Is This Part of The Conflict of Interest?

Ultimate interchange or ultimate deal?

Courtesy of the Valley News

Friday, February 8th, 2008. Issue 06, Volume 12.

A storied 35-acre tract at Temecula’s south side is drawing new scrutiny as city officials plan the start of a $30.6 million project that is intended to ease traffic congestion at a crucial city bottleneck.
City public works officials say they are finishing environmental reports and charting the start of construction in about a year on the so-called “ultimate interchange” at Interstate 15 and Highway 79 South, which is also known as Temecula Parkway.
At the same time, members of a newly-formed citizens’ watchdog group are dissecting the city’s $7.1 million purchase of the tract nearly four years ago from a land partnership that has close ties to key city leaders.
“I think it’s extremely disturbing,” Al Rattan, a founder of the Rescue Temecula watchdog group, said in a recent interview. “The problem is people were voting when they shouldn’t have.”
Rattan questions some City Council members’ ties to two of the landowners and doubts whether that entire 35 acres should have been purchased for the improvement project. He contends that the city should have used the eminent domain process, rather than closed door negotiations, to make a deal.
Rattan says conflict of interest concerns should have prevented Mayor Mike Naggar from participating in a May 2004 closed session review of city plans to purchase the tract from the Margarita Canyon LLC partnership.
Rattan says Councilman Ron Roberts should have abstained from that closed session review and a later public vote because a landowner of the tract helped found a bank in which Roberts’ wife owned stock.
Naggar, who is now mayor, rejected Rattan’s assertions and said he acted properly throughout the land purchase.
“I always seek the advice of the city attorney and he is intimately aware of all my financial interests,” Naggar said in an e-mailed response to questions raised in recent months. “As I said, I jealously guard my integrity.”
Councilman Roberts did not respond to a reporter’s e-mail seeking comment on the concerns raised by Rattan.
Naggar, who was elected to the council in November 1999, began work as a development services consultant by early 2003. His clients and associates include Daniel L. Stephenson, who formed the Rancon Group of companies and was one of three members of the Margarita Canyon LLC land partnership.
Naggar’s financial disclosure forms also show that he has owned Mission Oaks National Bank stock since 2002. Another partner in the land deal, Fred D. Grimes, helped found the bank and he remains a member of its governing board.
Roberts was elected to the council in November 1992. A retired California Highway Patrol sergeant, Roberts now works as an aide to Riverside County Supervisor Jeff Stone, a former Temecula councilman. Roberts has said the Mission Oaks stock listed for years on his city financial disclosure forms belongs to his wife.
Councilman Jeff Comerchero also shared business ties with Stephenson at the time of the land deal, but he did not participate in the closed session discussion and he abstained from voting on the purchase, city records show.
Stephenson hired Comerchero as a development consultant in February 2003. A year later, Comerchero was named president and chief executive of the Rancon Group of development companies.
Tract’s rich past revealed
The out-of-the-way land tract hugs the west side of I-15 at the southern end of Old Town Front Street.
The tract’s west side marks the confluence of creeks that together form the 27-mile-long Santa Margarita River, which descends through a rugged granite canyon on its way to Camp Pendleton and the ocean.
A Luiseño Indian village that gave Temecula its name is believed to have once covered much of the tract’s ridges and knolls.
A cultural resources survey prepared for the city identified at least one archaeological site on the property and the possible remnants of a railroad line that once connected San Diego and Temecula.
The railroad line, which passed through the river gorge before entering Old Town, was completed in 1882. The line was later abandoned when the rails washed out when flooding soured the canyon walls.
The report, which was submitted to the city in December 2004, recommended that further study be done of the area. It recommend that no development occur on the southernmost segment of the property and steps be taken if work were to intrude into the railroad bed and possible bridge footings.
Yet as the site’s environmental and archaeological importance has grown, so has vehicle congestion on Temecula’s south side.
Traffic has continued to mushroom as the fast-growing commercial corridor of Hwy 79 has added a Wal-Mart and numerous strip malls and houses continue to sprout in subdivisions that flank both sides of the busy highway.
Periodic expansions of the Pechanga Indian casino have also helped to clog streets, intersections and freeway ramps.
In 2001, the city counted about 29,500 vehicles a day using the state highway just east of the interchange. The daily count tipped 47,300 vehicles a day in 2002 and reached nearly 66,900 last year, according to city records.
As congestion has intensified around the clotted interchange, so has the difficulty exiting or entering the freeway on the existing ramps.
Especially during peak travel times or a casino special event, drivers heading south on I-15 often must join a long queue of vehicles waiting to exit.
It can also be difficult for northbound drivers to merge onto the freeway during peak travel times.
City’s interest stirs
Ownership of the rectangular property can be traced to January 1996, which is when KI/FKLA Rancho Realty LLC sold the site to Margarita Canyon LLC for about $2.4 million, according to a grant deed recorded by Riverside County.
An ARCO gas station and convenience store was subsequently built at the north end of the site, but the rest of the land remains undeveloped.
The city’s interest in the site surfaced publicly in May 2004. It was then, according to city records, that the council first met behind closed doors to discuss property negotiations with landowner Fred Grimes.
