Transparency Lost in Monterey
The Brown Act of California’s Government Code sets forth the gold standard by which Transparency is imposed upon all government bodies:
54950. In enacting this chapter, the Legislature finds and declares that the public commissions, boards and councils and the other public agencies in this State exist to aid in the conduct of the people’s business. It is the intent of the law that their actions be taken openly and that their deliberations be conducted openly. The people of this State do not yield their sovereignty to the agencies which serve them. The people, in delegating authority, do not give their public servants the right to decide what is good for the people to know and what is not good for them to know. The people insist on remaining informed so that they may retain control over the instruments they have created. (emphasis supplied)
Transparency at Monterey City Hall has suffered a serious setback in the last two years as a result of a policy instituted by Clyde Roberson to make decisions in closed session which are never announced to the public. Those actions may be within the letter of the law (Govt. Code sect. 54957.1), but clearly violate the spirit and intent of the Brown Act.
On July 18, 2017, the City Council – in closed session – granted an unnecessary 20-year lease extension to the Old Fisherman’s Grotto at a rental rate less than half of Fair Market Rent. In doing so, the Council ignored well established fair market value for this Fisherman’s Wharf restaurant and gave a subsidy of an estimated 5 to 14 million dollars or more of taxpayer revenue to the Shake family. This action violated the California Constitution, the City Charter, and common sense. Mayor Clyde Roberson signed the extension on November 4, 2017 but the City has yet to disclose this action. It has only come to light as a result of a Public Records Request.
A little background is needed to put this action in context. As the result of many hearings beginning in 2010, knowledgeable citizens were able to educate the City staff and Council members about the unreasonably low rents from the public’s Tidelands Trust property on Fisherman’s Wharf. The City Council, on a 3 – 2 vote, approved comprehensive new guidelines for commercially-sound leases on the Waterfront in April 2016, a major change to the mismanagement of the Wharf in effect for over 50 years.
This success was short lived. Three old Wharf ground leases expired in 2014 and, pursuant to the new leasing guidelines, the City was immediately successful in 2016 in leasing the vacant spaces to NEW tenants who are paying reasonably fair market rent (6 % of gross sales) under commercially reasonable building leases, including a reasonable term length and triple net CAM charges. But the new policies did not last long.
A campaign to reverse the new leasing policies was begun in May 2016. A march on City Hall by Wharf workers in late summer 2016 was billed as “Wharf Lives Matter too.” And then, suddenly in September 2016 and less than six months after the new leasing guidelines were enacted, Councilman Timothy Barrett decided to change his decisive vote by moving for a reconsideration of the new leasing guidelines. He was able to do so via a Roberts Rule that allows a member who had voted for a motion to move for reconsideration.
Private commercial interests then mounted an expensive campaign effort ($53,000 was raised for Dan Albert Jr.) to unseat Libby Downey in the November 2016 election. This well financed campaign succeeded in tipping the majority of the Council in favor of Waterfront business interests. It was money well spent for influence and marked a return to the shadowy deals that had infected politics in sleepy little Monterey for fifty years from 1964 to 2014.
The new City Council immediately “revisited” the new leasing guidelines for the Waterfront at the request of Timothy Barrett on February 22, 2017. Some might wonder whether Barrett was influenced by the receipt of at least $4,000 in campaign contributions in 2014 from the Shake family. The Council (by a vote of 4-1) inexplicably abandoned the new policies at the request of Wharf merchants. There is no legitimate explanation for this about-face. My opponent justified his vote by saying something about “simplifying” leasing guidelines with more “flexibility”, which is a euphemism for avoiding accountability for Council leasing decisions. (see Monterey TV Channel) . It is worth listening to the TV broadcast for the evening session to see the strong public opposition to the abandonment, which was ignored, and the dissembling of the Council members in favor of being released from accountability.
