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Honest Government Matters - 2009 - 3rd Quarter


Further evidence of big bank involvement in Jim McConville's loan fraud. 09/23/2009
by Pat Flannery

Some weeks ago I received a phone call from a Bay Area investor, Andy Narraway, who had lent Jim McConville $1,875,000 in five second trust deeds, all of which together with $760,000 in accrued interest, are now in trouble. Narraway had read my blogs about McConville's scams up and down the state and wondered if I could expose the bank fraud that occurred in the refinancing of his loans which would help him recover his money.

Through a mortgage broker, Mr. Narraway had made five loans on five separate properties to McConville totaling $1,875,000 over a two-year period, December 2003 to October 2005. As I began looking into Mr. Narraway's loans it quickly became obvious that fraud was committed by the banks not on the banks. The frauds could not have been done without bank connivance. The escrow process was used for the very opposite purpose from what it is intended. The bank fraudsters struck at the very heart of real estate - the escrow.

Escrow is the process by which parties to a real estate transaction (buyer and seller, borrower and lender), deposit documents and monies with a neutral third party (a licensed escrow or title insurance company), which documents and monies are then delivered to the appropriate parties upon fulfillment of certain conditions (e.g. a grant deed for the purchase money), as set out in a written agreement called the escrow instructions.

The entire system depends upon the escrow officer faithfully carrying out these instructions. Can you imagine handing an escrow officer a signed grant deed for your house, expecting to get paid when the escrow closes, only to find that the escrow agent recorded the grant deed but did not pay you the purchase money? Well that's what happened to Andy Narraway in three separate transactions. He provided a "reconveyance" deed but did not get paid.

To understand what happens in a real estate transaction where a new loan replaces an old loan (as happens in nearly every real estate transaction) it is necessary to understand a "reconveyance" deed.

A "reconveyance" is the instrument commonly used to record the fact that an "old" loan has been paid off. In a sale or refinance transaction the "old" lender gives a signed "reconveyance" to the new lender through escrow with a "demand" to pay all outstanding monies at close of escrow.

Standard language in every deed of trust binds the beneficiary/lender contractually to provide a "reconveyance" upon payoff. But in the case of private lenders, such as Narraway, all an escrow has to do is promise to pay off the loan. See this typical request/promise from Stewart Title escrow to Mr. Narraway. 

This is because, unlike institutional lenders, private lenders, as a condition of the new lender obtaining title insurance, are required to provide the "reconveyance" before getting paid. Narraway therefore had no choice but to provide a "reconveyance" before getting paid and the banks as the new lenders took unconscionable advantage of that fact. They knew exactly what they were doing. They exploited the system.

On each refinance, Narraway was requested by the escrow officer, to provide a deed of "reconveyance" into escrow with a promise of getting paid at closing. But in each case the escrow officer gave the money to Jim McConville instead! Coincidence?

Imagine Mr. Narraway's shock when he realized escrow had recorded his "reconveyance" but he was not going to get paid. That strikes at the very heart of the system. The banks used escrow as an instrument of fraud on behalf of a favored borrower, Jim McConville.

There are built-in safeguards to prevent this from happening. Unfortunately they rely mainly on the fact that a new lender has a duty to ensure that any deed of trust recorded prior to theirs is paid off and "reconveyed". (In some rare occasions a "subordination agreement" may be recorded). Each new lender is therefore expected to protect its lien position by including in its "escrow instructions" a requirement that a "reconveyance" be obtained from any "old" lender in exchange for being paid off and to ensure that "escrow instructions" are carried out exactly.

The key to the whole system is the final "settlement statement" from escrow. It will confirm that the payoff was made. If the "settlement statement" does not show a payoff to the "old" lender, the new lender will know that its escrow instructions were not complied with.

To that end most lenders require a certified estimate "settlement statement" prior to funding and a certified final "settlement statement" within 72 hours of closing. Both the new lender and the escrow sign off on that final "settlement statement". It is usually placed at the very top of each transaction file. Everybody involved in lending knows its primary importance.

It is impossible therefore for a "reconveyance" to be recorded without the "old" lender being paid off i.e. without fraud being committed on the "old" lender, either negligently or deliberately. It is impossible for an escrow officer not to notice that it has all that money left over in its trust account. We licensees are required to keep a separate trust account for each transaction and balance each at the close of escrow. I know from personal experience that it would be impossible for me to balance my trust account if I "forgot" to pay off an "old" loan.

Was it fraud or negligence on the part of the banks in the case of Narraway's three refinancings by McConville? If it were just one case and somebody other than Jim McConville involved, it might possibly be negligence or oversight. But all three! With McConville as the borrower!

Mr. McConville appears to have had a lot of bank and escrow officials in his pocket. Something as fundamental as three "settlement statements" not complying with their "escrow instructions" simply cannot happen without collusion. Lightning doesn't strike the same place three times.

23-29 Abbey St., San Francisco. Here is Mr. Narraway's deed of trust dated May 12, 2004 securing his loan of $345,000 to Jim McConville as Sapphire Park House Corp. It was in second place behind a first deed of trust to Sequoia Mortgage for $1,085,000 dated February 7, 2005.

On April 4, 2008 McConville refinanced the Sequoia loan with a new deed of trust to Wachovia Mortgage. This is when the lender-escrow fraud took place.

Here is the "request for demand" from the escrow holder. As you can see the request contains a promise that his loan will be paid off through escrow. That did not happen, despite Mr. Narraway having executed and returned the "reconveyance" provided by escrow.

It should be noted that an "old" loan holder is not a party to the escrow. Nor are they covered by any title insurance involved. They are entirely relying on the new lender who, acting through its escrow agent, is entirely responsible for their agent's actions.

The new "lender's closing instructions" clearly stated that no secondary financing was permitted. Furthermore, on page 3 of the Wachovia deed of trust the borrower, Jim McConville promised that there would be no other deeds of trust, no secondary financing, recorded or unrecorded.

Yet here is the "settlement statement" showing a payoff of the old 1st loan of $1,085,000 to Sequoia Mortgage but no payoff of the old 2nd loan of $345,000 to Mr. Narraway. Clearly Wachovia's "lender's instructions" and Wachovia's "settlement statement" did not agree. It is impossible for Wachovia's officials not to have noticed that. It is fraud by Wachovia on Narraway through its agent the escrow holder.

Wachovia is now foreclosing on McConville who owes Wachovia $36,267.24 in back payments as of July 21, 2009. Here is the NOD. Can Wachovia give clear title to a subsequent purchaser? Can it ignore the lender-escrow fraud? Mr. Narraway still has not been paid. If so we have lost our real estate escrow system. This case will ultimately be decided by a judge.

3050 Fruitvale Ave., Oakland. Here is Mr. Narraway's deed of trust dated December 30, 2004 securing his loan of $300,000 to Jim McConville as Sapphire Park House Corp. It was in second place behind a first deed of trust to Marin Capital for $1,425,000 dated October 16, 2003.

On January 12, 2006 McConville refinanced the Marin Capital loan with a new deed of trust for $1,960,000 to LaSalle Bank. Again, this is when the lender-escrow fraud took place.

As with 23-29 Abbey St. in San Francisco Mr. Narraway provided escrow with a "reconveyance" relying on a promise that his loan would be paid off in escrow. The "reconveyance" was recorded but Mr. Narraway never received his $300,000.

Again, LaSalle's "lender's instructions" and LaSalle's "settlement statement" did not agree and it would be impossible for LaSalle's officials not to have noticed it. Therefore it is fraud by LaSalle on Narraway through its agent the escrow company.

On March 17, 2006 a strange thing happened. McConville's daughter, Nicole McConville, recorded an unsolicited "deed of trust" in favor of Narraway for $300,000. But she signed on behalf of another McConville company, Diamond House Development Corporation, that did not own 3050 Fruitvale Ave. Was she trying to put right the damage done to Narraway? Did she think he would accept a new (flawed) deed of trust instead of getting paid off?

It should be noted that anybody can record a deed of trust against a property they own (or do not own for that matter) in favor of anybody in the world. The grantee does not have to be asked and may not even know about it. Narraway was not asked. Again, that is our system.

An even stranger thing happened recently.
Jack Thomas, the person who signed the LaSalle deed of trust on January 12, 2006 as CEO and Secretary of McConville's company Sapphire Park House Corp., handed Mr. Narraway an affidavit saying that he never was CEO or Secretary of any of McConville's companies or any other company for that matter. Mr. Thomas was employed as a general handyman by Jim McConville and says that McConville routinely threatened him with dismissal if he did not sign papers and that he had no idea what the papers he signed were.

