and David Stocker. The matter goes to the full council Tuesday. Here is a link to the recommendations and here is a link to the applications.

The following is McCrone’s response:

If you care about good government, you have cause to be concerned about the present effort of the mayor of Monterey, Clyde Roberson, to emasculate the Monterey Planning Commission.

After nearly four months of secret machinations, he has just announced that he will move to replace three sitting commissioners out of four whose term of appointment is up for renewal.

What you are witnessing is the politicizing of the Planning Commission. If Roberson is able to flip two of the three commissioners whose terms expire next year, and there is no reason to believe he won’t, Roberson will have succeeded, within two years of his taking office, in entirely remaking the Planning Commission to his own image. The mayor will make a seat on the Planning Commission a “spoil of political war,” a subject of patronage and campaign promises. This would be a sad development for Monterey.

My purpose is not to extol the virtues of the commissioners being fired, nor to disparage the qualifications of those nominated to replace them, but rather to call to your attention that the mayor will destroy the finest Planning Commission on the Central Coast, and one that has been immune to politics and special interests for the past 15 years.

Henceforth, sitting commissioners will keep an eye out over their shoulder to see whether the politicians on the City Council are likely to approve or disapprove of planning decisions that are controversial, or that offend one or more special interests. That is a very different motivation than a straightforward consideration of what is best for Monterey, and letting the chips fall where they may.

Every city and county in California is required by state law to have a planning commission, composed of citizens who are appointed rather than elected. No other city committee or commission has such authority. There is a reason for that. The state Legislature thought that the municipal business of land use, zoning and planning was too important to be subject to the vagaries of politics and back-room cronyism. It wanted an independent body of objective citizens to administer these laws and regulations, not just the elected officials, who come and go, and are subject to the necessities of getting elected. And implicit in that special status is the necessity that commissioners develop the expertise to understand how those laws work and why.

A wholesale change of membership on the commission can only have the effect of rendering the commission nearly 50 percent ineffective. The last new appointee, Hansen Reed, is a well-qualified practicing attorney with experience on another city committee and lifelong roots in Monterey. He acknowledges today that, after three and a half years service on the commission, he is still learning his job. He will become chairman to replace Luis Osorio (a rare minority appointment), the current chairman until being fired in this proposed coup. I am certain Hansen will do a fine job as chair, but he won’t get much help from three new members for quite a while.

Make no mistake; this firing is rooted in the mayor’s disapproval of certain decisions made by this commission. He does not approve of the award-winning Downtown Specific Plan, nor of the North Fremont Specific Plan, which were the product of years of hard work by the commission and planning staff. Indeed, the commission as a whole was recognized with a commemorative gift from the past City Council for our excellence in driving those plans.

The plans were all the better because we had the experience and expertise to challenge the staff to develop unique and bold plans that were more than the usual mouthwash of plan-speak. We are not a passive commission, accepting whatever the staff puts before us. We have been actively involved in challenging the staff to be better, with the result that our land use planning and decisions have been well reasoned and coherent. That is good for everyone.

Roberson does not approve of the 2005 Master Plan that calls for mixed use and selective increase of density to meet our mandated goal of making Monterey a sustainable city where the people who work here can also live here. Despite the massive traffic jams coming in and going out during rush hour every day, Roberson wants to turn back the clock to the way things were in the ‘80s. But if we don’t follow through with our sustainable land use plans, Monterey will become more and more a city of retirees and second homes.

Based upon his testimony before the Planning Commission while he was a private citizen, Mayor Roberson believes that the commission should make decisions based upon a plebiscite of surrounding neighbors and neighborhoods, not sound planning principles. And for those who have wondered what happened to the excellent Waterfront Master Plan, which has been five years in the making and has been sitting without action since October, it is fair to suggest that the mayor has been sitting on it until he could remove three commissioners who have been strong advocates of taking back some of the waterfront for the benefit of the public, not just the commercial interests.

Five years of attending hearings and listening to the public by the fired commissioners will be lost. The battle for removing a small amount of parking in favor of public recreational space just got easier for the reactionaries who believe that the waterfront is there to enhance sales for wharf merchants.

I would not be opposed if the current action to fire sitting commissioners was part of a program to institute term limits. There is merit to having some regular and modest turnover of commissioners, to enlist new perspectives. But a term limit should be applied one or, at the most, two at a time so as not to impact the effectiveness of the commission. And it should never be a political spoil. Ten to 12 years might be appropriate and, as the one with the longest tenure, I would be the first to go.

If term limits are desirable, they should be applied across the board and should include the Neighborhood Improvement Committee that has members who have served 30 years or more. But those members are political cronies of the mayor.

No council member other than Libby Downey wanted to discuss term limits when she suggested that it be agendized for the council discussion last month. I know she was surprised by the charade to keep the back-room machinations a secret until Roberson was ready to disclose his intentions.

It is also worth noting that this proposed firing is a change in long-standing policies about commission membership. Most planning commissioners appointed in the past 30 years, to my recollection, have had the experience of serving on at least one other Monterey commission or committee, a prerequisite to demonstrate ability and demeanor to deal with the public and staff. One of three new appointees lacks that experience. One, Mike Dawson, is a known opponent of the Waterfront Master Plan. The third, Dan Fletcher, is eminently qualified, but I am informed that he does not reside in the city of Monterey, which I had thought was a prerequisite for appointment.

In the 30 years in which I have been paying attention, I am aware of just one occasion when sitting commissioners were fired, and that was for cause. It is more than a little ironic that my own appointment in 1997 has come full circle. I was then a 10-year member of the Parks and Recreation Commission and had no interest in moving to the Planning Commission. I was asked by the mayor to submit my name for appointment. The Planning Commission had become very political in its discussions and decisions, and I was appointed to ameliorate the politics and unpredictability of that commission. I succeeded in small part, as the two members who were abusive of the position were fired within a year or so of my appointment. I now suffer a similar fate, absent the cause.

We now enter a period where the Monterey Planning Commission will once again be subject to politics and inexperience. Unpredictability and passivity will be the result. And that is not good news for the citizens of Monterey.

As I was not afforded the courtesy of even an email to inform me that my services were no longer required, I did not have the opportunity at our last meeting on Tuesday to address the commission and thank them for working with me these past many years to make Monterey a better place to live and work. I am very proud of the accomplishments the commission has made during my tenure, and gratified that I have contributed to those achievements. We have raised the bar for debate and discourse of important issues confronting Monterey.

I have never been involved with a finer group of pubic servants who were dedicated at all times to the best interests of Monterey. Keep up the good work, just as I will continue to have a voice on important issues before Monterey, albeit on the other side of the podium.

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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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Recent newspapers have prompted me to think it is time to review in detail the long sordid history of Fisherman’s Wharf and the city of Monterey’s mismanagement of our precious waterfront. You all no doubt take the Monterey Herald and will have noticed yet another inane letter (from a Pebble Beach woman who works on the wharf) bemoaning the policy change to shorter term leases for the wharf. By my count, that was at least the seventh letter on this point, plus the Hospitality Association propaganda piece published without any factual substantiation or basis in reality.

Those who also take the San Francisco Chronicle may also have noticed the semi-annual special travel section “Q” entitled and devoted entirely to Monterey County. I have studied this section for several years and note that this year represents the absolute nadir of our Fisherman’s Wharf as a tourist attraction. Be it photos, copy, paid ad or mention whatsoever, our local treasure known as the Fisherman’s Wharf got exactly ZERO mention in 18 pages. The previous low was in last fall’s edition, which contained exactly one mention of the wharf as a place to board a whale-watching trip. Those who have extolled the virtue of the wharf as a “local treasure” and a top revenue and visitor generator or who say “it ain’t broke” are living in the past and increasingly the distant past.

