Hermosa Beach Self Storage Lot & Civic Center Roulette

(Option 1) Drilling for Oil = Relocating City Maintenance Yard Here

(Option 2) Keep Current Hermosa Beach City Maintenance Yard

I was shocked to hear at the planning commission meeting that CITY STAFF and not the Planning Commission know all of the information about future plans of the City Hall.  New Downtown Civic Center? Apparently, Hermosa Beach's long term plan is to develop a downtown Civic Center.  This plan is now in jeopardy because of the proposed oil drilling project?  Why, because the City Maintenance yard would have to be relocated to the City own Storage lot across the street from City Hall.  What would happen to City Employee parking?  City Staff seems to think that the City Yard can be relocated onto the storage lot without disrupting the parking.

The City was planning to expand City Hall across the street to the Storage Lot above which makes a lot of sense.  But what more do they need downtown and hope to understand in the future?  Transparency please?

According to Mike Flaherty, Public Works Director say this.  "The EIR for the oil project has to address the City yard relocation.  Is E&B going to pay for the relocation?"  No.

Former Hermosa Beach City Councilmen Gary Brutsch said, "oil revenue from the Tidelands could pay for a police and fire substation on The Strand. Brutsch, "believes many people who were in favor of oil drilling in 1984 didn’t have the energy to defeat the anti-oil forces. Brutsch said, "he wanted to designate Hermosa Beach the environmental portal to the Santa Monica Bay by using tidelands revenues to install filters on storm drains that empty into the ocean."   See Easy Reader article.

Zoning for the new City Yard location next to homes would have to be reconsidered to light industrial.  Is the planning commission going to be involved oil EIR process?  Lets hope so.  Will the planning commission be involved in the EIR?  Lets hope so because I bet Planning Commission Chairman Ron Pizer has some input.

You might also want to read this. How does Hermosa Beach plan to pay $17.5M?

How Can Hermosa Beach Pay For The $17.5M Settlement?

Hermosa Beach Self Storage Worth Approx. $7M ($180K Annual Tax Revenue)

City Yard in Hermosa Beach Worth Approx. $15M ($0 Tax Revenue).  Are we just giving E&B a $15M property? Here is why it might be more expensive to vote yes.  $3.5M loan repayment + $15M Property for voting Yes = $18.5M vs 17.5M for Voting No.  

Noble Park in Hermosa Beach Worth Approx. $20M ($0 Tax Revenue)

Hermosa Beach Breezeway Lot Worth Approx. $1.5M+  ($12K Tax Revenue)

Old Prospect Ave School Building Lot Worth Approx. $800K (No Tax Revenue)

Public Parking Facility Worth Approx. $20M ($360K Annual Revenue)

The biggest question that voters need to understand when going to the polls is how is Hermosa Beach going to pay for the $17.5M upon a "No" vote.  There has been some speculation that the vote might not happen until 2013 or 2014 which doesn't surprise me.  In the contract, it states that E&B can ask the city to put the measure on the ballot at any time and the city has 6 months to do it.  When do you think it will be in the best interest of E&B to put the measure on the ballot?  

I think Hermosa Beach should be financially prepared for another recession and have the cash in the bank or a bond measure approved to pay for $17.5M NOW!  Current macroeconomic headlines could easily affect our ability to finance a bond offering or sell real estate in the coming years:  1)  inflated bond market, 2) massive U.S. government debt and 3) European Union debt restructuring recession.  Its been over 4 years since the 2008 financial crisis and you never know when the next downward cycle will hit our economy.  

The City of Hermosa Beach has plenty of liquid and semi-liquid assets that it can use to cover the costs.  There is no need to do a parcel tax or an assessment on residents.  There is no need to believe the oil propaganda and rumors about the going bankrupt over the oil settlement.  We can afford to pay it and it won't affect our budgets or our valuable schools.  The City owns a lot of valuable property and the last time I checked we are not in the "property management" business.  The City has a number of assets that do not generate any tax revenue for the city and should be considered for sale.  