Despite full knowledge of the LaSalle escrow not having paid off Narraway at the LaSalle refinance, Wells Fargo Bank, claiming to be the current owner of the LaSalle loan, is now foreclosing on McConville who, according to this NOD dated August 21, 2009, owes Wells Fargo $285,754.10 in delinquent payments, in addition to the original sum of $1,960,000. Did McConville ever even make a payment? Was the whole thing just a bank present of $1,960,000 to McConville?

Can Wells Fargo now blithely wipe out Narraway and give clear title through a foreclosure sale to a subsequent purchaser? Can it ignore the lender-escrow fraud which it has purchased? Mr. Narraway still has not been paid! If so we have lost our real estate escrow system. As with Abbey St., this case will ultimately be decided by a judge.

126 Belle Ave., Pleasant Hill. Here is Mr. Narraway's deed of trust dated August 12, 2004 securing his loan of $130,000 to Jim McConville as Sapphire Park House Corp. It was in second place behind a first deed of trust to Marin Capital for $322,000 also dated August 12, 2004.

On March 10, 2008 McConville sold the property to a person he has used extensively up and down the state as a "straw buyer". The "straw buyer" obtained new finance from the Bank of America, a 1st deed of trust for $417,000 together with a new 2nd deed of trust for $53,800 also from BofA and on the same date.

Again, Mr. Narraway provided a "reconveyance" upon a promise of being paid off in escrow. The escrow closed but he was never paid off. Here is the "settlement statement".

I noticed that there were no payoffs shown on the settlement statement, so I did a search for a "reconveyance" of the Marin Capital deed of trust for $322,000 dated August 12, 2004. I was surprised to find that it had been reconveyed, presumably paid off, on January 1, 2007. I checked to see if there was a related sale or refinance at that time. There was none. Why did Marin Capital get paid off but Narraway did not?

Following payoff of the Marin Capital loan on January 1, 2007, Narraway's August 12, 2004 loan for $130,000 was now in first position. It is clearly shown as Item 9 on the Preliminary Title Report dated February 20, 2008, a short time before close of escrow on March 10, 2008. It is impossible for the Bank of America not to have known about Mr. Narraway's loan. What did they think happened to it? It was not shown as a payoff on the "settlement statement".

There is a clear pattern here. Three institutional banks, one a direct lender, the Bank of America, cooperated with McConville in turning a blind eye to the fact that Mr. Narraway's loans were reconveyed but did not appear on the "settlement statements" as having been paid off. McConville could not have pulled off these frauds without the cooperation of the banks.

It is clear to me that McConville did not act alone - the banks were his accomplices.


The full bill for San Diego's Municipal Millionaires
is finally being presented. 09/18/09

by Pat Flannery

The SDCERS Pension Board made a "tough decision" today. Here is the actuary's full presentation showing all of the Board's grim options.

Below are the two options the Actuary "could live with", the Board chose Option 1 - no change.

    Option 1     Option 2  
  Smoothing 25%     25%  
  Corridor 120%     130%  
  Amortization 15 years     15 years  
  Avoid Negative Amortization Yes     Yes  
    ARC     ARC  
  FY-10 $154.2     $154.2  
  FY-11 $224.8     $193.2  
  FY-12 $250.9     $226.3  
  FY-13 $274.9     $256.2  
  FY-14 $297.1     $283.3  
  FY-15 $318.1     $308.3  

It is but a foretaste of the devastating impact pension over-benefiting, much of it illegal, will have on San Diego city services for decades to come. Deeper and deeper cuts will be the price future generations of San Diegans will pay for the gross over-benefiting by city employee-dominated pension boards over many years.

The shrill cry of "you promised" (in reality the city employees promised themselves) from employee attorney Ann Smith will echo through the city services budget for a long, long time to come. The bitter battle she won over Mike Aguirre regarding illegal retroactive benefits will be remembered every time future mayors are forced to make deeper and deeper service cuts to fund the over-benefited pensions of hundreds of San Diego Municipal Millionaires.


Angry citizens protest walling off Broadway Pier for a private cruise ship company - Carnival Cruise Lines. 09/14/09

by Pat Flannery



The bankers were the bank robbers. 09/09/09

by Pat Flannery

Does the Federal Government have a conflict of interest with regard to  bank fraud? Fraud is defined as "an act of deliberate deception with the intent of securing something by taking unfair advantage of another." The banks practiced deliberate deception in creating and selling mortgage loans and took unfair advantage of both borrowers and investors with these loans.

I have investigated mortgage fraud in several projects throughout California. In all cases it is clear that the fraud was top-down not bottom-up. Fraud was committed by the banks not on the banks. It is impossible to believe that the bank officials who approved hundreds of these fraudulent loans were unaware of the fraud involved.

An honest banker does not fund multiple "owner-occupied" loans to one person in one day when that person lives in a different part of the state and is in the military. They even made loans to people who were not employed and now blame the borrower. To my knowledge none of these crooked bank officials have been arrested or charged.

Instead of prosecuting them the U.S. Government gave them hundreds of billions of taxpayer dollars. But this "bailout" money did not go to the investors who purchased the bad loans, it went to the banks who created them! Those banks had already received full value for those loans from pension funds and other investors. That is a government handout, not a bailout. It is corruption on a scale never before imagined.

Most of these crooked loan officers are now senior loan officials with the big banks that took them over. The Bank of America took over Countrywide, Chase took over WAMU, Wells Fargo took over Wachovia etc. They are still there because Obama and Geithner want them there.

Do these two Cabinet Secretaries therefore have a conflict of interest?

Tim Geithner - Treasury Eric Holder - Justice

Can Secretary Holder take away what Secretary Geithner has given? Holder can hardly send in the FBI to arrest former Countrywide loan officers, now top executives with the Bank of America, a bank to which Geithner has given tens of billions of dollars. You see the problem.

Now read this article in the New York Times. The SEC has given former Countrywide officials a license to practice their former trade in a new publicly quoted company, buying up for pennies on the dollar the fraudulent loans they created while working for Countrywide. It is like staffing a city fire department with known pyromaniacs.

By rewarding the bank fraudsters Geithner has emasculated the Federal securities laws to the point where mortgage-backed securities are now "
backed by nothing but the blue skies of Kansas" i.e. we are back to the days of "blue sky" laws before the Securities Act of 1933.

Obama is further diverting attention from the SEC by having Holder go after the CIA for its interrogation methods, instead of having Geithner go after the banks for securities and mortgage fraud. How Obama handles this financial nuclear bomb will define his presidency, not health care, not Afghanistan. If he continues to reward this internal fraud it will cause the world community to lose confidence in our currency. A collapse of the dollar would collapse America's power quicker than any terrorist act.

America's power is based, not upon arms, but upon confidence in the dollar. The world is therefore far more interested in how we deal with our internal fraud problem than how we deal with "enhanced interrogation" of alleged foreign terrorists. The threat to America is far greater from within than from without. The greater danger is not in Afghanistan, it is in Wall Street.

From what I have seen, as just one individual, we need a full-blown government investigation into mortgage fraud. It has devastated our public pensions and poisoned our financial securities. These fraudulent banksters are worse than mere bank robbers, they have all but destroyed the American financial system. And they are still there!


Hueso muzzles public comment on the Embarcadero. 09/01/09

by Pat Flannery

I went down to City Council today to give the Councilmembers a "heads up" on the vote they must take on September 15, 2009 regarding the proposed Amendment to the Embarcadero Joint Powers Agreement (JPA). The JPA Amendment, if passed, would authorize CCDC to pay for "improvements' that would effectively turn the Embarcadero into a marine dock subject to the same Homeland Security requirements as the Tenth Avenue Marine Terminal.

The Port District's web site clearly shows that access to the B Street Cruise Ship Terminal is currently subject to the same strict security as Tenth Avenue Marine Terminal. The City Council needs to know that the Broadway Pier Cruise Ship Terminal, if approved, will become a marine terminal under Federal Law: the Maritime Transportation Security Act.

This is part of that law: the "Transportation Worker Identification Credential" known as TWIC. It means that the City is lying to you when it  says that the public will have access to Broadway Pier after it becomes a cruise ship terminal. Federal Law says otherwise. To underline this deception the planners call it a "Public Access Improvement" project.

