www.globalresearch.ca
Centre for Research on Globalisation
Centre de recherche sur la mondialisation

The fraudulent giveaways of public land:

The San Francisco City $65 Billion Boondoggle

by  Michael Strausz

www.globalresearch.ca 26 August 2003

The URL of this article is: http://globalresearch.ca/articles/STR308A.html


San Francisco City Officials plan to take extremely valuable "Public Trust Commons" lands from its owners, S.F. citizens, and place them, practically free, into the grasping, unclean hands of a well-connected, spoiled and wealthy few.

Are people upset? Has anyone noticed? No, of course not. It’s "business as usual".

It’s happening everywhere. Nationwide, these fraudulent land giveaways, instead of being developed for the full benefit of governments and millions of their discouraged, low-income citizens, comprise lost opportunities amounting to many trillions of dollars.

 

The intent of the Federal Government’s 1988 Base Realignment and Closures Act (BRAC) was to create a statutory vehicle, whereby all closed bases would be sold and privately developed for the benefit of neighboring support communities, which were adversely affected by the closings.

To further facilitate this, this act was amended by PL 103-160, sponsored by Rep. Nancy Pelosi, and its policies were enhanced by a President Clinton Executive Order, which gifted most of these closed bases directly to local redevelopment agencies or authorities. PL 103-160 directed the Secretary of Defense to "take into consideration, as part of such transfers, the local and regional needs of the area" and specifically "the best interests of the affected local communities". The intent was clearly to set up these agencies and authorities as "fiduciary trustees" to direct the development of these lands for the full benefit of BRAC’s identified and designated beneficiaries: the affected communities.

This noble intent was all lost in the mad land-grab rush by local redevelopment authorities and their private-profiteer cronies. On the face of it, the process seemed legal, as endless, mind numbing, public meetings were held Countrywide to determine the most prudent re-use of these lands. These re-use plans were duly enacted, and supposedly legitimate, rich and well-connected companies were invited to "compete" for the opportunity to develop these extremely valuable properties. Outside and knowledgeable observers would call this whole process a joke, but to the designated beneficiaries, who, very early on, became quite aware that they were going to no direct benefits, no control and no ownership, it was not funny at all!

In all cases, the closures caused unemployment to skyrocket in the beneficiary communities. For example, the major support communities near California’s 29,000 acre Ft. Ord, Marina and Seaside, now have up to 40% unemployment, nearly a decade after the base was closed and 30,000 civilians lost their jobs. This unemployment percentage would be higher, but most people have been forced to move away. We have watched, and people have told us, how, in dozens or even hundreds of public meetings, the BRAC designated beneficiaries of these base closings have stood up during "public comment" and begged for just some little benefit crumbs. These powerless people have always been replied to with false promises, outright lies and soothing platitudes like "Don’t worry, we’ll take care of you" (I’m sure you will, that’s the trouble!). The inevitable result of all of these military base redevelopments is the gentrification of the normally low-income communities and the wholesale Diaspora of its discouraged citizens. These are people without clout. They have no real friends in those very governments, which purport to defend them. Lands, which, by Federal Law, should be theirs, are used as political payback rewards to corporate insiders.

The same process we now see in Iraq, which unfairly benefits politically connected profiteers like Halliburton and Bechtel, is being used Stateside to benefit a tiny group of the Nations’ largest homebuilders, at the expense of everyone else – and no one is paying any attention or seems to care. The public appears to be utterly clueless to this publicly sanctioned corruption. It’s endemic and universal. To simply call it wrong, harmful and an enormous waste of public resources is a vast understatement of this accelerating problem.

How to stop it? There is only one way -- by example.

San Francisco officials are now planning many, private enterprise, redevelopment opportunities on its public trust lands. In all cases these completed plans will rob the City and its citizens of almost all of the benefits, because in all cases, these properties are being turned over to profiteers. In this short space, we will focus on just four major ones: The 500 acre Hunters Point Naval Shipyard, The 475 acre Treasure Island Naval Base, The City’s 220 acre Central Waterfront and the rebuilding of its Transbay Terminal.