Fifty years of private greed and profiteering, combined with 50 years of ignorant, uninformed council policy and incompetent city staff work, have led us to this pass. Rent a kayak and row around and under the wharf to see the deplorable condition of the pilings, peeling paint, and grime that marks our neglected showcase. We are reaping what City Hall cronyism has sown, and it will continue to track downward unless this new enlightened City Council is able to succeed in turning around the culture of profiteering, entitlement, and monopoly that has encrusted the wharf in the past 50 years. There are many battles ahead to be won and at least one general election to win if the citizens of Monterey are to wrest control back from the entrenched, wealthy and politically powerful merchants on the wharf.

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The former Gilbert’s restaurant has become the poster tenant for those who argue that merchants can’t afford to make improvements to wharf properties without leases considerably longer than 10 years

TIDELANDS BELONG TO THE CITY

The relevant history actually starts in the 1880s, when the California Constitution (Article 10, ℥ 3) and Legislature granted the Monterey Bay tidelands to the City of Monterey “in trust” for the citizens of Monterey, in perpetuity. The city cannot sell or give away this land (to the median high tide) EVER, and by statute cannot lease it for less than fair market value or for longer than 66 years. It is known as “tidelands trust” property, status that places fiduciary restrictions on its use over and above any other city- or public-owned property. Prior to the installation of the present City Council, those fiduciary responsibilities have been observed far more in the breach than in service.

As best I have been able to determine, a private shipping company built the first Wharf I in the late 1880s under lease from the city. The city claims to have no records of ownership or interest in the wharf until the 1930s, when the city acquired possession and ownership of the wharf and everything on it that was nailed or bolted down, which at that time included sardine and fish processing, commercial fishing activities, and a few restaurants. By 1939, most of those commercial activities other than the sardine cannery (located on what is now Heritage Harbor) were owned by ethnic Japanese citizens and immigrants.

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Tourists won’t learn much about Monterey at the wharf but they can find out who has the creamiest chowder

In 1939, Monterey passed into law its first Master Plan (and the only one until 2005). It presents a laudable vision of preservation of our historic character as a “waterfront town.” It is not that long, has some very interesting photos, and is well worth a read for those who like to ponder “what might have been.” Relevant to this historical account are the following excerpts:

“That portion of the Bay of Monterey which is owned or held in trust by the city is now being used, almost entirely, by private commercial interests. This situation has developed within the past thirty years. The development has been gradual, and it is only recently that it has been realized the best interests of the city have not been thus served. It has come to the point where the people of this city have practically lost control of their own property – the land and waters of Monterey Harbor.” ……….. “No one spot in our city is in more critical need of cleanup and a reinstatement of original scenic conditions than the area around the Old Custom House.” ……. “It is obvious that conditions must be bettered on every side of this structure before it can be seen and enjoyed to advantage by our citizens and all visitors. No parking of cars, no concessions, and no intrusive recreational facilities aside from an appropriate bathhouse, should be permitted anywhere along the shoreward side of the Southern Pacific Railroad tracks.”

The plan goes on to describe…..”In order to reestablish an approximation of a pristine shoreline aspect and insure it the noble setting it deserves, the following changes will be necessary”….. (including) …… “Fishermen’s Wharf is to be removed.” ….. “Booth’s Cannery, to the northwest of the Custom House Reservation, is to be removed entirely; and it is suggested that this site might offer a very interesting spot for seafood restaurants under proper architectural control and municipal ownership.” ….. (and) …… “Finally, we recommend that no concessions, except those provided for above, should be permitted in the Harbor of Monterey east of the breakwater.”

WHARF BUSINESSES DECIDE WHO CAN JOIN THEM

Interesting, eh? That City Council and Planning Commission, all of whose members individually signed the plan, clearly knew about the value of preserving our civic history and character, perhaps ahead of their time. That master plan was never changed in any significant way and was the law until superseded by a new Master Plan in 2005.

So what happened to that farsighted plan and its noble vision of a pristine waterfront town unlike any other in California? Some would say politics, but others might offer perfidy, cronyism, backroom sweetheart deals, and greed as the causative factors.

We all know what happened to the Japanese citizens and immigrants in 1941. When they returned from internment in 1945, none of their business interests on the wharf remained intact. That is no doubt an interesting and tragic story, but one that I don’t know. What we do know is that the 1940s became the heyday of commercial fishing and the sardine cannery, polluting the Monterey Bay almost beyond repair, and then the sardines went away in the 1950s. By 1955, the wharf was occupied by another ethnic group, Sicilian-Americans. And presumably the city was suffering an economic downturn post sardines.

It was 1958 when the city took its first official action to subsidize Fishermen’s Wharf private business – the enactment of the infamous Resolution 9000. This wharf ordinance, incredibly still in effect today, had the effect of freezing out competition from any business not already on the wharf. It limited who could have restaurants, who could have boats and of what size, and who could sell what and when. It even regulated who could sell chewing gum and gumdrops, and how many. Really! It’s a document that makes John D. Rockefeller and Standard Oil seem like pikers and must set T.R. to rolling in his grave.

It is available on the city website and reading it is worth a laugh or two. Unfortunately, the smirk subsides when you see that Res 9000 was used in 2008 in an attempt by the powerful Arcoleo family on the wharf, Harbor Master Steve Scheiblauer, and Rick Marvin, the city’s property manager, to squeeze out Monterey Bay Sailing, a sub-tenant to Tony Rappa, who owns the master lease at concession #21. (As an aside, Rappa has controlled that concession since 1985, despite never having paid anything for the control and has never conducted any economic activity there. He has never paid any gross percentage rent there but will continue to control it until 2041, long beyond his life expectancy).

Apparently Arcoleo did not appreciate the competition that Dutch Meyer’s small sailing school presented to his large whale-watching sub-tenant, not to mention that Dutch was an interloper to the closed wharf vendor community. The city went to a lot of trouble to get Dutch out by imposing impossible conditions on his small business, the only new economic activity and water dependent use on the wharf in 50 years. At one point, Scheiblauer imposed the Transient Occupancy Tax, also known as the hotel tax, on Monterey Bay Sailing because out-of-town sailing students who slept over on Dutch’s sailboats. He was prevented from investing in his business and expanding, but he is still there despite a city order to leave. The city is not doing anything to enforce his eviction; I suspect because city officials know it is a losing court case. The city has no power to regulate business in the manner of Resolution 9000 or to commit outrageous discrimination.

But I digress.

The next step by the city to formalize disenfranchisement of the public was the issuance in 1964 of  25-year ground leases to all existing tenants on Wharf I. The city claims that no real estate records exist from real estate dealings prior to 1964. I have read all of the leases, but very few exist even from 1964. I can only deduce from these leases and subsequent leases that recite October 1964 as the start of any contractual arrangement that all 1964 tenants were sitting on month to month leases in September 1964.

NEED FOR SUBSIDY ENDED DECADES AGO

This leads to one inescapable conclusion – the public then owned all buildings and improvements  on the wharf and sitting on our tidelands. That is the well-established law since the days of the Magna Carta and confirmed by the California Supreme Court as early as 1905 when it ruled that tidelands owner City of Oakland obtained full ownership of wharf improvements following expiration of a ground lease. In Monterey, the existing 1964 occupants may or may not have built the buildings they occupied (no one has come forward with any substantiating records), but it is indisputable that those improvements had reverted to full ownership by the public by 1964.

