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August 15, 2006 > One of those pesky details

One of those pesky details

by Steve Warga

In Part 4 of our series on the proposed composting facility in Sunol, TCV examines the project's lack of even basic business planning.

How about a game of "Let's Pretend?" Ready? Let's pretend we want to start a business turning other people's garbage into compost that we could then resell for a profit. What would we need to get that business rolling? Would we need cash; would we need equipment; would we need permits; would we need manpower? Yes, we would need all of these. So let's pretend to spend, oh, four years or so, and upwards of $3 million taking care of all those details. And let's assume we have everything lined up and ready to go. We're all set, right?

What's that you say? We missed something; a place for our business? Oh, right, of course; we're going to need some land for all that equipment and those buildings and those employees. We'll especially need somewhere to put all that rotting garbage. Did we forget that we're pretending to operate a compost facility that will process 50,000 TONS of garbage at any given time? It's one of those annoying, pesky details that always seem to pop-up at the last minute. But this is only a game, right?

Sad to say, this little scenario is not a game. Your Alameda County Waste Management Authority (ACWMA) conceived this project, invested the aforementioned time and money preparing their project, but never bothered with one major detail. For all their education, resources and planning, Brian Mathews, project manager, Karen Smith, executive director and attorney Clem Shute never bothered to negotiate the right to purchase or lease any land. They identified a parcel on Andrade Road in the Sunol Valley and they devoted all their energy and resources toward securing the necessary permits and approvals. But they never commenced negotiations with the land owners of that land, the city and county of San Francisco. The entire extent of their efforts in this regard consisted of a simple inquiry to the managers of that land, the San Francisco Public Utilities Commission (SFPUC).

"As you might well imagine, we receive hundreds of inquiries," said Gary Dowd, director of Real Estate for SFPUC. "I recall getting some letters exploring use of the (Andrade Road) site from ACWMA. But there was no further contact." Dowd went on to confirm that any land acquisition or lease proposals must, first, come through his office, Real Estate Services, before going to the San Francisco Supervisors.

In hundreds and hundreds of pages of studies, assessments, plans and projections contained in the Draft Environmental Impact Report (DEIR), the small matter of acquiring rights to the actual site of the facility merits only a brief mention. "The ACWMA would lease or acquire the site from the SFPUC and the facility would be operated and managed by Materials Recovery Inc." (Footnote #1; p. IV.A.1; ACWMA Organics Processing Development Program and Project DEIR) One short footnote; that's it! Seemingly endless pages of land use discussions, yet only a one sentence, conditional reference, tucked into a footnote addresses the very fundamental question of land acquisition. How can you use land if you cannot first acquire that land?

Caz Szlandak, Sunol resident and outspoken opponent of the proposed compost facility, couldn't avoid sounding a bit incredulous at ACWMA's utter disregard of basic business sense. In comments to the ACWMA board, June 28, he said, "As a real estate developer, the first thing I do is hire a good lawyer to write a good contract to option or contract a piece of land. In that contract one of the biggest things that I do is I put in a clause for due diligence." Szlandak's "due diligence" refers to the general principle of performing - in advance -- prudent, reasonable and necessary review of all factors relating to a proposed investment or project. He was offended by ACWMA's expenditure of time and money in pursuit of a project that lacked any sort of land acquisition rights or zoning clearances.

He knows better because he's spent 30 years doing this sort of thing. If he buys a piece of land for a project, then discovers an impediment to his plans, he loses money, maybe millions. So, he writes a contract with "subject to" language in it. Meaning, he will purchase the land in question, at an agreed upon price, only if he can secure zoning approvals, permits, utilities, roads, etc. If he hits a roadblock in any critical area, he withdraws his offer to purchase using one or more of those "subject to" clauses. This is basic investment practice.

In the planning stages of their proposed dump in Sunol, ACWMA staff didn't even bother offering a purchase or lease agreement, let alone one with prudent, reasonable and necessary "subject to" clauses. In other words, they avoided any due diligence considerations at all. In essence, they said, "Don't worry; trust us; we'll take care of this."

It is impossible to predict how a given body of politicians will rule. However, off the record comments from several insiders suggest that ACWMA would not have succeeded securing rights to build a massive garbage dump on the 40 acre parcel off Andrade Road. Even if they had obtained the rights to the land, their composting operations would have violated Alameda County's General Land Use plan. As such, ACWMA would not have received a Conditional Use Permit from the county, meaning they could not have commenced construction or operations. (See NO CONFIDENCE!, TCV, June 20, 2006.) So, why did they spend all that time and money without out any "due diligence" ahead of time?

Who knows, maybe it really was a game? It is one explanation--admittedly far-fetched-- for the stunning lack of due diligence in so many aspects of a doomed project. In this saga you find large amounts of money changing hands; an attorney recommending against the key document drafted by his own law firm; meteorological data collected from distant sites; critical information hidden by staff; numerous employees of various oversight agencies intimidated into silence. Finally, it turns out the very site of the project has not been reviewed or secured. What's wrong with this picture?

Next week: Conclusion: acts and consequences.

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