If these redevelopments proceed as proposed, it will result in a net loss to local governments of nearly $2 Billion.

If City officials acted prudently and appropriately in behalf of its citizens – instead against them, as they now plan, these same four deals would produce positive cash dividend and shareholder equity benefits for government and its citizens in the range of $63 Billion.

Which is better: A loss of $2 Billion or a gain of $63 Billion? You and I might think that this question is very simple one indeed, and has only one right answer. City officials, who are well aware of the alternatives, seem to think that the $2 Billion loss is the right answer, which is mind-boggling, because they are ignoring the prudent path and forcing the City, hell-bent, down that wrong road to ruin.

The Prime Example: The Hunters Point Naval Shipyard

The best example, which by its success could bring about a change in the proper use of surplus government lands, is a plan calling for the Hunters Point Shipyard to be 100% owned and controlled by the 37,000 residents of the neighboring Shipyard support community, which was adversely affected by its closing.

As background, the Shipyard was closed in 1973 (by the order of President Richard Nixon – some have said that he did so as payback against an anti-war San Francisco populace, which one can believe). Ever since, the neighboring support community, a largely minority, low-income area called Bay View Hunters Point (BVHP), has experienced high unemployment and despair. Many, mostly black, discouraged residents, have been forced to leave because of lack of jobs and rising housing prices (now exceeding $300 per sq ft for "fixers") have attracted affluent buyers looking for bargains (in San Francisco, $300 per sq ft is a bargain). Already the gentrification of BVHP has begun.

In the mid 1990s, the San Francisco Redevelopment Agency (SFRA), began having public outreach meetings in the BVHP community to review and comment upon its Re-Use Plan for the Shipyard. Most of these meetings were conducted through the City’s designated community oversight organizations, the Project Area Committee (PAC) and the Citizens’ Advisory Committee (CAC), which members are not actually representatives of the community, since all are appointed and serve at the pleasure of the Mayor. Many of these members do not even live in BVHP and, from their rubber-stamp voting in support of the SFRA’s awful plans, it has become clear that these two boards are acting against the economic and social well being of the BVHP community, which they purport to speak for, and for the selfish wishes of San Francisco’s power elite.

The SFRA plan which evolved for this wonderful property, which has the best weather in San Francisco, marvelous views and nearly 3 miles of Bay front coastline, was to propose building an extremely low-density project, comprising slightly more than 4 million sq ft of buildings on 9 million sq ft of parcels. Note: the SF Planning Department has recently identified just over 500 acres of privately held land in the entire City suitable for housing (including vacant and underutilized sites) which, it wrote, could support more than 50,000 units. Knowing this, and knowing that the California State sponsored good governance "watchdog" organization, the Association of Bay Area Governments (ABAG), has identified that San Francisco is lacking, as of now, about 20,000 residential units and should be building 2,700 per year (1,700 affordable), it is misfeasance to propose such a low density plan. In San Francisco, over the past 10 years the average annual residential construction was just over 1000 units. The SFRA Re-Use Plan calls for, on the entire 500 acre Shipyard, only 1600 housing units (just 512 affordable – the same amount ABAG says should be built every 19 weeks)!

In 1998, the SFRA issued a "Request For Proposals" (RFP) to invite development companies to become the Master Developer of the entire Shipyard and in 1999, it reviewed the qualifications and plans of three major companies: East Coast developer Forest City, a major Florida homebuilder, The Lennar Corporation (Lennar), and locally based Catellus Corporation (the successor to Southern Pacific’s land development company). An independent advisor hired by the SFRA recommended that The Lennar Corporation not be chosen as Master Developer for a number of reasons, so, of course, the SFRA Commission chose to ignore this advice and chose Lennar as Master Developer for the Shipyard. Soon thereafter the SFRA signed an Exclusive Negotiating Agreement (ENA) Lennar, which is set to expire, after many extensions, in about two months.