So why did the city give away ground leases which charged rent only for the land, while giving away occupancy of our buildings for free? Among other things, this gift was unconstitutional (under Article 16, ℥ 6) which prohibits gifts or transfers of public assets without consideration. We don’t know. This was before the first Brown Act requiring transparency in public government decisions. Could have been strictly a back-room deal, or closed session, depriving the public of notice and opportunity to be heard.

In any event, this was the beginning of the sweetheart deal for wharf merchants. Perhaps there were cogent reasons to subsidize the wharf (declining economy post-sardines?) but I doubt the public was informed about the cost/benefit of subsidizing one isolated segment of the private business community. But by initiating leases that falsely recited that the tenants had built all the billings, the myth that the tenants owned the buildings began. It wasn’t true then, and it isn’t true now. None of those tenants who claim ownership can show you, now or ever, a deed or bill of sale.

These ground leases were for 25 years (through Sept 1989). They charged rent at $.10 to $.14 per square foot, ground floor only. Second-story space cost the tenants nothing. They required the tenant to maintain the premises and pilings underneath; and contained no options to extend the length of the leases.

It is in the nature of legitimate ground leases that they never include options to extend. Ground leases are, in the real world of arms-length commercial development, just a financing device whereby the landlord and the tenant allocate the responsibility for investing capital to a development. The landlord provides undeveloped land to a tenant who provides the capital to build the buildings. The consideration for the deal is that the tenant pays only a much reduced rent for bare land while using the building he has built for free. At the end of the term, usually 25 to 35 years (tied to the useful depreciated life of the improvement), the tenant leaves and the landlord gets full possession and control of the property, as built. If the tenant wants to stay, he negotiates a regular building lease and pays full market rent for the property as improved. It is a bit like a reverse mortgage in that the landlord pays off the cost of the building over the term of the ground lease through accepting greatly reduced rent, and then owns the property free and clear of any mortgage or ground lease. I hate to be so esoteric, but understanding the nature of a ground lease is essential to understanding the perfidy of the city as time goes along.

CITY NEGOTIATED WITH MAYOR’S LAW PARTNER

Sometime between 1964 and 1976, the Fishermen’s Wharf Association was formed by the wharf interests, chief among them restaurateur Angelo DiGirolamo, a councilman from 1963 to 1967. That created a “closed shop” environment on the wharf and completed the transfer of control of our waterfront from the public to commercial interests, as feared and foreseen by the 1939 City Council. City Hall was only too happy to cooperate in this transfer, abandoning its fiduciary duty as a trustee of our tidelands from then until the recent City Council began changing leasing policy this spring. It was during this time frame that the waterfront was paved over into a parking lot to facilitate the profits of private vendors on the wharf. No record exists of the public dialog about this, the worst land-use decision in the history of Monterey, and the city staff cannot tell me who and how the decision was made to ignore the master plan. In the recorded history of Monterey, it is simply a “fait accompli.” But it is a development that is emblematic of commercial control over our waterfront. Joni Mitchell wrote a song about it.

In 1976, the tenant association initiated negotiations with the city to amend and extend their blanket ground leases. No adult commercial landlord in her right mind would ever negotiate leases with a tenants’ union, but the city’s response was “how can we help you?” The issues and debate are set forth in a lengthy transcript from a 1976 council meeting. The association, represented by the law partner of then-Mayor Peter Coniglio, argued that its members needed more time to finance the repair/replacement of their pilings (there were then 13 years left on their ground leases) and asked for a blanket option to extend their existing ground leases by 25 years if they were to repair the piling before 1989. (Sound familiar?) In return, the association offered to revise the rent to pay 2.5% of gross sales, if greater than the $.14 per square foot they were then paying as minimum rent. At that time, market rent in Monterey was around $1 per square foot and 6 to 10 % of gross sales for similar retail and restaurant activities.

During the considerable discussion of the proposal, then-City Manager John Nail favored the tenants’  proposal and pointed out that the staff considered the wharf merchants to be “family.” Charlie Page, a prominent attorney and City Council member at the time, pointed out that it was not in the public’s interest to extend a ground lease. He was outvoted 3–1, and all leases were amended.

One would think that all the 32 or so tenant/concessionaires would have then jumped to take advantage of this additional gift of 25 years by doing what the old lease already required them to do – repair/replace their dilapidated pilings. Not so. Only three tenants (the “2014 three”) did so, in return for which their ground leases were extended to 2014. The others could not be bothered, in an apparent belief that the city would do whatever was requested of it by the Family on the Wharf. They were right.

The 1964 ground leases, other than the 2014 three, expired in September 1989. By the terms of those leases, and by law, the possession and control of the wharf buildings reverted to the public on that date, even assuming the fraudulent recitals about who built the buildings were true. The tenants had no option or right to “roll over” the 1964 ground leases, which should have been replaced by commercial building leases offered to the public at large in competitive bidding. And according to ℥ 6.4 of the Monterey Charter, new leases should have been at fair market rent based upon sound appraisal practices. Please note that space on the wharf has not been offered to the public or competitive bidding since 1964 – or maybe forever.

CITY ATTORNEY ESSENTIALLY SLEPT THROUGH TALKS

None of this happened. Instead, then-City Attorney Bill Connors (not a real estate expert), city Property Manager Bob Humel, and the tenant association attorney, former Mayor Coniglio, entered into private meetings to “hammer out” the terms of a new blanket ground lease covering all expired leases on the wharf. In a staff report dated Nov. 21, 1991, those terms were revealed to be minimum rent at $.35 per square foot, counting ground floor space only; gross percentage rent at 3% of gross sales; a new term of 30 years; rent adjustment every 15 years based upon agreement or arbitration; no tenant contribution to common area maintenance expenses, which would continue to be borne by the city’s General Fund; and tenant responsibility for maintaining only their own premises and pilings (which responsibilities had been mostly in default since 1964). To complete this transaction in which the tenants’ attorney essentially dictated terms, that attorney was allowed to draft the leases, which looked suspiciously like the 1964 leases, a form that was about 25 years out of date.

During a statement before the City Council in March 2011, Connors, by then a former city attorney,  said he did not recall these negotiations, but that he “probably sat there making paper airplanes to throw out the window” while Coniglio and Humel went over the terms. In a 2012 letter in support of Surside/Balesteri’s attempt to cajole the council into extending the outrageous Sapporo ground lease beyond 2018, Connors claimed to be an expert in “municipal law” and said: “Public agencies don’t make profits, we’re not in ‘business’ to do so, and while under Prop 26 cities are free to charge market rates for leased lands, it does not do so to recover a profit …” Really? He signed his name to that. Connors did not opine on how a city was to determine which private persons were to benefit from profits thus declined.

The staff report offered as justification for this giveaway of millions of dollars of public money “the longstanding policy” of the council in favor of long-term leases. I’m guessing that the report was referring to the 1964 one-time “policy” of giving away 25-year ground leases. Under the mandatory report heading of “Alternatives Considered?” the staff reports “NONE.” (Really!). The council resolution approving the “new” blanket ground leases was approved unanimously, probably as part of the consent calendar, but I have been unable to find a record of the meeting approving the blanket ground leases. None of the current council members were on the council at that time, and Fred Meurer was the newly appointed city manager. It is difficult to blame this travesty on the council, which received atrocious support and recommendations from staff.