The City of Hermosa Beach likely owns over $100+ million in real estate assets and has over $25+ million in working capital in the bank available to pay for the settlement.  The City also has the ability to get a $10M "Judgement Bond" from the State of California at 3% and service loan which will cost the city $300,000 per year which is nothing out of the budget.  Why not also float another bond for $7.5M as well since boring money is so cheap these days.  So there are lots of ways we can solve the problem of paying for the settlement if we have to.   

The Storage facility was purchased by the City years ago for around $4M.  Its likely worth about $7M today if you put 14 multifamily units on the lot and zone if for residential purposes.   It generates $180K per year for a property the city paid $4M.  Is rent revenue worth the annual yield for tax payers?  The City is not in the property management business and thus we should sell it.  See lease agreement. 

The City Public Works Yard on 6th Street has 8-10 employees and unfortunately they would have to relocate if oil drilling came into town.  The city could outsource the public works functions to a private company which would save money on employee salaries and pensions, etc.  This lot is likely worth $10M  zoned as commercial and might be close to $15M as residential.  17-20 multifamily units could likely fit onto this lot if a developer buy it.  Also, has the city has not factored into the E&B Oil drilling deal that the we are practically giving E&B oil a $15M property.  So in reality, it might be cheaper to pay the $17.5M and vote NO vs paying $3M+ giving a $15M property to E&B for voting Yes. 

The City owns 13 parks some of them are more useful than others.  I am not proposing to go around the City to sell parks but if you compare a price per square foot and the lack of tax revenue to the city.  Noble Park is probably the most valuable asset we have that could be sold.  The Beach House next door to this large lot pays Hermosa Beach $800,000 per year in bed tax revenue.  I know there are a lot of people that use the park to walk their dogs but that is a debate for a separate discussion.  However, most people would not let their kids play in the grass because of the amount of dog waste.  You might be able to classify this as one of the most valuable dog walking park in the U.S.  It might be worth $25M depending on the zoning. 

The Fat Face Fenner's breezeway is likely worth $1.5M.  Currently the city leases the above air space for $1K per month for the right to have a restaurant above the walkway space.  $12K per year is not a lot that is worth $1.5.   I don't know many people who currently use the walkway and don't know how much value it has to lower pier any longer.   A full scale Fat Face Fenner's restaurant might make sense here if constructed from the ground up. 

The Old Prospect School is next to the Fort Lots of Fun park might be worth $800K.  It has been a storage facility for old city lights for years and does not serve as a tax generator for the City. 

The City of Hermosa Beach has parking garage which it shares revenue with LA County on a 50/50 split.  What is a property like this worth that generates $300,000 per year?  Could it be worth $20M and is it worth it to sell half of our stake for $10M?  Again we are not in the property management business and it might be in our best interest to divest this property.  See LA County agreement & annual parking structure revenue / expense financial statement. 

As you can see, we have lots of choices of assets that the City can sell.  Its up to the citizens to come up with a plan to sell one or a few smaller parcels because we know our officials wont take the initiative.  Just look at what Redondo Beach City Council is doing to their residents if you need any proof.  Real estate has recovered from the 2008 lows and it looks like another good time to sell some assets.  I hope this makes everyone more comfortable about voting "NO". 

This is work in progress and we would like your feedback on our theoretical pricing.  If you have commercial real estate experience please contact us or comment below.  Please check back frequently for changes.  I apologize for any errors.  

More Questions That Need Answers

Continued from Questions That Need Answers:

Below is an ongoing list of questions I am compiling from Hb residents on this issue.  Email me if you would like to add something.

8)  Many former City officials including former councilmen Sam Edgerton questioned in 2008 whether the city’s lawyers have ignored a line of attack that he believes could turn the legal tide back in Hermosa’s favor. Why was this never done and why are many of these officials furious of the current settlement? Why are current City Officials telling residents they will not take a position for or against oil drilling in the current settlement? Are they working for HB residents or their own interest? Read Easy Reader Article from 2008

9)  Do the deal leads Jenkins, Bobko & Divirgilo have any ‘skin in the game’? Do they have property value to protect or do they just simply rent temporarily in Hermopsa?  They have demonstrated that they are interested in higher levels of public service (above the City). Do they anticipate receiving future financial support from the Oil Companies to assist them in achieving their political ambitions? Kit Bobko, ran for Congress in 2011 to fill Jane Harman’s seat in a special election and finished in 7th place with 3.6% of the vote.  Michael Divirgilio was a Congressional Staffer for Rep. Jane Harman.  

