Point Molate Update

Tom Butt

November 11, 2009

Introduction

The disposition of Point Molate, which has been a public policy issue in the City of Richmond since 1995 (the year I was first elected), will likely come to a head in the next few months. Despite increasing media coverage focusing almost exclusively on the prospective casino and its alleged impacts, there appears to be very little public understanding of this complex project and the actions and options of the City that control sits destiny.

Almost all the information one needs to grasp its complexities is available in raw form on the City’s website at http://www.ci.richmond.ca.us/index.aspx?nid=1863 and http://www.ci.richmond.ca.us/index.aspx?NID=270, but the volume is daunting and the technicalities challenging. I doubt that many have plowed through all of it.

The public discussion is centered almost exclusively on the gaming issue and, to a lesser extent, traffic.  The controversy involving the casino issue dominates the discourse to the point that many people believe that is all there is to it.

The difficulty of parsing the information coming from a myriad of sources is exacerbated by the hidden agendas of the organizations offering arguments. The Coalition to Save Point Molate is thought to be financed by cardrooms, and various governmental and non-profit organizations that have mounted stiff opposition and litigation may be more interested in a piece of the action than stopping the project.

Richmond City Council Decision

The next actions facing the City Council for potential approval include:

1.       Certification of the EIR (Certification of the EIS is a BIA matter)

2.       Approval of the final Design Concept Documents

3.       Approval of the final Services Agreement

It is anticipated that the first of these will come to the City Council no earlier than mid-December.

Contra Costa County and Citizens for Eastshore Parks are having it both ways by trash talking the project while making sure they have a piece of the action if Richmond does what they would “never” do and approves the project.

Unfortunately, Richmond does not have that luxury. Our City Council has the sole but still limited authority to kill the project or provide the approvals that can make it happen. That doesn’t mean it will happen, for there are other hurdles, but we will have done everything we can.

It is widely believed that the City Council still retains total discretion as to the disposition and use of the property, but that is also complicated. Not being familiar with or understanding the now five-year history of Richmond’s agreement with Upstream, many people continue to speculate about other uses, as if we are still pondering what to do with point Molate. Why don’t we make it a conference center, like Asilomar or Cavallo Point. Or, a winery would be nice. Why not just leave it as open space? How about another project like the Ford Assembly Plant?

The fact is that in the current economy there is probably no other use that would generate the substantial revenue needed to construct just the infrastructure and rehabilitate the historic buildings. Unlike the Ford Building, The site has no gas, water, sewer or electrical service, and the projected cost of making just the shells of some 350,000 square feet of buildings functional varies from $24 to $115 per square foot – a total of nearly $20 million, which doesn’t include internal improvements.

I will try to address these issues in this Point Molate Update.

A Little History

In 2003, after some eight years of planning, adoption of a Reuse Plan, EIRs, hazardous material evaluations, cleanup plans and the complexities of dealing with the US. Navy, the City of Richmond circulated nationwide a Request for Proposals to develop Point Molate. Even in the go-go economy of that time (compared to today) at the end of the process, only one proposal was financially credible – the proposal by Upstream for a destination resort that included a casino.

In an 11^th hour appeal, Chevron made a run at it, but their refusal to commit to any type of development, jobs or public access fell flat with the City Council.

In November 2004, I joined the City Council majority (see Point Molate is a Go, November 10, 2004) in voting to enter into the Land Development Agreement (LDA) with Upstream Point Molate LLC (Upstream) because of substantial benefits to the City of Richmond, including:

·         Construction of the Bay Trail and Shoreline Park

·         Public access to the uplands open space in perpetuity

·         Rehabilitation and adaptive reuse of the contributing structures in the Winehaven Historic District

·         Creation of a substantial number of jobs and a commitment to make them available to Richmond residents

·         Substantial cash flow to the City of Richmond through a Services Agreement

·         Cleanup of hazardous residue left from Navy operations.

