December 10, 2007

Subject: Recommendations Concerning Beachwood Crisis

Honorable Councilmembers:

In May 2006, Coastside Community First submitted a document to the public and the City Council that on the subject of Beachwood stated: “Rather than defend against a $30,000,000 lawsuit in federal court, the City should consider seeking a settlement with the developer that preserves wetlands while permitting a tasteful housing development accessible to Highways 92 and 1 via Foothill/Bayview.” In December 2006, CCF provided the Council a “Road Map for the Pacific Ridge/Beachwood Area” with a section titled: “Settle the Beachwood Lawsuit.” Unfortunately, the road ahead is now steeper and rockier than it was a year ago, but the map is essentially the same. With the understanding that the City Council is presently considering all viable solutions to this crisis, CCF offers for your consideration an updated and expanded version of the Road Map, with six recommendations that are first listed then treated in turn:

1. Interpret and Apply the City’s Wetlands Definition Exactly as it Reads.
2. Establish as Public Policy that the City Needs Foothill/Bayview to Bypass the 92/Main/1 Bottleneck.
3. Question the Tactic of Appealing the Beachwood Decision as a Negotiating Technique.
4. Retain New Legal Counsel.
5. Renegotiate the Pacific Ridge Settlement Agreement.
6. Forge a Unified Beachwood/Pacific Ridge/Podesta Development Project.

1. Interpret and Apply the City’s Wetlands Definition Exactly as it Reads.

Councilmembers will recall that the 2005 California appellate decision the City won concerning Beachwood upheld the City’s interpretation of its own wetlands definition. That definition’s first sentence states that a wetland “is an area where the water table is at, near, or above the land surface long enough to bring about the formation of hydric soils or to support the growth of plants which normally are found to grow in water or wet ground.” Its next sentence then states that “Wetlands do not include...vernally wet areas where the soils are not hydric.” The City chose to disregard the second sentence in its wetlands delineation for Beachwood, and it was the Court’s central task to determine if that interpretation was reasonable.

After observing that “There is undoubtedly some tension in the wetland definition because it provides, first, that a wetland is an area where water is at, near, or above land long enough to bring about the formation of hydric soils or to support the growth of hydrophytic plants, and second, that vernally wet areas with nonhydric soils are not wetlands,” the Court concluded: “...the City rationally interpreted its LCP to treat vernally wet areas covered with hydrophytic vegetation as wetlands, whether or not hydric soils are also present.” It never found that to be the only rational interpretation.

The Court was not asked to determine, and did not comment upon, whether a literal reading of the City’s wetlands definition would also be a reasonable interpretation, or even more reasonable than the City’s interpretation, which essentially treated the second sentence as though it did not exist. Indeed, if the Court did find a literal interpretation unreasonable, it would have stated so, because that would have strengthened the Court’s argument, by eliminating other interpretations than the City’s as unreasonable. In that case, the Court could have been expected, as a corrective remedy, to direct the City to expunge the second sentence from its wetlands definition.

The Court did not find a literal interpretation of the wetlands definition unreasonable because following the plain language (i.e., the letter) of a law or policy or legal definition cannot in any case be considered unreasonable. The second sentence of the wetlands definition is undeniably there to qualify or modify the first sentence, otherwise there is no answer to the obvious question: why was the sentence included at all, if not to add meaning to the definition? The City’s wetlands definition was drafted and edited by City planning staff, scrutinized by the public, deliberated upon and passed by the Council, then finally certified by the Coastal Commission after extensive staff review, a process that took years: it is not possible that the second sentence to such a crucial definition was mistakenly included as a contradictory appendage.

The City has every legal right to interpret its own wetlands definition as it literally reads, and it is not contradicting the 2005 appellate decision by doing so. The Court did not dictate a specific interpretation: it did no more than accept one questionable interpretation as reasonable. CCF recommends that the City Council establish an explicit policy, directing all City officials–employees, appointees and elected officials–to interpret and apply the City’s wetlands definition exactly as it reads. This action would significantly redelineate the wetlands on Beachwood.

2. Establish as Public Policy that the City Needs Foothill/Bayview to Bypass the 92/Main/1 Bottleneck.

CCF’s central argument concerning Foothill/Bayview–that a bypass road around the 92/Main/1 bottleneck has been needed for a long time–is borrowed directly from numerous City and Coastal Commission documents. The details of that position can be found in our May 2006 “Outline for a Public Discussion of Solutions to Half Moon Bay’s Hwy. 92/Main St./Hwy. 1 Bottleneck,” and will not be repeated here. CCF recommends that the City Council  make a renewed finding that there is an ongoing (and steadily worsening) public need for Foothill/Bayview as a bypass around the bottleneck. More than fifteen years ago, the City included a requirement for Foothill in its General Plan Circulation Element, to comply with "the Coastal Commission mandate that Foothill Boulevard be constructed as an alternative to Highway 1 for improved coastal access."

CCF believes that Foothill/Bayview could be routed to avoid seasonal wetlands. However, if any wetlands needed to be impacted, the Bolsa Chica ruling clarified that “wetlands could be eliminated if needed for a road or highway.” That could only occur if the City “made a required finding” that the need for Foothill/Bayview “outweighed the value” of preserving any affected wetlands. The same type of finding was required to allow the Devil’s Slide tunnel to cross wetlands. Bolsa Chica also clarified that although any wetland intrusion can be mitigated, there is no provision in the Coastal Act requiring, or even mentioning, wetlands mitigation.

