Concerned Citizens of the Coastside have been involved with Harbor Village for 15 years, contesting the project before the Planning Commission, the Board of Supervisors, the Coastal Commission and the Courts. Our goal has always been to have a project built on that site that would be more appropriate (in both environmental and economic terms) for our community.

Last fall, ground was broken for part of the project after what appears to be a very loose reading and enforcement of relevant contracts by the County. It appears that the County ... by its own admission ... has broken State law in its management of this major project.

Overview of the Project -- Harbor Village is a huge project that will change the nature the harbor at El Granada and the surrounding community:

• A hotel with 84 rooms and 11 "family suites" for a total of 102 bedrooms.
• A 280-seat restaraunt and 60-seat bar
• 15 to 25 retail shops
• Street-level and underground parking for 450 cars
• 209,000 sq ft of construction on 18.7 acres

Though the development agreement for the project dates from "only" 1995, the project's design dates from the 1980s. The initial design was submitted to the County in May, 1988 and it was probably the result of design work begun years earlier.

Early Appeals -- We appealed the project to the Coastal Commission, which ignored the opinions of its own staff and approved it. We then filed suit under CEQA and initially won. But we lost on appeal, when the Court found that the County's statement of "overriding consideration" -- jobs and taxes over environment -- allowed the project under CEQA.

This is important today because it places constraints on what the Supervisors may and must do regarding the development agreement and the construction already underway.

The Development Agreement This is a contract between the County and the developer. The County agrees to freeze land-use regulations for a large and complex project for the duration of the agreement. In return, the developer promises to meet certain requirements, which can vary from one development agreement to another.

The Sate Legislature gave this as part of the rationale behind all development agreements:

65864. The Legislature finds and declares that:

(a) The lack of certainty in the approval of development projects can result in a waste of resources, escalate the cost of housing and other development to the consumer, and discourage investment in and commitment to comprehensive planning which would make maximum efficient utilization of resources at the least economic cost to the public.

(b) Assurance to the applicant for a development project that upon approval of the project, the applicant may proceed with the project in accordance with existing policies, rules and regulations, and subject to conditions of approval, will strengthen the public planning process, encourage private participation in comprehensive planning, and reduce the economic costs of development.

California Government Code Section 65864; our emphases added
http://info.sen.ca.gov/cgi-bin/displaycode?section=gov&group=65001-66000&file=65864-65869.5

This rationale is to be considered not only for the initial approval of development agreements but also for any modifications (such as an extension). Please look at the portions in bold above and consider these requirements that an extension must meet:

• Will it "strengthen the public planning process?" Hardly. An extension of the development agreement would continue the freeze on the project's 1980s assumptions and design. (Do we really need yet another hotel? Is the traffic impact really acceptable now? Are jobs waiting tables the best we can hope for today?)
• Will it "encourage private participation in comprehensive planning?" No. In fact, the development agreement serves as a disincentive to such participation since the developer cannot update the design an keep the favorable treatment of the development agreement.
• Will it "reduce the economic costs of development" and provide facilities "at the least economic cost to the public?" We don't know, although we think the design is a bad one, no matter what its "economic cost." Note that the County misquoted this in the development agreement, where it seeks to "reduce the economic risks of development." The State law says nothing about reducing private business risks and focuses instead on the public good. In our case, that might be a critical distinction.

In addition to meeting all the requirements of State law, any individual agreement can incorporate terms and duties appropriate to the given situation.

The development agreement for Harbor Village requires that all of the project built, or none of it, by June 22, 2005. Along the way, the developer must "exercise its reasonable best efforts to obtain the necessary financing to construct the project" so that he can "complete construction of the Project during the term of this Agreement."

It was clear to all that, by last summer there was no time to build the project and, as we learned later, the developer has apparently not had funding for the entire project for some time (or possibly ever).

Annual ReviewsTo prevent situations like we see now ... with concrete in the ground and no chance of meeting the construction deadlines or even enough money to start it all ... State law requires that the County and the developer both participate in annual "good faith compliance" reviews:

65865.1. Procedures established pursuant to Section 65865 shall include provisions requiring periodic review at least every 12 months, at which time the applicant, or successor in interest thereto, shall be required to demonstrate good faith compliance with the terms of the agreement. If, as a result of such periodic review, the local agency finds and determines, on the basis of substantial evidence, that the applicant or successor in interest thereto has not complied in good faith with terms or conditions of the agreement, the local agency may terminate or modify the agreement.
California Government Code Section 65865.1; our emphasis added
http://info.sen.ca.gov/cgi-bin/displaycode?section=gov&group=65001-66000&file=65864-65869.5

Please note that this is a requirement, not an option.

So, in mid-July, we asked Supervisor Gordon and Director of Environmental Services Marcia Raines for copies of the current and all past reviews because we were curious how the County would handle the requirement that the entire project would need to be built in less than a year. We heard nothing for weeks and then, on the day after granting the building permit, Ms. Raines wrote us saying:

“Due to the inactive status of the Project, the Planning Department did not generate written reports as there was nothing to report.”

Of course, the reviews are required exactly to catch such cases of "nothing to report." We're not sure why the County thought that this was either allowed or appropriate.

In early September, the County reported to the Planning Commission that they had indeed done a review:

“The Planning Division has reviewed compliance with the Development Agreement, and the Planning Director has concluded that, based on our review to date, the owner is in good faith compliance with the terms of the Development Agreement.”

When we asked for a copy of this report, we were told that no documentation was available.

Conditions on the building permit What about the building permit? If the development agreement lapses or is cancelled, what happens then? This will depend on what the Supervisors decide about two (apparently) conflicting County policies.