No one, who was not privy to those secret meetings where these cockeyed decisions were made, can understand what actually happened, but independent observers have suggested that a deal at the highest levels of City government was brokered to give each of these three groups a big San Francisco "plum". Forest City was chosen for a major, City sponsored, Bloomingdale’s anchored, hotel and commercial project. Catellus was granted a "fast track" approval of its long stalled, 300 acre, San Francisco waterfront, Mission Bay project. Lennar got the Shipyard all for itself.

Was this wise? No one could really tell, because the public was kept in the dark. Sound familiar?

Until January of this year, when the Mayor’s Office of Economic Opportunity wrote a letter introducing, with glowing praise, the SFRA-Lennar/BVHP, LLC’s Conceptual Framework & Terms Sheet, the public could not really know what was going on. The public had been promised benefits such as community buildings, affordable housing and jobs, which would be created by Lennar and businesses in the new development. When this document, which claimed that the "Community Knows Best" and described how BVHP residents would be consulted on all facets of the proposed community benefits plans, showed clearly that the community buildings would have to be paid for by the community, the affordable units would not be affordable to most of its residents, and, without community training programs in place, any good jobs would not be going to them.

Additionally, in all documents and words, City officials claimed that this development was being done so that all the benefits from the Shipyard development were to go to the BVHP community. By doing this, as was the intent of BRAC law, the SFRA had essentially set up a special class of beneficiaries, the BVHP residents, and became a "fiduciary trustee" to those residents.

Note that, by State Redevelopment Law, all the cash income (public profits) – from land sales and new "incremental" real estate taxes on the new buildings to be built there – except for a small portion, which can be spent citywide – must be spent inside the boundaries of the Shipyard. Since very few of the BVHP residents will be living, working or spending time there, they are going to be left with practically nothing.

In other words, the City came up with a wasteful, low-density plan, which, by allowing the parcelization of the Shipyard into thousands of separate ownerships, would forever preclude the City from redeveloping it properly into a high density project most conducive to prudent inner-city, infill development. The SFRA RE-Use Plan insured that the Federal Government’s designated beneficiaries from this Shipyard development: the BVHP residents, will be getting no direct benefits, no ownership and no control. In fact, the development will actually begin, early on, to cause them great harm, because gentrification will insure that most of the low-income residents will be forced to move away.

Neighborhood leaders were very concerned that the community was being steamrolled in the SFRA’s haste to transfer this property to Lennar before Mayor Willie Brown, Lennar’s main supporter, leaves office in January. As of today, the Shipyard is still owned by the Navy, which cannot transfer it until it is clean – and it’s still a Super Fund site. The SFRA was, and is, attempting to force community approval of the SFRA-Lennar plan, which, it soon became very clear, was a very bad one indeed. These leaders asked me and Ulyssess J. Montgomery, because of our land use, planning and development expertise, to propose an alternate Community Benefits Package, wherein the BVHP community would actually realize real and substantial economic and social benefits, and would have ownership and control to direct their own destiny and keep the all the profits for themselves.

We determined early on that a more prudent use of this very valuable property would entail a project seven times larger than the SFRA-Lennar plan. We planned to build, on the 200 acres of parcels at the Shipyard, a more realistic 28 million sq ft of space, which is simply four stories over garage, with normal 75% lot coverage. This is typical in San Francisco and most recent, local, private development (that not located in high-rise or single family zoned areas) has been constructed at similar density. The land value of this property, if entitled for a full 28 million sq ft, would be in excess of $1 Billion. In its present deal with Lennar, the SFRA is expected to realize no more than about $70 million in land sale proceeds, over 15 years. The Lennar Corporation is expected to make only about $200 Million profit as its share in its role as "spoiler".