Hueso didn't want me speaking about turning the Embarcadero into a Cruise Ship terminal. He knows what it means: the public will need TWIC passes to get on Broadway Pier. A previous public speaker had referred to the Embarcadero when making a general point about "bad decisions by City-appointed officials". He talked about CCDC and some Port Commissioners in terms of conflicts of interest resulting in giveaways. My subject was quite different, the upcoming JPA amendment vote. Nevertheless Hueso seized upon that excuse to suppress my comments.

An hour earlier he had sent George Bianci, the City Clerk's assistant, down into the audience to question me on what I intended to speak about. I told him that I was going to speak about the September 15th vote on the JPA amendment. Obviously Hueso did not want that to happen.

There were dozens of other public speakers. Many of them spoke on the same subject e.g. homelessness, as people do every week .

Hueso used his power as Council President to send the City Clerk down to muzzle me and when that didn't work he tried to rattle me and put me off my message.

He kept me waiting until the very last. If I sounded a little nervous at the end it was because when a Council President abuses his power to that extent it can be a little challenging at the mike. He did succeed in making me forget some of what I had intended to say, but I think I achieved what I went there to do: to put the Councilmembers on notice that their vote on September 15th is critical to the long-term use of the waterfront.

Hueso did not want me lobbying them. He badly wants an affirmative vote on that JPA amendment.  He has promised private use of the waterfront to the special business interests who are supporting him for the State Assembly. One member of the audience protested Hueso interrupting me. The Council President is not supposed to do that during non-agenda public comment. It is the one time when the public gets to speak. But Hueso would suppress even that. He does not serve the public interest, he serves only those who pay for his political ambitions.

Steve Cushman promised a Convention Hotel to his friends. 08/30/09

by Pat Flannery

"This makes me an honest man" said Steve Cushman Chair of the San Diego Port District,  when he and Mayor Sanders broke ground on the Harbor Drive Pedestrian Bridge on October 23, 2008.

He went on to explain: "Over five years ago I promised the Hilton Corporation that they would have a bridge the day they opened". That's what Steve does. He promises things to corporations. The trouble is, he keeps his promises and, according to him, that makes him an honest man.

I have been studying some of Steve's other promises - 5th Avenue Landing LLC for example. His promise to that corporation is what the Convention Center Expansion is all about. It may be his biggest yet. It involves his old friends Arthur Engel and Ray Carpenter, owners of 5th Avenue Landing LLC. Like Steve they have been around for a long time and have business interests up and down the port. In many ways these three believe that between them they own it.

Engel and Carpenter have a lease from the Port on the land upon which the proposed Convention Center Expansion would sit. It is marked in red opposite.

They would gladly sell it back to the Port for their asking price of $14.5 million and the Port would gladly pay it.

But that's not the whole story. They also own a lease on all the land shown in the bottom right of the picture (minus a narrow right of way to the Embarcadero Marina Park behind their property). In addition to all that they own a lease on the water, that's right, the water you see in the picture. They currently rent berths to luxury mega yachts, provide marine facilities to the Oracle America's Cup challenge and Engel operates his Harbor Excursions business out of there.

Cushman's promise to these two enterprising gentlemen is to facilitate the permits and financing of a 250 room hotel which Engel and Carpenter hope to build, as shown on the left side of the picture opposite.

Note the Convention Center Expansion that if built would essentially be an annex of their hotel. It doesn't get better than that for a hotel owner.

If Cushman gets his way, his friends at 5th Avenue Landing LLC would get $14.5 million for what is currently essentially a parking lot lease; it would retain a lease on the very valuable ground the hotel would sit on and it would retain the lease on what is billed in international yachting magazines as one of the finest mega yacht  facilitates in the world. It is good business to know an honest man like Steve Cushman. He keeps his promises.

Mayor Sanders was at first cool to the idea of spending almost $1 billion on a Convention Center Expansion that many believe the City does not need right now, but once Steve "explained" matters to him he came around. Here is his hand picked Citizen Task Force Report. Of course they looked at various other options but eventually agreed that Cushman knew best all along. That is why they were hand-picked. That's how things are done in San Diego.

ear in mind that the Port does not own any land. It is merely trustee of tidelands on behalf of the People of California. The trouble is that Cushman thinks the Port owns the tidelands and that he and a few of his friends own the Port.

Kevin Faulconer's "Elephant on the Waterfront". 08/27/09
by Pat Flannery

Come on down! "This is a good project" beams Kevin Faulconer, the City Council's salesman for Carnival Cruise Lines on Broadway Pier, on July 28, 2009.

I expected any moment to see Cal Worthington riding down the center aisle of the Council Chamber on the elephant he called "My Dog Spot". Kevin almost broke into a Carnival Cruise version of Worthington's "If you want a car or truck, go see Cal, if you want to save a buck, go see Cal." If you want to bait-and-switch, a Marine Terminal for a Park, go see Kevin.

We still have a chance to move this monster from our front porch to the 10th Avenue Marine Terminal, where it belongs. The original NEVP design was fine, before Faulconer "porked" it up. It is this Cushman/Faulconer bait-and-switch "Park-to-Cruise-Terminal" amendment, that is the problem.

But he is not home and dry yet.
To fund his toxic "pork" project he has to get this Joint Exercise of Powers Amendment passed at City Council on September 15, 2009. He is attempting to amend the Joint Powers Agreement without amending the Port Master Plan because the latter would require public hearings. Only a slick PR guy like Faulconer would attempt to pull off something like that. All the public hearings he now brags about, took place before the "Park-to-Cruise-Terminal" switcheroo. The public was never consulted on the new Cruise Terminal.

As part of this ugly deal he wants to move $9 million from the C Street public works project to his Carnival Cruise private project, which means in effect that his Broadway Pier monstrosity is being partially funded by the eminent domain "taking" of private property in Grantville, from where redevelopment money is being shifted to C Street.

Here is the proposed budget Amendment for September 15, 2009. There is nothing a well-connected business cannot do if it has friends in high places. Kevin Faulconer is a businessman, not a public servant. With his background in PR and lobbying, he uses his seat on the City Council to advocate for gifts to private businesses, such as Carnival Cruise Lines.

Below is what the B Street Cruise Ship Terminal has done to our embarcadero already. The excuse is "security". This is not construction, this is permanent. Look at that spiked iron fence and those guards. That is what Broadway Pier will look like. Carnival will "secure" its terminal.

Below is what Broadway Pier looks like today. Do Not Enter signs everywhere. And Faulconer wants his San Diego City Council colleagues, on September 15th, to vote the money for a second "secure" Carnival terminal on our priceless Broadway Pier. For the loss of our Pier and our tax dollars we will get more Do Not Enter signs. That's your "Good Project" Kevin? No! We're not buying! And any Councilmember who votes for it will face an outraged citizenry.

Make no mistake about it, Carnival Cruise Lines will post guards on Broadway Pier as they do right now on B Street, even more, because B Street is only a "port-of-call" while Broadway Pier will be a "home-port". They have to keep the terrorists out, right? They will own Broadway Pier.

I have lived in San Diego for 33 years and I have never seen anything as outrageous as this. They have turned our gorgeous embarcadero into a working docks and call it "visionary".  If Faulconer rams this through City Council on September 15, 2009 he deserves to be recalled.


The battle lines are drawn in the fight for Broadway Pier. 08/25/09

by Pat Flannery

I have obtained a copy of the implementation agreement  for the "North Embarcadero Visionary Plan" (NEVP). The Agreement is known as the "Joint Exercise of Powers Agreement" (JPA). It is an important document because its stated purpose is "funding, designing and constructing" a project defined as "the use and development of the North Embarcadero area", as outlined in a boundary map called "Attachment A", which includes Broadway Pier.

It means that the Port is trying to have it both ways. On the one hand it claims exclusive jurisdiction over Broadway Pier and wants to develop it as a cruise ship terminal for Carnival Cruise Lines, while at the same time it wants to act as part of the "North Embarcadero Alliance Visionary Plan" through a "Joint Exercise of Powers Agreement" with the City and CCDC.

The development of this area is governed by various planning documents including this Coastal Development Permit (CDP) which is currently in the De Novo stage of the California Coastal Commission's appeal process. The Commission recently found a "Substantial Issue" (SI) regarding (among other findings) a "public plaza" area switched to truck access for a proposed home-port cruise-ship terminal on Broadway Pier, which was graphically illustrated as an oval-shaped park in the "Park/Plaza" segment of its core planning document - the Port Master Plan. That switch is unacceptable to the public and to the Coastal Commission.