County staff are fond of citing this section the development agreement:

“Following the expiration of [the term of the development agreement], this Agreement shall be deemed terminated and of no further force and effect; provided, however, such termination shall not affect any right or duty arising from County Permits, including, without limitation, the Project Approvals, the Future Permits or the Ministerial Permits.” (from Paragraph 20)

In our experience, the County has focused on this section (and a few others like it) to the exclusion of the main contractual requirements for progress and completion, almost as though the exceptions – rather than the requirements – were the main purpose of the development agreement.

Here's another section of the development agreement that the County has never cited to us:

“Any termination or modification of the Agreement shall be effected pursuant to the procedures set forth in Paragraph 15 regarding defaults hereunder. …

“[I]f the Board of Supervisors determines that Owner is not then in good faith compliance with the terms of this Agreement, then the Board of Supervisors shall take such actions as it finds appropriate to enforce or interpret the parties’ rights and obligations under the terms of this Agreement.”

This section of the same development agreement says that if the developer defaults on the agreement -- does not finish construction by this June -- then events are governed by an entirely different section (Pargraph 15, not the County's favorite, Paragraph 20) that explicitly allows the Supervisors to "take such actions as it finds appropriate" to interpret the developer's obligations under the agreement.

Thus the Supervisors will be faced with deciding which takes priority: the concrete now in the ground or the contractual requirements to finish the project by June ... or build nothing at all.

We think that this section (from a letter from the County to the developer the day after the building permit was granted) is the tie breaker and current County policy:

“You should clearly understand that once you have initiated work at the site that you must complete construction of all of the elements of the projects including public improvements required by the Development Agreement by June 22, 2005. …

“[I]f you take permits, begin construction, and do not complete the project by June 22, 2005, one possible outcome could be that you be required to abate the work in progress and return the property to its current natural state. Your failure to complete the Development Agreement requirements by that date may result in severe consequences.”

Since, we believe, it would be very imprudent for a senior County executive (Director of Environmental Services Marcia Raines) to make such strong statements without first consulting County Counsel (and perhaps Supervisor Gordon, who has been actively tracking this project), we take this to be official County policy, enjoying the full support of the County legal staff and other senior decision makers.

But we can expect lots of pressure on the Supervisors to ignore this letter and the difference between Paragraphs 15 and 20.

Extending the development agreement? In January, the developer applied for an extension to the development agreement, claiming difficulty in obtaining financing due to the events of 9/11. The developer's claim is that these events qualify him for an automatic extension of the agreement under the "war and acts of God" clause of the agreement.

There are two things of note here. Although the time and sequence of events is not totally clear from the document we have, it seems as though the developer may not have had full funding when he requested and received last August's building permit. It may be that he never had the funding he needed.

The second thing to consider is whether the force majeure clause (to use the legal term) really obligates the County to grant an automatic extension. Insurers for lives and property lost on 9/11 have agreed to pay billions of dollars in claims, so can the developer expect relief from economic difficulties that are quite possibly more related to the merits of the project and the collapse of the “dot com bubble” than to the horrible attacks in New York and Washington? We don’t believe so.

In addition, there are court decisions going back nearly 35 years that discuss exactly this point; they are nearly unanimous in ruling that terrorist events and their secondary economic consequences do not qualify as "war" in standard force majeure clauses. (County Counsel appears to agree with us for the most part.)

So the building permit expires in a few months and the Board of Supervisors will need to make some decision on both the permit and the current construction.

Our recommendations Here's what we have recommended to the Supervisors:

1. Immediately impose a stop-work order on the project pending the outcome of a full good faith performance review (as requested by our attorney last August).

2. Conduct the review in public session at a Board meeting, as suggested by the Planning Commission last September (on a 4-1 vote). Since the review is a State requirement (and is far overdue!), it should be conducted before any consideration of an extension.

3. If the Supervisors find, as we believe they must, that the developer is in default, they should follow the required sequence of events laid out in the development agreement, including giving the developer notice of your requirement to “cure” specific defaults within 30 days (or by June 22, 2005).

4. If the defaults are cured, the Board may consider modification and extension of the development agreement subject to the several constraints we believe are placed on them.

• One of these is their responsibility to enforce another state law, CEQA, and the conditions of a court decision approving the project: basically, the "all or nothing" requirement. Any decision by the Board that allowed a partial project would, we feel, violate the terms of the development agreement and be an intentional violation of CEQA.
• Another condition is one placed on all development agreements by State law that they "strengthen the public planning process, encourage private participation in comprehensive planning, and reduce the economic costs of development" in a way that serves the public's good.

5. If the defaults are not cured by June 22, the Supervisors should declare the development agreement terminated for cause because the developer is in default.

6. The stop-work order on the current construction would remain in place and the developer would be encouraged to submit a new design for the site, possibly incorporating much of the current work. Those portions of the current construction that are not incorporated into a revised an fully approved project after a reasonable time (perhaps a very few years, as determined by the Board) would be returned to their pre-construction state according the the conditions the County set forth in granting the permit (above).

7. Since the development agreement would no longer be in force, such a new design would be considered "from scratch" by the County, including all public reviews and input. The Coastal Development Permit, however, does not lapse with the development agreement, and it is possible that Coastal Commission approvals could be expedited by considering the new project as a modification of the old project.

This last item has been our goal for 15 years and we would be ready to help the developer, the County and most especially the community work together on a project for this site that meets the community's current needs, protects our environment and offers financial rewards for the developer and his backers.

But we, all of us, may never have that chance unless we speak up now.