Political Economy

How a Willie Brown real estate venture snagged tens of millions of dollars in government subsidies and opened the way for Democratic heavyweight Angelo Tsakopoulo to make even more money

And one of those ways involves the little-noticed real estate partnerships that go by the name Live Oak.

There are three different Live Oak partnerships -- Live Oak Associates, Live Oak Associates II, and Live Oak Associates III -- and they have become players in Sacramento's exurban real estate game. Financial disclosures on file with the state and city governments show that Willie Brown has interests in all three. The partnerships are headed by two attorneys, William A. Falik and Jonathan A. Cohen, who also have organized other firms in which Brown has invested. Brown is a limited partner in the Live Oak groups, meaning that he is an investor, not an active manager of the ventures. His most recent public disclosure values his interest in each of the three partnerships at somewhere between $10,000 and $100,000, but it is unclear whether those values represent initial investment, or that investment plus appreciation and reinvestment of profits over the years.

Live Oak seems to be something of a specialist in the real estate game. It apparently makes most of its profits on the front end of the residential development process: buying raw land; "entitling" it with residential zoning and water, sewage, and building permits; and, then, selling it -- for many times what was paid -- to other developers, who build and sell homes. This is not a particularly new or unusual method of making money in the real estate game; in some sense, all real estate developers market their ability to obtain the government entitlements necessary to build.

But North Laguna Creek was not your usual type of development challenge. During winter storms, mile-wide sheets of water often spilled from the creek, feeding vast networks of wetlands. While soggy ground is good for grass, it is very bad for supporting houses. That's why -- since the early 1960s -- city planners had favored keeping Laguna Creek as a "natural" flood plain; that is, a drainage system that would protect 50 square miles of watershed by soaking up and containing flood waters. There was plenty of developable area outside the flood plain, the planners reasoned, as they tried to steer urban growth toward dry land. The idea was to leave Laguna Creek alone -- as nature's safety valve. Besides, the planners noted, destroying wetlands was a violation of federal law.

But developer-speculators are inevitably drawn to wasteland, confident in their ability to buy property cheaply, win their way with government, and then sell what once was considered waste for top dollar. The key to building suburban tracts on the cheaply bought fields of North Laguna was to tame the creek, and, then, get the city to approve at least a few hundred acres for residential building. To do this, it was necessary to undo the sanctity of the wetlands -- to get approval of a first subdivision so it could be built, and so many more could follow.

Before Live Oak Associates II arrived on the North Laguna Creek scene, much of the creekside grazing land there was controlled by Sacramento attorney Kenneth S. Tune and his partners, and they had run into an entitlement wall. In 1985, the Sacramento City Council had agreed to widen and deepen the flood-prone stream. As part of the plan, a million cubic yards of dirt excavated from the creek would

be spread over 600 nearby acres. Deepening the creek's channel was the key to having FEMA remove the area from the flood hazard zone, which was the key to dense residential development. The future looked dry -- and lucrative.

But the wetlands issue sprang up, and refused to be pushed down. The Army Corps of Engineers questioned whether the city could spread dirt taken from the creek bed onto nearby wetlands. The Corps' concern was flooding; wetlands act as natural sponges, and filling or paving them could increase the flooding this project was meant to alleviate.

Late in 1986, the U.S. Environmental Protection Agency placed a huge impediment in the way of all development in the Laguna Creek area. In a series of letters to the Army Corps, the EPA said that dredging one small section of Laguna Creek's 25 miles might have a "domino" effect, allowing development that would decimate the region's ecology. The EPA was particularly concerned about 70 acres of vernal pools that would be obliterated by the flood control project. A vernal pool is a seasonal wetland, a strange and beautiful aquatic universe that springs to life as shallow rainwaters pool in hardpan depressions. Endangered flora and fauna, including the almost invisible fairy shrimp, thrive only in the vernal pools of Northern California, which often are surrounded by exotic flowers blooming in mystic rings. The city was promising to replace the vernal pools with man-made structures, but the EPA did not believe vernal pools could be built.

Public records make it clear that the EPA felt the city of Sacramento, in pushing the channelization of Laguna Creek, was fronting for developers, in anticipation of much larger development projects than the one then under consideration. "It is clear that the flood control is being sized and configured to account for large planned developments upstream," EPA official Tom Yocum wrote in a September 1987 internal memo. The EPA's opposition seemed absolute, and its environmental concerns were backed by the United States Fish and Wildlife Service and the California Department of Fish and Game, both of which objected to destroying the habitats of the giant garter snake and an array of vernal pool crustaceans.

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