·         Enhancement of the image of the City of Richmond as a waterfront destination of the highest quality.

Given the controversy and strong feelings about the casino component of the project, I would rather have had the opportunity to pursue a project without gaming, but not only did no other project emerge from the nationwide solicitation of a developer, the project offered by Upstream, if implemented as described,  is not likely to have any close competition in the generation of revenue to the City of Richmond and the creation of jobs available to Richmond residents, both of which are far more critical now than they were in 2004.

Flaws in the LDA

After nearly five years have passed and upon further review of the LDA, it has become clear that there are a number of scenarios where the property could be conveyed to Upstream but some or all of the objective listed above might not be achieved or would not be achieved within any reasonable time period.

The $8 million annual revenue to the City of Richmond described in the Services Agreement would not start until the “commencement of gaming operations” (4.1), and the Community Benefits Payments, estimate as approximately $12 million, are tied to number of hotel rooms, square feet of retail space and cost of constructed facilities would not begin until such buildings are actually constructed (4.2).

Further confounding the matter, it appears that Upstream desires to close the sale prior to the Bureau of Indian Affairs taking the land into trust for the Guidiville Band and a gaming compact with the State of California, both of which are necessary for gaming to take place and for the project objectives to be realized.

With or without gaming, it has become clear that Upstream is under no legally binding compulsion to complete the project as described in the LDA other than to use “commercially reasonable efforts”(2.1.b). In today’s economy without the prospect of income from gaming, there is almost no speculative real estate development project for which “commercially reasonable efforts” will result in funding. There is also no schedule required for completion of any of the elements, including the Bay Trail and the Shoreline Park.

Although no one from Upstream has actually discussed it with me, arguments are being made that an early closing is critical to secure BIA approval. This may or may not be true, but I am convinced that an early closing without conditions designed to protect the City’s interests is simply a giant leap of faith into the unknown.

One of the reasons we chose Upstream was that they were backed by a supposedly recession-proof funding source ( Harrah’s) that would not have to depend on the vagaries of the marketplace, making the phrase “commercially reasonable” operationally irrelevant. Although the financial backing has migrated from Harrah’s to the Yocha Dehe Wintun Nation (formerly Rumsey Band of Wintun Indians), there is a presumption that that financial resources are at least as great and possibly even greater than Harrrah’s and certainly sufficient to build out the project without delay, even in the current economy.

Disturbingly, it has been confirmed that Upstream has an unfettered right to sell the property to any third party who would have none of the obligations described in the LDA. In 2004, Chevron offered $80 million for the property (see PSA-Pt.Molate-FINAL-10-03-04.DOC), and there is nothing in the LDA that would prevent Upstream from closing and selling it the next day to Chevron for a quick $30 million profit – a nice return for a day’s work. Upstream denies it would ever do this, but it could.

Through no fault of Upstream other than excessive optimism, that did not happen, but it did cause some problems that adversely affected the City. The historic structures have continued to deteriorate, with the roof of one collapsing just over a year ago. The city has had to plow as much as a million dollars a year of its option payment back into the property for security, brush abatement and control of exotic invasive plants, all of which were envisioned to be a responsibility of the developer by now.

The glacial process of completing the EIS/EIR has run up against the expiration of Upstream’s option to purchase, resulting in pressure on the City to consummate the transaction without sufficient time to fully review, digest and entertain public comment on the Final EIS/EIR.

Response to the EIS/EIR, which in my opinion is badly flawed and incomplete, has been massive. It has only recently become clear that Upstream intends to proceed with a project that has significant and unavoidable impacts for which the City would be expected to adopt a finding of overriding considerations. For example, when the EIR/EIS finally came out, all development alternatives included demolition of Building 6, a reversal of the commitment in the LDA to “…reuse and redevelop the Winehaven Historic District in a way that will preserve its unique historic character.”