When someone asked me why Lennar wouldn’t want to build out at a higher density, I replied that Lennar could be in and out quickly and be gone. The real harm and waste of the plan would not be realized for decades until historians began to investigate and write about it. He nodded his head and said, "I get it. It’s a good plan for a carpetbagger. Steal the money and run away before you get lynched."

Mr. Montgomery and I determined that any development, which did not include community residents’ ownership or control, would be ruinous to the community. We had to come up with a new model, so we looked at the Community Investment Corporation model, based upon Louis Kelso’s Employee Stock Ownership Plan. We proposed that, since the BVHP residents are supposed to be the beneficiaries of all the largesse to come from the Shipyard’s development, and since those residents are legally competent, as beneficiaries, to judge what is best for themselves, there was no need for the involvement of a "fiduciary trustee" or a private, "for profit" developer making decisions for and in behalf of them. In fact, it was becoming evident that these unnecessary middlemen’s involvement and actions were not only not beneficial to the residents, these middlemen’s actions were about to cause these residents great damage and lasting harm.

We decided that we should propose, as the BVHP Community’s benefits package, a Residents’ Stock Ownership Corporation (the BVHP RSOC), which would be 100% owned and managed by the RSOC shareholders, the 37,000 BVHP residents. The purpose was to plan, finance, build, own and manage the whole thing. The goal was to make BVHP a self-sustaining community, with its residents acquiring an appreciating, shareholder equity and ongoing and increasing cash dividend payments. It was projected that over a generation, the time needed to complete this major project, that this development would provide a total, of real estate profits alone, of over $31 billion. Each family of four would likely earn, over this period, in excess of $3.5 million. This compared to the SFRA plans, which over the same time frame, would have earned for the City only about $350 million in land sales and incremental taxes, none of which will actually find its way into the pockets of BVHP residents. With the BVHP RSOC plan, the City would get $1.7 million in incremental taxes alone (five times as much).

If the City actually had the best interests of the BVHP residents in mind, you would at least think that SFRA officials would have considered to incorporate at least some portion of the RSOC BVHP residents’ benefits package into their plan with Lennar. It wouldn’t have cost anything, since the residents could have just been given some low-density areas, which Lennar probably won’t use anyway, for the residents’ high density plan. Were they interested in discussing it? Not on your life!

As one could have readily guessed, our proposed BVHP RSOC really rankled City officials, as its very existence, should it become widely known, would surely spoil their little plan to sell this property, for cents on the dollar, to their rich friends. How best to deal with this scary problem? Ignore it, of course. The BVHP RSOC Steering Committee, in behalf of the residents, has requested in writing and in "public comment" before the SFRA Commission, to have a workshop to discuss the RSOC community benefits package, as required by law, and there has been no response from the commission, but the staff has told us that it is illegal for them to do so. One Commissioner, when I tried to speak to her, walked around me like a crab, with her hands up, fending me off and said "I can’t talk to you", and slipped away, behind closed doors, like a thief in the night.

Last month, the SFRA Commission approved the Conceptual Framework & Terms Sheet and asked staff to proceed to create a Disposition and Development Agreement (DDA) between SFRA and Lennar, which is the final binding document to sell the Shipyard. SFRA staff, in an extremely fast-track process, considering that it took nearly four years to go from ENA to Conceptual Framework, two weeks later had created the final draft of the DDA. Not willing to follow due process, as that is not what this scheme is about – it is really about the subversion of due process – SFRA staff went to the monthly meeting of the CAC, and asked its members to approve, in the community’s behalf, the DDA.

Surprisingly, even this SFRA-Lennar supporters group, handpicked by the Mayor, was appalled! They should and could have been worried about their own personal liability if they had taken such a wrong action. They told staff that they would not consider approving the DDA until it was brought before the BVHP community by formal notification for the residents’ review.