This tactic by the Port has been described as a "bait-and-switch" by members of the public who have already filed two lawsuits, one by the Public Rights to Bay Access and Parks and one by the Navy Broadway Complex Coalition. Both groups allege that the Port's departure from its approved Port Master Plan makes the cruise ship terminal illegal. They are right.

These competing uses, Cruise Ships vs. Park, are mutually exclusive. One use must give way to the other. Therefore the looming battle will take place within this re-drawn Red Square, where a Park was sacrificed for a truck access/security zone serving the Carnival Cruise Terminal on Broadway Pier.

We may yet see the San Diego equivalent of
Beijing's "Tank Man", confronting a line of cruise ship refrigeration trucks trying break through to the illegal Terminal.

A better name for this whole Port (Pork) Project might have been the "North Embarcadero Carnival Cruise Lines Visionary Plan". It was certainly visionary from Carnival's perspective.

If the Port wins this battle there could be up to four cruise ships berthed at North Embarcadero at one time.
Each giant cruise ship requires 12 megawatts of power while berthed. Therefore approving the berthing of four cruise ships is equivalent to building four diesel-burning power stations on the Embarcadero.

Right now there is no shore power (cold-iron) available for any ship on the Embarcadero. The Port proposes to spend $6 million for trenching and cables to draw 12 megawatts from the nearest SDG&E substation, enough for one ship only. After that SDG&E has no more capacity in the area and has no plans to add any. Cruise ships however, prefer to generate their own electricity. Can you imagine the hydro carbon they discharge? It is more than all the car engines downtown at any one time.

To justify this, the cruise industry quotes an (unsubstantiated) "economic benefit" of $2 million per call, which Cushman and Faulconer parrot like the former car salesman and former PR guy they are. If the figure were true, each of the ship's 2,600 passengers would have to spend $770 per call ($2,000,000 ÷ 2,600). That's a lot of pedicab rides. Sorry Steve & Kevin we're not buying it.

Apart from the legal challenges, I can see the public outrage taking many new forms. It is just beginning to dawn on San Diegans the fast one Steve Cushman (Port), Fred Maas (CCDC) and Kevin Faulconer (City Council) have pulled. The downtown condo owners are the worst hit.

They are being told that there is no money to build a train "Quiet Zone", so they can get some sleep at night, yet CCDC is willing to finance a cruise ship terminal that belongs at the 10th Avenue Marine Terminal and is willing to help permit a joint project that is the equivalent of four 12 megawatt power stations a couple of blocks from the most expensive waterfront condos.

The pollution from these cruise ship smoke-stacks is blowing right into condo owners' bedrooms as they lay awake listening to the continuous honking of train horns. Yet it is these condo owners who provide the lion's share of CCDC's Tax Increment revenue. Because of the way Prop. 13 works, it is the condo owners who pay for downtown redevelopment, not the businesses who get all the grants and public amenities, while there is a serious park deficit for residents.

Residential condos have a much higher per square foot assessed value than commercial buildings. The combined assessed value of any condo building downtown is many times greater than any equivalent-sized office or hotel building. I added up the total assessed value of a few downtown condo buildings and was amazed when I compared it with the assessed value of similar office and hotel buildings nearby and of the same age.

This inequity is compounded by the fact that many owners of older commercial buildings hide behind LLCs or corporations to avoid a reassessment when there is a change of ownership. Many such buildings have not had a reassessment since 1978 yet equitable ownership (of the LLC or corporation) has changed many times.

Now, these hard-pressed condo owners will have to listen to refrigeration trucks rumbling through the night delivering tons of booze and food to home-ported Carnival Cruise Lines mini-cities. They will have to breathe the fumes from refrigeration trucks lined up all night along Broadway with their engines running. And CCDC is promoting living downtown? This may break the camel's back and drive many potential buyers away.

It seems to me that the City and CCDC are shooting themselves in the foot. The over-taxed, under-appreciated, long-suffering downtown condo dwellers should ponder all this as they lay awake at night listening to this. It is time the condo owners claimed ownership of their downtown.

"Cushman's Gift" - the Privatization of Broadway Pier. 08/17/09

by Pat Flannery

Below is where Carnival Cruise Lines currently loads the food and booze for its 2,600-passenger cruise ships together with their personal luggage. The site is part of the well-equipped Port of Los Angeles, designed to handle the heavy traffic associated with provisioning such large ships.

San Diego has
the perfect location for a cruise ship home-port to rival Los Angeles, Miami or anywhere else in the world: our 10th Avenue Terminal. Here is a schematic and an aerial view:

Note the vacant transit sheds, the proximity of freeways, the truck parking and the berthing space equal to or better than Los Angeles. But Port Commission Chairman Cushman wants to appropriate Broadway Pier for the private use of Carnival Cruise Lines as its home port.

Below is how the Broadway Pier and its civic park is depicted in the Port District's Master Plan. Yet, as recently reported by KPBS, Cushman "doesn't even remember" ever seeing such a Plan. That's what being Chairman of the Port means to this Sanders-appointed Commissioner - the ability to give away a public asset and not even remember you did it.

Having given away the Pier he then had to give the cruise line a driveway. So he just scratched the civic park. You would think he would remember something as big as that. Either he is lying or he has Alzheimer's. I suspect it is "Political Alzheimer's". Sanders has had it for a long time.

In any case, Cushman and Sanders must not be allowed to get away with this giveaway. We are business-friendly - but not that friendly. There is a big difference between a "port-of-call" and a "home-port". A home-port facility needs a port environment. The Embarcadero is not a port.

Coastal Commission takes charge of the Port's permit
. 08/14/09
by Pat Flannery

Here is a video clip of the California Coastal Commission taking over jurisdiction of the Coastal Development Permit the San Diego Port District issued to itself  putting a "home port" cruise ship terminal on Broadway Pier, in breach of the Port Master Plan previously approved by the Coastal Commission.

Here is the flow chart of the Commission's appeal process that found a "Substantial Issue" (SI) supporting a De Novo Coastal Commission hearing that will decide whether the North Embarcadero Project gets its  Coastal Development Permit or not, sometime over the next 6 months.

Congressman Filner weighs in on waterfront issues. 08/11/09

by Pat Flannery


Congressman Bob Filner points to cumulative issues that the Coastal Commission must consider on Friday when it will decide whether to uphold or deny an appeal against a Coastal Development Permit issued by the Port allowing it to renege on its promise of a 10 acre park at the bottom of Broadway. In a Press Release today Filner says:

"The California Coastal Commission is correct that an update to the Port's Master Plan is required in light of the many development projects approved over the last two years including the Navy Broadway Complex and offsite parking, Lane Field North, Lane Field South, the B Street Pier Cruise Ship Terminal, the Broadway Cruise Ship Terminal, Rucco park, the Old Police Headquarters, the deletion of the 10-acre gateway park and the planned public park and open space on the Broadway Pier."

It is now looking more and more like a full-blown update to the Port Master Plan is inevitable. There have been too many "accommodations" to business interests, who never seem to be satisfied. The cancelling of a 10 acre "gateway park" was the straw that broke the camel's back.

Up until last week the Port still thought it could "work things out", that it could square things with the Coastal Commission. The San Diego Union-Tribune reported on August 5, 2009: "Rather than fight the appeals, the port plans to work with the commission staff to sort out differences. “There may be some changes made to the plan,” Helmer said, adding that one change that will not be made is restoration of the large oval park."

That sounds like wishful thinking. The "accommodations" have gone too far. "Sorting out differences" behind closed doors will put the Port and Coastal Commission in breach of the California Brown Act. If the Commission votes to uphold the Coastal Development Permit the Port issued to itself, based upon faulty CEQA findings, it will undoubtedly be added as a respondent in this legal complaint.


Tideland Activists sue Port Commission over bait-and-switch. 08/09/09
by Pat Flannery


This is New York's Washington Square sitting at the foot of Fifth Avenue, its triumphal arch modeled after the Arc de Triomphe in Paris, pointing up Fifth Avenue past the Empire State Building all the way to Central Park. It is a sight that makes every New Yorker proud.

Developers, most notably Robert Moses, wanted to run Fifth Avenue through this square to the Hudson waterfront. But thanks to dedicated activists like Jane Jacobs the NY park is still there.

