The Morning Report
Get the news and information you need to take on the day.
Our reporting relies on your support. Contribute today!
Help us reach our goal of $250,000. The countdown is on!
Late Friday, we received a memo that City Attorney Mara Elliott sent to the City Council updating it on negotiations for the sale of SDCCU Stadium to SDSU.
It wasn’t a promising update.
Elliot’s memo was scathing, and though it stops short of killing the deal, it says SDSU’s final offer is risky for the city and accuses the university’s team of negotiating in bad faith.
Jack McGrory, a member with the California State University board of trustees, responded in kind late Friday. He argued Elliott’s been trying to kill the deal since negotiations started and said it’s time the City Council cuts her out of the process and makes a final decision.
The Council is set to consider the offer May 19 — which means the docket needs to be set by May 5 — so SDSU can take over the property in July.
But Elliott’s memo and McGrory’s remarks leave little doubt: The negotiations have been acrimonious from the start, they’re not getting any better and SDSU is ready to tell the city “take it or leave it.”
A sharply worded memo: Elliott writes that SDSU told the City Council on Jan. 27 it would provide within two weeks its changes to the purchasing and sale agreement – a 50-page document with 450 pages of attachments that’s guiding the transaction. On Feb. 11, SDSU provided its revisions, but did not touch any of the attachments.
“This has significantly slowed progress,” Elliott wrote.
She said negotiating teams have continued to meet since then, but still have unresolved issues that she’ll outline at the May 19 Council meeting.
Nonetheless, Elliott wrote that in a phone call this week, SDSU President Adela de la Torre told her the university would provide its final changes to the transaction by Tuesday, and that they would constitute a final offer; any changes the city made would be rejected.
“She also stated that she expected the deal to be finalized by May 1 even as I pointed out that the city’s negotiating and legal teams had not seen a substantial portion of SDSU’s proposed revisions,” Elliott wrote.
The next day, Elliott writes she received the documents, with “thousands of new revisions.”
“It is unfortunate that SDSU orchestrated a ‘document dump’ of hundreds of pages of complex contractual provisions upon the City at the very last minute,” Elliott wrote.
But it’s not just the late notice she seems to resent. She thinks the changes are substantial hurdles that the city needs to correct before it can move forward.
“Our initial review reveals that many of SDSU’s proposed revisions do not reflect the agreed-upon outcome of negotiations, and therefore do not adequately protect the city’s interests,” Elliott wrote.
The changes include issues like current and future infrastructure improvements for the project and surrounding areas, Elliott wrote, and low-income housing requirements and permitting details for the project.
Despite de la Torre’s insistence that SDSU’s latest offer reflect the final deal, Elliott says the city’s negotiating team is compiling a list of remaining issues the Council needs to sort out, and a new purchasing and sale agreement.
“This strategy does not serve the city or SDSU well, and only prolongs a negotiation we’d all like to conclude,” Elliott concludes.
‘We’re done with this game’: McGrory said there were no surprises between SDSU and the city. The university was always clear that it would deliver its final version of the purchasing and sale agreement this week so it could go to Council in mid-May. Then Elliott dropped her memo.
“I just don’t think that we’ll ever get over her issues,” he said. “I like her, she’s a nice person, but there’s some other motivation going on here.”
He cites the multiple lawsuits Elliott brought to keep SDSU West off the ballot. While it held up its timeline, with unanimous approvals from the board of trustees — in January, for a development plan with environmental review, and March, for the stadium proposal and bonds to pay for it — she’s been “slow walking this thing the whole time,” building out a purchase and sale agreement that he says is far larger than is typical for even massive private transactions, he said.
The negotiations are now totally dysfunctional, McGrory said, with Elliott re-writing normally uncontroversial recitals of fact between drafts, and negotiating teams falling into lengthy debates about record retention schedules.
“It’s mind-boggling for the people watching this,” he said. “It’s time to end this. The city can have a deal if it wants.”
