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

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.

The city built miles of storm drains and sewers; it paid for water mains to deliver city water; it put in street lighting; it built artificial vernal pools; and, last but not least, it created a tapestry of attractive parks as an amenity for the new development. Even the county of Sacramento jumped into the pot, contributing $1.4 million toward the floodway, and donating swamp to "replace" wetlands lost to Live Oak.

It was an extremely unusual arrangement. Where most developers pay a large proportion -- or all -- of their pre-development "hard" costs, Live Oak II seems to have paid almost none. Essentially, the government capitalized Live Oak's venture.

Once the major flood control and environmental disputes were put to rest, over the next nine years, the city of Sacramento bent over backward to change its own laws in favor of Live Oak's needs. Against the recommendations of city planners and the Planning Commission itself, Mayor Anne Rudin and the Sacramento City Council allowed Live Oak to build single-family homes in an area that had been slated for apartments; granted Live Oak numerous building waivers that, according to the city itself, "reflected a substantial departure from the city's normal procedures"; and allowed Live Oak to escape posting millions of dollars in performance bonds, which are cash guarantees that a developer will do what it says it will.

In two of the more unusual transactions, the city bought separate parcels of unbuildable property from Live Oak.

The city's agreements with federal agencies required that 33 acres of the North Laguna Creek development be set aside as a vernal pool preserve. The parcel that Live Oak chose for preservation happened to be directly under several PG&E electrical transmission towers. Amazingly, the city volunteered to buy the parcel from Live Oak -- agreeing to pay for land the developer would otherwise have had to donate as open space.

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