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22 Basin Street Blues ( 21 answered regarding the millions of dollars paid to North Bay Construction and Basin Street.” Torliatt and Petaluma mayor David Glass are concerned that Barella’s dual role as a Basin Street Properties investormanager and as the owner of North Bay Construction may have impacted the ability of Basin Street Properties to impartially manage the city’s financial interests in the Theatre District project. “If I had known of Barella’s financial interest in Basin Street Properties at the time, I would not have approved of the arrangement with North Bay Construction,” Glass says. “Finding this out now is like being hit on the head by a 2-by-4.”

How It Began In 2003, the Petaluma City Council approved Basin Street Properties’ plan to develop a $100 million residential and business complex on a riverfront site previously occupied by automobile dealers, auto body shops and gas stations. The city also agreed to pay for improving sewage, street, sidewalk and electrical infrastructure in the public portion of Basin Street’s proposed Theatre District. Eager to redevelop the downtown area, the city sweetened the deal by covering not only its share of costs for constructing public infrastructure, but also the developer’s share, which was $4.8 million. The city took on the entire public infrastructure cost of $7.5 million, which included paying PG&E and SBC to underground their wires in the public area, normally the responsibility of the developer or the utility company. The city contracted with Basin Street Properties, who, acting on behalf of the city, put the city’s portion of the work out to bid. North Bay Construction was selected as the low bidder in early 2004. This subcontracting arrangement meant that Basin Street Properties was

responsible for signing off on the payment of city funds to North Bay Construction, and that Basin Street Properties received a portion of the public infrastructure budget for supervising North Bay Construction. Concurrently, North Bay Construction was also constructing nonpublic infrastructure for Basin Street’s sprawling development, which eventually encompassed the Boulevard Cinemas multiplex, a parking garage, waterfront office buildings, residential lofts and other retail. So there was some logic to the arrangement—until the initial construction costs and management costs increased by than 150 percent to $17.1 million, and until Basin Street reneged on a promise to help defray $2 million in cost overruns. As the project’s budget skyrocketed, other city projects stalled in its wake. In the end, Petaluma was out of pocket for $9.6 million. In order to determine how this happened, thousands of pages of public records were examined. Current and former city officials and council members were interviewed, as well as Matt White, president of Basin Street Properties, and his general counsel, Paul Andronico. Barella did not return repeated telephone calls and emails requesting comment.

Toxics? What Toxics? In August 2003, a geotechnical study commissioned by the city reported that “soil and groundwater in the [Theatre District] improvement area are impacted by gasoline and diesel fuel range hydrocarbons. [Therefore] special handling of soil and groundwater may be required in these areas during construction.” But in its eagerness to jumpstart the public-private deal, the city council hastily forged ahead with the Basin Street

AT THE GATES North Bay Construction was adding a 15 percent markup for itself

on bills from a subcontractor for the Theatre District, according to a city inspector.

Properties contract, declaring that there was “no evidence” that the massive development would have a significant effect on the environment, nor that there were hazardous wastes and toxic substances buried in the soil and groundwater of an area which had been occupied by automobile dealers, body shops and filling stations for decades. In mid-January 2004, however, the city’s engineering manager, Dean Eckerson, reported that proposals of construction costs were “exceed[ing] our original cost estimates as well as Basin Street Properties’ estimates [which are] elevated due to difficult subsurface conditions due to high groundwater and unstable soils, possible contaminated soil conditions, an aggressive schedule and performing underground work during the rainy season.” Eckerson concluded that “based on a comparison to our recent bid prices for similar work, many of the items of work are higher than expected. . . . Consequently,

it seems reasonable for Basin Street Properties to pay for the apparent cost differences since they are controlling the schedule resulting in the elevated costs for public infrastructure.” But Eckerson was overruled. In February 2004, Matt White, president of Basin Street Properties, wrote to city manager Mike Bierman that Basin Street Properties was contracting with North Bay Construction for a “guaranteed maximum price contract” of $8.7 million. White informed Bierman that the city’s redevelopment commission “will need to fund an additional $4.4 million” in related costs, including costs of design, engineering, landscaping, legal fees and construction management. This brought the city’s total cost to $13.1 million— already $5.6 million beyond the original budget. White softened the bad news to Bierman with a promise: “The balance will be paid by means of an assessment district [generating] $4.1 million. As we have discussed, Basin Street