Tuesday, April 15, 2008 | When a needed update to the city’s growth blueprint for Otay Mesa languished, a coalition of politically connected housing developers found a way to jumpstart a process that had been stalled for a decade.
They agreed to pay for it.
That was 2004. And in exchange for the developers bankrolling the update of a plan that will govern the scale and types of development in Otay Mesa, city officials promised that the City Council would at least consider the homebuilders’ preferred vision for the area, one of San Diego’s last undeveloped locales. The arrangement was unusual — seven speculating developers financing a city infrastructure plan.
Concerned about the appearance that homebuilders were buying the process, the city cut the developers coalition loose last summer and decided to take over the update and finance the final $1.5 million worth of work.
And now, with the tables turning against the homebuilders’ plan to expand housing in Otay Mesa, the developers want their money back. All $9 million of it.
“They thought it would happen relatively quickly and be a lot less expensive that it ended up being,” said David Nielsen, a lobbyist who worked for the coalition, which disbanded last summer. “They realized some of this work should be eligible for [reimbursement], that it would be a normal way of paying for the work.”
The coalition of homebuilders, including the Corky McMillin Cos., Pardee Homes and Sunroad Enterprises, provided funding for the technical work, such as environmental and road-planning studies, needed to update Otay Mesa’s community plan, a document that will define the future of one of the last undeveloped tracts of land inside San Diego city limits.
The residential developers sought to change the underlying zoning for land they owned in Otay Mesa, aiming to profit by buying the land when it carried a less-valuable industrial designation and selling it once it became more-valuable housing tracts. A plot of land’s value is directly tied to what the government allows to be built there.
A group of businesses — customs brokers, cross-border truckers and manufacturers — hoping to preserve the mesa as an industrial bastion cried foul about the arrangement, arguing that by hiring and choosing the consultants, the coalition had bought the plan.
The builders were cast aside in July 2007 by Jim Waring, the former top land-use official to Mayor Jerry Sanders. The decision came while Waring, who resigned a month later, was under scrutiny for negotiating a compromise with the Federal Aviation Administration that would have allowed Sunroad Enterprises’ office building near Montgomery Field to continue exceeding FAA height limits.
In an interview last week, Waring said he believed the city needed to assume responsibility for funding and conducting the analyses that serve as the basis for the plan’s update. (The decision to allow the developers to pay for the plan was made in 2004, before Sanders assumed office.)
While city officials independently reviewed data submitted by the coalition-hired consultants, Waring said the arrangement was still inappropriate.
“Having developers be funders is not a valid strategy,” Waring said. “Even if it’s done perfectly, it raises concerns. It’s a flawed structure.”
Waring was responsible for crafting a way for the homebuilders to be reimbursed for their work. In February 2007, months before his resignation, Waring signed a new agreement with the developers in which the city formally agreed that the homebuilders could be reimbursed for some of the technical work they provided.
In essence, the city provided the legal framework for reimbursing developers who’d once agreed to foot the entire bill. Waring and Bill Anderson, the current city land-use chief, both said the right existed anyway and that the agreement did not guarantee reimbursement.
“They were losing coalition members,” Waring said, “and the people remaining wanted it stated that if they had appropriate expenditures that they might be reimbursed.”
Some of the coalition’s members have strong ties to the Sanders administration. In late 2006, McMillin, Pardee and Sunroad each donated $10,000 and Murphy Development donated $5,000 to San Diegans for City Hall Reform, a campaign committee that has promoted the mayor’s ballot initiatives in 2006 and this year.
Since the city began funding the remaining work, the city’s planning staff has leaned toward recommending a plan featuring less housing than what the coalition of developers sought. The homebuilders favored a plan that would have allowed for 4,200 single family homes and 22,000 multi-family units. City staff has developed an alternative that would allow 4,000 single family homes and 15,550 multi-family units. The San Diego City Council will weigh both of those options when it considers adopting the plan, likely sometime next spring.
The city and former coalition members — McMillin, Pardee, Sunroad, Centex, D.R. Horton, Integral Partners and Murphy Development — are currently negotiating to decide what work is eligible for reimbursement. The developers claim they are owed for any technical work that has a community-wide benefit. They’ve filed notice of their claim for $9 million; Nielsen said the coalition spent $9.2 million total.
If the city does reimburse the developers, it will not use general fund revenue, but rather a fee assessed on each of Otay Mesa’s to-be-developed parcels. The fee, known as a facilities benefit assessment, spreads the cost of an area’s underlying infrastructure over the parcels within. Those fees are paid back over time as each lot is permitted for development and would not sap any money directly from the city, which could not collect the assessment for work it did not perform.
Anderson, the city’s deputy chief operating officer for city planning and development, said some of the developers’ work would be repaid, but said specifying exactly how much is difficult.
“That’s part of the complications of the structure as it was developed several years ago,” he said. “Where do you draw the line between what was done for the plan versus what was done for their projects?”