Almond Bubble...Badlands Journal editorial board
The county's almond orchards, the only orchard crop in the top 12 commodities (it ranks third below milk and chickens), presents a fascinating agricultural can of worms. First, it can only be called a "classic" position in the perpetual crisis of overproduction for export-led growth that has characterized San Joaquin Valley
agribusiness for about the last century. Apparently, growers, seeing a terrific export market for the crop, have climbed onto a "winner" and have planted a reported 650,000 acres in California, the only state that produces almonds, at least in commercial quantities. We say "apparently," because the assumption that every almond grower in the state is in the business to make a profit off the actual crop is naive. A number of the larger "producers" are developers and institutional investors making what are primarily long-range real estate investments for later conversion to urban growth. Meanwhile, they are able to take advantage of every tax dodge and loan deal designed for real farmers. A significant percentage of almond acreage, especially new plantings that may not yet have come into production yet, represent businessmen farming banks and the government rather than the faddish nut.
This latest gigantic experiment in mono-cropping also falls in a long line of California specialization and the drastic results that have plagued this form of agriculture since its inception. The pattern of mono-cropping huge contiguous lands, "scientifically" proven to be the best for the particular crop has always had a downside: the attraction of the largest numbers of pests specific to that crop ever seen. This practice, actively advocated by the University of California, led to the rise of UC pesticide research, and, in conjunction with petroleum corporations and others, to the gigantic, ever-expanding industry of pesticide development and sales.
However, the almond deal has added a unique feature. Almonds are pollinated by bees. Commercial Honey Bee growers ship bees to California to pollinate this crop from all over the United States and even from abroad. According to experts in the last two years, Honey Bees are dying in enormous quantities and there is no clear understanding why or approach to lessening the problem. It is widely described as a real crisis to the nation's capacity for pollination, and even Rep. Dennis Cardoza, Shrimp Slayer-Maryland, has held agricultural subcommittee hearings on this -- so far -- insoluable problem. Specialization, concentration of ownership of agricultural land, and the rise of agribusiness, "the vertically integrated process of making food with as much technology and as few people as possible," also spawned a very sophisticated form of rhetorical hysteria heard throughout the Valley for a century. Its finest exponent at the moment is Westlands Water District. Some call it the "Great Valley Whine," which pretends that the finance, insurance and real estate special interests behind it are all supportive of the family farmer and a uniquely virtuous "Valley Way of Life," which has been a myth of the propagandist's art since its inception.
In addition to overproduction and a pollination problem, California is in the middle of one of its periodic droughts. Mature almond orchards take about 3 acre-feet of irrigation a year. At 650,000 acres, this works about to 1,950,000 acre feet of irrigation water a year. The figure would be somewhat less, factoring in non-bearing orchards. One would imagine that with some cutbacks in water and the pollinator "crisis," production would be falling rather than rising, but growers, packers and shippers are all crying that almonds are becoming a glut on the market.
This raises another feature of the can of worms: export-led growth. Seventy percent of the crop is exported, the article informs us, much of that to China and India. Demand is weakening and the dollar is strengthening, i.e. deflating against other currencies. Evidently, the emerging market countries' candy markets are off. Doesn't this raise an old Valley question about the wisdom of relying on by-product markets, particularly when you are shipping raw, low-priced product for value-added
processing elsewhere? It is as stupid and ruinous as shipping raw redwood logs to Asia for milling. But, Hershey's decision two years ago to close its Oakdale plant and build in Mexico, makes that a stupid comment. Of course, American manufacturers will chase the lowest prices they can find on the global labor market, as in fact California agribusiness has been doing for decades itself. The fact of this acceleration in this race to the economic bottom has been no obstacle to it.
The agricultural commissioner lists 3,161 acres as non-bearing, i.e. new plantings as of 2006 (in its 2007 county agricultural report). More than 2,000 acres on White Rock Road between Le Grand and the Chowchilla River, may have been counted in that number. They were planted illegally on rangeland/wildlife habitat without any environmental review, thanks to scofflaws in the Merced County Planning Department.