Look at the ten acre Broadway Landing Park San Diegans were promised by the Unified Port of San Diego in its core planning document, the Port Master Plan (PMP). On page 73, Figure 11, it graphically illustrated an oval-shaped park. It later incorporated by reference the entire North Embarcadero Visionary Plan (NEVP), which included a Broadway Landing Segment, centered on the Broadway Pier, containing a narrative and illustration of the oval-shaped park.

Without doing a
Port Master Plan Amendment, the Port is attempting to drop this Broadway Landing Park. The Port says it is merely moving planned "green space" around. In a Press Release the activist group accuses the Port of "
trying to cancel three major public parks on downtown San Diego Bay tidelands -- Broadway Landing Park, Broadway Pier, and "green spaces". It alleges that there is not one blade of grass left in the North Embarcadero Visionary Plan - that "landscape" has become "hardscape" throughout.

In its North Embarcadero Visionary Plan (NEVP)
the Port was very specific regarding this Broadway Park: "Because of its one-sided configuration, with buildings only to the east, the scale of the bay gives the space an expansive feeling larger than its actual size, much as in Baltimore’s Inner Harbor or the harbor in Barcelona." And: "It is a landscaped public open space, accommodating recreational activities on a daily basis or large public gatherings. The park includes a central plaza punctuated by a landmark element such as a fountain or sculpture, orienting visitors and drawing attention to this important public precinct."

According to the activists, that was all just car-sales talk. Port Commission Chairman Steve Cushman, is an ex-car salesman. His car sales motto was "We're not satisfied 'till you are". The activists say: "we're not satisfied Steve. Far from it. You sold us a lemon".

It seems that Cushman and his Commission never had the slightest intention of doing what it promised. The Broadway Landing Park was huckster bait-and-switch from the start. Here is a pretty picture of the 1 1/2 mile Embarcadero Visionary Plan. The centerpiece was to be the  Broadway Park, designated green space in the Port Master Plan.

The Port Commission is dominated by the hotel and tourism industry. While its PR team was showing the citizens pretty pictures of oval parks and leafy esplanades, it
was busy planning a "Greyhound Station" for a gaudy Miami-based cruise ship operator on Broadway Pier.

Watch the video of Cushman announcing how they had "obviously waited for this day for a long, long time". Yes Steve, obviously you have been planning this bait-and-switch for a long, long time. That was why the hotel industry lobby broke the term limit law to get you a third term. This traffic circulation plan was finalized in 2006, indicating it was planned a long time ago.

To fully appreciate the enormity of this bait-and-switch, compare what Cushman broke ground on and what was promised. Here is the promise:

Here is the ugly bus-and-truck circulation system taking up half the pier's length. There is a big difference between a "port-of-call" cruise terminal, which we already have, and this "home port" cruise terminal we don't want. It takes approximately six hours for embarkation and three hours for disembarkation at a home port. And now they want to put one on our front doorstep!

The architect for this unbelievably ugly building, Luis Ajamil, describes on the video  how difficult it was to "find places" for home port terminals.

I'm not surprised. Look at it. It's an ugly customs shed - on our civic pier.

Cushman offered Carnival Cruise Lines San Diego's front door - Broadway Pier itself. He justifies this outrageous civic give-away on the video by saying "we need to keep up with competing ports". Other ports are lining up to donate their front doors for ugly cruise terminals? He and his architect might at least try to get their stories straight.

If this is allowed to stand there will be buses and supply trucks clogging Broadway, backed up all the way to Horton Plaza. As proof of this, the Port had to hire Katz, Okitsu & Associates (KOA), a large traffic engineering firm, to design for this massive loading and off-loading nightmare. Read how KOA planned the Ground Transportation Area (GTA) in the Addendum to the NEVP Master EIR and CEQA Initial Study. This thing belongs at 10th Avenue not at Broadway Pier.

According to Kevin Faulconer, Carnival Cruise Lines will load and offload one million bodies per year (Faulconer's numbers on the video) together with their luggage, right on our front doorstep. That represents 384 ship calls per year (1,000,000 ÷ 2,600). Each time a Carnival Cruise Lines ship arrives, 2,600 low-budget transient cruisers will be processed through this 50,000 square foot, two-story, tin shed.

Carnival's spokesperson was "pleased to be here almost five years later to celebrate this major milestone", confirming the fact that for five years Carnival and Cushman have been conspiring on how to use public funds to build this private facility on a public pier. Cushman wants to put the naming rights out for bid. Will anybody bid? Carnival will probably get it for $1. They should then name it "Cushman's Gift".

The Port Commission has been feeding pretty pictures to a gullible media and people, showing oval parks with water fountains in front of a geranium-covered Broadway Civic Pier, while all the time they were conspiring behind closed doors with a Miami-based cruise ship operator. Councilmember Kevin Faulconer's job, in whose District it is, was to smooth-talk its entitlements through the City and its developer-controlled CCDC. Who does Faulconer represent? Certainly not the citizens of San Diego. At heart he is still a big-business PR guy for Porter Novelli.

Everything in San Diego is for sale. It is a "business friendly" city.

Will they get away with it? Maybe not. The California Coastal Commission is not happy. Here is a letter dated April 2, 2009 written by its Coastal Planner, Dianna Lilly, to her opposite number, John Helmer, at the Port Commission, commenting on the Port's Addendum to its original Master Environmental Impact Report (MEIR). Ms. Lilly points out, among other matters, that the oval-shaped park has been "redesigned as a driveway to the proposed new cruise ship terminal on Broadway Pier". Did they think she wouldn't notice? Or do they think they have the political muscle to ram the Coastal Development Permit through at Commission level?

Even if they do, California (CEQA) law is very clear: you can't make major changes to a Master Environmental Impact Report (MEIR), as the Port is attempting to do, by simply writing an "Addendum".  Major changes must be done through an "Amendment" process, which involves public hearings. That is why Cushman ignored Ms. Lilly's April 2, 2009 letter. To comply would have required public hearings! The bait-and-switch cat would be out of the bag.

So Ms. Lilly wrote them again on July 2, 2009. This time she spelled it out: "the Port Master Plan is not a guidance document; the policies and standards contained within it are to be followed closely and specifically." Then her coup de grâce: not only must the policies and principles of the Master Plan be consistently and accurately implemented, the Plan includes those represented graphically and by reference. Remember that graphic illustration in the Port Master Plan and that narrative incorporated by reference from the North Embarcadero Visionary Plan? They are part and parcel of the core planning document - the Port Master Plan. It's the law.

Ms. Lilly laid it out: "Once a policy, figure or project is inserted into the PMP, it is no longer guidance, but the standard of review." The oval-shaped park graphically depicted in the Port Master Plan must be implemented or there must be new public hearings.

Late on Friday August 7, 2009 came the inevitable lawsuit. A recently formed non-profit entity, based in San Diego, called "Public Rights to Bay Access and Parks" has sued the San Diego Unified Port District asking for a Writ of Mandate setting aside and vacating various decisions made by the Port Commission including "redacting a PMP-designated 10-acre waterfront public tideland park". We may now have our own version of New York's Jane Jacobs vs. Robert Moses titanic battle right here in San Diego. Our world image for generations to come is at stake.

Here's how the U.S. Naval Facilities Engineering Command depicted San Diego's version of New York's Washington Square on page 33 of its Environmental Impact Statement (EIS) for its proposed Navy Broadway Complex.

There was always going to be a San Diego signature park at the bottom of Broadway extending onto Broadway Pier.

Everybody, including the U.S. Navy, incorporated that park into their downtown and waterfront plans - everybody that is except Steve Cushman and his Carnival Cruise Lines client.

The next round in this epic battle will be in San Francisco this Friday August 14, 2009 when the Coastal Commission will hear an appeal by various San Diego citizens against the San Diego Unified Port District alleging that the Port's findings in granting itself a Coastal Development Permit are inconsistent with its certified Port Master Plan. Many San Diegans are flying up for the hearing. Here is its Agenda and Exhibits.


Mayor Sanders has lost control of City Reform. 08/05/09
by Pat Flannery

Back in 2006 I opposed Proposition C, the ballot measure that allowed the City to employ outside contractors when the Mayor determined, subject to City Council approval, that private parties could provide City services more efficiently and economically than City staff. I believed at the time that it was a cop out (pardon the pun) by Mayor Sanders, who thought that "Managed Competition" would do his reform job for him as City Manager.