That’s where this plan rests now. Without important help from government officials, who have been asked to change their present course and cancel the Lennar negotiations and then deed the Shipyard directly to the BVHP RSOC, the City’s shameful and sorry plan, to steal public trust properties from its true owners, the citizens, will likely succeed.

It appears clear to us that, until we came into the picture, the City and the SFRA officials were creating a misfeasance, which is a wrong act by legal means (more "business-as-usual"). By showing the City and the SFRA officials that what they are doing in their role as fiduciary trustee is wrong and will cause great and lasting harm to their beneficiaries, and showing them that alternatives are in place which will actually and truly benefit these same BRAC designated beneficiaries, and by these officials refusing to consider these alternatives, or even part of them, these officials step over the line. These refusals could possibly change a seldom-punished misfeasance into a far more serious malfeasance, which is either a crime, or at the very least a cause of great economic and social harm. It could set up the SFRA liable for a substantial damage claim. Do they care? It doesn’t seem so.

Where else is the City about to do wrong?

The Treasure Island Naval Base:

The City has concluded that the best company to redevelop the 475 acre Treasure Island is this same profiteer, Lennar! Goodness gracious, do city officials think the public is completely blind? As with all these deals, City officials explain in "High Priest" blather, in public comment, that the entire redevelopment process is "extremely complicated", meaning only they could accomplish it – so its obvious they also must think we are stupid, too. As before, with the Shipyard, no San Francisco citizens will get any direct benefits.

Possible gain for the City is very little as the land will likely be delivered free, since it has seismic issues, and very little will be built there (no more than about 2500 residential units), the incremental taxes will amount to little more than $250 million over a generation.

Lost opportunity to the City and its citizens will be as much $16 billion.

The Transbay Terminal:

The City is being gifted about 12 acres of prime high-rise land by CalTrans, which became vacant after the demolition of the a freeway wrecked in the Loma Prieta Earthquake. As soon as it gets the deed, the City plans to sell these sites to private developers for $2-300 million and suggests that private developers will build there about 3,000 residential units (1000 affordable). This $2-300 million is supposed to be used to finance the building of the Transbay Terminal, but it amounts to only 7-11% of the expected $2.7 Billion project cost, including interest, of the Terminal How this is really supposed to help? We cannot know, because no one from the City is saying much, except that selling the land is a really good deal (I’m sure it is, but not for the City).

City officials have been offered an alternative, which would utilize a Public Private Venture (PPV) by hiring developers, for a fee, instead of a profit, to develop these residential towers for the City’s account. Since the City controls the entitlement process, it would be reasonable to increase the height limits to allow up to 12,000 units on these 12 acres. These units could be built out over the next 15 years and would fund the entire cost of the Terminal and enable the creation of another 4,000, self-amortizing, affordable units besides.

The deal the City wants to do will cost, after the land sales are included, $2.4 Billion.

The prudent PPV proposal will provide the City with a debt free Terminal, worth $1.6 Billion and $1 Billion worth of self-amortizing affordable units.

The difference is $5 billion.

The Central Waterfront PPV & RSOC:

The 220 acre Central Waterfront is now being blighted by an old, polluting power plant owned by morally and financially bankrupt Mirant, a private merchant energy company. The City recently created an Electricity Resource Plan, which calls for the shutdown of this power plant. The problem is that this company does not only not want to shut it down, it wants to expand it, which would ensure that this area, of which the UC Berkeley Design Studio, in a study of the redevelopment potential wrote: "It is vast, almost totally abandoned and a more dramatic and valuable land resource than any American city can claim."

The problem is, that even though this company is universally acknowledged as one of the "energy pirates" which, with Williams, Reliant and Enron, used unethical schemes to rob California ratepayers and is being sued now by the California Attorney general for price "gouging", and the very existence of its polluting power plan on this prime land is clearly harming the City and its people, City officials don’t have the guts to seize this blighted property and redevelop the land for housing. Condos developed here would be worth in the range of $500-600 per sq ft. Is this any place for a 19th Century style smokestack industry? Of course not.