City of Richmond Discretion

The City of Richmond has at least four discretionary actions pending that provide opportunities for significant modification of the project, modification of the LDA or even termination of the agreement. Some are part of the Conditions Precedent to Closing required by the City:

7.2 City’s Conditions. The obligation of the City to convey the Property to Developer shall be subject to the satisfaction, at or prior to the Closing, of all of the following conditions, in addition to any other conditions set forth in this Agreement any one or more of which may be waived by the City (except for the condition specified in subsection (f) below):

(a) Developer shall have complied in all material respects with all obligations required to be complied with by it at or prior to the Closing.

(b) The Services Agreement shall have been executed and delivered by the Tribe and all conditions to the effectiveness thereof shall have occurred.

(c) The Purchase Price shall have been paid as provided in Section 1.4.

(d) The Shoreline Lease, the Note and the Guaranty shall have been executed and delivered to the City.

(e) If a land transfer agreement for the Remainder Property, is to be executed by the Navy and the City at or prior to Closing, the form of such agreement is acceptable to the City.

 (f) All required environmental reviews of the Project shall have been completed pursuant to Section 2.2.

(g) The Financing Plan shall have been received and approved.

Discretionary actions by the City that could result in amendment of the LDA or changes in the nature or design of the project include:

1.       Amending the LDA. Because of events during the passage of time and through no fault of the City, it is almost certain that the LDA will have to be opened up for amendment. The change from Harrah’s to the Rumsey Band as the financial backer will require an assignment of the LDA under Section 5.3(b) and a different type of guaranty of the promissory note under Section 1.4. The current closing date and expiration of the LDA is January 15, 2010, only about 60 days off. It is almost certain that the closing will not happen by then, necessitating an extension.[1]

2.       Certification of the EIR. Sometime probably in December, the Final EIR will be returned to the City Council for a public hearing and certification. The City Council is under no compulsion to certify the EIR if it is found to be incomplete or defective, nor is the City compelled to adopt findings of overriding consideration. [2] Unlike virtually every project in Richmond, the EIR was not prepared by a consultant paid for and directed by the City. The Bureau of Indian Affairs had that responsibility, further distancing the City from any obligation to approve the EIR.  The destruction of historical Building 6, which the EIR has found to be a significant and unavoidable impact, would require the City Council to adopt a finding of overriding consideration, which is entirely a discretionary action. Without a certified EIR, the project cannot proceed. There is also an issue involving certification of an EIR by the Water Quality Control Board supporting the cleanup plan (see State Water Board Remands Point Molate Cleanup Order Back to Local Board, October 1, 2009).

3.       Certification of the EIS. The City’s Conditions Precedent to Closing require that “All required environmental reviews of the Project shall have been completed,” which includes the EIS, not likely to be acted on by the BIA until at least September 2010, according to some credible sources. The city may, but does not have to, waive this condition.

4.       Design Concept Documents. The Design Concept Documents are described in Section 2.1.a,[3] but there may be a dispute about the level of detail in those documents. In any event, the Design Concept Documents have to incorporate information from the Final EIR, which may not be circulated until December 2009 and certified even later. The City has substantial discretion regarding the content and composition of the project through its approval authority of the Design Concept Documents.

5.       Services Agreement. Exhibit F of the LDA describes the Services Agreement, which is one of the conditions precedent to closing required by the City and in which various benefits, including monetary payments to the City, are described. The LDA anticipates that the final Services Agreement shall be in “substantially the form” included in Exhibit E to the LDA. To me, “form” means scope, which leaves open the matter of substance. Since the LDA is likely to be opened up for multiple amendments anyway, the Services Agreement should be also, including revisiting the magnitude of the payments to the City, the timing and circumstances under which they are to be made, the details of obligations for local hiring and the role of the Design Concept Documents. Although the City’s monetary rewards for approving this project may have loomed large in the beginning, they are being dwarfed by subsequent settlements with litigators and the County that have no dog in this fight. The City was the first to deal and will be the most affected by the project but is winding up with the neck, as we southern fried chicken eaters used to say. What we want is a nice piece of that breast meat, including the wishbone.