But the staff wasn’t done! Peter Coniglio, in his capacity as lawyer for the tenants, complained that Bill Connors had verbally promised to grant 20-year extensions to the 30-year 1991 leases if the tenants complied with their obligations under the new lease for the next five years. Yes, you read that correctly – if the tenants did what they were already required to do under the 30-year lease for five years, they got a thank you bonus of an additional 20 years. Recognizing that such a verbal promise was not enforceable unless the council approved it, Coniglio asked for such acknowledgment. A Dec. 21, 1991, staff report by the community director recommended approval, again probably “on consent” and, under the mandatory heading of “Fiscal Implications?” he reported that there were “NONE.”

CITY HALL APPARENTLY IS FLUSH

I have been unable to determine whether any significant oral report or discussion occurred before the public. And thus did the tenants on the wharf become overnight millionaires, with a feudal estate for 50 years during which they only had to pay about a third of fair market rent, while siphoning the other two thirds from the public treasury.

About 16 of the 1991 lessees took advantage of this gift by repairing or replacing their pilings by 1996 (what they should have done in the early 1980s). Their ground leases now run through 2041 – an eternity in the retail world. Several other leases, due to reasons that include deaths and estate confusion, expire in 2021. Those include leases held by the Shake family at Fishermen’s Grotto (highest grossing restaurant on the wharf) and by Mary Alice Fettus-Cerrito for the space formerly known as Gilbert’s restaurant. Both have been energetic about seeking extensions in the past year, with the specter of losing their place at the public trough looming in six years. As it stands, Fettus-Cerrito receives a stipend of $284,000 a year, according to city records, for controlling premises she can’t use and may have paid nothing for. Thankfully, the new leasing policies being put in place by the council majority will prevent a continuation of these profiteering outrages.

So what can we conclude, with some factual certainty, with regard to the 1991 leases?

1. THEY ARE ILLEGAL AS HELL! There is no arguing with the fact the city failed to obey its own charter requiring appraisal information and individual negotiation. City officials glossed over the legality issue by shuttering discussion of that topic in  closed session in May 2011 and then saying only that the council had, on a 3-2 vote, decided not to engage in litigation over the issue. They thanked me for bringing this problem to their attention and then signed off by politely telling me to shut up. Two months later a motion was made to kick me off the Planning Commission (while I was on European vacation). The motion failed on a 2 – 3 vote.

With the help of my friend and ally  the late Barbara Bass Evans, we got the Sierra Club interested in suing to void the leases for this blatant violation of the law. But after conferring with several of the Sierra Club’s high-powered Northern California lawyers, I had to reluctantly agree that it was then probably too late to win a lawsuit. The legal principle or doctrine of laches (latin for “don’t sit on your rights”) probably required a dismissal as 20 years had passed since the illegality. Too much water under the damn to put Humpty back on the wall, if I may mix metaphors.

2. UNCONSTITUTIONAL, ILLEGAL GIFT OF PUBLIC PROPERTY TO PRIVATE PERSONS FOR PROFIT. Here we return to the “who owns the buildings” conundrum, and proof that if you tell a lie often and long enough, people won’t accept the truth.

The law and economics of a ground lease cannot be disputed. The landowner owns his land and everything on it at the end of a ground lease, no if, and, or but. It is a reasonable supposition that the public already owned the buildings in 1964 when the city chose to use a ground lease as a vehicle to subsidize private business on the wharf, but I don’t have the evidence to prove it. But in 1989, no additional evidence is required – the buildings automatically reverted to the public at the end of the 1964 leases. End of story!

It is possible that city staff didn’t know what a ground lease was in 1989 – 1991, but I doubt that very much, for reasons I will not go into here. But I think it certain that key staff intended to cut a sweetheart deal for the backroom boys on the wharf. The effect of redoing another ground lease was to give those favored sons and cronies full use of the public’s buildings rent free. As I will show below, this unlawful decision has cost the Monterey taxpayers about $3 million a year since 1991, or $70 million and counting. The sum of lost revenue will be well over $100 million by 2041, the equivalent of the annual budget for Monterey. Of course, this revenue is not exactly lost – it lines the pockets of the wealthy merchants on the wharf.

That’s a lot of money, but the enormity of the deception practiced upon the public is best illustrated if I may return to the mortgage analogy. Making the false assumption that the wharf tenants all built their premises with their own money in 1964, they in effect lent the cost of construction to the public, which paid it off in full over 25 years through greatly reduced rent payments for prime real estate. After 25 years of timely mortgage payments, the bank says thank you very much and delivers to you the mortgage instrument, marked paid in full. Similarly, the ground tenant turns over possession of the building he built because he has received the benefit of his bargain, free use of those premises for 25 years. If he wants to stay, he asks for a commercial building lease at fair market rent and the parties go forward with the relative relationship they bargained for.

LEASES ARE WAAAAY BLOW MARKET RATE

But instead of that bargained-for outcome, the city in effect said in 1991 “we enjoyed paying that mortgage every month so much that we want to pay it off again, in this case twice more (until 2041, 50 years). No more money was lent; no more construction or improvement was given by the tenants. So the public is now about to pay off what is now a phantom mortgage in full a second time (2016) and can look forward to paying off a third phantom mortgage during the period 2016 to 2041. Imagine the uproar from the public if these consequences of rolling over ground leases were disclosed in the staff report and non-consent hearing in 1991. What would you do if your bank refused to cancel you mortgage after you paid it off and, instead, insisted that you pay it off again? You’d take it straight to the cops and the DA – there is a pretty obvious crime in there.

If, after this explanation, you still believe that the wharf tenants own their premises, then I give up. You are a lifetime member of the Flat Earth Society and are doomed to spend you life making snarky comments about the Emperor of the Wharf’s non-existant new clothes. Or you are one of the profiteers on the wharf.

3. THE 1991 LEASES ARE WAY BELOW MARKET. The market for minimum rent in downtown Monterey in 1991 was $1.50 to $2.00 per square foot,  not the city’s figure of 35 cents. The market for percentage rent on gross sales for those activities usually employing that rent structure (restaurants) was 6 to 7 % statewide, not 3.0%. For prime property, like Cannery Row and the wharf, the market was (and is) in the range 10 to 12 %. These percentages don’t go up or down from year to year with inflation or deflation. They have been the same for 40 years, according to California Bar specialty books. And by 1991, commercial landlords were universally charging absolute net expense to the tenants – meaning the landlord was reimbursed by each tenant their proportionate share of absolutely every expense incurred in operating the property. Instead, the City spends about $600,000 per year for common areas, pilings and utilities, none of which is reimbursed by the tenants. The tenants pay for maintaining their premises and pilings which, even a most cursory inspection will disclose they do about as good a job of now as in 1964. If even just the cost of tenant pilings were collected by the city from the tenants, the city could control the appearance of the dilapidated wharf with timely repairs. But that is a lot of work for our public servants in the property management department.

The most glaring examples of a market lease are those entered into at the Sapporo building between Surfside (Ted Balestreri) and the two sub-tenants there. They pay top dollar, as they should for waterfront property, which is about 11 to 12 % of gross sales plus absolute net. Every tenant on the wharf should be paying a similar rent structure. Assuming that the city evicted the many wharf tenants who are so mediocre that they don’t pay percentage rent, it is a simple calculus to see that annual revenue from the wharf ($1.2 million in 2013) should be $3.6 million to $4.8 million, net.

4. LONG LEASES HAVE ENSURED PROFITEERING. I have previously debunked the notion that there is any reality to retail/restaurant tenants needing or getting long-term financing to improve their premises. Doesn’t happen. An easy example here would be the London Bridge Pub in the ground floor of the Sapporo building. Mr. Eales, the sub-tenant of Surfside/Balesteri, entered into a three-year lease around 2008, with additional options, to start. He made significant investment in tenant improvements. He was obviously able to depreciate those improvements over three years, and didn’t require secured bank financing. His gamble paid off as his business did well, and he is still there through 2018 by exercising options.