Last spring, the California Rangeland Coalition, a group that seeks to protect rangeland and develop conservation easements on it, were hosted by the Merced County Farm Bureau and the Valley Land Alliance, a luncheon right across the road from 1,100 acres of these new plantings, owned by Hostetler Ranches. (Directorship of the Farm Bureau and the Land Alliance is completely interlocked at the moment.) The comic highlight of the event was the failure to mention this new planting on what, two years earlier, had been seasonal pastureland. The Coalition president informed us that "a man has a right to do what he wants on his own land." Actually, the entire organization of the coalition, a group of resource agency officials, environmentalists and ranchers, and a few federal and state laws, contradict the cowboy president's statement.
The blitheful inanity of the Farm Bureau was perfectly captured in a quote from its executive director in a recent Merced Sun-Star article: Diana Westmoreland-Pedrozo, executive director of the Merced County Farm Bureau, said keeping rangeland in ranchers' hands is vital. "Grasslands are being impacted by development, and we need to take care of the important species on that land as well as keeping the land available to grow food for us," she said.
It takes a lifetime of deep study to become fluent in our peculiar Valley form of complete gibberish. And once there the accomplished speaker will never return to reality but will fertilize with organic material the public until the end of his or her days. What is so "perfect" about the whole thing is that Farm Bureau executive directors either never realize or cease to consider that they are nothing but shills for a huge insurance company. What does "development" mean in this context? More than 5,000 acres of almonds just from Chowchilla to Santa Fe Road on seasonal pasture isn't "development" to grow candy ingredients for the Chinese and Indians, exploiting every tax dodge in existence for agriculture while holding the land for the next "Almond Blossom Estates" housing slurb from Chowchilla to Le Grand? Grow food for us? San Joaquin Valley, from the days when dry-farmed wheat was used as ballast for clipper ships, has never been about growing food for us." Earlier, before statehood, tallow and leather export was not about "growing food for us." It was the Railroad and irrigation districts that put the Valley on the map. The water was for growing, the Railroad was for shipping food that was not grown for us.
Nevertheless, this gibberish plays like Billy Graham to local land-use authorities. Hostetler Ranches, under the same ownership as Ranchwood Homes, Merced County's largest local housing developer, is one of the largest almond growers in the nation. According to the Wall Street Journal, Sept. 6, 2007, it already spent $60 million "to buy and plant 4,500 acres of trees since 2000," and in 2007 he planned to spend another $5 million on "an additional 1,000 acres." But, that's not the end of the story of illegally deep-ripping seasonal pasture in the southeast corner of Merced County and the northeast corner of Madera County. Campos Bros. of Fresno County has planted perhaps as many as 5,000 acres in nuts and grapes stretching from the outskirts of Chowchilla to Santa Fe Road on the other side of the Chowchilla River in Merced County. Federal resource-agency investigation into this massive destruction of wildlife habitat by Campos and Hostetler is said to be on-going. Given the political pressure on the agencies not to investigate, we wonder if the White Rock Road agribusinessmen and their enablers from Washington to the Merced County Planning Department will figure and yet another chapter of the Collected Works of Earle Devaney, Inspector General of the Department of Interior.
Almonds, like grapes, have become the preferred way for developers to hold land for the next building boom, exploiting every tax advantage farmers enjoy. When investors are farming banks and government, while corrupting local, state and federal resource regulatory agencies, rather than farming crops, overproduction is inevitable, swamping real growers relying on the crop for their livelihoods.