10)  Why is Hermosa Beach spending money on a PR Firm,  Fiona Hutton & Associates  and how much is the city spending on this new endeavor? Don't we have elected officials on the City Council who do PR as a profession? Why aren't all Council members speaking for themselves, rather than just "going with the flow"? Why did the CIty hire a PR agency? What is their exact role? What is the cost of the PR agency? 

11) Why did you settle at $17.5 million & $3 million? What was the magic number and why?

12) Did you have a plan in place to pay the $17.5 million or 3 million? At what price did you have a plan in place to pay the settlement?

13) With the 6th street Yard being used for oil drilling it would be lost to the city for use.  What would the city do without this lot for city use?

14)  What is the City Yard lot worth? Could we sell it to help cover the 17.5 million?

15) What is it going to cost for extra emergency services personnel, equipment, and training? - Who is paying for it? Do we have to raise salaries for specific certifications of emergency services?

16) The tower is going to be over 135 feet tall. It is going to be in the line offsite of many residents. This devalues homes. Can the city be sued for the devaluation of their home?
The oil wells will cause issues with:

• The beautiful views from homes
• Air Quality (So much for the No Smoking signs along the strand) 
• Noise pollution 

17) The 2008 Chatsworth train crash happened when the conductor was texting while managing the train. 25 people were killed, 135 were injured with 46 being critical! My friends mother was in this accident. She was seriously injured. There is a cap on the amount of payout for the lawsuit at $200 million. She cannot even get her medical bills paid. With that said you are saying we would have had to pay $750 million no matter what while a train wreck that killed 25 people and injured 135 others cannot get more than 200 million!

18) What happens if there is an oil leak in the bay?  Is the City of Hermosa Beach on the hook for anything? How would this devalue not only Hermosa Beach homes but all of the homes in the bay?  Could there be a civil suit?

19) There is talk of "revenue share" from the oil wells.  Can we not pay the money and have the money go towards the $3 million first then take the revenue sharing?  What are the projections of the revenue sharing?  This should have been done long before any settlement happened! The biggest question is what can the money legally be able to be used for! There have been many statements that the money cannot actually go towards the school systems. This is something your lawyers should have advised you of before any settlement happened. The lawsuit has been going on long enough someone should have known and or have an answer.

20) Who is auditing the revenue coming in from the oil?  Do we now have to pay people to manage this and at what cost?

21) What happens if there is a disaster and or someone is killed?  Is the contract null and void immediately?

22) How safe is this type of oil drilling in case of an earthquake or tsunami? At what size of earthquake or tsunami do we run into an additional disaster?

23) The homes they drill under do they get revenue from the drilling and who has mineral rights? What happens if their foundation and or other issues appear in years to come from the earth under them moving?

24) Is the oil company using funds to get the votes to drill in Hermosa? If so did you know they would put money into the City of Hermosa to promote oil drilling?  What businesses in the city stand to benefit from oil drilling?

25) Kit Bobko and Michael Divirgilio are not home owners in Hermosa Beach. You do not directly pay taxes for the homes in Hermosa Beach. If you owned a home nest to 6th street before the settlement how would you feel? Would you sell your home? Why haven't you bought a home in Hermosa Beach?

26) If we vote no to the oil drilling your letter states: "$17.5 million equates to a liability of $2,500 per parcel." Are you going to bill the citizens this amount if the drilling is not approved? What if I moved into the area after the lawsuit and was not notified about the lawsuit? Do I still have to pay? The bigger question is as renters are YOU personally going to pay $2500 towards the liability you have committed to the citizens of Hermosa Beach?

27) What are the solutions to pay $17.5 million? How much money do we have in the bank? What assets does Hermosa Beach own? Can we get a bond from the state of California? What research have you done to figure out how to pay back any amount let alone the $17.5 million?

28) Now that you have settled the lawsuit what side are you on? I feel that you have drawn a line in the sand and now you should state whether you are for drilling or against drilling. This is only fair to the citizens of the city. What are the pro's and con's from each of your perspectives?

