[Metroactive News&Issues]

[ Silicon Valley | Metroactive Home | Archives ]

Welcome to the Terrordome: Critics of a 7,000-seat music hall say county officials broke fair practice laws by selecting a construction team without receiving bids.


Fairgrounds venue confronts court battles over whether the county followed the law

By Najeeb Hasan

MERE HOURS AFTER the city of San Jose announced its lawsuit against Santa Clara County's concert hall project on Monday, the San Jose Downtown Association filed its own lawsuit against the county in what one insider involved with the Downtown Association's suit called a "one-two punch." The legal challenges could throw a wrench in the county's plans to enter the concert promotion business if a judge finds that the governmental body broke commitments to other jurisdictions—or violated rules that public agencies must follow when awarding lucrative contracts for public projects.

Though similar in ultimate objective, the suits attack the county from different directions. The city's claim hinges on allegations the county ignored agreements that require the city and the county to work together on construction projects within San Jose's urban areas. The Downtown Association, an 18-year-old nonprofit that funds its activities though assessments on downtown businesses and properties, threatens to undermine the county's ability to fund the 7,000-seat concert venue. SJDA contends that county government can't use tax-free bonds to underwrite what is essentially a privately operated facility. The lawsuit also charges that the county's plans to impose an "assessment" on ticket buyers are a new tax, which must be approved by voters, that the project is based on faulty revenue projections and that the county violated the law by not putting the project out to bid.

"The county fairground theater project is like a zombie," said Scott Knies, SJDA's executive director, who bills the lawsuit as a "kill shot."

"It's already dead, but it keeps stumbling around in Board of Supervisors meetings."

On Tuesday, the county unanimously approved bond financing for the project. "We exhausted all other means before we did this. ... We opposed the project before knowing anything about if the county did or did not [break public law]. We've been consistent in our opposition to this project."

But by filing the lawsuits in rapid-fire succession, the city and the Downtown Association, whose 27 board members vary from church leaders to high-tech execs, have left themselves open to allegations of collusion.

"This is just speculation," says Paul Niewiadomski, an attorney from the office of the Santa Clara County counsel. "I don't have any facts to support it. But the Downtown Association has financial interests to build a theater downtown. To say that they are working independently of each other is ridiculous."

Breaking The Law

The double-whammy of lawsuits against the county for the $87.1 million concert hall at the county fairgrounds, about three miles south of downtown, is only the latest in a long-running posturing battle between downtowners and the county.

Mostly, the county has been losing the battle in the media. There were conflicts of interest charges against former consultant Ed Alvarez, who was allegedly representing the county in negotiations with developer Garfield Traub, which is expected to build apartments and retail shops at the fairgrounds site and which Alvarez listed as a client on his website. A city-sponsored study concluded that a downtown music venue would be more beneficial than one at the fairgrounds. The county failed in its initial attempt to fund the project, and, most recently, public sniping between City Attorney Rick Doyle and County Counsel Anne Ravel escalated. The county, meanwhile, contends that the city and downtown have hurriedly slapped together a competing, meritless proposal in an attempt to play catch-up to their music hall.

Now, the Downtown Association claims the county has resorted to flip-flopping on ownership of the music hall.

"The county is treating it as a public project when it suits them and as a private project when treating it as a public project doesn't suit them," says one person close to the Downtown Association's case.

After the city shot down the county's attempts to issue bonds through California Communities (a public financing agency partially sponsored by the League of Cities, of which San Jose is a member)—the county tried to side-step San Jose and convince California Communities that San Jose was unopposed to the theater plan—the Downtown Association claims the county tried yet another trick to issue the tax exempt bonds.

This time, the county found a willing lender outside of San Jose officials' reach. Essentially the music hall would be self-financed, since the agency willing to lend was the Santa Clara County Financing Agency, for which the five county supervisors happen to double as the board of directors. But Downtown Association attorneys argued that because the Silicon Valley Theatre Financing Corporation, a nonprofit set up by the county to acquire financing for the project, is pursuing the bonds, the music hall is a public project.

