Park Agency Financing Methods Threaten Land Investments

In 1992, Ricardo Capretta made his parents and a few of their retired friends a no-lose proposition: Forget about bank certificates of deposit paying 3% a year, and invest instead in a government-backed $350,000 promissory note on a tract of land in the Santa Monica Mountains guaranteed to pay 8% a year.

“We thought it was a very safe investment,” he said.

This week, Capretta and his investors got a startling lesson in the occasionally byzantine ways of local parkland financing when they discovered that the note had nothing more solid behind it than the promises of the park agency that handed it over.

How could the board of a tiny agency with little money of its own make such a vow?

The answer is hidden somewhere in the creative--critics call it “bizarre”--way in which that organization, the Mountains Recreation and Conservation Authority, has cobbled together the funds to help create a vast national park at the edges of Los Angeles and Ventura counties.

Its sometimes aggressive methods helped the agency flourish in economic good times, but now threatens to undermine a number of high-profile acquisitions.

Last week, one of the MRCA’s parent organizations, the Santa Monica Mountains Conservancy, was ordered by a jury to pay millions to a developer it squeezed out of a deal to buy 492 acres around Westlake Reservoir. And the conservancy is negotiating to end its drawn-out condemnation of Soka University’s Mulholland Drive campus, long considered the crown jewel of the Santa Monicas, because of doubts over whether the agency can afford it.

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The story begins in the late Cenozoic Era when the powerful movement of tectonic plates twisted Southern California south of latter-day Ventura into the shape of an upside-down L and created a coastal range of mountains that came to be known as the Santa Monicas.

About 15 million years later, in the middle of this century, investors began to buy up pieces of those hills because it seemed Los Angeles would inevitably sprawl there. Environmentalists opposed that private investment effort--seeking instead to create permanent open space where city dwellers and wild animals could breathe freely.

In 1978, an act of Congress turned a wide swath of that land from the Cahuenga Pass to Point Mugu into a park grandly named the Santa Monica Mountains National Recreation Area. The problem: The federal government only owned bits and pieces of the land. To stitch together even the single major pathway for hikers and bird-watchers that would become known as the Backbone Trail, it needed to buy out each individual landowner along the route.

For 10 years, money was appropriated regularly from Congress to make those purchases. The conservancy--a state agency funded largely by park bonds--was created in part to help the federal government make some of the land deals. Its leaders, in turn, fashioned a hybrid outfit, the Mountains Recreation and Conservation Authority, to turn some of those purchases into parks.

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As something called a joint-powers authority run in common by the conservancy and a pair of Ventura County park districts, the MRCA had a key financial capacity possessed neither by state nor federal park agencies: It could issue promissory notes to landowners in exchange for property.

That ability came in handy by the beginning of this decade because recession and a change in government suddenly made legislators a lot stingier with park acquisition funds.

Flash forward to 1992, and the cause of Capretta’s unexpected angst.

According to state and federal officials familiar with the deal, the conservancy wanted to buy 2,329 acres of scenic canyon land from Bob Hope called the Jordan Ranch, which was otherwise slated for a housing development and a golf course. But the conservancy ran into a hitch trying to arrange the funding. So it asked the National Park Service to buy it instead.

The park service’s man in charge of the Santa Monicas at the time, David Gackenbach, said he agreed to “step forward and save that nice piece of property from Mr. Hope” for $16.7 million. But he said he had to ask the MRCA to purchase 11 much smaller properties--including Capretta’s--that the park service had on its high-priority acquisition list and was not “willing to walk away from.”

The 240 acres in Zuma, Trancas and Little Sycamore canyons were all either surrounded by federal parkland--and therefore hard to sell on the private real estate market--or lay directly on the proposed route of the Backbone Trail.

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According to Gackenbach, the MRCA’s executive officer, Joseph T. Edmiston, fashioned a creative proposal to pay landowners 10% down in cash, plus 8% annual interest for three years with all interest and remaining principal paid in lump sums. The notes are due in March, April and September this year.