Background: the City Council had received a Report from the Mayor's office on July 12, 2006 resulting in the Council passing a "Business Process Reengineering" (BPR) Ordinance as part of the implementation of Prop F, the ballot measure that created the "Strong Mayor" form of government in November 2004.

The Ordinance described BPR as "designed to change practices and procedures in City departments to streamline operations in order to more efficiently and cost effectively deliver services to the citizens of the City". The City Council was very specific: "in order to implement the BPR the Mayor will be required to restructure and reorganize City departments and offices, and to move personnel between such departments and offices".

There is not one mention of Managed Competition in either the BPR Report or the BPR Ordinance. That is important because nothing in the BPR Ordinance required consultation with unions, while Managed Competition required "meet and confer" consultation with the unions. So, the unions set about to create a link. If they could do so they could use California labor laws to impose a veto on BPR. And so it turned out. The whole reform movement has been stalled for over 3 years. As I predicted, the unions used Prop C to strangle BPR at birth and Sanders was not up to the job of countering them. Deep down he was still one of them.

He did not have the foresight or management skills to see it coming. BPR made him the Strong Mayor voters intended, but he allowed the unions to take it right back from him. He was a better politician than City manager. Managed Competition was hailed by his supporters as a hit on the unions. It brought in huge right wing political contributions for his campaign. But that is all it did.

Here is a video of how the unions and their political allies have left Sanders looking like an incompetent bumbler. They are now firmly in charge of "Reform".

Watch how the unions have linked BPR to Managed Competition. As a result the Mayor's entire "Reform City Hall" movement is dying on the vine.

More importantly the taxpayers are stuck with the bill. Sanders allowed the City's employees to acquire a veto. They have taken ownership of the reform process he was elected to implement. They call any ideas for efficiencies and economies their "trade secrets". Instead of a Strong Mayor form of government we got a Strong Union form of government. Sanders handed it to them on a plate.


Does Jerry Sanders have a better solution to the pension crisis than Mike Aguirre? 07/24/09
by Pat Flannery

  Because of the growing re-focus on the City's pension system, whether it is sustainable or whether it will drive the City into bankruptcy, I decided to do a careful study of what the system's actuary had to say to the pension board last Friday, July 17, 2009. I downloaded the 3 hour 42 min. video, studied it, then edited it down to three short segments for YouTube and overlaid it with this actuary's PowerPoint Presentation.

The resulting video segments give a good overview of what the "asset corridor" is all about.

The board's actuary, Gene Kalwarski of Cheiron Inc., started by explaining that there is nothing sinister about him bringing the "corridor" before the board at this time.
Back in December 2008, anticipating extraordinary losses in 2009, he had promised to do so. In fact, professionally, he was obliged to advise the board.

First he showed what the recent investment losses did to the system's assets. The market value of those assets on June 30, 2008
was $4.70 billion. On June 30, 2009 it was down to $3.77 billion, a $1 billion loss. When you factor in the assumed rate of return, currently at 7.75%, (that was not achieved) the loss was $1.21 billion.

The actuarial loss, using the current 25% "smoothing", was $680 million. Using current amortization policy, that loss will be amortized over 15 years. It is these three elements, the assumed rate of return 7.75%, the 25% "smoothing" percentage and the 15 year amortization period that are discussed in the rest of the presentation. These are the tools the board will use to balance the fund's needs with the City's ability to pay.

He briefly looked at the potential impact on retirees before tackling the main issue of the impact on the City's contribution if no changes to the actuarial methodologies are authorized by the board. He explained how the Actuarial Required Contribution (ARC) will increase by 50% from $154 million to $224.8 million in FY 2011 and by more than 100% to $315.1 in FY 2015, based on the current 7.75% assumed rate of return. But we all know that we will not achieve a 7.75% return and that additional losses are a certainty, therefore the impact will be much worse.

If the City is not given some relief i
t "may force plan sponsors to take other actions that may be detrimental to SDCERS' membership", warned  Kalwarski. Clearly the membership, as represented by the board, has a dilemma. Hence the "Alternative Funding Methodologies" that has many citizens and politicians disturbed - should the City pay now or pay later?

I thought Kalwarski did an excellent job in explaining the interplay of the three actuarial tools mentioned above: the 25% "asset smoothing" percentage, the 15 year amortization period and the 7.75% presumed rate of return. You may have to play the video a few times to fully grasp this interplay, but it is worth the effort. There are few things more important for the city right now.

It turns out that "asset corridors" or actuarial/market valuation limitations, are not required by the "Actuarial Standards of Practice" (ASOPs). But Kalwarski seems a little skittish about getting rid of it for SDCERS. He told the board that 50% of Cheiron's clients have an "asset corridor" and 50% do not and that the top range of those who do is between 105% and 120%. SDCERS' actuarial value of its assets is currently 131% of their market value, well above Kalwarski's comfort zone of 120%.

In the second video segment Kalwarski gets into the "squishy" ASOP 44 standard. This requires that actuarial valuations bear a "reasonable relationship" to the market value and that differences should be recognized within a "reasonable" time.

This is where the "asset corridor" becomes an expression of how "reasonable" the actuary sees the smoothing period or how "sufficiently short" he sees the period within which the pension board recognizes the difference between the actuarial and market valuations. He explained that when using a 120% "corridor", as SDCERS does currently, 1/6th of actuarial value is "not there". He seemed unwilling to "un-recognize" more than that. This may become very significant for the City.

In his summing up, he also seemed to take a reduction in the smoothing percentage "off the table". Look carefully at Slide 28. Based upon his apparent reluctance to extend the "corridor" beyond 120%, one would tend to guess that he will recommend scenario "D". But "D" requires a big reduction in the smoothing percentage from 25% to 10%, which he seems unwilling to do.

Scenarios "E" and "F" seem to be his outer "goal posts". These two scenarios are practically the same because the effective current AMA/MVA "corridor" is 131%. He has repeatedly ruled out a combination of widening the "corridor" and reducing the "smoothing" percentage, so "E" and "F" are definitely out.

This means that he will have to recommend either the status quo "A" or reluctantly bust the corridor using "B" or "C" ("B" and "C" are essentially the same because the current effective corridor is 131%). Unfortunately all scenarios assume a totally unrealistic rate of return of 7.75%. Nobody has suggested touching that as lowering it would drive the ARC through the roof. So, we are caught in a fantasy world of 7.75%.

The final segment contains revealing questions from the board. They do seem to "get it". They know, as one board member put it, that "substantial things have to happen at the plan sponsor level". Another board member worried about whether the fund could survive "if the City were to have difficulties making these payments".

He called it a "cash burn" issue but I would call it an "asset burn" issue. Cash is an asset so the fund may already be cannibalizing itself. The benefit payout is growing at an alarming rate as hundreds of top level employees make a rush for the door to lock in DROP and other disappearing benefits.

Two-thirds of the City's ARC payment currently goes to amortize the "Unfunded Actuarial Liability" (UAL). And that is only the pre-2004 debt I call the "over-benefiting" bubble. Then came the "financial meltdown" bubble. It is becoming abundantly clear that the City cannot afford to amortize this exploding UAL debt at a 7.75% assumed rate of return, or at any other rate for that matter. The whole concept is fantasy.

The trouble is that the remaining one-third of the ARC may not be sufficient to cover current benefits, let alone purchase the income-producing assets that will fund future payments. If the only way to pay current benefits is to sell assets, anybody who has ever run a business knows where that is headed.

My guess is that they will allow massive negative amortization of the UAL and push it back to a 30 year schedule. That was the one option that did not draw fire from Kalwarski. But a 30 year schedule, with or without negative amortization, has huge problems. It will pump up the UAL to obscene proportions and cram down the funded ratio to where it will again threaten the City's credit rating. And all that is just on paper.

The preservation of real assets must be the board's top priority. But is it too late? If the system cannot avoid selling real assets (or burning through its cash reserves) to pay current benefits, without a massive infusion from the City just when the City can least afford it, the system is in a tailspin. Is the concept of amortizing an imaginary asset (the UAL) masking an underlying asset/liability instability? Is the recent "financial meltdown" masking the "over-benefiting" element of the fund's problem? I think so.

If I were on the board I would ask Administrator Wescoe for an absolute assurance that assets are not being sold to pay current benefits, that he has a sufficient cash reserve. Even if he has, how long will it last? Benefit payments are supposed to be paid out of investment income. What happens when that income goes negative? What happens when an investment fund like SDCERS has to sell assets in a falling market to meet cash calls like monthly benefit payments? Has that already happened? Is it about to happen? It has happened at CalPERS.