If the City were to do a PPV-RSOC development here, the City and its citizens could realize development benefits in the range of $12 billion. If the City were to do nothing, as planned, it would get nothing and its citizens would be faced with many millions of dollars in extra health costs. Some people would die from the polluting emissions, as has already happened and been well documented.

The $65 Billion loss

So there it is, in just this one city alone, San Francisco is wasting it lands and its opportunities, and will end up with a net loss of $65 Billion. Were it to follow its present path, by doing the three development deals and not acting at all on the Central Waterfront, its total net benefit will be, over a generation:

The Shipyard: 350 Million

Treasure Island: 250 Million

Transbay Terminal: 2.4 Billion)

Net Loss to the City: 1.8 Billion)

If the City were to develop these lands in behalf of its citizens, so that all profits go to benefit the public good, instead of into the pockets of an already rich group of profiteers, this is what the result will be for the City and its people:

The Shipyard: $33 Billion

Treasure Island: $16 Billion

The Transbay Terminal: $2.6 Billion

The Central Waterfront: $12 Billion

Total Benefits: $63 Billion

The difference between what the City wants to do and what it should do is almost $65 Billion.

These are simplified numbers, based upon reasonable assumptions of today’s values and costs, increasing at 3.75% per year.

Some think these numbers are fantastic, but lets just give one more example on a human scale:

Start today and buy a 756 sq ft, 2 Br, rental condo (28 million sq ft at the Shipyard divided by 37,000 shareholder is 756 sq ft per shareholder) in the City for $350,000. Put 20% down (which the RSOC shareholder does not do, since the land is free and is the shareholder’s equity, or down payment) and look at the return over a generation (33 years). Considering a 3.75% annual inflation, and knowing the loan will be completely amortized and paid off, leaving the owner with a debt free condo after 30 years, it will be worth 3 times as much as the original purchase price ($1,050,000) and will have generated a cash flow of about $600,000 over the period (rent less expenses and loan payments). The free and clear condo will then be producing a cash flow of $60,000 per year. For a family of four, each with a similar rental condo, this will create for them a total profit (increased equity and accumulated cash flow) of over $6.4 million and will give them a family income of $240,000 per year.

Some will scoff and say that those are just inflated dollars, but if we take away the inflation of 3 times over the period, the same family will have a profit, in today’s dollars, of $2.1 million and a cash flow of $80,000.

Let the nay-sayers scoff at that!

I am sure that City officials would take exception to these figures and projections, and not understand the potential, but the problem is that they are taking orders to do these giveaways. You see, you can’t make a man understand, whose salary depends upon him not understanding.

Nothing will change without a shining example. The real question is…can it happen here and now? We’ll see.

This squandering of the public’s heritage, is rampant and nearly universal. This sad waste is happening everywhere there are public lands being sold off to privateers ("hired" pirates).

Nationwide, this loss could easily amount to many trillions of dollars. With the present course, millions of U.S. citizens, who now have little or nothing, are missing perhaps their only opportunity to become shareholders.

Should the public trust commons be developed for low & moderate-income citizens, government will become smaller, as these peoples will become able to fend for themselves and no longer need its help. It will enable these people to use normally dissipated and wasted land as their initial equity stake to attract productive credit to create lasting shareholder value. The RSOC plan creates something from nothing, for those who have nothing. It takes nothing away from anyone who already has it.

Should San Francisco fail to change its ways, and not jump off the corporate welfare chuck wagon, it will find it is on the road to robbery and ruin.

That is because: Down that road lie dragons.

 


Michael Strausz is a California licensed Real Estate investment property and loan broker, who is the land use expert for the Communities for a Better Environment (CBE) a California "Environmental Justice" (EJ) group fighting for the rights of residents of community with EJ problems. © Copyright Michael Strausz 2003  For fair use only/ pour usage équitable seulement .


[home]