Sale of School Site Is a Key Bone of Contention

One of the issues dividing peninsula school officials and their critics is the district’s handling of the sale of the 36-acre Peninsula High site in Rolling Hills Estates for $6.65 million in 1986.

The argument centers on the site’s value and marketing and on details of the contract with the developer.

The critics of the school district have pored over appraisals, school committee reports, sales of vacant land, state laws, the bid award and the contract with the developer, and have come up with a barrage of objections.

They contend that the district ignored the recommendation of its own financial advisory committee on how to market the property and paid no heed to a state appraisal saying the property was worth about $13 million.

They also say that the district’s own appraisal of $5.4 million undervalued the property to start with and that it was 15 months out of date when the district began to market the site in September, 1986. They also assert that, in contract negotiations after the bidding, the district made a concession to the buyer, effectively nullifying an inflation factor that would have generated an additional $500,000 for the district.

The school board and the administration counter by saying that every allegation is off-base.

Marketing

School district critic Janet McAuley is suing the school board, alleging waste in connection with the sale of the Peninsula High site and other financial activities. She says that the district could have gotten more for the land if it had followed the 1982 advice of its own financial advisory committee to get either a tract map or a development plan, which would have boosted the value of the land. Instead, the school site was sold as raw land.

School Supt. Jack Price said in a recent interview that the district could have gotten a tract map--which divides large properties into buildable lots--but said the buyer might not have liked the school system’s property layout and that the effort would then have been a waste of time and money.

State Appraisal

McAuley and Barry Hildebrand, who is running for a school board seat in November, also say that the $5.4-million appraisal the school system relied on when seeking bids was far too low, citing a 1986 state appraisal that said the land was worth more than $13 million.

“They should have gotten at least that much for it,” Hildebrand said.

During a school board meeting in November, 1988, Dawn Henry cited the state appraisal in challenging the school system’s valuation of the site.

David Capelouto, assistant superintendent for business, responded then by saying that the district did not use the state appraisal because it was not based on a close reading of comparable land sales. The state appraisal for surplus school property is based on an annually updated statewide inflation factor applied to the assessed value when a school system acquired the land. In 1965, when the school district obtained the Peninsula High site, the tract was valued at $1.8 million.

Capelouto said at the time that state officials acknowledged the appraisal might be off considerably and should not be used to prepare an actual sale. Henry subsequently obtained a letter from the state official in charge of making the appraisal that said, “Generally, this (the state) method values property below actual value.”

School District Appraisal

Delving into the details of the school system’s appraisal, McAuley and Hildebrand have attacked the appraiser’s choice of land sales to establish comparable values, saying that he only used comparable sales from 1983, although the appraisal was completed in July, 1985.

Michael Frauenthal, who was one of the appraisers who worked on the report, said in an interview that no sales past 1983 were used because later sales were not truly comparable to the land on the Peninsula High site. He said the market for undeveloped land on the peninsula was stagnant between 1981 and 1985, which he said permitted the use of earlier sales for comparable values.

But Frauenthal agreed with McAuley and Hildebrand that the school system should have gotten an updated appraisal in 1986, when the site was sold, rather than rely on one completed in July, 1985. Land values on the Palos Verdes Peninsula had risen sharply in the interval, he said.

School officials counter that they got about 20% more than the appraisal price, which they said reflected the state of the market.

Inflation Factor

Another aspect of the dispute centers on the application of an inflation factor to the land price.

On Nov. 17, 1986, the school board accepted a bid of $6.65 million from a development group composed of Goldrich & Kest Industries and California Coast Development Group Inc. The purchase was to take place within 24 months after an agreement was signed with the school board.

In the bid, the Consumer Price Index, which reflects inflation, was coupled to the price. According to the written redraft of oral bids, the $6.65-million price was subject to a “yearly base price adjustment--CPI.” The bid specified that the adjustment was to be no more than 8% and no less than 3%.

However, no inflation factor was applied when the property changed hands 18 months after the bid award.

Price said that is because the final sales contract, which Capelouto signed for the school district on Jan. 14, 1987, specified that the inflation clock did not start ticking until six months later--July 14, 1987--and the CPI factor would apply only if a full 12 months had passed between July 14, 1987 and the date of the sale. The sale took place on June 7, 1988.

Price said the inflation clock was started six months after the final sales contract was signed to give the developer time to obtain governmental permits and an environmental impact report.

But McAuley and Hildebrand say that the district should have started the inflation clock ticking Nov. 17, 1986, when the bid was awarded, or, at the latest, when the final sales agreement was signed in January, 1987.

McAuley said she came to her conclusion after reading a separate summary of the winning bid that was part of the agenda material presented to the board when it awarded the bid. The bid does not specify when the inflation clock was to start.

The summary cited by McAuley presents three scenarios to illustrate how the inflation factor was to be applied. In the first scenario, the price was to be $6.65 million if the land was purchased immediately. In the second scenario, which assumed a CPI of 5.5% and a wait of one year, the purchase price was $7,015,750. The third scenario assumed a wait of two years and an inflation rate of 5.5%, which computed to a purchase price of $7,401,616.

The district’s critics allege that failure to apply an inflation factor cost the district about $500,000. “What’s the purpose of having (the inflation factor)?” Hildebrand asked. “It sounds like a gift of public funds. They stole some money from the kids. I fault the board for letting Capelouto and Price handle too many important details.”

But Price defends the district’s actions. “I think we did the very best we could with that piece of property,” he said, “and I don’t have any second guesses on it.”