At the very least the City must provide the cash to pay the monthly checks. Cannibalism is not an option. Nor is bankruptcy. Defaulting on legitimate debt obligations is not permissible for a municipality. It is not a private corporation. That is why municipal bonds carry lower interest rates. Unlike private bonds they are risk free. However you look at it, the taxpayer is staring an annual $300 million pension payment in the face, just to preserve assets. The "over-benefiting" part is a self-inflicted wound. We might have been able to weather the "financial meltdown" storm.

Aguirre tried to have the "Cadillac" over-benefits declared illegal. He got little support and much abuse. Perhaps Jerry Sanders has a better solution. If not his fate will be worse than Aguirre's.


What is going on at the Navy Broadway Complex? 07/21/09
by Pat Flannery

Those of us who have carefully followed this waterfront saga over many years have long believed that there has been deep collusion between the City, CCDC, the Navy and Doug Manchester. As the Office of the California State Geologist put it: “San Diego is playing loose with the law.”

This troubled complex is back in the news again since last Friday July 17, 2009 when Superior Court Judge Prager finally finished off the lawsuit brought by a citizen group called the "Navy Broadway Complex Coalition".

This group is convinced that the City and the Navy are in breach of State law and is expected to file an appeal within 30 days.

I sat through the entire hearing before Judge Prager on April 22, 2009 when he appeared impervious to any citizen argument but rather bound and determined to give the Navy and the City what they wanted.

Although she is not a party to the lawsuit, nobody has followed the Navy Broadway Complex (NBC) more doggedly than Katheryn Rhodes, a Professional Engineer (PE). As a PE she is licensed to provide professional civil engineering services to the public. Ms. Rhodes has been doing just that with regard to Navy Broadway FREE for several years.

Here is her latest work. She has accused the US Navy, CCDC and the City of San Diego of conspiracy to commit "honest services fraud". If proven, that is a very serious charge. She backs it up with 86 pages of convincing evidence against the City and the Navy. Her main focus is on the fact that the City and Navy have not conducted a valid geotechnical fault investigation for the Navy Broadway site as required by State law.

All development projects located in an “Earthquake Fault Zone” (formerly known as a “Special Studies Zone”) are required to submit valid geotechnical fault investigations at project submittal. The Navy Broadway project is located in the City of San Diego’s Downtown Special Fault Zone as defined in the City's General Plan and approved by the State, even though not yet shown on State seismic maps, which are years behind.

How then was the Navy able to avoid doing "a valid geotechnical fault investigation" at project submittal? Simple. It did an invalid one.

The Navy hired a company called Geocon Inc, who did an investigation and, conveniently for the Navy, reported that they had found no earthquake fault on the site. However, on January 9, 2007 Walter Landry the City of San Diego's geologist, told the City Council that the Geocon report was inadequate. No qualified third-party reviewer or government official has ever found the Geocon report adequate, as required by State law. Nor has it ever been released to the public.

In a bizarre effort to validate this invalid seismic report, the Navy brass has grossly misrepresented an Oct 6, 2008 letter from Dr. Hough of the U.S. Geological Survey to Admiral Herring. Judge Prager relied heavily upon that misrepresentation. The Navy had pounced on this partial sentence in Dr. Hough's letter: "... the section presents a thorough and up-to-date summary of known geological hazards to which the Broadway Complex is potentially exposed". Judge Prager largely based his judgment on it.

The Navy and the City used Dr. Hough's letter, over and over again, to support their false contention that the U.S. Geological Survey supports the Navy position. Dr. Hough has since vehemently denied that it was ever her intention to comment on, let alone validate, the 2006 Geocon report. She points out that she was merely offering general comments on a draft Environmental Assessment (EA) sent to her by the Navy for comment.

Ms. Rhodes: "
There is a high likelihood that the active Coronado Fault, [located within] the active Rose Canyon Fault Zone, the State-Recognized City of San Diego Special Fault Zone and reclaimed Port tidelands, is subject to liquefaction and strong seismic shaking and traverses the Navy Broadway Complex exactly were high-rise structures including the Navy’s proposed West Coast Headquarters are located in the Master Plan." .... "Osama bin Ladin, who is a Civil Engineer, could not have chosen a more unsafe site for our Navy West Coast Headquarters".

What drives this irrational determination of the U.S. Navy brass to build its West Coast Headquarters atop a known earthquake fault, alongside a busy railway track where a ship's container, loaded in some far away port with just about any kind of explosive device, including nuclear, that could be detonated yards away from a high-value U.S. Navy facility, right in the heart of San Diego's waterfront, one of the most popular tourist destinations in the world?

What is going on? It makes no sense for our Navy to be in such a place. Isn't there somewhere else? It's almost like they are courting another Pearl Harbor. It just needs to be stopped.


Anatomy of a
"Staggering Swindle". 07/14/09
by Pat Flannery


The plight of the 112 unit Sommerset Villas condo project in Escondido, raped and left for dead by a veritable gang of institutional lenders and ruthless developers, calls into question the ability of our law enforcement and media establishment to deal with the massive fraud that fueled the real estate bubble. The following is a progress report on my ongoing investigation into real estate and loan fraud up and down the state.

Bob Chemaly is CEO of Ralph Giannella's condo conversion business, Premier Coastal Development Inc, a Delaware Corporation, located at 1010 Turquoise Street Suite 200, San Diego, CA 92109. Bob lives with his wife Linda in a nice 3,305 square feet house in La Costa which they bought in July 2001 for $580,000.

Chemaly has done the heavy lifting for Giannella on several of his condo conversion and sale projects. Sommerset Villas are the units featured in a number of news stories about "straw buyers" recruited by a Bay Area scam artist named Jim McConville.

I have discovered that Giannella was using "straw buyers" in the Escondido project long before McConville came on the scene. In fact his own CEO, Bob Chemaly, was a Giannella straw buyer on one unit. Chemaly pulled a $321,090 owner-occupied loan out of it on August 31, 2006 (go to page 6 for the owner-occupied part). He has now put the property into escrow for $119,900 as a "short sale" i.e. when a lender accepts less than it is owed to pay off the loan.


Chemaly's real home in La Costa


Chemaly's "owner occupied" condo in Escondido

Chemaly took title and arranged the mortgage in his own name in order to get an owner-occupied rate. Here is the 2006 grant deed and the 2006 mortgage. He then switched ownership from himself to Chanel Partners LLC, one of the many LLCs located in Giannella's office, 1010 Turquoise Street Suite 200, San Diego, CA 92109. Giannella sold it to himself.

Chemaly signed most of the grant deeds for the 112 units in Sommerset Villas on behalf of Giannela's company, North Coastal LLC. But in the case of his own contribution to the scheme he had somebody called Eric Gregory, an "authorized signer",  sign on behalf of Broadway Coastal LLC, another Giannella corporation located at 1010 Turquoise Street. There is no record of Broadway Coastal LLC ever owning the unit. But Giannella's lenders and title companies didn't seem to worry much about which of Giannella's many LLCs owned which properties. They liked all those loan points and all those fat title fees.

Chemaly is now able to arrange a short sale instead of a foreclosure. Not every borrower is given that opportunity. Here are the short sales to date in the Sommerset Villas project. Note that $1,392,515 has already been written off on seven units ($198,930 per unit), not including Chemely's short sale not yet closed.

Here is the full original sale list of the 112 condo units, starting on January 4, 2006 and ending on July 18, 2008. The first purchase by a McConville "straw buyer" was not until March 27, 2008. Here is that first grant deed to Michael Hernandez showing McConville's Hayward address, signed by Bob Chemaly. The next 32 "purchases" are all by McConville's straw buyers. All 32 grant deeds were signed by Chemaly for North Coastal LLC.

But what about the first 80 units? Were they all sold to genuine buyers? I got copies of the recorded loans. They are all "owner-occupied". They are all at the same price as similar units sold to McConville's buyers.

I visited the condo complex last week and studied the units very carefully. I wanted to see if there was any sign that the 80 pre-McConville "owner occupied" purchases were genuine. I spoke to some of the few remaining tenants. They readily admitted that they no longer pay rent to anybody and are enjoying a free ride while they can. I could not find one owner occupier. The complex looks like a ghost town.

I was able to gain entry to several of the vacant units on lockboxes, including Chemaly's "owner occupied" unit at 1425 N. Broadway #D (now in escrow as a short sale). The water and gas was turned off and the grass was waist high in the patio area.