3. Question the Tactic of Appealing the Beachwood Decision as a Negotiating Technique.

There has been a good deal of sentiment, in the wake of the massive judgment against the City, that it should be appealed as a way to buy time, or perhaps to improve the City’s negotiating position with the developer. CCF cautions that while an appeal would definitely prolong the process, there is no reason to believe that it would necessarily improve the City’s negotiating position. On the contrary, it might stiffen the resolve of the developer, and discourage him from entertaining the kinds of compromises the City would need to satisfy the Court’s damages award.

Moreover, the developer is not relegated to merely playing defense on appeal. As has been widely noted, the judge’s cash award to the developer was based only on the estimated value of 83 vacant, subdivided lots sold at current market value. According to the federal standard cited by the judge (“highest and best use before the damage”), the award actually could have been based on the estimated value of 83 finished homes sold at current market value, minus construction costs. This of course would result in a vastly greater cash award to the developer upon appeal.

If the City appeals the decision, it is asking a higher court to accept an argument that the City in fact owes no money whatever to the developer. If the City in that same context attempts to negotiate a settlement, the developer may understandably perceive that the City is negotiating in bad faith. The City cannot with any consistency hold the position that, on the one hand, it owes no damages, and on the other, that the damages should be negotiated. Stripping the situation to its bones, the City has two distinct alternatives: negotiate or litigate. Combining those two alternatives into one approach is much easier said than done.

The best reason to appeal is if the City is convinced it can argue compellingly that the lower court judgment was in error, and that there is an actual probability that the higher courts will recognize that error. It should be emphasized that asking appellate attorneys whether the City should appeal is something akin to asking a barber whether you need a haircut. While barbers and trial lawyers can provide honest opinions, they are also hard-wired to cut hair or lock horns in court. If the City does appeal, CCF urges your Council to participate with the developer as soon as possible in the mediation services offered by the judiciary.

A better position from which the City can negotiate a settlement is an acknowledgment of responsibility, and an acceptance of the judgment. A good-faith negotiating stance should begin with a detailed, sincere apology–combined with concrete actions as described in this document to correct the underlying problems–that establishes a non-adversarial, proactive environment for the negotiations. The City must make it clear from the outset that it is not able–and will never be able–to directly pay the awarded damages. Therefore the compensation to the developer must come from Other People’s Money, that is, from the buyers of homes that the developer is permitted to build as a result of the negotiated settlement. This 'OPM' compensation approach is the carrot the City can offer.

The stick, if the developer were to insist on direct payments the City simply cannot make, is to seek bankruptcy protection. Creditors are normally loathe to go this route, because they understand that bankruptcy court exists primarily to protect the debtor, not them, and that creditors routinely receive dime-to-the-dollar in compensation. This stick–the plausible threat of seeking bankruptcy protection if negotiations fail–is predictably more effective than the pseudo-stick that an ad hoc judicial appeal  represents. On the other hand, there is a very steep downside to bankruptcy protection, because it turns over much of our local decisionmaking authority to bankruptcy court, which will focus on financial resolution of the crisis, almost to the exclusion of other community considerations.

4. Retain New Legal Counsel.

An essential component of either an effective appeal or negotiated settlement is a new legal team. If the City appeals, a new legal approach is clearly required. If the City seeks a win-win negotiated settlement, a non-adversarial legal team, that does not carry the inevitable baggage acquired through a long and acrimonious court battle, can help heal the wounds with the developer.

5. Renegotiate the Pacific Ridge Settlement Agreement.

CCF has expressed thoroughgoing disagreement with the settlement agreement in a number of documents, especially in our November 2006 analysis of the draft environmental impact report. Those arguments will not be revisited here.

New fiscal realities dictate that the City simply cannot afford the generosity it previously showed the Pacific Ridge developer. Concerning traffic mitigation, the City must insist that Terrace as sole access, with or without a stoplight, is unacceptable, and that no development will occur without Foothill. To compensate the developer for the costs of road construction, the in-lieu payments for lot retirement and the Terrace traffic signal should be forgiven. Until a Beachwood settlement is negotiated, the practice of exacting mitigations in the form of physical improvements, rather than in-lieu payments, should be applied to all planned development within the City, as cash payments may be subject to seizure.

6. Forge a Unified Beachwood/Pacific Ridge/Podesta Development Project.

CCF wrote in last year's Road Map that "Summit meetings conducted by the City could organize stakeholders and beneficiaries into a broad-based leadership coalition to help bring a unified project to completion," a recommendation that is truer today than ever.

The bare bones of a comprehensive package might look like the following. Beachwood and Pacific Ridge would have a similar low-density development, with no jarring differences in types or density of housing along a scenic Foothill/Bayview winding roadway. Podesta, closer to shopping and schools, could be slated for more affordable, smaller-unit housing, perhaps clustered with a community or performing arts center. An essential requirement for Podesta is that it not exacerbate traffic problems on North Main. This could be achieved by secondary access east through Lewis Foster to Foothill, and (if possible) tertiary access north through Highland Park to Bayview.

The City has other tools in its bargaining kit, including 70-odd City-owned properties. Another, wider-lens perspective on potential solutions might be provided by the City's August 2005 Infill and Expansion Areas map, which color-codes properties throughout the City according to their developability (its most relevant section is attached here for reference). In any event, tasteful development of the area in question should be planned as a comprehensive package, both to ensure that a "one for all, and all for one" spirit infuses the permitting process, and that the project unfold in an orderly and carefully staged manner. The bottom line, as CCF has emphasized in the past, remains the same: cooperative community-building.