The real reason, and only reason, the wharf denizens want longer leases is to sub-lease or sell the lease as a capital asset. The huge profits enjoyed by sub-lessors are already demonstrated by my last post – Mary-Alice gets $22,000/month while the city’s share is  $6,600/month. Most businesses on the wharf are on some kind of sub-lease at market rent, with the master lessor collecting somewhere between 50% to 75 % of that market rent.

Sales of the master lease are a different calculation. It is essentially a mathematical formula to determine how much you would be willing to pay in cash today for the right to receive an income stream for a specific time period. In its simplest form, consider much you would pay to receive $10,000 cash for one year, with your original investment returned to you at the end of the year. If banks were paying 5% on savings deposits, you might be willing to pay $200,000. Other variables come into play, but that is the essence of it.

On the wharf, the income stream is the difference between the paltry rent paid to the City and market rent. Using Mary-Alice again as an example, and assuming she had been able to extend her lease to 2041 as most of the others did, the question is how much would you pay to receive $284,000 per year for 25 years, in return for doing nothing? A simplistic answer in a climate where passbook savings account at most pay 2% interest, would be  $14,200,000.

Some actual examples:

(a) Tony Rappa closed his restaurant at the end of the wharf in 2013 because of poor sales and his retirement. He listed it for sale after it was dark, but could only get an offer from fellow wharf tenant Jim Gilbert. The restaurant itself was of little value, but Gilbert was willing to pay $2 million for the lease rights through 2041. Although Gilbert and his agent said repeatedly that over $2 million extra would be invested in a new restaurant operation, Gilbert essentially changed the name and reopened the doors, enjoying his cheap rent ever since. Without 28 years remaining on his below market lease, Rappa would have received little or nothing from the sale, and the city would have been able to re-lease the property at market.

(b) The Sandbar Grill (on Wharf II) was held by Cereus Inc. and Anderson on one of the 1964 cheap ground leases which expired in 1989. Neither the city nor the Andersons made any effort to negotiate a new lease, which continued on a month to month basis for 12 years, until February 2001. I am informed that the Andersons were uncommitted about closing or selling so they did not initiate discussions. They were content to pay cheap rent while they made up their mind. Apparently the city property manager could not be bothered to manage this lease for 12 years. Then, the Andersons decided to sell and asked for a new lease. The property manager was only too happy to cooperate. He gave them another ground lease at about a third of market value for 24 years, whereupon they turned around in a year to sell what had been a low-value business for $2 million. The figure mostly reflected the value of the lease.

(c) In late 2010, Monterey Sport Fishing and Whale Watching, a long time subtenant on the wharf, was offered for sale at $250,000. The “Master Lease” was also offered for sale for $750,000 with the fillip “this is the First Master Lease Offered in Many Years Rare Opportunity.” That is a pretty good thumbnail – the below market lease is worth about three times as much as the business sold. And that particular lease had only four years left on it,

NO COMPETITIVE BIDDING FOR WHARF SPACE

There are other examples but you can see that these sweetheart leases created enormous value for private vendors, who paid nothing for the public gift. The amount of the windfall is the public’s money, but for incompetent management. A properly structured lease has no capital value for the tenant.

The only remarkable event with this history after 1991 until the past couple of years was the lengthly and expensive arbitration between the city and the Wharf Association in 2006 in which the city attempted to raise rents. We essentially lost that arbitration because our appraisers were hamstrung by the label at the top of the lease (Ground Lease). Even though they acknowledged that there seemed to be no rationality to a ground lease, they were stuck with appraising as though it were a righteous ground lease. The city obtained the magnanimous increase of percentage rent from 3% to 3.5%, when real market for a building lease was 10 – 12 %. One silver lining to that debacle was that our appraisers obtained accurate rent information from the Cannery Row Company (usually highly confidential) demonstrating just how low our rents on the wharf were.

I will not go into the additional subsidies given to wharf merchants for free county-resident parking, but it is about $500,000 per year additional.

The wharf businesses have an enormous competitive edge over downtown restaurants, which pay two to three times as much rent for premises not located over the water. That has compounded the difficulty of revitalizing our downtown, and that is not likely to change soon.

Well, this has become too long so I will quit. It is a luxury to have no limit of 250 words or 20 minutes to develop the facts and conclusions. This is the history as I understand it, after having read over 2,000 pages of lease and related documents, but it is not without a caveat. There are definite limits to what a private citizen can discover, even with diligent investigation. That is especially true when the city of Monterey devotes so much time and effort to hiding the ball from the public. The city claims all reports of rent and sales from leases on publicly owned property are confidential to protect the alleged privacy of the vendor, who in my view has no right or expectation of privacy when contracting with the public. And this city has a penchant for pulling anything into “closed sessions” without accountable minutes that would permit the public to evaluate the performance of city employees on matters of significant public interest. So my investigation is limited to what the city gives me for public records requests, which have on occasion been inadvertently incomplete.

Who am I and why am I doing this? I am a West Point graduate and decorated combat veteran who is now permanently 100% disabled due to exposure to Agent Orange in Vietnam. I have a transplanted heart and a myriad of associated maladies that keep me in regular attendance at Stanford or the VA hospital in Palo Alto. I practiced law, mostly as a sole practitioner, for 38 years, specializing in real estate. I have negotiated leases for dozens of tenants and landlords, as well as many other transitions and litigation. I am now retired for medical reasons, listed as suspended from the Bar, ineligible because of my inability to keep up with continuing education requirements. I do not expect to ever be able to re-qualify or resume practice at my age.

I have no economic interest in any activity on the waterfront and, other than Monterey Bay Sailing, have never represented anyone there. And I have no axe to grind or thing to gain by exposing this unfortunate matter. I do this because I am very disturbed and pissed off to see the public abused and deceived, especially from behind closed doors, by those who would profiteer at the expense of the public. While I have at times felt like a man alone in the wilderness, five years of effort by me and the likes of Nelson Vega are finally bearing fruit in the chambers of City Hall. Please join us in watching the waterfront carefully to the end that the public may finally regain control over our precious assets.

PROPRIETOR’S NOTE: Disagree with Willard McCrone? Tell us about it. Leave a comment below or write your own piece.

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Boxing. Businessman in boxing gloves on backgroundAs if the fight over Fisherman’s Wharf leases wasn’t creating enough drama for the Monterey City Council, a new City Hall skirmish has broken out that promises to be at least as spirited.

The first punch was thrown during Tuesday night’s meeting of the Monterey Planning Commission when two commission members, David Stocker and Paul Davis, received emails from Mayor Clyde Roberson and Vice Mayor Alan Haffa asking them to withdraw their applications for reappointment to the commission.

Roberson and Haffa constitute the council’s nominating committee for commission appointments and they indicated in the emails that they have essentially decided to impose term limits for commission members though neither the council nor voters have enacted term limits. Traditionally, a two-person committee nominates residents for commission appointments that are then voted on by the five-member council.

The terms of four commissioners, including Stocker and Davis, are set to expire and the city has received applications from two others active in city politics, Rick Heuer and Sharon Dwight. Heuer is a lobbyist for the hospitality association and has been an adviser to the mayor, especially during the current effort by other council members to toss out a set of sweetheart leases between the city and wharf-related businesses. Dwight is a key figure in the city’s Neighborhood Improvement Program.