This shift in favor of commercial interests over the public interest immediately bore fruit. Extension of the Old Fisherman’s Grotto lease (with more than 4 years yet to run to 2021), refused by previous Councils, was approved for negotiation (vote 4 – 1) on February 7, 2017. Then the Council “received a report” on that matter “without action” in a closed, confidential meeting on March 21, 2017 (see minutes, page 7 here). That report was not made public and, although the public may comment on any closed session subject on the agenda, the public cannot intelligently do so without a staff report disclosing what exactly was under consideration. The Grotto extension next appeared on the Council closed agenda on July 18, 2017, when the Clerk reported to the public only that “the City Council gave confidential instructions to their negotiators (4-1; Haffa voting no)” (see minutes, page 7 here).That is the last time this matter came before the Council, according to the City Clerk.
Contrary to the Clerk’s report and unbeknownst to the public, the Monterey City Council during closed session on July 18, 2017, apparently agreed to give Chris Shake a twenty-year extension on his Old Fisherman’s Grotto ground lease at the same below market deal as given away in the 1990’s.
Specifically, here is what the City Council did in closed session without public input or disclosure. On a 4 – 1 vote, Haffa dissenting:
- It approved and authorized the Mayor to sign a three page “Lease Amendment NO. 2” which extended the inappropriate 1992 ground lease for Old Fisherman’s Grotto (set to expire in 2021) for an additional 20 years until 2041 (2017_1102 Lease Amendment 2 (Ag-563).
- It raised the minimum monthly rent by a significant amount, but that is irrelevant because the Grotto never pays a minimum monthly rent due to its high gross rents that far exceed the minimum monthly rent.
- It left the gross rent at 3 % of gross sales revenue, when the fair market rent established by the City’s own 2012 appraisal for ground lease restaurants on the Wharf is at least 6 – 7 % of gross revenue (2012 0919 Monterey Wharf 1 Final). Indeed, in my opinion, sub-lease restaurants on Fisherman’s Wharf currently bear a rent of 10 – 12 % of gross sales (see discussion of Scales sub-lease below).
- It inexplicably extended a ground lease for another 20 years, to 2041, even though the public has owned the premises (building and all from roof to underwater mud) from at least 1989 and probably from before 1964.
- The Council announced no consideration whatsoever for saddling the public with another half-price (or less) lease and indeed received no consideration. The only reason the Council stated for gifting this extension was that the “Lessee (Shake) desires to extend the lease on the same terms and conditions set forth in the original (1992) lease.”
- The Council (in paragraph # 7) also gave Chris Shake the right to veto any Public Records Request pertaining to any information received from the Shakes which Shake deemed confidential. In my opinion, this was an unheard of transfer and abdication of municipal governmental authority. No reason or justification was given for this delegation of government authority to a private person nor any justification given as to how this could possibly be in the public’s interest.
This action by the Monterey City Council is a violation of Section 6 of Article 16 of the California Constitution, which prohibits the gifting or giveaway of public funds to private persons. It is a violation of the City’s Charter § 6.4, which requires that: “All leases of City property shall be at fair market rent as established by sound appraisal practices.” (ARTICLE 6, City Charter). The latest appraisal received by the City was in 2015 and set FMR at 6 – 7 % for ground lease restaurants on the Wharf (2015_0708 Monterey Wharf 1 Percent Addenda).
How much did the Council give away to Shake? It is very difficult to get accurate rent information from the City but we do have the rent roll for FY 2015 – 2016 (rent roll Grotto). Old Fisherman’s Grotto paid total rent (3% of gross income) in the amount of $ 231,867 that year and, from that figure, we can make reasonable estimates of the amount of the giveaway.
If the Grotto was paying the minimum appraised Fair Market Rent (FMR) in 2016 (6% of gross, as required by the City Appraisal, instead of 3%), the Grotto would have paid at least double what it paid, or another $231,867. Projecting that annual shortfall for the 20 year extension (and assuming no inflation), gives us $4,637,340 as the amount the public loses by this extension.