While I have not wavered in my support for this project as originally and conceptually conceived, in order to continue my support, I will have to see some changes in the LDA and/or its Exhibits that provide for the following:

1.       Preservation of all the historic buildings at Winehaven in accordance with the Secretary of the Interior’s Standards and a funded commitment to immediate stabilization at or even before closing to prevent further deterioration.

2.       More review and approval authority by the City over the historic preservation component of the project because I have lost faith in Upstream’s commitment to historic preservation.

3.       A more detailed presentation of the “Design Concept Documents” at least to the level now required for a Design Review Board application for all other projects in Richmond, or alternatively, continued City authority over design following closing.

4.       A detailed timetable for design, construction and operation/occupancy of all the project components, with significant consequences for lack of progress. The timetable would include, but not be limited to, initiation of the  cash flows to the City of funds under the Service Agreement and Benefits Agreement at fixed dates, whether or not the project components are in operation. Consequences might also include requirements to complete the public access portions of the project and complete at least stabilization of the historic structures.

5.       Compensation to the City if the projected jobs do not materialize in the numbers and on the schedule predicted.

6.       Relinquishment of ownership rights if the project is not pursued in a timely fashion.

7.       A plan and funding to complete the Bay Trail connection across Chevron property.

8.       A provision for what happens in case of bankruptcy of any party to the agreement.

9.       A security interest that will provide recourse to the City for any failure by Upstream to perform.

10.   Enhancement of revenue under the Services Agreement.

The conventional wisdom is that this project will generate $1 billion in annual revenue if it is a Class III gaming facility and $750 million if it is a Class II facility, like Casino San Pablo.

The EIS/EIR has not been finalized, but it is expected that there will be numerous substantive comments. Most people with pertinent technical backgrounds who have reviewed the EIS/EIR agree that it is substantially deficient and a product of consultants who were lazy and lacked diligence in the pursuit of technically and legally defensible evaluations and exploration of mitigations and alternatives as required by CEQA.  I will not participate in the certification of this document unless it is corrected, augmented, amended and otherwise cleaned to be accurate and legally and technically defensible.

I will not support entering into an LDA for the project if the mitigations suggested by an acceptable final EIR are incorporated into the LDA and its exhibits.

I urge City staff, consultants and Upstream to take this challenge seriously and deliver to the City Council a set of legally binding documents and contracts that effectively implement the vision that I bought into in 2004 when I first voted for the LDA with Upstream.

Like the last controversial project brought to the city Council, the Chevron Energy and Hydrogen Renewal project, I wondered if the city Council would hang together or hang separately. They chose the latter and adopted a flawed EIR and a flawed CUP that was successfully challenged in subsequent litigation. This is an opportunity for the city Council to redeem itself, hang together, and get it right.

Gambling

I can’t finish this without some comments on gaming. I do not gamble in casinos other than throwing a few dollars in a slot machine maybe once a year if I am staying in a hotel with a casino. I haven’t ever been to an Indian casino, and I think gambling in any casino is a waste of time and money.

Lots of people have discretionary disposable income with lots of choices on how to spend it for things that are not essential or necessarily productive other than providing jobs for other people. The list of indulgences is endless, including fancy cars, big houses, boats, vacations, participatory sports, sports events, music, liquor, tobacco and expensive clothes. You get the idea. Some also spend money on gambling. All are legal.

A lot of knowledgeable people contend that gambling is addictive, causes crime and adversely affects people who cannot actually afford to indulge, including their families. Surely, some or all of this is true, and I will not argue that point with anyone.

