How to overcome the largest problems and issues in land development? What are some tips in creative financing, collaborative problem-solving, and long-term planning for infrastructure development? We continue the interview with Pike Oliver and Michael Stockstill, authors of Transforming the Irvine Ranch book.
What are some of the largest problems you have worked on? How did you overcome them?
Michael: Let me start with transportation in the late 70s. For various factors, Orange County was not getting its fair share of state or federal transportation money and there just was not enough money to build the level of infrastructure that was needed. There was a change in law, allowing Santa Clara County to impose its own sales tax and use it for transportation. The Irvine Company took the lead in gathering people in the county, and other jobs, primarily other big businesses. People were suspect that a developer would be asking that they raise their taxes for the good of everybody and so a coalition was put together, I worked on that for probably 8 years. The citizens in Orange County were pretty conservative, and we put it on the ballot "Let's raise the sales tax by a penny for transportation". That got beat very badly. We regrouped. We came back a second time and finally a third time. After a change in state law, we got 55% to make that happen but that was an 8-year effort to make that happen and it took an awful lot of time. The Irvine Company was the leader, both behind the scenes and publicly in making that happen.
Pike: That's long-term focus and perspective. There aren't many folks who can say, "Mike, go out there and work for the better part of a decade on getting this transportation initiative enacted." We would survey people in the community at least twice a year. One of the things I've always been fascinated by what came back was that two things would make a difference in the community’s acceptance of continued growth: 1) adequate roadways and 2) adequate good schools; so, the company put a big focus on that.
Proposition 13, enacted in 1978 upset how our infrastructure such as how schools were financed. One of the things we did was we developed a legislation called the Community Facilities Financing District Legislation, often referred to as the Mello-Roos Act, named after two legislators who were instrumental in that. That was enacted in the early 80s. The Irvine Company, with its control of a vast amount of land, worked with the Irvine Unified School District and we created a 38,000-acre community facilities financing district, and authorized it for over a billion dollars of school facilities, which I think up until just five years ago, new schools were being constructed out of that financing. And our company was a key organizer behind the scenes to a large degree.
How did that get funded?
Pike: It's funded through an authorization to exceed Proposition 13 which limits property tax to 1% of the value and the big prohibition in that initiative was that you couldn't increase the ad valorem tax, the tax related to value, but it didn't prohibit taxes based on vehicle trips generated, or students that are in a house so the community facilities tax is based on estimated student generation from residential households. That allows the tax to exceed 1%. The people who move into the houses pay back the bonds that are issued, and this allows future residents to participate over the long term, at lower interest rates as compared to what private market interest rates were in those days, to fund those facilities.
Michael: The key was when you set it up, if you had fewer than 12 residents living in the area, then the property owner was the one who essentially created the district and authorized it. The district was drawn on empty land owned by the Irvine Company and the Irvine Company voted the bonds in. As time passed, people moved into a house, and they picked up that obligation. In the house that I live in, our 30-year obligation ended about five years ago. But in the newest development in Irvine, the Great Park, that's exactly how they're financing major infrastructure. They're creating those elements before anybody moves in, the landowner votes it in and the bonds are issued.
Pike is too modest. He and a couple of other people up working with Mike Roos and Henry Mello essentially created this financing and it has changed the way that you were able to deal with things post Proposition 13.
You created something that didn't exist, how do you even go about that while dealing with the government and with the people living there?
Pike: When you're working in that company, you can imagine that it would be difficult to communicate that concept to a lot of people, but at the Irvine Company, it was no problem. Everybody got it, including Donald Bren. That carried through to a lot of other things. There was one other example of creative problem solving that I got involved with, there was a San Diego Creek which doesn't run much in the summertime, but in the winter, it can have big flows and it drains into an environmental resource called Upper Newport Bay, which is a whole story in and of itself. At the time, there was concern about the quality of what was going into the bay and we had to work out a management plan. It took the Irvine Company coordinating with 22 different governmental agencies at the local, state, regional, and federal levels to work out that program. The Irvine Company was along with others but the Irvine Company was the one that had the major motivation to get it done and kept everybody coming back to the table to work it out.