He said it’s already a great deal for the city — and if it had to get a new appraisal for the land in the current, post-coronavirus environment, the city couldn’t dream of getting the deal again. Yet the university is ready to move forward, with all the construction jobs that come with it.
“You’d think we’re a rapacious developer the way she’s treating us,” he said. “We’ve had it, we’re done with it. Vote it up or down on May 19. We’re done playing games with the city attorney.”
He said the university would be willing to talk through any major issues with the City Council. But his side is fed up with haggling over details with Elliott, he said.
“If they don’t want it, sell it to another developer and they can have another shopping mall,” McGrory said. “They’ve got a mandate, 55 percent of voters want this to happen, but they’ve got a city attorney who doesn’t want this deal to work. If she wants to keep playing word games in a 600-page document, we won’t be at the table any longer. It’s time for the city to act.”
Bad timing: It’s never a good time for a major real estate deal approved by voters to go sideways. But right now is especially bad: With a roughly $300 million shortfall facing the city in this year and next year’s budget due to the COVID-19 pandemic, Mayor Kevin Faulconer has proposed using $21 million from the sale of the SDCCU property to help prop up city spending. His balanced budget also relies on offloading the cost of operating the stadium to SDSU as well.
Speaking of which …
Spending the Feds’ Money
San Diego’s City Council this week began debating some of the toughest budget decisions it’s ever faced, as revenues have created at least a $300 million shortfall between this and next year.
But of all the decisions it needs to make, how it will handle the $250 million it received from the federal government is shaping up to be among the most interesting.
As part of the CARES Act that gave checks to most Americans and started the Payroll Protection Program for small businesses, the federal government also created a Coronavirus Relief Fund for local governments. Based on its population, San Diego collected $248 million – money that is already in a city bank account.
But now the city needs to parse how it’s allowed to spend that money.
Generally specific: There’s some clear rules from the federal government on how the city can spend the money.
It’s for costs related to COVID-19, incurred between March and December, and it can’t go to anything in the city’s existing budget.
The feds don’t want the city to just replace the revenue it lost when people stopped staying in hotels and engaging in commerce citywide.
Some expenses obviously fit. Anything the city spent buying personal protective gear for city staffers, for instance, is likely covered. If workers weren’t equipped to telecommute, and the city spent money to transition them, that’s almost certainly safe too.
But that still leaves a lot of gray area.
Take a lifeguard. She was already included in the city’s budget. She hasn’t been rescuing many swimmers the last two weeks, as planned, but has been enforcing the county’s beach closures.
Can the city pay her salary with the $248 million?
The mayor’s office expects to provide more clarity when it unveils a revised budget proposal later this month.
But two Council members this week already declared that they’re eager to see that money spent.
“There is enough latitude within the legislation itself, and the guidelines set forth recently by the Treasury Department, to allow the city to use every dollar of this funding,” Councilwoman Vivian Moreno said. “It’s important to remember that the main response to the COVID pandemic locally was the San Diego County public health order that closed non-essential businesses, parks and beaches. This order did not enforce itself. City employees have enforced it … Without city employees the county public health order would not have been effective.”
Councilwoman Monica Montgomery challenged the Council to change up how it normally allocates funding.
“All of us have stated these are unprecedented times, and we must convey that with the decisions we make with the CARES Act funding. Now is not the time to do things the way they have always been done, and now is not the time to take the path of least resistance.”
Eye on the future: Combing through who received CARES Act money and how they spent it – especially private businesses under the PPP, but also local governments through the Coronavirus Relief Fund – is going to become a cottage industry for journalists, government regulators and watchdog groups as we eventually emerge from the COVID-19 pandemic.
San Diego is one of the largest cities in the country to receive such funding. It won’t sneak past auditors’ attention.
No one on the Council proposed anything obviously prohibited, like back-filling the city’s budget with the federal money. But as the city makes its decisions, it’ll have to weigh how aggressively it wants to interpret the feds’ vague guidelines.