Meanwhile, another real estate bubble -- this one sold as part of our noble, agrarian "Valley Way of Life" -- appears to be collapsing. It reminds the ancients among us of when, in the mid-1960s, Hollis Roberts, the grand entrepreneur of Valley Nitrogen, planted 2,500 acres of almonds near Shafter, busting the almond market for a number of years. Eventually, Roberts went spectacularly broke, dragging down a lot of creditors with him. But Roberts was small potatoes 40 years ago compared to the real estate scam of the present era. But, this, perhaps final mutation of export-led ag growth in the Valley, raises serious questions about the sanity of our "Valley Way of Life" economy. We don't mean the sanity of the individuals struggling to survive in it. We, unfortunately, mean the whole, mostly idiotic and destructive economic system in which rational business people attempt to thrive because that's the economic river in which they swim. The dairy industry is another example. Ten dollar milk, rising feed prices, a stronger dollar, larger herds, all look good in some economic conditions; in others, they can ruin you. On the other hand, the mega-dairies that moved into the Valley from Southern California, having made a real estate killing on their land there, are keenly aware of the potential value of their land for housing development. And you cannot blame them for their sophistication.
Whatever good new ideas or good old ideas that might improve the situation of the Valley farmer, who makes a living off his or her production, have been and will continue to be undermined by an extremely sophisticated system of lying by those in authority -- land-use, banks, government, commodity groups dominated by processors, Great Valley Center, Farm Bureau, irrigation districts intending to become urban utility districts, etc. Setting aside the problem of whether those authorities are actually stupid enough to believe their own propaganda, the farmer himself or herself, has few friends in this economy. We have no brief on the truth of the agricultural economy of the Valley. On the other hand, we do recognize the typical lies being told. Nor are we in any position to help. However, we can suggest that farmers get together, informally, across commodity lines, and think about organizing outside of the usually suspect organizations, at least for the purposes of rational conversation about what remains of the reality of their economy. We would also suggest they quit automatically screwing environmental groups in the Valley who have done nothing but support them since the passing of the Endangered Species Act and the California Environmental Quality Act. It is not necessary, required or advantageous for a Valley farmer or rancher to check his or her brains in at the property line, despite what they tell you. It really doesn't help to act stupid. Today you act it, tomorrow you are it, like a mouthpiece for a farm bureau.
Probe begins into land buy by Merced County leader...Jonah Owen Lamb
MERCED -- The state's Fair Political Practices Commission has begun an investigation into county CEO Demitrius Tatum's 2005 purchase of 24 acres of land in Planada.
The probe follows a Merced County civil grand jury probe, which exonerated Tatum in 2005 of any conflict of interest in the deal.
An FPPC finding of any wrongdoing on Tatum's part could open the door to civil penalties and lawsuits. Roman Porter, the FPPC executive director, said an investigation doesn't imply guilt or innocence.
Speaking on behalf of Tatum, a county spokeswoman said the issue had been settled long ago.
"The grand jury has investigated this issue in the past and has agreed that no conflict of interest existed," Katie Albertson said.
The complaint that led to the FPPC probe was filed by the Merced County Sheriff Employees Association.
Jeff Miller, the sheriff union's spokesman, said Tatum was cleared of conflict of interest, but his organization's claim is another matter. "It would appear by our investigation that Mr. Tatum took a gift from Pacific Holt Corp. in exchange for favors in the future."
Any gift of more than $250 received by a government official, according to the Political Reform Act, is a crime.
The union alleges Tatum received a $55,000 gift from Pacific Holt Corp. when it sold him the 24 acres in Planada at what it alleges was a discount.
The accusation presumes that the sale price to Tatum was lower than the land's value, which is hard to prove because land prices fluctuate.
According to the grand jury's investigation, the situation began with a deteriorating migrant labor camp in Planada.
Merced County's Housing Authority wanted to build a new facility for farmworkers, so it bought a 24-acre piece of land on Gerard Avenue to build housing for Planada's migrant workers.
But after local opposition over the proposed location, the Housing Authority decided to look for another site. That's when developer Pacific Holt got involved.
Nearby, on Plainsburg Road in Planada, Pacific Holt owned a large piece of property that it hoped to develop.
Trade called win-win
The two parties eventually agreed to trade properties. The Housing Authority would get the 21 acres on Plainsburg Road, and Pacific Holt would get 24 acres on Gerard Avenue.
