Political Economy

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.

The environmental objection that seemed most difficult to overcome involved wetlands. The EPA contended that the vernal pools were a type of wetlands that could not be "replaced" with artificial pools. And, the EPA said, federal law simply, absolutely prohibited the destruction of these wetlands to create housing. The city and the Corps of Engineers felt otherwise, and there was a period of bureaucratic jousting about when wetlands could and could not be "taken" for development.

And then, before dueling bureaucrats could further muddle the matter, two relatively subterranean events occurred.

On Aug. 31, 1987, then-U.S. Rep. Vic Fazio, a Sacramento Democrat, telephoned Judith Ayres, then-regional EPA administrator. Fazio told Ayres he was "in favor" of the floodway project. He said he was "interested" in the EPA "reaching a resolution" of the matter, according to notes of the conversation kept by the EPA. He probably did not need to remind Ayres that, as a member of both the House Appropriations Committee and the Interior Committee, he held tremendous sway over the EPA's budget.

Vic Fazio -- one of the most powerful politicians in California -- was a state assemblyman before he won his congressional seat in 1978. For nearly two decades, Fazio and Assembly Speaker Willie Brown were among California's leading Democratic Party strategists and fund-raisers. Together, they fought many bloody redistricting wars against Republicans; and Fazio even gave up much of his safe district in 1981 to save the almost-ruined career of Willie Brown's closest ally, John Burton. Fazio, now a lobbyist with Clark & Weinstock of Washington, D.C., did not return repeated phone calls. But Stan Hazelroth, a former aide to Fazio who was also a consultant for the North Laguna Creek developers, remembers that he -- and agents of Live Oak Associates II -- repeatedly asked Fazio's office to weigh in with the EPA to allow the flood control project on North Laguna Creek. Hazelroth says that he also lobbied people in the state Assembly to get the state agencies to drop their opposition to the project.

One month after Fazio's call to the EPA, Kenneth Tune's WPT Group, which had struggled unsuccessfully for years to entitle its land, arranged to sell the prime portions of its North Laguna Creek property to Live Oak Associates II for $3.7 million.

And within days of the sale, the EPA, which had been so adamantly against any development of the area, capitulated completely. And after the federal environmental agency agreed to the Laguna Creek flood control project, the California Department of Fish and Game and the United States Fish and Wildlife Service froze their opposition to it. Bulldozers hit the creek bed, and FEMA removed Laguna Creek from the flood plain.

Almost like magic, Live Oak Associates II became the master developer of a hot new development property: North Laguna Creek.

Starting in 1988, the Sacramento City Council spent $16 million to construct the floodway for North Laguna Creek. But Sacramento did much more than dredge the creek, and take most of Live Oak II's land out of the flood plain. The city's Department of Public Works also built three major roads inside the development, connecting it to the world at large. It was against city policy to do this, but exceptions were made.