Wednesday, June 8, 2011
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Court Blocks State From Selling Orange County Fairgrounds
By KENNETH OFGANG, Staff Writer
The Schwarzenegger administration’s plan to sell the Orange County Fairgrounds to a private developer to help close the state’s budget gap cannot proceed because of defects in the bidding process, the Fourth District Court of Appeal ruled yesterday.
Div. Three granted a writ, overturning retired Orange Superior Court Judge Hugh Michael Brenner’s ruling allowing the California Department of General Services to proceed with the sale if it so desired. The Brown administration, which came in to office in January, cast doubt earlier this year on whether it would do so, but the state continued to defend the plan in court.
A department spokesperson recently explained to reporters that the department had received no direction from the governor and did not expect to receive any before the litigation concluded. Yesterday’s ruling puts the matter back before the governor and the Legislature, barring intervention by the Supreme Court.
“In practical terms,” Acting Presiding Justice William Rylaarsdam explained in his opinion for the Court of Appeal, “the result of our decision is to void the proposed sale and require the Department to start all over again, if the Governor so chooses.”
Assembly Bill
An alternative to the sale has recently emerged in the form of legislation that would authorize the department and the fair board to enter into a “revenue sharing agreement,” provided that it would produce in excess of $100 million for the state over a term of not more than 40 years.
AB 35, by Assemblyman Jose Solorio, D-Anaheim, passed the Assembly last Wednesday by a vote of 66-3 and was sent to the Senate, although Costa Mesa Mayor Gary Monahan called it “a half-baked, economically questionable and pie-in-the-sky alternative that potentially makes things worse for our city.”
Legislation enacted in 2009 authorizes the sale of the fairgrounds, and in November of last year, the department accepted a $100 million bid from Facilities Management West, which would have paid $20 million down and the balance over 35 years.
A group of rival bidders, fair supporters, and elected officials sued to stop the sale, and obtained a temporary restraining order from Orange Superior Court Judge Frederick Horn last November. Brenner, however, sitting on assignment, lifted the TRO on Dec. 21, which would have allowed the sale to go through but for a stay issued by the Court of Appeal that same day.
Rylaarsdam said there were two reasons why the sale cannot proceed—the failure of the department to make an explicit comparison between the fair market value of the property and the terms of the proposed sale, as required by the 2009 law, and “the total absence of any bid protest procedures” in the bidding process itself. The department, the jurist said, made no effort to guarantee that the winning bidder would be responsible, or that the winning bid would be responsive to the request for proposals.
“While the second flaw (the absence of a bid protest mechanism) might, in theory, be cured by simply sending the matter back to the Department to allow for administrative challenges to the bids received, the first flaw (failure to give the Legislature the comparison it wanted) is necessarily fatal.”
Rylaarsdam noted that at a public auction held in January of last year, the high bidder was Craig Real Estate, which offered $56.5 million, or $1.5 million more than a sealed bid previously made by Facilities West. The department rejected the Craig bid as not high enough, indicating that it had “a good idea of the Fairground’s fair market value independent of whatever bid happened to be the highest,” the justice said.
City’s Deal
That, in turn, led to an effort by the city to put together its own deal, subject to legislative approval. That deal would have bypassed public bidding and transferred the property to a joint powers authority controlled by the city, which would have leased it to Facilities West for a total of $96 million, $19.2 million down and the remainder over no more than 40 years.
With no action by the Legislature, the department last summer issued a new RFP for a sale to close by the end of the year. Facilities Management and Advanced Real Estate Services were the high bidders, at an identical $100 million, although Advanced’s terms differed, and the department concluded that Advanced’s offer—with a balloon payment more than $500 million after 40 years—had higher “net present value.”
In October, however, the department awarded the contract for the property to Facilities Management, apparently because it considered the risk of default too great under Advanced’s proposal. The award was protested by other bidders, however the department responded that it had no jurisdiction to consider the protests under the 2009 legislation.
The department informed the chair of the Joint Legislative Budget Committee of the terms of the bid, declaring that “Purchase Price and terms presented represent the Fair Market Value as per” the statute.
Rylaarsdam, however, noted that the legislation contains three distinct references to “fair market value,” which he called a clear indication that the Legislature deemed the property to have a value independent of the high bid. The legislation, he added, also contemplated that the department would give lawmakers a comparison of the proposed sale price to that independently determined value 30 days before finalizing any deal.
“The implication is that the Legislature contemplated a much more leisurely timeframe than a quick, fire sale style disposal of the Fairgrounds — that is, a timeframe in which the Department would have plenty of time to prepare its own estimate of fair market value,” the justice wrote.
He rejected the department’s argument that it had total discretion to proceed with the sale, calling that a clearly erroneous interpretation of the statute. And without a bid protest mechanism, he said, the court cannot find that the process was designed to obtain the highest possible bid from a responsible bidder.
The case is Advanced Real Estate Services, Inc. v. Superior Court (California Department of General Services), G044596.
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