It was cast as a win-win situation. The people opposed to the original site for a labor camp would be appeased. Pacific Holt assumed it would benefit from having the Housing Authority project near its proposed development on Plainsburg Road.
Then events became muddled, and Tatum got involved.
According to Tatum's statements to the grand jury, during the time that Pacific Holt and the Housing Authority were negotiating their land deal, he was in the market for land. The real estate agent in the land swap knew of Tatum's search and told him he might be able to broker a deal.
In the end, Pacific Holt traded its 21 acres for the Housing Authority's 24 acres. Then it sold that 24 acres to Tatum. All the transactions happened Jan. 6, 2005.
The grand jury report pointed out that misunderstandings over the transactions emerged because of incorrect paperwork and incorrect values on the title documents.
According to the grand jury, the Housing Authority bought its 24 acres for $300,000. Pacific Holt bought its 21 acres, as part of a larger land sale, for $500,000, but when the swap happened, it was considered to be worth $300,000. So the trade was 21 acres for 24 acres of equal value.
Tatum then paid $245,000 for the 24 acres Pacific Holt had received in the trade.
It is this difference in price that the sheriff's union alleges was a gift to Tatum from Pacific Holt.
The FPPC's Porter said that while the investigation is under way, no status reports will be given.
If Tatum's actions broke the law, the penalties vary from a letter of admonition to a $5,000 fine. Ultimately, a lawsuit could be filed seeking penalties of up to three times the amount received.
Ethanol plant closes; 40 employees laid off...Tim Sheehan, The Fresno Bee
MADERA -- Pacific Ethanol announced Friday that it will temporarily suspend operations at its production plant in Madera County beginning today, blaming "unfavorable market conditions" for ethanol production.
The plant is capable of producing 40 million gallons of ethanol per year. But falling gasoline prices and volatile production costs for the grain needed to make ethanol "have squeezed us from both ends," company spokesman Tim Raphael said.
The company has no timetable for reopening the plant, Raphael said. "We look forward to reopening as soon as market conditions allow."
About 40 people who work at the plant will be laid off temporarily until production resumes. "It's difficult for them, obviously," Raphael said. "That's why we're so anxious to get reopened and get back to work."
Sacramento-based Pacific Ethanol also has production plants in Stockton, Oregon and Idaho. Construction of another plant in Calipatria has been suspended since late 2007.
News of the plant's shutdown concerned Madera County economic development officials.
"Given what is going on in the economy, I was very worried about that business," said Bobby Kahn, executive director of the Madera County Economic Development Commission.
While Kahn wants Pacific Ethanol to reopen, he knows the company faces an uphill climb. "Unless the market conditions really change, some of those workers will be out seeking employment and hopefully be absorbed into the workplace -- or they could face being unemployed for several months."
Pacific Ethanol, which posted a $54.9 million third-quarter loss in November, is not the only one battered by the volatile ethanol industry.
Rival ethanol producer VeraSun Energy in South Dakota recently filed Chapter 11 bankruptcy protection.
VeraSun's struggles have put financial stress on farmers.
"What [farmers] had counted on for their income is just gone," said Darin Newsom, grains analyst at DTN Ag in Omaha, Neb.
Gold mine wants court to OK dumping waste in lake...MATTHEW DALY
WASHINGTON A lawyer for a proposed Alaska gold mine told the Supreme Court on Monday that the mine should be allowed to dump metal waste into a nearby lake.
The metal waste, known as tailings, would kill all aquatic life in the lake. But mining company lawyer Theodore Olson said the waste was more accurately defined as "fill." And, once mining ends, the lake could be restocked, resulting in a bigger lake with more fish.
"It will be a bigger lake with more life than before," said Olson, a former U.S. solicitor general who represents the mining company, Coeur Alaska Inc.
Justice David Souter called that logic "Orwellian" and said the U.S. Army Corps of Engineers, which granted a permit for the mine, was "defining away the problem" by calling the wastewater discharge fill.
"It seems Orwellian to say there are rigorous environmental standards," Souter said.