If the units sold to McConville's buyers were the only problem, the complex might have survived the swindle. 80 clean deals might have absorbed 32 dirty deals. But it is clear that the "Staggering Swindle" reported by the Voice of San Diego started long before McConville.

The Voice of San Diego investigated this story following a tipoff from a suspicious Escondido realtor. The tipster called TV 7/39, the San Diego NBC affiliate, who passed it on to its media partner, the Voice of San Diego, which published a story in April 2009. It reported that McConville pulled off the swindle on the unsuspecting developer, Ralph Giannella.

The Voice reported that McConville purchased 32 units at a discounted bulk price from Giannella and then sold them on to straw buyers. I researched the titles and discovered that McConville had never taken title to any of the units. Each unit was transferred directly from a Giannela LLC to each buyer. That made me suspicious.

I contacted three of McConville's buyers who eagerly told me their stories. I asked one of them, Vicki Jenkins, who appears to be the leader, about some closing documents the Voice had published on April 10, 2009 under the title "Payments Sent to McConville's Company". She sent me this explanatory email. She also sent me minutes of the McConville's meeting on January 10, 2008 at her house.

She told me that the first she and her two friends learned of the so-called "Addendum to Purchase Agreement" (that was part of the closing documents I was interested in) was when Will Carless from the Voice of San Diego contacted Frances Greenspan on March 4, 2009, who referred him to Ms. Jenkins. I asked how Carless had gotten hold of these closing documents. He got them, she said, from Giannella's attorney.

Ms. Jenkins then sent me this summary she had previously prepared for law enforcement and had also sent to Carless on March 9, 2009, a month before he published his "Staggering Swindle" story on April 10, 2009.

In it Ms. Jenkins explains that the first two mortgage payments were made by McConville, April 1st and May 1st 2008, but none after that. She tells of how for several months she was in denial. She did not want to believe that any of this was happening. She wanted to believe in the goodness of people. She clung to the belief that McConville would put the whole thing right, as his staff were assuring her he would.

Jenkins' memo for law enforcement and the lenders makes it clear that these three McConville buyers at least, were doing everything possible to alert the lenders and law enforcement that fraud had been committed. These three buyers at least, wanted no part in the fraud that was still unfolding. That is not what they signed on for, they said.

Will Carless and the Voice of San Diego should have seen right away that the real fraudsters were the developers and the lenders. Look at the original sale list. Then look at the foreclosure list. Some of the 80 units sold by Giannella were already being foreclosed before McConville came along to make quick work of the remaining 32. That's what he was hired to do. Yes, this was indeed a "staggering swindle", but it was a very different swindle from the one reported by the Voice of San Diego.

The Voice put the spotlight on McConville and his straw buyers, avoiding mention of the 80 units already sold by Giannella at similarly inflated prices to similar straw buyers.

The original sale list shows that the total sales value of the 112 units was $38,870,240 and the total value of the loans was $35,392,409. The acquisition and development loan to be paid off was only $6,256,000 originally loaned by Irvine-based
Berkshire Mortgage, a privately held commercial mortgage lender, now owned by Deutsche Bank, headquartered in Frankfurt Germany.

Mark Gleiberman was the borrower on that original (still outstanding?) acquisition and development $6,256,000 Berkshire Mortgage loan. Presumably he is still involved with Giannella as an owner of the units even though he deeded some of them from his MG Woodlands Townhomes LP to North Coastal LLC on April 4, 2005.

A separate declaration accompanying that grant deed at recordation declared it a "full value" sale for $6,325,000. That is only $69,000 more than the loan he put on it on September 19, 2000. He could not have taken back a note as no new liens were filed. Nor did the supposed purchaser, Giannella, assume the existing loan of $6,256,000. If that were the case the County transfer tax would have been $75.90, not $6,957.50 as actually paid. Also, par. 21 of the Deed of Trust has an acceleration clause which requires lender's consent for an assumption.

For the above grant deed to be genuine, i.e. not fraudulent as to its declaration and county transfer tax paid, Gleiberman would have literally given the complex away to Giannella. In my experience developers don't do that.

The fundamental question then is this: who received the $32,614,240? How was it divvied up? Did the conspiracy between developers, loan officers, title officers, escrow officers, appraisers and notaries amount to racketeering? This is far greater than a one man scam by McConville.

The 112 units sold for a total of $38,870,240 with only $6,256,000 to be paid off (
$38,870,240 - $6,256,000 = $32,614,240). Lenders contributed $35,392,409 of this cash bonanza. Only $3,477,831 was put down by 112 borrowers i.e. an average of 91% loan-to-value ratio or an average of only 9% down. And it is probable that even that was only on paper.

That is the "staggering swindle"  that needs to be investigated, not the gullibility of three women who knew nothing about real estate and "got in their own way" as Vicki Jenkins so poignantly put it.

I asked the three McConville buyers if they were aware that they had applied for several owner-occupied loans at the same time (a particularly sensitive point for me). They seemed totally unaware that the loans were in fact owner-occupied loans. They said they had never seen the closing documents, much less had them explained to them. This seemed to stir them to even greater levels of indignation at how they had been duped and were still being duped by attorneys and the media. They are now a force to be reckoned with.

In her memo to law enforcement and the Voice, Vicki Jenkins explained that McConville put in 20% of his own money (she now wonders where that money came from). But that had been the clincher for her and her friends. Why would he risk approximately $70,000 of his own money on each condo? To them, McConville was the real investor and they were merely small co-investors, putting up nothing but their own good credit.

Reading and re-reading Jenkins' summary to law enforcement and her explanatory email to me, I concentrated on the part where Carless got these documents from Giannella, presented them to the three buyers and then published them under the title
"Payments Sent to McConville's Company". I wondered why the Voice would report that McConville purchased units at a bulk price and then re-sold them to his straw buyers at a vastly inflated price, when Giannella's own letter and "Addendum to Purchase Agreement" clearly described Giannella as the seller, who  "made payments" to McConville's company? This was contradictory.

And what was this all about? Vicki Jenkins wrote: "Will had requested a dated signed statement from us on March 18, 2009 to give to Ralph Gianelli's attorney, that it was okay to release the information to him." Why would Giannella's attorney want a signed statement from the three buyers, releasing his own closing statement to him? It could only mean that he wanted proof that these buyers had finally seen the forged closing papers.

The Voice had become a messenger boy for Giannella. Will Carless had procured a receipt from a buyer for a so-called closing document that the escrow officer to whom it was addressed had never seen. Vicki Jenkins told in her explanatory email how she immediately contacted Donna, the escrow officer at Stewart Title, for an explanation:

"I called Donna back on 3/20/09 (I have our conversation documented.) and said, "Donna, you gave me just the buyer's side. She stated that legally she could only give me the buyer’s side. I then said then why do I have an addendum to escrow with a letter directed to you that states that you must disclose both the sellers and the buyer’s side and the 3-MAC addendum to me. She declared, "What are you talking about?" I have never seen such a document. Would you send me a copy of this document?" I did and then I called her back and asked her if she received it. She said, "I just don't care anymore." I said okay and then she hung up."

The Voice knew these closing documents were forged. Will Carless, who got the documents from Giannella's attorney, also spoke to Donna the escrow officer and got the same response - she knew nothing about them. Yet he went ahead and reported that "McConville agreed to pay a discount price for the condos and then sold them for higher prices to the buyers he'd rounded up", and that: "The developers of the projects were under pressure from banks to make sales and pay back their loans. The banks agreed to consider selling the units at a discount price if an investor was willing to buy in bulk, said Rob Chemaly, a Premier representative."

The Voice had become hopelessly trapped in Giannella's web by now. As for "pressure from banks", the only bank involved was Deutsche Bank, most of whose modest loan of $6,256,000 would already have been paid off from the massive $27,975,240 sales proceeds Giannella and his partners had already raked in by selling the first 80 units at vastly inflated prices to straw buyers. Look again at the original sale list.

According to San Diego County Tax records at least 6 of the 32 McConville "sales" have already been quitclaimed back to Giannella's LLC. Here are the latest Tax records on those units. Giannella and the banks are not out of the woods if Vicki Jenkins and her two friends have anything to do with it. They said they will continue to challenge the prosecutorial system and the media to do its job. I will support them by continuing my investigation into who pocketed the Sommerset Villas $32,614,240.


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