(UPDATE: Heuer says he has not applied for a position on the Planning Commission. Roberson says he cannot comment because commission applications are confidential under California law, specifically the Maddy Act, which requires government bodies to advertise commission openings. The text of the Maddy Act makes no reference to confidentiality, however, and a spot check of other jurisdictions found that  commission applications in many California cities make it clear that the applications are subject to public disclosure under the state Public Records Act. Monterey’s application, however, says the form remains confidential until the appointment process is complete. The spot check turned up one other city, Ripon, that labels the applications confidential.)

The terms of Planning Commissioners Willard McCrone and Luis Osorio are also set to expire but they apparently have not received emails asking them to resign. McCrone has been a leading force behind the effort to require wharf business to begin paying market rates for their space. The business and the hospitality industry has mounted a campaign to beat back the increases by portraying city officials as incompetent and uncaring. Perhaps not incidentally, Roberson and Haffa have been on opposite sides of that debate, with the mayor siding with established wharf interests and opposing the reform efforts.

McCrone commented Wednesday, “I expect my (email) any moment, and Luis Osorio, too. That is four of seven  commissioners from the best PC on the Central Coast, by far.  Dismissing over 50 years of experience.  It will have the effect of gutting the Waterfront Master Plan, in which we have pushed to recapture some of the waterfront from the wharf merchants for the public.  The Plan has been languishing in the back room for over 6 months while Clyde waits to get rid of us. ”

In a response email to the City Council and the rest of the Planning Commission, Stocker wrote that if the City Council wants to establish term limits, fine, but only after the matter is subject to an “open, public council discussion and decision.” As it is, the attempt by Roberson and Haffa to reshape the commission is simply “unacceptable,” Stocker said in a phone interview Wednesday. Stocker, a builder, has been on the commission for at least 15 years.

Davis, an architect, couldn’t be reached for immediate comment, but Stocker said he had spoken to his commission colleague.

“He said this is bullshit and he’ll fight,” Stocker said.

City Councilwoman Libby Downey said she also considered the attempted elimination of the commissioners as unacceptable.

“I’m very disturbed,” she said. “Two people cannot do this.” And if Roberson has received support from Councilman Ed Smith, which would provide him with a council majority, it would be a violation of the state’s open meetings law, Downey said.

Downey and others have said that Roberson ultimately would like to do away with the Planning Commission, partly because he believes it has too much authority on some matters and adds unnecessary bureaucracy on others.

The letter from Roberson and Haffa to Stocker reads:

Thank you for your years of dedicated service on the Planning Commission to keep Monterey a special place to live, work, and visit.  We value your contributions and caring for our precious City.

At this time, our subcommittee feels that it is time to allow other dedicated citizens to serve. We feel that 8 consecutive years on the Planning Commission in a good number.  Going forward, it is important to bring a variety of people from the community onto our commissions. 

Unlike other commissions, the Planning Commission often acts as a quasi-judicial body, and many instances, is the final approval body.

If you decide to take a break, we hope you will apply again in the future.  If you desire a break, you might consider withdrawing your application for the Planning Commission so it is clear that you are not being “fired,” which is absolutely not the case.

The subcommittee does not want to lose your expertise and experience.  To that end, we hope you will consider serving either on the Architectural Review Commission or Historic Preservation Commission.  There are openings on both, and both would benefit from your membership.

We hope to hear your positive response on the ARC and HPC opportunities.  Please let us know as soon as possible.

In appreciation,

Mayor and Vice-Mayor

Here is Stocker’s response:

Last October, during the election cycle, when we met at Libby’s, you had said that you would be putting in term limits for all committees, including the NIP (Neighborhood Improvement Program), and therefore, you would not support me for another planning commission appointment. When you said that, I had indicated that if that was the decision of the council, I would consider a different committee. The council has not voted on term limits, and I believe that discussion should happen, instead of it being put in place on select committees and individuals. I understand that my long service to the city has been at the pleasure of the Council, that is the essence of an appointed position, and it has been my pleasure to serve the city. But if the decisions not to reappoint are due to time limits, it should be a open, public, council discussion and decision.

I wish you all the best.

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161ccd73a48f7d274937e3f79228a2a6Just in time to add to the confusion over the city of Monterey’s lease policies at Fisherman’s Wharf, the Monterey Bay Views and News publication has been revived.

The centerpiece of the relaunched vehicle criticizes City Councilman Alan Haffa for sending a note to hospitality and chamber of commerce officials expressing his displeasure for their lobbying efforts on behalf of longtime leaseholders. The leaseholders, including Cannery Row Co. executive Ted Balestreri and the daughter of the late restaurateur Sal Cerrito are attempting to hold onto lease rates negotiated in 1964 so they can continue subleasing wharf properties to others at current rates.

The article, headlined “Monterey Council Member attempts to Silence Stakeholders,” says an email sent by Haffa contained a veiled threat but there is no indication of what the threat entailed.

Monterey Bay Views and News was started in 2012 by public relations specialist and former Watsonville journalist Jon Chown in partnership with Peninsula businessman Nader Agha, who is pursuing a desalination project at property he owns in Moss Landing. The print component of the publication ceased operations a year later and it apparently remains mothballed while Chown moves ahead with a digital version.

The article about the wharf quotes from city documents from 2011 when city officials met in closed session and decided not to attempt legal action against the leaseholders. At that time,  critics of the lease arrangements were contending that longtime leaseholders had received a sweetheart deal that amounted to a gift of public funds.

According to Monterey attorney and Planning Commissioner Willard McCrone (see his Partisan post below), many of the existing leaseholders are leasing space at the city-owned wharf for 61 cents per square foot per month and subleasing the same space to others for several times that amount. Supporters of the leaseholders have mounted a letter-writing campaign accusing city officials of mindlessly seeking to raise the rent without regard for consequences. Those behind that effort have provided virtually no information about lease rates, profit margins or other details but have made good use of the public’s discontent with government to spin public perception their way. With Chown’s return, they apparently have found another tool.

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161ccd73a48f7d274937e3f79228a2a6The following was written by Willard McCrone, the Monterey lawyer and city planning commissioner, whose research on the leases at the city’s Fisherman’s Wharf set off the current effort by council members Alan Haffa, Libby Downey and Timothy Barrett to reform the city’s leasing policies. Among other things, the leaseholders maintain that the city is insisting on leases no longer than 10 years, when in fact the city has said repeatedly that it is willing to grant options beyond that.

At the heart of the debate, though, is the amount the city charges. Most of the leases were awarded in the 1960s while the city was attempting to build up the wharf. Those leases were for 50 years.  In most instances, the original leaseholders have subleased the property to other ventures, continuing to pay discounted rates to the city while charging market rates to the new tenants.

The Partisan welcomes responses to McCrone’s posting and is particularly interested in responses from Mayor Clyde Roberson and Councilman Ed Smith, the dissenting votes on the discussions thus far.

McCrone’s response follows:

I have been out of the loop with some hospital time the past three days and can’t tell you how elated I am to see this post in my inbox upon return. Somebody is finally paying attention! Thank you, Royal.

You are correct that this is a long and complicated history dating back to 1939, and most of that history has been covered up in the back room of crony politics. I will leave most of that history to another post, but wanted to supplement several points made by Royal in this post:

(1) Minimum rents on the Wharf (most of which runs to 2041) are $.61/square foot, not $1.60/sf. FACT. Comparable rents of retail space in downtown Monterey, using the Trader Joe’s complex as a model for a professional landlord, is $3.00 to $3.50/sf.

FACT. Most restaurants on Cannery Row and Balestreri’s Sapporo Building pay gross rents in the range of 10% to 12% of gross sales.