Other justices appeared to disagree, noting that an alternative to the dumping would destroy nearby wetlands and create a stack of tailings larger than the Pentagon.
The court's decision in the case could set a precedent for how mining waste is disposed of in the nation's streams, rivers and lakes.
A ruling in favor of the mining company could allow such waste to be dumped into waterways throughout the United States, said Tom Waldo, a lawyer with the environmental group Earthjustice.
"The whole reason Congress passed the Clean Water Act was to stop turning our lakes and rivers into industrial waste dumps," Waldo said.
The Army Corps of Engineers issued a permit for waste disposal at the proposed Kensington mine north of Juneau in 2005. Under the plan, tailings - waste left after metals are extracted from ore - would be dumped into Lower Slate Lake.
Environmentalists sued to halt the practice, saying it would kill fish. A federal appeals court blocked the permit, saying the dumping is barred by stringent Environmental Protection Agency requirements under the Clean Water Act of 1972.
The EPA had agreed to a regulatory change in the case defining "fill" as "tailings or similar mining-related materials."
The mine owner, Coeur Alaska Inc., said tailings are inert sandy material, and that almost half the tailings created by the mine would be recycled back into mine operations. The remaining tailings would be placed in a small unproductive lake, which the company called the best option for disposal.
Since 1982 the law has prohibited new gold mines from discharging waste into lakes or rivers. The Army Corps permit would allow the discharge.
The corps has often issued permits to create tailing ponds. Environmentalists say the current permit is the first to authorize the discharge of mining process wastewater into a navigable waterway.
The case is Coeur Alaska Inc. v. Southeast Alaska Conservation Council et al., 07-984; State of Alaska v. SACC, 07-990.
Coeur Alaska is owned by Idaho-based Coeur d'Alene Mines Corp.
Statement By Lennar Corporation...Lennar Corporation...Press Release
MIAMI, Jan. 12 /PRNewswire-FirstCall/ The dissemination of false statements about our company last Friday resulted in the selling of an unprecedented 58 million shares of Lennar Corp. (NYSE: LEN; LEN.B) stock and a 20 percent decline in our stock price. This has prompted numerous inquiries from investors, analysts and the media.
While it is not Lennar's practice to respond to false and scurrilous allegations in the context of litigation, Lennar has a responsibility to its shareholders and the public to respond to their legitimate requests for information. Therefore, Lennar today is providing information pertaining to the personal home loans of its chief operating officer, its outstanding joint ventures and its pending litigation.
In the event that additional false information leads to new investor inquiries, we will continue to respond. In addition, we intend to take appropriate action against the responsible parties.
To protect our investors, the information we are disclosing today confirms the following:
-- Lennar's chief operating officer, Jon Jaffe, did not receive a mortgage on his home or any other indebtedness connected to the company.
-- Lennar never "treated its joint ventures like a Ponzi scheme."
-- Lennar has never siphoned cash from one joint venture to another.
-- Lennar has never pledged its interest in any joint venture for the benefit of another.
-- Lennar's litigation is accurately reported and reserved for in accordance with generally accepted accounting principles.
-- Lennar never has used lawsuits as a mechanism for avoiding cash payments.
-- LandSource was an arm's-length transaction involving large financial institutions that fully reviewed, vetted and appraised the terms of the venture.
-- No money was ever misdirected in The Bridges project.
-- Lennar's co-member in The Bridges, Nicolas Marsch III, has received the benefit of more than $50 million, notwithstanding statements to the contrary.
-- There have been no reports of any whistleblower complaints concerning these matters to Lennar management, the Board of Directors, independent auditors or an outside employee hotline.
-- Lennar has extensive confidential procedures in place to ensure the free flow of communication by whistleblowers and to ensure their protection from retaliation.
-- Lennar never ordered imported drywall from China and never received a discount for its use as a substitute material.
-- Lennar has been cited by the media as "the most responsive builder" in dealing with the industry wide issue of imported drywall.