No council action was reported from that closed meeting, according to city records. Councilman Comerchero did not participate in the session due to “economic interest” in the issue, city records show. Naggar participated in that review, records indicate.
Naggar said the potential purchase came before the council because the city did not want to face development occurring on land it needed for future road or interchange improvements.
Such a quandary occurred years ago when Temecula and Murrieta were contemplating buying land near Winchester and Murrieta Hot Springs roads for a link to a new interchange being planned on I-15.
Naggar said nothing surfaced at the time of the May 2004 closed session that would prevent him from considering what he termed an “informational item” on future infrastructure needs.
“Nonetheless, looking back there was nothing in my personal or professional life that would have precluded me from being in that meeting,” Naggar said in his e-mailed statement.
An internal memo prepared about that time listed six “possible benefits” that the city would reap by closing the land deal. The first benefit on the list noted: “Developers/investors receive early return.”
The memo noted that other purchase benefits would include the city taking control over future development of the site and its possible future use as a park-and-ride lot.
The three disadvantages cited in the memo, which was recently released by the city, included the possible loss of future development revenues and the need to use city funds as “up front money” to buy the land.
A July 2004 appraisal report done by a city consultant played a key role in establishing the tract’s value. The appraiser used two methods, including comparing land values of several local and regional sites, to estimate the value of the Margarita Canyon LLC land at $7.105 million.
Other Temecula sites examined in the report included a 22.7-acre parcel along I-15 where an auto mall expansion is under way, a 5.2-acre parcel at Ynez Road and Overland Drive where a restaurant and strip mall now stands and a 4.7-acre parcel along Jefferson Avenue that remains undeveloped.
The appraisal report states that more than half of the Margarita Canyon site cannot be developed because the terrain is uneven or the slopes of Murrieta and Temecula creeks encroach upon useable land.
Naggar said he did not take part in an August 2004 closed session on the potential land deal because the appraisal report had identified Stephenson as one of the Margarita Canyon LLC partners.
“I did not participate in that meeting on the advice of counsel due to a potential conflict of interest in that it was discovered that one of the property owners was Dan Stephenson, with whom I had entered into or was contemplating entering into a business relationship with,” Naggar said in his recent statement.
Purchase raises possibilities
The council voted to purchase the land nearly three months after the appraisal report was completed. In a 3-0 vote in open session, the council approved a staff recommendation to pay $7.1 million for the land.
Comerchero and Naggar abstained from voting on the land purchase. Councilmen Roberts, Washington and Stone voted ‘yes.’
Comerchero heads the land development division of the Rancon Group, which was founded by Stephenson. A longtime friend of Stephenson, Washington at some point also established business ties with him as well, according to city financial records made public in March 2007.
Newspaper stories at the time of the land deal quoted the Margarita Canyon owners as saying the sale would scuttle plans being cemented to build a restaurant and a four-story hotel on the site.
Marketing materials printed prior to the city’s purchase identified several anticipated and potential uses for the site. The materials published by the Rancon Group noted that the site had received its development approvals and an ARCO gas station and convenience story had been built there.
“A Jack-in-the-Box is now under construction. The project, when complete, will have an additional 109,000 square feet of retail development,” the marketing blurb concluded.
But that rosy outlook was not reflected in the appraisal report prepared for the city prior to the land purchase. The report said the Jack-in-the-Box deal had fizzled because future freeway improvements might affect it.
The report also noted “no written documentation was provided” by the Margarita partners that indicated any development interest by a hotel chain or other potential builders.
At the time of the land deal, city public works officials said in newspaper stories that the future work to reconfigure the freeway interchange and ramps would cost about $15 million.
Planning proceeds amid scrutiny
The media coverage waned following the land deal and planning has progressed on the interchange improvements.
Part of the site has been used as an impromptu park-and-ride lot by commuters who gather before trekking in groups to jobs in San Diego or other cities throughout Southern California.
Enough funds have been earmarked to build the interchange improvements, Bill Hughes, Temecula’s public works director, said in a recent e-mail interview.
More than half the $30.6 million construction cost – about $17 million – would come from gaming funds the city receives as a result of the regional traffic impacts caused by the Pechanga casino.
Another $10 million would come from a countywide development fee that is earmarked for future road and freeway projects, Hughes said.
Construction plans are being finalized for the project and work is expected to start in the fiscal year that begins July 1. Construction will take several years and the completion timetable calls for the new ramps to begin functioning sometime in 2012, Hughes said.
He said the construction of the new freeway ramps and other improvements will require about one-third of the 35-acre Margarita Canyon site. Any remaining flat land that is not affected by environmental or archaeological restraints might be used as a parking lot, he said.
Hughes said the city might not need any additional land outside the Margarita Canyon purchase to build the future improvements. If additional pieces are needed, they would likely just be small slivers on the periphery of the ramps project, he said.