Poway Unified Undervaluing Land In Controversial Costco Deal, Opponents Say
Friday, February 5, 2021
Poway Unified School District is considering leasing 27 acres of undeveloped property to Costco, but opponents say officials have violated state law in their quiet push to get the project approved.
The district picked Costco’s proposal among three offers for the Black Mountain Ranch site once intended for a middle school. Poway Unified officials said the big-box retailer’s proposal — nearly $106 million over a 40-year lease — is the district’s best option and would help alleviate its long-standing deficit.
Offers from a residential developer and a nearby private school also were submitted.
Standing in the way of the Costco deal is the nonprofit Protect Our Community Now, a group of residents that has protested in front of district offices and collected more than 3,500 petition signatures against the project.
Its members have hired lawyers and real estate experts to fight Poway Unified’s decision. They say Costco is undervaluing the land and allege in an October lawsuit that the district committed several violations of the state’s open meeting law while considering the proposals.
The group’s attorney alleged in December that the district also failed to conduct an environmental review of the proposed lease as required by state law.
Residents told inewsource they didn’t know the district was looking to lease the property until September, when staff was already recommending the Costco deal to board members as the “most beneficial” offer.
They’ve taken issue with a state waiver the district obtained almost a year prior that allows it to bypass the usual sales process for school property.
Homeowners in the area have been paying costly special district Mello-Roos taxes assuming the money would help bring the new middle school to fruition.
“You don’t do this to your constituents and to the community and not be responsible or not communicate with them,” said Gianni Nguyen, the community group’s founder and a mother of three district students.
“So what happens to my taxes? Why am I paying all of these years of taxes for a middle school that doesn’t exist? And all of a sudden, it’s wait — you’re renting it to Costco?”
The district sees the potential deal as a way to avoid possible painful concessions like bigger classroom sizes and furlough days. Ron Little, an associate superintendent at Poway Unified, said officials have discussed since 2017 how to leverage the district’s real estate for additional revenue.
Staff sent its requests for site proposals to more than 100 developers and worked to keep the public informed during the process, Little said.
Meeting records show the school board began holding public discussions on the site and gave notice of plans to obtain a waiver in 2019. Although the property was deeded to the district with a middle school in mind, the district has never formally proposed one and determined nearly nine years ago that a new school isn’t needed.
“We’ve been very transparent throughout this entire process, contrary to some of the more vocal comments,” Little said.
Costco has proposed a “modern lifestyle retail vision” for the northeast corner of Camino Del Sur and Carmel Valley Road: Dubbed the “Camino Del Sur Marketplace,” the company’s 153,000-square-foot warehouse and 32-pump gas station would share the site with space for a food hall, retail shops and standalone restaurants.
The proposed shopping center would be surrounded by homes, churches and schools — and not much else. Aside from equipment and a staging area being used by San Diego Gas & Electric, the lot now is largely vacant. Part of it borders a wildlife corridor.
The project would require rezoning and other government approval, a process Costco says it would take on if a lease is approved.
Plans for a future middle school at the site appear to be dead. Not only does the district lack the money to build the school, it’s been more than eight years since low enrollment projections led the site to be designated as “surplus property” — meaning the district has determined it no longer is needed for school purposes.
Districts must comply with state requirements when selling or leasing surplus property or they can do what Poway Unified did in 2019: obtain a waiver from the state Board of Education allowing them to skip the traditional process of awarding the land to the highest bidder and instead seek requests for proposals.
No one offered comment at a June 2019 public hearing for the waiver.
While Costco offered to lease the land, the two other offers the district received proposed buying the property. Brookfield Homes offered $47 million. The Cambridge School offered $22 million, or an alternative deal that would give $8 million and its current school site on Black Mountain Road to Poway Unified.
A lease is a more attractive option for the district, Little said, because state law restricts how money made from selling surplus property can be spent — limiting its use to maintenance or other capital projects.
But money from a lease can be used to fund the district’s operations, he said.
With Poway Unified facing a nearly $33 million deficit within the next two years, the district could use the cash. Also looming over its finances is a controversial $105 million capital appreciation bond the district issued in 2011 and will cost taxpayers nearly $1 billion to repay beginning in 2033.
Protect Our Community Now says a lease with Costco would add to the district’s poor track record of financial decisions.
London Moeder Advisors, a San Diego-based firm the nonprofit hired, said Costco’s proposal offers flat percentage increases every 10 years of the lease but doesn’t allow for adjustments, such as re-appraising the land during the agreement.
The firm estimated the lease’s net present value — a method used to calculate a project’s return on investment — is $22 million. That’s about $25 million lower than Brookfield’s lump sum bid and comparable to the Cambridge offer.
Citing the district’s “incomplete analysis,” the firm recommended “reopening the process for new proposals from developers to determine the true market value.”
Scott Offer, a member of the community group, said multiple experts can reach different conclusions and conceded the London Moeder analysis may not be the only answer. But when the group asked for a copy of Poway Unified’s net present value analysis, the district said no records existed.
“All we were asking for was, ‘Show us the diligence you’ve done so we as a community can be assured that you have the best interests at heart,’” Offer said.
The district is reviewing London Moeder’s report. Little told inewsource the district did calculate the net present value of Costco’s lease as part of staff’s “robust” analyses.
The group argued in its lawsuit that the district must ensure the property is used in a manner that best serves its schools and communities, and that “waivers are not meant to skirt public process or transparency.”
It has accused district officials of omitting information from closed session agendas, including names of negotiating parties, and of speaking with possible bidders before obtaining the waiver.
The suit also claims the district did not make the full proposals public until after recommending Costco as the best choice and following a records request from the community group.
Costco, though not named as a defendant in the suit, responded in San Diego Superior Court that it has not engaged in any direct negotiations with the district prior to submitting a proposal a year ago.
It did say it had previously “expressed informal interest if the Property were to become available.”
A Costco spokesperson declined to comment and told inewsource the company’s policy is to not discuss future locations until an opening date is near.
The district also declined to comment on the pending litigation. Its attorneys said in court documents that while Protect Our Community Now claims the district must “bend to its will as the ‘best interests of the community,’” it doesn’t mean school officials must “ignore other community interests or the needs of the District.”
Meetings on proposed Costco site
Poway Unified will hold two public meetings on possible alternatives to leasing district-owned land to Costco.
Monday, March 1, 5:30-7 p.m.: Review of site specifics and open discussion of community ideas.
Thursday, March 18, 5:30-7 p.m.: Follow up from the first session and additional community discussion.
An RSVP link to attend the Zoom meetings will be available on the district’s website.
David Snyder, executive director of California’s First Amendment Coalition, said public agencies “should clearly err on the side of transparency and should be providing more information rather than less.”
“I understand that agencies have to get business done, and when people protest it causes problems,” he said. “But again, that’s just the nature of being in a democracy. There are going to be decisions made that the public’s not happy with and it’s better practice from a transparency perspective.”
School board members last month halted any decision on the property for 90 days, saying they’ll continue to engage with “interested parties” and may consider possible alternatives.
Board President Ginger Couvrette told inewsource the district is not reopening the proposal process but rather “responding to the community’s request to engage them in brainstorming possible alternatives for the site for us to explore.”
Two community meetings have been scheduled for next month.
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