FACT. All businesses except fish markets on Wharf I (Fisherman’s Wharf) pay 3.5% of gross sales as gross rent.

FACT. Anything I highlight as “FACT” means that you can look it up in city records, which I have reviewed. It is thus gainsaid that the city’s current earnings of annual rent from the wharf ($1.2 million) is one third to one quarter of what fair market rent would produce. It does not take much extrapolation to arrive at the sum of more than $3 million the city should be receiving from the wharf, plus absolute net CAM charges of another $1 million. Even in supposedly wealthy Monterey, $3 million is almost 3% of our annual budget. How many roads could we repair with that sum coming into our coffers every year? How many homeless shelters? And what have these favored tenants done to earn a subsidy of $3 million per year from the public?

(2) Financing impediments allegedly presented by 10-year leases are utterly irrelevant to our wharf. The repeated claims by the hospitality shills and uninformed letter writers from out of town that the new city policy will prevent tenants from investing in their premises are nonsense. The 32 or so tenants on the wharf all date their possession to leases entered into in 1964, 51 years ago. In those 51 years, how many of those tenants do you think financed improvements or upgrades to their premises? ZERO!!!! That’s right – exactly ZERO.

FACT. The only financing that appears among city records is around 2009, when the Shakes purchased the Lucido leases at space 31 and 32; tore down the buildings; and rebuilt the building with bank financing made available because those concessions had 32 years left on their terms. Claiming that ten-year terms will prevent investment is a little like claiming that global warming will eventually prevent Santa Claus from making all his rounds on Christmas Eve. That might be a true statement if Santa Claus indeed made rounds.

There are two reasons tenants on the wharf don’t finance improvements. Firstly, banks do not make long term loans to restaurants or retail unless they own the real property or there are other assets beside the restaurant to secure repayment of the loan. Restaurants are far too risky to make hard loans for 10 years or 20 or 30. Banks make short term loans secured by FF&E (furniture, fixtures and equipment) to these retail activities. For the numbskull who thought these tenants needed 30 years to amortize or write-off their investments – FF&E gets written off over 3 to 7 years, the usual length of a bank loan, well within the ten-year term of a lease.

Secondly, the failed business model on the wharf does not encourage tenant investment. The hereditary tenants don’t perceive any benefit accruing to them to invest when they can simply sit there collecting exorbitant sub-lease rents and letting their sub-tenants spend unsecured money to tailor premises to current needs. It is the same reason that those tenants don’t take care of their pilings – why should they? They sit on a gold mine of location, and still get top dollar sub-rent regardless of investment.

From a landlord’s point of view, ten years is an ideal term because it allows her to adjust to changing times. Who knew that internet cafe’s or specialty coffees would become dominant new market players in 1990? And small business owners become tired and complacent over time if they are not growing into other locations. They retire and die. A vibrant commercial center must be agile to accommodate new trends. New blood injects new energy and competition to the center, which is good for everybody. Look around the Peninsula. Cannery Row looks very different today than it did in 1994. Same thing for the Del Monte Center. None of those tenants in well managed commercial properties has longer than ten year leases unless they are anchor tenants or ones who built their own buildings. But a snapshot of Fisherman’s Wharf today looks the same as in 2000, 1990, or 1980. Why go back? There has been nothing new for forty years – all Italian seafood restaurants and tacky gift shops. I can’t imagine ever going to the wharf unless it was to rent a sailboat, which happens to be the only new activity in the past twelve years.

It is always disappointing to see the hospitality/business associations, to include the property owners association, abdicate their responsibility to the public by being sycophants for the wharf tenants. Instead of giving the public, who pay so much to these associations to promote tourism, thoughtful advice on subjects within their expertise, they merely ask “how high?” when the wharf or Ted Balesteri say “jump.” After years of blatant and outrageous profiteering off the public, it cannot be said “if it ain’t broke, don’t fix it.” The reality is that the wharf business model is so broken that it can’t be fixed. The city and its honest councilmen interested in serving the public have finally started a do-over that will take years to fix – until 2041.

(3) The Partisan left out one other “chain restaurant” on Cannery Row – the Charthouse. And are the Shake’s a chain restaurant? They control over 40% of the restaurant space on the wharf, plus the Fish Hopper on Cannery Row (the second highest grossing restaurant in the county), and a restaurant in Hawaii. Add to that,Gilbert, who is negotiating for control of another restaurant to take him over 40% of restaurant space on the wharf, plus his restaurant on Lovers Point. Is he a “chain?” Somehow, I am not able to follow the reasoning that allows two families to control over 85% (FACT) of the Wharf restaurant space, as good for the public. Wouldn’t you really rather have a Beni-Hana’s, a Starbucks, one of a dozen regional steakhouses, and a Chinese restaurant on the wharf to mix with the other identical Italian seafood restaurants? It certainly would add excitement and choice to a visit to Fisherman’s Wharf.

(4) And finally, I would add The Herald to the list of dissemblers hiding the facts from the public on wharf issues. I presume editor Don Miller allowed the dishonest commentary by Chris Shake to be published last month, personally attacking me and failing to offer any fact whatsoever in support of his self-interested propaganda piece. Yet Miller refused to publish my response submitted by email the same day. I offer it for your consideration:

EDITOR
The Monterey Herald
Re: Chris Shake Commentary

Chris Shake is perhaps not the best spokesman for the Fisherman’s Wharf rent propaganda, being as he is the poster child for profiteering off the public. The factual evidence is irrefutable.

The rents currently paid on the wharf are the product of 1991 leases approved by the City in violation of its Charter §6.4 requiring appraisals and fair market rent. No attempt was made by city staff to comply with §6.4, assuming they were aware of it. Consequently, these leases were illegal. All the city did was rollover 1964 leases that had expired in 1989, automatically vesting the city with absolute ownership of the buildings on the wharf. By 1991, these leases were at one-third of fair market rent, with no CAM charge.

In 2011, Fisherman’s Grotto paid $330,756 in rent — $190,346 to the city and $140,412 to Chris Shake. The total approaches fair market value, FMR, but the public only got 57%. This year, Shake agreed to sublet formerly “Gilbert’s” from Mary Alice Cerrito-Fettis, who has never done anything but squat on her inherited master lease, by paying her $22,000/month, in addition to $6,610/month to the city. Again, the total is fair market value, but the public only gets 23% of it.

Profiteering? You decide.

Willard P. McCrone
Monterey

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161ccd73a48f7d274937e3f79228a2a6CORRECTION PENDING: Based on information from the city, I reported in this post that the average lease rate at the wharf properties is about $1.65 per square foot. I have since been informed that the rate actually is about 65 cents. In his comment below, Willard McCrone states that the “minimum” lease figure is 61 cents. I have not yet been able to fully to determine which of those figures is better for comparison purposes.  In the meantime, anyone with actual numbers is invited to share them in the comment section below. Please attribute.

Gramps didn’t say a lot but what he did say was worth hearing. For instance, he offered fairly often that whenever someone tells you how honest they are, you should make sure they haven’t already lifted your wallet.

When we’d ask why he was so quiet most of the time, he’d answer, “When you don’t know what you’re talking about, stop talking.” Good advice, and I am reminded of it because of how much is being said these days by those who don’t understand the issues in the heated debate over the city of Monterey’s leasing practices at Fisherman’s Wharf.

