S1: Welcome in San Diego. It's Jade Hindman on this episode of KPBS Midday Edition. The city of San Diego has a budget deficit , but new reporting shows where they may be leaving money on the table. Watchdog , an accountability journalist with the San Diego Union-Tribune. Geoff McDonald is here. This is KPBS Midday Edition. Connecting our communities through conversation. The city of San Diego is dealing with a budget deficit. Some efforts to cut costs have been met with public scrutiny , like the recent decision to close mission Bay bathrooms. But our conversation today takes us a little south of there , to Ocean Beach , where the Barnes Tennis Center sits right along the shoreline. The San Diego Union-Tribune did some digging and found the Beachfront Racquet Club is collecting millions in revenue. Good for them. But the city , however , is only charging them $50 a month for the dozen plus acres of beachfront property they sit on while crying broke. Joining me to talk about it is Jeff McDonald. He's a watchdog and accountability journalist at the San Diego Union-Tribune. Jeff , welcome. Hi.
S2: Hi. Thanks for having me.
S1: Glad to have you here to to explain all this. So take us to the Barnes Tennis Center in Ocean Beach. How would you describe the property?
S2: Well , it's beautiful. It's right along the river near the Sunset Cliffs Boulevard on Point Loma , on Point Loma Boulevard. It's about 12 acres and , you know , a couple of dozen tennis courts. And in recent years , they've responded to a community , uh , I guess , demands and added pickleball and other racquet sports and , uh , you know , they host tournaments and they give lessons and , uh , you know , people play there for fun. We've probably all driven by it.
S1: Well , the center is run by a nonprofit youth Tennis San Diego. What can you tell us about the group?
S2: Well , they , uh , they organized , I think , in the early 1990s and put together this plan to develop the center. Uh , it's city owned property , and they negotiated a lease with the city that was very beneficial to them. Uh , to their credit , they did take on the risk and invest the money to improve the property. Uh , the city granted it a 35 year lease , uh , flat rent at $600 a year. Uh , so while they've been , um , you know , experiencing significant growth and revenues , um , the city hasn't always kept up with , with , uh , enjoying the benefits of that success. Mhm.
S1: Mhm. So how do their cost then compare with their revenue.
S2: Well they're making the most recent year we have available is uh calendar 2024. And they reported just over $7 million in revenue. Uh assets of a little less than that. Uh , so they're doing great Financially the. We looked at about five years worth of funding and it just tops $21 million. So they've been growing pretty seriously since , uh , since Covid. And , uh , you know , it's not , uh , not surprising why people love pickleball and tennis and , uh , that's a beautiful place to play.
S1: I'll bet , I'll bet. Um , the city auditor found several permitting violations by the tennis center. Can you walk us through those?
S2: Yes , they've they've been , uh , apparently violating the lease terms. Uh , not fulfilling , uh , some of the , uh , eir terms. That's environmental impact report , uh , terms when they've done some development. Most recently , there's a dispute over , uh , a property that's within the leasehold that's been used as a parking lot. Uh , and , uh , they graded it , the city says illegally. Uh , the , uh , the board president tells me it was done in an effort to control the dust that nearby residents were complaining of when drivers would go on to the parking lot , so they put some gravel on it. The city says that was a violation , and there are a couple of other terms that they've not complied with. Um , the charity says they've done their best to engage the city and to work on solutions , and has had difficulty getting responses and commitments out of City Hall. So that's that's the charity's position.
S1: So I just want to go back to this $600 annual rent. So I mean , okay , aside from sort of um , this non enforcement of violations here , um , they were able to pull out $600 in annual rent. What was the justification. What did the city give as justification for um giving that amount for for a lease.
S2: Well , this is the this is the explanation I received from a number of people , certainly the former city manager , uh , Jack McGrory , who is now the board president of , uh , Youth Tennis San Diego. His position is that , you know , the city wasn't using this property. It was basically just sand. Uh , the entity took on all the risk and all the capital to build the tennis courts , and they've been , uh , operating it and constructing it and maintaining it for , uh , for decades now , and that the city wasn't interested in , I don't want to say profiteering , but in making a profit off the property , they thought the benefit at the time was , uh , the public benefit of having a tennis center at no city expense was , was worth giving up the land for. So they , uh , approved a 35 year lease. That's just a flat rate with no step increases built in. Uh , curiously enough , uh , Jack McGrory himself signed the lease on behalf of the city. Uh , he told me his kids have grown up visiting the the center and using the center. And he's incredibly proud of it. And it's a terrific asset to the community , which I'm sure is all true. Uh , he only joined the board recently , and I say some years ago , not not in the 90s. Um , but he doesn't see any conflict of interest between his approval of the lease in the 1990s and his service to the to the board of directors today. Uh , he is seeking a lease extension. He's told me that they've tried to engage the city as far as , uh , extending the lease or renegotiating terms of it. And , uh , again , the city's , uh , not been responsive. Mm.