But other restaurants on the Waterfront, including the Shake-operated “Scales” restaurant, are paying approximately 12 % of gross sales for rent, not 6 – 7% ((2014_1105 Conc#33 Sublease and Assign_Shake-RestPacificGroup Sublease). The Scales sub-lease of 2014 requires the sub-tenant Shakes to pay the City rent of 3% of gross ($63,629 in 2016 (rent roll scales) PLUS $22,000 per month rent (annually increased by NLT 3% per year) to Mary Alice Cerrito-Fettis and her sister. Doing the math, combining those two rents paid by Scales comes out to about 12% of gross sales in 2016. So it is fair to say that an arm’s length negotiated lease by skilled city negotiators should produce a new lease to Old Fisherman’s Grotto that would pay the public 4 times (12% instead 3%) the rent actually paid for 2016, or a total of $927,468. That is what any commercial landlord would have required for these Wharf premises. If the Shakes are willing to pay 12% of gross sales as rent in a restaurant right across the street, how can the City Council justify charging only 3% of gross at the OldFisherman’s Grotto?
Gross sales at the Wharf and Waterfront have gone up since 2016 and will continue to grow geometrically to 2041. Assuming an annual increase of 3% in gross sales (which is what most landlords like Mary Alice Cerritos-Fettis would require), the graphic below illustrates the expected rent that would have been received by the residents of Monterey during the period 2021 to 2041 had the City Council done its job properly to negotiate a new lease with Shake as required by our City Charter, at either the appraised FMR (6 – 7%) or actual FMR (12%).
|Old Fisherman’s Grotto||existing@ 3%||appraised@6%||Actual market@12%|
|Lease Rent on Gross Sales|
|2016 Existing||$ 231,867|
|Should Be||$ 463,734||$ 927,468|
|Public Income Given Away|
|From 2021 to 2041||$ 4,637,340||$ 13,912,020|
|Adjusted for Inflation @ 3% per year from 2021 to 2041||$7,419,744||$ 22,259,232.|
Thus, we can see that extending this lease for another 20 years (until 2041) at 3% of gross sales, this City Council has given away public money to the Shakes in the conservatively projected amount of $5 to $14 million! That is not fair to the public and it is not fair to competitors in other nearby areas of the City, such as the Downtown.
What could the City do for the public benefit with an additional $1,000,000 a year for 20 years from just this lease? With an adjustment of the boundary and uses of Tideland Trust money (requiring an application to the State Lands Commission or even legislation), it could possibly fund the July 4thparade, fireworks, and the Christmas Tree Lighting ceremony. It could continue financial support for First Night. More importantly, It would provide money to implement the Waterfront Master Plan and the portion of the Downtown Specific Plan which connects the Downtown to the Waterfront. And, with a little adjustment to the area covered by the Waterfront and Tidelands area, the City could even offer Monterey residents free or reduced membership fees to the Sports Center.
A more important issue is the lack of transparency for leasing decisions by the Council and the abuse of closed “confidential” sessions. The City Attorney says that the Council does not need to hold public hearings or make disclosure to the public of real estate decisions because of CA Government Code § 54957.1 (GOVNT C 54957.1). What that section says is that the Agency (here the City) can make its final decision in closed, confidential session IF it agrees to the negotiated agreement before the other party (here the Shakes). In that scenario, the City need only disclose its decision and agreement upon request, not at a public hearing. This is not required by the statute but is a unique policy choice of this City Council. It even muzzles the valiant Alan Haffa, the sole voice of reason and public interest on the Council, who is prohibited from disclosing information from closed sessions.
This Lease Amendment No. 2 for Old Fisherman’s Grotto has an effective date of August 25, 2017 but was signed by Chris Shake on November 2, 2017, and by Clyde Roberson on November 4, 2017. No announcement or disclosure was ever made to the public. Non-disclosure would appear to now be this Council’s policy.
Our citizens must retake our government from the commercial influence peddlers on our Waterfront. We must elect candidates who are dedicated to transparent government and serving the public interest.
I am running for Mayor to put an immediate end to this closed session policy. The residents of Monterey are entitled to notice and an opportunity to comment on Council decisions and to know the reasons why the Council makes its decisions, improvident or otherwise. As Mayor, I will insure that Council decisions are transparent.