29) How late can drilling take place? Is it 24/7/365? How noisy is it? I can hear the Redondo Power Plant at 4am release steam that practically shakes my windows. Will we have any noise at all and if so how loud and at what times?

Email me if you would like to add or change something to this list. 

Hermosa Beach Slant Oil Drilling Maps

These maps are speculative drawings based in information we have gathered from the Macpherson proposals.  E&B oil has not submitted their drilling proposal yet.  

Map of the proposed Hermosa Beach slant oil drilling site will reach out into the ocean.  What is slant oil drilling?  The drilling will also go underground into Redondo Beach likely.  The California Coastal Commission has full authority of this drilling and has thus tidelands restrictions on where money from oil can be spent.  The oil site will also be less than 100 feet from homes when Colorado requires a 350 foot setback and California recommend 300 feet.

Do we really know what is underground nor want to disturb the environment with oil drilling pipes possibly poking through the ocean floor?  Do want want to risk the dangers of the ocean floor and our beaches sinking (subsiding)?

The proposed drilling site effects more than 50% of residents of Hermosa Beach.  Noise, air pollution, explosions or dangerous gases are all a potential consequence.  Not to mention the drilling site will be within a few hundred yards of your kids playing in the park.  If you run on the greenbelt in Manhattan Beach or Hermosa Beach there could be an oil pipeline to under it to Chevron Refinery in Torrance and/or a natural gas pipeline AES Power Plant in Redondo Beach.

Lets not forget about the fault line that runs across the Santa Monica Bay and the South Bay.  We have had several earthquakes offshore in Hermosa Beach and Santa Moncia bay in the past few years. 

 27 oil wells and 3 water injection wells for Fracking and Natural Gas

Horrible Air Quality

I am told by oil experts in the business that the odor from gases and drilling will be "awful" around the site.  There is no way to contain the odor or poisonous gases that come up our of the ground.  This map depicts 3 different wind scenarios we get in the area.  An onshore, offshore and no wind where the smell and gases get trapped in the valley.

Emissions generated during the drilling/development phase include vehicle emissions; diesel emissions from large construction equipment and generators, storage/dispensing of fuels, and, if installed at this stage, flare stacks; small amounts of carbon monoxide, nitrogen oxides, and particulates from blasting activities; and dust from many sources, such as disturbing and moving soils (clearing, grading, excavating, trenching, backfilling, dumping, and truck and equipment traffic), mixing concrete, and drilling. During windless conditions (especially in areas of thermal inversion), project-related odors may be detectable at more than a mile from the source.  Excess increases in dust could decrease forage palatability for wildlife and livestock and increase the potential for dust pneumonia.  See source.

250 Yard Heavy Impact Zone from Noise, Odor, Dangerous Gases and Explosions.   There are two parks, hundreds of homes and a jogging trail in the vicinity which I think is disgraceful.   There are probably 10+ kids under the age of 10 years old that live in the red boxed area.  Its just sad that no one thought through the ramifications.  

Projected Ripple Affect of Real Estate Losses

This is a Scenario of What Could Happen

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$1B+ Destruction of Real Estate Wealth

This picture above precisely why homes are so much cheaper in Huntington Beach, CA.  A $1,000,000 home in Hermosa Beach would likely be 25% less if it were based in Huntington Beach.  Most speculate its because of the widespread drilling amongst the homes.  Do you want our in Hermosa Beach to drop by 25%?  

The 1.3 acre City Yard lot was worth an estimated $57,000 back in 1958 according to old news articles.  At this time oil was trading at $2 per barrel.  This was when the last Shell oil drilling vote was being contested by long timer Hermosa resident and hero Barbara Guild.   What is this City Yard lot worth now? 

Most speculate it might be worth as much as $10M for commercial zoning and possibly as high as $15M if it was rezoned for residential?  That is 175X the value.  Oil is now $100 per barrel only 20X more.  So you have to ask yourself the question which is more valuable today? Real estate or oil?   Are we just giving E&B Oil a $15M piece of property for nothing?  Its not factored into the proposed cost of voting for Yes oil drilling. 