Here’s the rub:

Gackenbach said Edmiston expected to receive the $4.2 million needed to pay off the debts from state park bond Proposition 180. But Edmiston said he always expected the federal government to come through with the money to pay off the landowners’ notes.

“We only said that if some time in the future we had funding we would buy them from the conservancy, but we couldn’t promise,” said Gackenbach, now an executive with a resort properties firm in Arizona. “We can’t spend money we don’t have, and there’s no way we can promise to buy something until we have the appropriation to do so.”

As it turned out, Proposition 180 failed at the polls in 1994. The conservancy spent the last of its park acquisition cash on the Canyon Oaks property in Topanga Canyon. And this year the congressional budget stalemate has left the National Park Service without the money to buy the properties--even though $50 million was set aside to buy so-called “hardship” parcels nationwide.

The federal government’s inability to pay off the notes--thereby jeopardizing the retirement nest eggs of several elderly landowners--has stunned John A. Diaz, head of land acquisition for both the MRCA and the conservancy.

“I’m very disappointed,” he said Friday. “I felt we should have been able to bank on the park service’s promise just like the landowners felt they could bank on us. Did I think there was a risk that the government wouldn’t pay us? It never occurred to me.”

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Melissa Kuckro, legislative director for U.S. Rep. Anthony Beilenson (D-Woodland Hills), said her boss has spoken to Interior Secretary Bruce Babbitt in an effort to ensure that the Santa Monica Mountains properties are top priorities for funding once the park service begins to receive its fiscal 1996 appropriation.

But neither she, nor anyone else in Washington, knows when that will happen. Nor could she promise that the MRCA properties would be bought. “It’s anticipated but it’s not guaranteed,” Kuckro said. “I’ve seen things happen to budgets this year that I never would have believed before. I hate to make predictions anymore.”

There seems to be plenty of blame to go around.

Jeff Kniffen, a note holder who sold a 20-acre parcel to the MRCA for $630,000 at 4% annual interest, said he always considered the proposal “a flaky deal.” An accountant and former chief financial officer of a savings and loan, Kniffen said he repeatedly asked Diaz at the time whether the MRCA had a “sure, certain, identifiable source of repayment” and always received assurances.

“If any S & L had made this deal, regulators would have freaked out,” he said, noting that he only agreed to the transaction because it offered tax benefits and because he considered the land adequate collateral.

Although unusual, the deal was legal and even Kniffen commended Diaz for keeping landowners informed of its recent twists and turns.

Richard Sybert, a conservancy board member and Republican congressional candidate, said he considers the recreation area and Backbone Trail to be “priceless assets” for the region, and faulted the White House for the landowners’ trouble.

“President Clinton is holding the Santa Monica Mountains hostage to his political ambitions,” he said.

But Laurie Collins, an attorney for the conservancy, said the landowners themselves are partly to blame.

“No one held a gun to their heads,” she said. “They were willing to accept 10% down and take the promissory note. . . . Hopefully we’ll get the money and pay them back. But even if we can’t, we did nothing wrong. There are always risks in these situations, and that’s why they hold deeds of trust that they can foreclose on. It’s not like they have no remedy.”

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Hodge Dolle, a land-use attorney fighting the conservancy in court over its efforts to condemn Soka University, scoffed at Collins’ assertion--declaring that the shortcoming lies entirely with the conservancy’s ambitions.

“If your property is No. 1 on the conservancy’s hit list, they will block you from developing your property, or selling it to someone who will, with every penny of public money they own,” he said. “It’s insidious. There’s nothing people can do with those properties except sell them to the conservancy.”

Objecting to the MRCA’s ability to issue notes, Dolle added, “Either they should have the money and buy the properties they want, or they should redefine the boundaries of the park so that people who own property there can get out from under the curse.”

On Friday, a spokeswoman for the House Ways and Means Committee in Washington said the National Park Service is expected to learn the fate of its 1996 funding by March 15.