S1: Mm. I mean , has what's the concern that that deal was just a real disservice to taxpayers?
S2: Well , of course , hindsight is 2020. We all know that. But , uh , you know , the city right now is confronting a very significant budget deficit and it's structural. And every year we go through these , uh , roller coasters of of whether we're going to cut libraries or police or park services or , you know , most recently close the bathrooms at mission Bay. Uh , what this investigation showed. Uh , as have previous investigations , uh , even earlier this year , is the city does a poor job maintaining its real estate assets and is leaving a lot of money on the table , uh , because they're signing long term leases that are to the benefit of the lessees and the tenants. Uh , not so much to the residents.
S1: So what's the city auditor's office recommend , uh , recommending at this point? What do they recommend the city do about this?
S2: Well , to be clear , they didn't interview the lessee because their their job is to oversee the city and the city's administration. They say , of course , the lease needs to be renegotiated. They also say the enforcement has to be , uh. Uh , the lease has to be enforced. And the entity the tenant has to abide by terms , uh , previous terms that agreed to , and they also chastised the city administration for failing to enforce much of any code enforcement on its leased assets around the city , well beyond the Barnes Tennis Center. So their findings were pretty eye popping in that , uh , you know , the real estate folks at the city of San Diego , uh , don't do a good enough job policing their leases , enforcing their leases , making sure the city is collecting market rate revenue from , uh , from its assets , which is obviously a problem when we're confronting budget deficits that require bathrooms to be closed.
S1: And the the mayor , how is how has the mayor's office responded?
S2: Well , they agreed with all the findings. They agreed with the three main recommendations that I just outlined. And they have a three year plan to implement those recommendations. So , you know , we'll see what happens. Uh , they also agreed with the findings of a audit earlier this year on the city's golf courses that found the same thing that the city was leaving money on the table , not enforcing its lease terms and not maximising its revenue. And the city agreed with all those. And again , these things are , uh , you know , they take a long time to turn around and to enforce. And there's some , uh , you know , legal hurdles that have to go through because the city did sign in this case with the Barnes Tennis Center , a 35 year agreement. So they can't just change the terms rule annually. But what they can do is enter into negotiations to rewrite the lease , perhaps extend it , but certainly make sure that , uh , you know , the revenue is market rate now.
S1: Were you able to speak with the owners of the Barnes Tennis Center or the nonprofit Youth Tennis San Diego for this story? Yes.
S2: Yes. Mr. McGraw returned my call to the CEO. Uh , and we spoke at length about , uh , his position , the center's position , uh , all the good they're doing for the community , all the dollars they bring into the community through hosting national pickleball tournaments and other , you know , major events that do draw , you know , hundreds , if not thousands of visitors to the community. So that's all well and good. But again , he didn't dispute that they didn't get a permit for the grading. His answer to me on that question was they didn't realize they needed one. So you know , they'll working to correct that. They also agree that they are getting a good deal financially and that they're open to renegotiating terms of the lease. Uh , but again , uh , Mr. McGraw's beef was that the city hasn't been engaging him and returning , responding and returning his , uh , entreaties , uh , to do so. Uh , he told me he would love another 35 year lease , maybe a 50 year lease , uh , obviously at , uh , revised rates , but , uh , but he can't get the city to , uh , I don't want to say return his calls , but to engage in a meaningful negotiation. Interesting.
S1: Interesting. Well , it was a good deal. It certainly is a good deal , I should say. What is the significance of this in the context of San Diego's overall budget picture , you think?
S2: Well , it's millions of dollars in lost revenue. And , you know , if we look at the cities , we know they have a structural budget deficit of , uh , gee , I want to say nine figures , right? It's 100 million plus every year. And we go through this , uh , roller coaster of , uh , cutting back services , libraries , parks , whatnot every year. Uh , so certainly if we did a better job managing our assets , as we all do in our real lives at home , uh , then we could raise some revenue. I'll give one other recent example. Uh , the San Diego Zoo doesn't pay any rent to the city. And they have 100 plus acres in Dumbo Park. Wow.
S1: Wow. Well , we'll have to leave it. Leave it there. Jeff. That is all incredibly interesting. And it's something we'll continue to follow for sure. I've been speaking with Jeff McDonald. He's a watchdog and accountability journalist at the San Diego Union Tribune. Jeff , as always , thank you so very much.
S2: Hey , thank you for having me.
S1: That's our show for today. I'm your host , Jade Hindman. Thanks for tuning in to Midday Edition. Be sure to have a great day on purpose , everyone.
