An avoidable $36.8 million loss

In a virtually unprecedented chain of events, the coastside city of Half Moon Bay could conceivably be driven into dissolving back to unincorporated status. This municipal version of bankruptcy would be the worst-case result of losing a long-running courtroom battle that probably should never have begun.

Half Moon Bay has faced possible loss of more than three times its annual $10 million operating budget since last month, when the Federal District Court of California ruled that the city must pay $36.8 million to a property owner prevented from developing a 24-acre site east of Highway 1.

After already spending some $5 million in legal fees, the City Council shortly before Christmas decided to appeal, retaining the high-powered San Francisco law firm of Orrick, Herrington and Sutcliffe at $3,185 per hour. But when Half Moon Bay files its appeal, it would likely be required to post a multimillion-dollar bond that triggers significant budget cuts to municipal services such as parks, streets and libraries.

The federal judge agreed with plaintiff Joyce Yamagiwa, whose attorneys argued that the city was responsible for accidentally creating protected wetlands on the property when a municipal contractor botched the installation of storm drains. This ultimately blocked construction of an 83-unit housing subdivision that had earlier been granted a preliminary permit.

The previous property owner actually requested Half Moon Bay to form a land district in 1984 to finance construction of storm drains on the property, in order to ease significant flooding problems. But then in 1996, state law made cities responsible for issuing coastal development permits in compliance with the stringent policies of the California Coastal Commission.

By now the land was already owned by well-known Peninsula developer Charles “Chop” Keenan, whose trustee, Yamagiwa, purchased it for $1 million in a 1993 foreclosure sale. Keenan revived the dormant subdivision development effort in 1998 and encountered a whole new series of environmental obstacles.

Then in 2000, the City Council denied the proposed subdivision a required coastal permit because it claimed wetlands now existed on the property. Keenan and trustee Yamagiwa naturally sought reimbursement for what the property’s value would have been, if development were allowed.

Looking back at the dispute’s convoluted timeline and the way seemingly positive choices repeatedly backfired on the city, it is hard not to feel some sympathy for Half Moon Bay in its unusual dilemma. But Judge Walker’s 167-page decision blasted two decades of city officials for not honoring previous commitments, claiming the wetlands were natural and stubbornly refusing to negotiate directly instead of fighting in court.

Now would seem to be the time for Half Moon Bay to seriously explore a negotiated settlement. Keenan says he is open to various solutions, including trading his now-condemned wetlands for a nearby city-owned property. The land exchange would raise other complex issues, but it seems like a better alternative than dissolving the city government or taking on a crushing bond debt.

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