Epic failure: How the city of Sacramento gambled with taxpayer money and lost big | Opinion

A spectacularly unfortunate chapter for the Sacramento City Council does not end because the city is paying a $26 million settlement to developer Paul Petrovich, who soundly beat the city in court for its handling of his Curtis Park development project.

The headache only continues due to the city’s decision to buy from Petrovich a near-empty office building on one of the most distressed blocks on K Street in downtown Sacramento.

The city confirmed that it had to dig into its own coffers to make Petrovich whole. Insurance money is not covering the purchase of the Hale’s Building at 831 K Street (site of the former Rite Aid store) from a Petrovich firm for $18.5 million. That is roughly the same amount that the city spends from its general fund on directly homeless services in a year. This is a big deal; it is the city’s living legacy of council meetings that courts found had acted in a biased manner.

The settlement also includes $7.5 million in direct settlement payments. The sources of funds, according to the settlement, will include “the city and by one or more of the defendants’ insurers.” According to city spokesman Tim Swanson, the city will entirely fund the purchase of the office building at 831 K Street from the general fund and a “risk fund” that is used to pay liabilities not covered by insurance.

How great a time is it for the city to get into the office business on this block of K Street? Consider that just a few steps away, the 28-story Renaissance Tower at 801 K Street is approximately two-thirds empty, based on lease availability. Across the street, 830 K Street is most empty And the Kress Building at 818 K Street is almost entirely empty.

The city will also rename the Crocker Village park as the “Petrovich Family Playfield,” with a plaque honoring the developer’s father, John “Pete” Petrovich. It has also apologized in writing to Petrovich “for conducting an unfair hearing.”

All this money and angst was over a proposed gas station.

Petrovich’s proposal to build a gas station as part of his Crocker Village retail complex took on a larger-than-life quality to the neighborhood. The opposition in the neighborhood saw it as creating pollution and traffic. Petrovich saw it as an important amenity for the complex.

Leading the charge against the gas station on behalf of the neighborhood was its representative on the city council, Jay Schenirer. He has been a true public servant for years in Sacramento on the council and the board of the Sacramento City Unified Schools District. But he went too far. In one ruling Sacramento Superior Court Judge Michael Kenny wrote that Schenirer “demonstrated “an unacceptable probability of actual bias.”

When a council doesn’t give an applicant a fair hearing, it has crossed a legal line into trouble. As an appellate panel wrote, “Councilmember Schenirer acted as advocate, not a neutral and impartial decision maker, and should have recused himself from voting on the appeal.”

Schenirer served on the council from 2010 to 2022 and was a signatory to the settlement. He did not apologize.

There is a broader lesson to be learned here. It is for city council members to recuse themselves when they have become so biased as to be unable to be fair. Or a city attorney can advise that the council member step down from voting out of the same concern because voting could expose the city to legal liability. Neither happened. And now Sacramento will pay dearly.

What is the city’s plan for its office “investment” at 831 K Street? To convert the building into some other use other than an empty building, where is the money going to come? The drain on city funds could only be beginning.

Petrovich has been among that rare breed of developers who has shunned the relative simplicity of suburban development for the grit of urban redevelopment, in this case converting the once-polluted Curtis Park rail yard into a modern urban neighborhood. The political environment surrounding the redevelopment project ended up creating its own kind of toxic environment.

It took no less than three lawsuits and untold massive legal bills (the city spent more than $2 million on lawyers) for Petrovich to finally get justice. The city fought and fought until it simply ran out of options. The city council and Mayor Darrell Steinberg, in directing this litigation through decisions in closed sessions, behaved like gamblers. They doubled down after losing one ruling after another until their pockets were empty of legal theories.

They gambled with our money.

Who knows how often local governments act so unfairly that it is downright illegal. It takes a very deep pocket and years of patience to prove it. Paul Petrovich did it. Hopefully the Curtis Park gas station fiasco does not haunt 831 K like a ghost.

This story was originally published August 15, 2023 at 5:00 AM.