When word came last week that a successful insurance claim was expected to net Half Moon Bay $10 million, city leaders were faced with a different task: convincing voters their local government needs even more money in the way of a sales tax increase.
The new money stems from an old headache — the Beachwood land-use debacle.
The Beachwood case revolved around a botched municipal drainage project on 24 acres on the city’s north side. The land’s owner argued successfully that the work ruined his developable land by rendering portions of it wetlands. The city ultimately settled with owner Charles Keenan for $18 million and sold bonds to meet that demand.
The case became the grounds for the city’s civil suit against its former insurer, Insurance Company of the West, which provided liability coverage for the city in the early 1990s. Attorneys representing the city announced Thursday that retired judge Edward Panelli had decided in arbitration that the insurance company must pay the city $10 million.
The ICW lawsuit was a sort of Hail Mary pass for the city to recover some of the Beachwood money they are now scheduled to repay over the next 27 years, at a total cost of $32 million when interest is included.
In 2008, city leaders were encouraged by a successful $5 million payment from the Association of Bay Area Governments, and they began investigating other ways to recoup their losses. The city hired the Walnut Creek law firm Gibbons & Conley to investigate whether a case could be made against its former insurer.
City officials explained that there is still an outside chance that the legal award could be delayed or stopped entirely if lawyers for the insurance company decide to challenge the case. But that outcome is extremely unlikely, wrote City Attorney Tony Condotti in an email. He explained that the insurance firm would essentially have to prove egregious errors, corruption or fraud to undo the decision.
ICW representatives did not return calls for this story.
Attorneys for the city will also request the arbitration judge order ICW to repay the city’s legal costs, estimated at around $100,000, along with awarding damages for acting in bad faith. Condotti said the case could take as long as a few months to fully resolve.
Elected leaders say the revenue from the claim doesn’t change the need for a citywide sales tax increase, but they are unsure whether voters will agree.
Half Moon Bay voters go to the polls in November to decide the fate of Measure J, a half-cent sales tax hike that would provide an estimated $867,000 per year for city infrastructure projects.
Convincing voters that the city still needs that extra revenue could now be an uphill fight, said Councilman Rick Kowalczyk.
“It’ll be more challenging, but we have more than $10 million in needs,” he said. “I know this is a large amount, but it pays off a large debt and we have a large need.”
Half Moon Bay resident George Gipe, a critic of the tax proposal, disagrees with that argument, saying the tax increase was supposed to be a last resort for the city to gain revenues. The city now has options thanks to the $10 million windfall, he said, so city leaders shouldn’t continue pressing for Measure J.
“You don’t do a sales tax unless you have to, and we don’t have to,” Gipe said. “It would be shameful if the council was still in favor of the tax when they’re sitting on so much money.”
Mayor Allan Alifano pointed out that the city did not have the money in hand yet, and until that happens local leaders needed to continue making the case for the sales tax. But if the city obtains the insurance claim money in a timely fashion, then the sales tax could be seen as unnecessary, he said.
“I don’t really have a good answer,” he said. “I think it’s premature for any of us to say the sales tax is off the ballot yet.”
Half Moon Bay leaders intend to convene a special meeting sometime next month to gather public input on how the money should be spent. Before that meeting, city officials will prepare a series of spending recommendations for the public to consider.
All elected leaders contacted by the Review recommended that some portion of the lawsuit award go toward paying off the city’s bond debt resulting from the longstanding Beachwood settlement. The city issued more than $15 million in judgment obligation bonds in 2009 to pay the $18 million settlement resulting from the Beachwood suit.