Michael: The other big environmental issue that was the focus was the four miles of open land on the coast between Laguna Beach and Newport Beach, the Irvine coast, that had been empty for decades. It took three efforts in two different ownerships dealing with the Coastal Commission to bring that to fruition. To see the changes from the initial plan, from around 1975 or 76 they had up to 50,000 people on the coast. I think today the population is around maybe 8,000. It goes back to what the state was like and what the public attitudes were like. There was no Coastal Commission until 1972, and had there not been a Coastal Commission, there probably would have been 40,000 people on the Irvine coast, and that's not the case. So, again, this was something that people that were at the Irvine Company worked on for six, eight, ten years, just on the plan for entitling the coast. And then, came the question of how do you market it? How do you sell it? And at the very end, again, water quality came back, the final element of the coast, there were big problems with water quality that had to be dealt with. It's just not something that most developers could have ever sustained over time.
Pike: As a personal comment, I still mourn the fact that the original plan for the Irvine Coast wasn't implemented. It was a scheme that involved creating a series of villages that would be like the hill towns in the south of France, or in the Italian Riviera with the funiculars going up from the coast up to the towns, it would have been stunning, but that was not to be. On the other hand, out of the 10,000 acres on the coast, there's now something on the order of about 7,000 acres of open space, which is accessible to the public, and every time I go to Orange County, I try to make time for a hike on the hills above the Irvine coast.
Michael: In our next book, we're going to track probably the 12 or 15 largest home sales on the Newport Coast, which routinely go in the 20s, some into the 30s. And we're going to find that the cost of 15 houses is going to exceed what Al Taubman and his partners paid for the Irvine Ranch in 1977. It may not be the last acre but perhaps the last 100 acres of prime real estate for housing, it's going to come close.
How did you tackle the water quality issue which is a major issue that came in at the end of things?
Pike: It was an issue that came up with a little area called Crystal Cove, at the end of the whole effort. The one I was describing was a larger area and that was earlier on but we solved those problems. But the approach the company took is the same approach it always took which is to find the experts, get them involved, tell them to work out a solution that will be acceptable to the people whose primary mission in life is water quality, and figure out how it can be done and still allow the company to achieve its goals. And that's the approach that was taken on every issue, big or small.
Michael: In the 30-40 years that this has been done, the specialized attorneys, the consultants, the engineers, when El Toro was an issue, people that understood jet noise, there was an army of people that worked for the Irvine Company on a consulting basis that helped to make this happen. The bill has to be in the hundreds of millions of dollars over time that was spent for those people to give their expertise, and that was a real big part of dealing with bureaucrats, with regulators. Once you're willing to speak their language and try to meet them halfway and have facts to deal with, that makes a big difference. The Irvine Company was rarely confrontational. It rarely raised its voice, if you will, and it could look long-term and say, "We can solve this, it may take some time, but let's put the resources to it."
Pike: And at the same time, people knew it wouldn't go away. The voices might have been kept at a moderate level but they were always going to be there. We were interviewing one of the key people who worked for decades on the large open space and habitat preserve program and she described a situation when there was a big challenge with the Endangered Species Act back in the early '90s. The company worked on creating a very large-scale, multi-species habitat conservation planning program that was implemented on the ranch, and in and many other places. What she said was that the company knew that if it didn't figure out a solution, it could be a showstopper on a large portion of its property. But at the same time, the environmental interests who were pursuing that knew that if they created a showstopper, not only for the Irvine Company but other large properties throughout Southern California, there would probably at some point be an erosion of the law that they were trying to work with to get this implemented. In a sense, it was mutual fear that resulted in the ability to create that solution, and the company's persistence in finding the facts, and getting the science-based approach to meeting the requirements put in place.
Pike Oliver
pike@urbanexus.com
Michael Stockstill
stockstill49@gmail.com