There are 7,000 parcels in Hermosa Beach. Every 1% decrease or increase in home prices in Hermosa represents a $57M increase or decrease in aggregate wealth. A 15% drop would flush $1B of wealth and and huge property tax base down the drain.  The is assuming median home prices are $820,000. This oil drilling deal gambles with $5.7 billion in aggregate real estate wealth based on 7,000 parcels.  This is a zero sum game if you if you factor in the amount of property taxes that will be lost as a result with a 15% drop in real estate values.  You could also make the argument that real estate in Hermosa has been suppressed because of the ongoing oil and bankruptcy issue.  Pay of the $17.5M and real estate may rise by $1 billion in the area and increase the property tax base.

The City "might" make $1M in estimated revenue if they are lucky for a 4% increase on a budget of $25M annual budget? .20 cents per barrel for the schools is going to amount to nothing. Plus they can't spend the money because of the Tidal Lands act which restricts usage of the funds generated from oil.

Property values have risen up 2X since the deal was struck with Macpherson in the 1990's.  Median home prices were around $400,000.  Property values are up a 100X+ since the 1950's when the last oil crises was upon us with Shell.  

Reasons Why E&B Oil is a Bad Deal

Based on my discussion I think the deal the Hermosa Beach City Council struck is a bad one for several reasons. The only good news is we have an actual $ settlement number and its not going to bankrupt the city. Here are my top 10 talking points to be used with anyone you know.

1. No public forum was held.  Only 1 company (E&B) bid on the deal behind closed doors. 
2. The oil site will be within 100 feet of homes and businesses.  California recommends a 300 foot  setback and Colorado law requires 350 feet setback.  
3. $1B destruction of real estate values for a new police station or new storm drains on the beach? 
4. Santa Monica Bay is a no-drill sanctuary (Hermosa drilling map). 
5. State Lands Commission Staff recommended against this Oil Drilling project because it expected poor results.
6. Hb cannot use any of the money shared "net revenue" NOT gross for anything that is not on the beach or greenbelt.  See Tidelands Act. 
7. City Council “settlement” is a collective punishment for citizens daring to reject their plans for siting an industrial project next to homes. 
8. Schools won’t benefit much if at all from drilling.  The .20 cents per barrel for the school system was a horrible deal struck in 1990's. Oil was trading at $20 per barrel in 1990's and now at $110 per barrel.
9. Experts claim only 2M-9M barrels are possible at this location at best.  That is only $400,000 to $1.8M for schools at .20 cents per barrel over the lifetime of the project.  Over a 20 year period that is nothing per year for the schools, maybe $20K to $40K per year. Can't even hire one person for that $.
10. Once E&B is entrenched in Hermosa Beach, say good-bye to local control. E&B will call the shots, influence local elections, etc. Hermosa Beach will be forced to jump when E&B says ‘jump’.
11. Oil seeping from the ocean naturally will undoubtedly be disturbed by the slant drill. Do you want more oil washing up on the beach similar to Santa Barbara and Huntington Beach? 
12. HB can pay off E&B Oil company and it will not bankrupt the city.
1. Sell the city storage property next to the fire station for $7.5M 
2. Get a $10M "Judgement Bond" from the State of California at 3% and service loan which will cost the city $300,000 per year. (not much in the grand scheme of things). 
13. Do you want to see a 75 foot drilling tower as you look out over the ocean. (See pic)
14. Drilling on this lot will destroy a perfectly fine $5M lot.  
15. Drilling is noisy and you want to smell fumes of oil downwind everyday? 
16. The oil tar sands used "if found" would be low grade oil and only used for ships and heavily machinery. It takes more energy to refine the crap than regular oil. 
17. Lethal gases and possible explosions?  
18. Additional ground settling and possible earthquakes. 
19. Not a green Hermosa sustainability initiative if that is what the city wants. 
20. Its low grade oil, used by crappy machinery and will have an unknown impact on the sea and surrounding environment. 

Please share this with you friends and neighbors who might be helpful spreading the world that the oil settlement should be a no vote. It may not be on the ballot for a long time but it is never too early to start campaigning against something this stupid. Please let me know if you have any thoughts or concerns. If you have any neighbors that should be on the list please copy them and lets start building the campaign now.