Gambling, however, doesn’t just occur in casinos. It is interwoven into our daily lives, and opportunities are everywhere. My 401-k retirement plan took a huge hit in the last 12 months because I gambled that the stock investments I chose would pay off better than treasury notes. I lost. I could afford it because I am still working, but many retirees could not. Many people who couldn’t afford it bought homes with subprime loans, gambling that continued skyrocketing real estate appreciation would somehow make it all work out. They lost, and some are probably homeless.  In fact, we all lost and our descendants lost by having to pay off a trillion dollar public debt to bail out the financial system. The State of California (that’s all of us) operates a lottery every day in every neighborhood in the state, including the poorest. You are more like to get hit by lightning than win, but $3.5 billion in lottery tickets are sold every year.

Nothing is black and white. Just because something is risky for some people or results in some adverse impacts is not a reason to turn it down cold. Alcohol creates alcoholics and leads to financial problems, family dissolution, violence and sometimes death. At the same time, wine is one of California’s biggest industries, and it is pretty well established that wine and even other alcohol in moderation can contribute to good health.

Much of what we do in our daily lives involves a gamble as we weigh risks, or the perception thereof, against rewards or potential rewards. We choose to ride in automobiles every day, although automobile accidents account for 44.3% of accidental deaths every year in the U.S., killing about 43,000 of us. Just getting out of bed is a gamble, with falls killing over 13,000, or about 16% of accidental deaths. Most of us go swimming somewhere, but 3,800 people drown.

Gambling is everywhere, and people who want to participate will find it. If they are looking for a casino, they can take a free bus to Tahoe or to any number of Indian casinos in nearby counties. If they don’t want to go far, they can go to Casino San Pablo or The Oaks cardroom in Emeryville.

Destructive addictions involving legal endeavors are also all around us, including alcohol and tobacco, both of which adversely affect low income people and minorities and which are more damaging to more people than gambling addictions. I know for a fact that many who oppose a casino in Richmond for reasons that include concerns about addictive gambling would never propose making Richmond a dry city to diminish alcohol addictions.

Lack of a casino at Point Molate is likely to have little effect on gambling addictions. In 2005, Sharon Brown of the San Pablo City Council wrote:

Some opponents have stated that they are concerned by the impact of the proposed casino on problem gamblers. Experts estimate that 5% of all gamblers are prone to addiction, but as I mentioned earlier, there are already numerous opportunities to gamble for those who suffer from this addiction. The Golden Gate Fields thoroughbred track is less than 10 miles from Casino San Pablo, and the State of California operates a lottery with outlets on almost every block. There are other existing card rooms within a short drive from San Pablo in places like Martinez, Emeryville and San Jose. None of these existing facilities provide any programs to assist those people who suffer from gambling addiction. The compact negotiated by the governor and the Lytton Rancheria provides money on an annual basis to programs to assist gambling addicts, and the Casino will bar problem gamblers in either of two ways. First, the problem gambler can register at the casino and will be barred from future entry; and secondly, the Casino will identify those who they believe are problem gamblers and bar them as well. This Tribe, while operating its casino, will not use alcohol as a means to encourage people to gamble beyond their means. The Tribe will limit alcoholic drinks to a single shot, and they and will require that every person ordering an alcoholic beverage come to the bar to buy their own drink. That is, no one will be allowed to purchase multiple drinks for others.[4]

San Pablo would not exist without Casino San Pablo, which pays 2/3 of the City’s general fund, without which the city would be bankrupt, annexed by Richmond, or returned to County jurisdiction after unincorporating.

People say casinos offer only low wage, dead end jobs. Well, the same people who work in casinos and the hotels and shops associated with them have the same jobs that would be created by even an upscale conference center. If Point Molate is left as open space, there would be almost no jobs, and those that would be created would also be mostly low wage maintenance jobs. Same if it were to become a winery.

So, for those who oppose a casino for its adverse impacts, including addiction and crime, I respect your views, and I cannot argue that you do not have a point. I am just not convinced that the potential adverse impacts outweigh the potential advantages to the people of Richmond if the project is constructed as planned – a high end resort that includes many amenities as well as a casino.