Therein lies the crux of the argument. Because it's a public project, it must be put out to bid following the state's Public Contracts Code. But the county skipped that step, handing the project to the nation's largest builder, Turner Construction, which appeared to be close to signing a $58 million design-build contract last year without a competitive bid process. Without following the bidding laws, attorneys say, the project should not be considered a public project. Thus, tax-exempt bonds should not be issued to the Theatre Financing Corporation.

Niewiadomski, part of the county legal team, says the process was competitive because there was a Request for Proposal submitted, though only one construction team responded: Garfield Traub/Turner Construction. Niewiadomski admits that the county didn't necessarily follow all the measures listed in the Public Contracts Code. He says the code, which requires the county establish a procedure to pre-qualify applicants and also establish a competitive procedure for the final selection, doesn't necessary apply to the county's situation.

"They didn't follow [the code], they'll admit to that," says Doyle, the city attorney. "They'll say that they put out an RFP, that they went out and solicited input. One developer solicited a proposal. It was not a real competitive process. When they build a highway, a jail, or the Valley Medical Center, they have to follow certain procedures. They go through a whole process, and anyone can come and bid. This was a different process. Not a lot of people knew about this. It just didn't seek competition."

A person with significant knowledge of the Downtown Association's case agrees: "They never went through any of the procedure. What it appears to us that they did, was that they went to Turner and negotiated with Turner. We haven't seen anything that goes through the steps [outlined by state law]. What we have is an understanding that their consultant went to Turner and only to Turner."

Perhaps the most interesting fallout from the Downtown Association's complaint could be whether the challenge on the legality of issuing tax exempt bonds will affect the county's timetable or ability to have those bonds issued. Mary Collins, an attorney from Orrick, Herrington & Sutcliffe who is handling the county's financing, could not be reached for comment.

"That's the question nobody has asked," says Knies.

Niewiadomski, though, says the Downtown Association is, in essence, comparing apples to oranges. The county attorney tries to make the case that there can be no set definition of whether the project is private or public.

"Well, there are two things," he says. "The financing corporation is separate form the county. The public contract code specifically applies to the county. This is a separate entity. It's not clear this is subject to those requirements. Also, in general terms, whether it's a public project or a private project, that's a separate issue depending on what agreement you look at. ... It just depends on what you mean as a public project as opposed to a private project."

Niewiadomski also adds that there are also instances in California's courts that permit exceptions to competitive bidding. "From a legal perspective, it's not a black and white issue," he says.

But, argues Jay Ross, lead attorney handling the case for the Downtown Association, that lack of clarity on whether the project is public or private is exactly the point.

"Really, it seems to me that the fact that county counsel would say it's not clear underscores the merit and need for our case," Ross replies. "Our whole point is that they tried to structure this as if it were a public project by calling the financing corporation an 'instrumentality' of the county then changing courses and treating it as a private project by, among other things, going with Turner Construction without public bidding or statutory bonding requirements and assessing a ticket tax without a vote.

"They're saying it's not clear, and what we're saying is that they're right: that it looks like you're trying to play it both ways. You've intentionally played it both ways. But the fact is it's got to be one or the other. You've gone down the 'public project' path for financing, but you need to go the rest of the way."

That's an argument. And lawyers for both sides will be making a lot more of them until a judge helps determine whether and where well-known musicians will be serenading valley residents in the years to come.

Send a letter to the editor about this story to letters@metronews.com.

[ Silicon Valley | Metroactive Home | Archives ]

From the August 4-10, 2004 issue of Metro, Silicon Valley's Weekly Newspaper.

Copyright © Metro Publishing Inc. Metroactive is affiliated with the Boulevards Network.

For more information about the San Jose/Silicon Valley area, visit sanjose.com.