The topic is much more complicated than you might expect, but to hear the wharf tenants and their pals tell it, it’s simply that the city wants to gouge local businesses without regard to reality or ramifications. The thrust of their argument is that the city is making it up when it says the wharf tenants are paying less than market value rent, but the reality is that the city has ample facts and figures to support its position. In other words, the tenants are attempting the age-old technique of repeating the same fiction over and over until the repetition causes people to start believing it. The key is to keep contending it’s the other side that’s lying. It works in politics, after all, and this debate is all about power politics.

Unfortunately, the facts here are open to fairly easy distortion because the individual leases and sub-leases have been negotiated at various times over the decades and because the wharf isn’t your typical bricks and mortar building on dry land. And because the city owns the property below the wharf and not the structures themselves, the tenants want us to believe the city is trying to extract gold from plain, old mud when, in fact, the city’s watery real estate is about as prime as it gets.

Also complicating matters, the tenants in some cases built the structures that house their businesses. In some cases, the leaseholders long ago sub-leased the property to other tenants, creating a situation in which the leaseholder is making a pretty profit while the city is receiving a relative pittance. Apples to apples comparisons become difficult but that does not mean that the city can’t support its position. The city has obtained expert opinion from some of the region’s most knowledgeable specialists in commercial real estate and applicable law.

Notice that the tenants aren’t broadcasting any numbers, actual figures about how much they’re paying, or not paying. Instead, they keep accusing the city of ignoring facts and numbers. Say it often enough and people will believe it.

TENANTS HAVE PLENTY OF OTHERS TO DO THEIR BIDDING

Many of the current leases that the city wants to rewrite as they expire were negotiated and renewed at less than arms’ length by past councils populated by friends and associates of the tenants. As a result, the rent being paid by many of the businesses is well below market rate, no matter what you are being told by those who don’t really know.

Among those pretending to know is KSBW-TV, which maintained in a recent editorial that the City Council “has started down a short-sighted, ‘never-mind the facts’ path, aimed at changing leases for long-time wharf businesses.”

You’ll notice that the editorial has little to say about the facts that the city supposedly is ignoring. It doesn’t mention that the average monthly lease rate of around $1.65 per square foot is 50 cents to $1 below prevailing rates on the Peninsula.

The tenants argue that the city must allow long-term leases, longer than 10 years, so they can finance improvements to the properties. KSBW simply accepts their assertion that the city won’t allow longer leases even though newly adopted city policies say options beyond 10 years are available. When? When contemplated improvements could not be financed if the business was limited to a 10-year ease.

(At least two City Council members contacted KSBW to quarrel with its version of the “facts” and to ask for an opportunity to rebut the editorial. They were told that they could post a response on the station’s website but couldn’t meet with the KSBW editorial board or have their objections aired. Though the station’s editorials end with “KSBW welcomes responsible replies to this editorial,” that doesn’t amount to an offer of air time and doesn’t imply those responses will be shared with anyone, according to News Director Lawton Dodd.)

The editorial makes the argument, which others are repeating with limp evidence, that the new lease procedures could drive local businesses off the wharf, potentially leading to an invasion by better-financed national chains. Never mind that the city is well aware of the great value of local tenants. The specter of chain restaurants was also raised in a recent Monterey Herald commentary by the Monterey Hospitality Association and the Chamber of Commerce, which were enlisted by the leaseholders to lobby for the lucrative status quo.

Operators of Sapporo and the London Bridge Pub in this building don’t rent their space from the city but from another leaseholder who rents from the city. If the city was receiving the market rate, the restaurant owners would be paying above market rate. How likely is that?

It deserves mention that among those fighting to keep the current lease structure intact is chamber and Hospitality Association stalwart Ted Balestreri of the Cannery Row Company, one of the city’s biggest landlords and holder of the master lease on the property that houses Sapporo Steak & Sushi and the London Bridge Pub at the foot of the commercial wharf. Though that property isn’t on Fisherman’s Wharf, it is subject to the revised leasing practices. While Balestreri’s supporters use the prospect of national chains as a scare tactic, it should be noted that tenants of some of the Cannery Row Company’s best real estate are the Bubba Gump Shrimp Co., and El Torito, both part of large national chains. (By the way, Balestrieri has said that the Bubba Gump operation on Cannery Row was pulling in more sales per square foot than any other restaurant in the country.)

COUNCIL MEMBERS GETTING HAMMERED FOR DOING THE RIGHT THING

After considerable discussion and consultation with their real estate experts, the City Council, by a 3-2 vote, has approved some 20 new leasing policies and soon will take up two more that would directly impact the wharf. We can expect the leaseholders to fight mightily over the coming months to roll back some the 20 measures and to fight hard against the two current proposals.

The first would require the wharf businesses to cover the expenses assigned to common areas and facilities such as a commercial trash compactor. Unfair, say the businesses. But ask why the city should be required to continue subsidizing these enterprises and the answer is likely to veer into politics rather than business practices.

The second proposal would set a limit on the square footage that could be leased by any one entity. The concern, of course, is that some of the wharf’s most successful entrepreneurs, such as the Shake family, could dominate the wharf property. The Shakes are accomplished restaurateurs but the city rightly fears that having one tenant with the majority of the leased space could put the city at a great disadvantage: Reduce the rent or we’ll pull out.

In another Herald commentary, Chris Shake took issue with the views of Planning Commissioner Willard McCrone, whose research of the leases played a large part in the current reform effort.

Shake wrote, “Commissioner McCrone has no facts or evidence to prove his assumptions that the wharf tenants are paying below-market rent; his assumptions are completely false and have no basis.”

Did Shake then provide facts and figures to disprove McCrone’s assertions? Nope. Nothing at all. He publicly labeled McCrone a liar without a hint of evidence

The fact is, and this is an actual fact, that debate over the wharf leases has turned into a hardball case of politics that has supplanted what should be a professional negotiation. Another fact is that the tenants amount to a politically powerful lot, flexing muscles they have built through decades of political and charitable contributions, family ties and associations with other political and commercial powers.

MESS WITH THE LEASEHOLDERS AND EXPECT TO GET ZAPPED

Often in a debate such as this, taxpayers’ groups would step up to support the government’s position because below-market rental rates essentially require taxpayers to subsidize the enterprises. But the most active taxpayer group on the Peninsula is the Monterey Peninsula Taxpayers Association, which is closely allied with the Hospitality Association, which has taken up the tenants’ cause.

The council members pushing this effort should be congratulated. Instead, they have found themselves under heavy attack. For many years, well into this century, the city’s real estate matters were overseen by a fellow who had virtually no previous experience with real estate. At one point lasting more than a year, the city forgot it owned a condo intended to provide affordable housing, so it sat vacant. This is not a fact, only a theory, but some suspect that city officials made a conscious decision to let themselves be outmatched in negotiations with the wharf tenants. It was simply easier thatr way.

Going forward, support for professionalizing the leases comes from council members Libby Downey, Alan Haffa and Timothy Barrett. Mayor Clyde Roberson has gone the other way. Whether that has anything to do with his previous service on the council, between 1981 and 2006, isn’t clear one way or the other. Also going the other way, Ed Smith, who has championed the tenants’ case at every opportunity.

When I came to the Peninsula as city editor of the Herald in 2000, I asked assistant city editor Calvin Demmon, a wise adviser, about the Cannery Row Company.

“Cannery Row?” he said. “That’s the third rail of Peninsula politics.” For those you too young to get the reference, it comes from electric trains. The third rail is the one that carries the juice. It’s the rail that one doesn’t mess with.

Those are some of the facts. There are others that we’re not prepared to discuss because we haven’t studied them well enough. To some degree, then, we’re following grandpa’s advice, and we’re hoping that others who haven’t studied the issues will follow along for now.

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