JON JAFFE'S LOAN
Senior executive Jon Jaffe's personal loan has nothing to do with Lennar. Jon's loan was obtained from sources wholly independent from Lennar and with no assistance from Lennar or any of its business partners. There is not one point of connection between Jon's loan and Lennar's business.
Here are the facts:
In September 2007, Jon obtained a $5 million line of credit secured by Jon's personal residence. Jon obtained the loan from an independent loan broker named Robert Venneri and his company Canyon Finance Inc. Neither Jon nor Lennar is associated with Mr. Venneri, Canyon Finance or any other company owned by Mr. Venneri. Mr. Venneri has a California real estate broker's license, as did Canyon Finance, which later transferred its license to Gulfstream Finance, also owned by Mr. Venneri. These brokers' licenses permit the making of loans secured by real estate.
Jon was referred to Mr. Venneri by Jon's personal attorney, who has never had a relationship with Lennar. The loan Mr. Venneri placed for Jon was the first and only time Mr. Venneri has done so for anyone employed by Lennar. No part of the loan secured by Mr. Venneri for Jon came from funds provided directly or indirectly by Lennar. The funds were sourced from a lender unrelated to Lennar.
Mr. Venneri also secured loans for Bruce Elieff, a SunCal employee. Mr. Venneri has informed us that Mr. Elieff's loans were sourced from a different lender than Jon's loan and had nothing to do with Jon's loan or Lennar. Neither SunCal nor Mr. Elieff played any role in connection with Jon's loan.
Mr. Venneri has a real estate development company called Canyon Capital, Inc., which acquired, developed and marketed real estate properties in Kern County. There is no connection between these properties and Jon's loan or Lennar, nor is there a connection to SunCal. Likewise, there is no connection between Frank and Norma Fugitt or John Balfanz and Jon or Lennar. Also, Lennar has never been a joint venture partner with SunCal on any properties in Kern County.
Jon's $5 million line of credit was fully secured by a third mortgage on Jon's house. The loan comes due in September 2012, accrues simple interest at the rate of 8% per annum, and requires quarterly interest payments. Jon has made all such payments. By any measure, the loan was made on the basis of conservative underwriting guidelines. There was substantial equity in Jon's house to fully secure the loan. At the time of the loan, the house was appraised at $18 million by an independent appraiser on behalf of the lender. The first mortgage was for $3 million; the second mortgage was a line of credit for $2.1 million. Together with the $5 million loan, the total equaled $10 million, a loan-to-value ratio of 55%.
Consistent with Jon's full commitment to and confidence in Lennar and its future, he made use of the loan to increase his ownership of Lennar's stock. To date, Jon has drawn down $4 million of the $5 million line. Jon drew down $3 million in November 2007 and used $1,562,560 of these funds to pay for the exercise of options on Lennar stock and the associated income tax. Jon acquired 107,858 shares of "A" shares at $8.235 per share and received 10,785 shares of "B" shares. The market price of the stock at the time was $21.33 per share. The remaining funds were used to reduce the balance of Jon's brokerage account which at that time held 395,791 "A" shares and 48,151 "B" shares. As of this date Jon has 442,243 "A" shares and 48,151 "B" shares in this brokerage account. Jon has consistently retained the Lennar shares he has acquired in recent years. In April 2008, Jon drew down $1 million to acquire a passive investment in a technology company unrelated to Lennar.
Documents relating to Jon Jaffe's loan are available at: http://www.lennar.com/Campaigns/PR/default.htm
Lennar strategically invests in unconsolidated entities that acquire assets used in its homebuilding operations. Through these entities, Lennar primarily seeks to reduce and share its risk by limiting the amount of its capital invested in land, while obtaining access to potential future homesites and allowing it to participate in strategic ventures. Participants in these joint ventures are land owners/developers, other homebuilders and financial or strategic partners.
Lennar has included extensive financial disclosure regarding its JVs on its quarterly conference calls with analysts and investors and in its SEC filings. Since Lennar has not yet filed its Form 10-K for fiscal 2008 that is due at the end of January 2009, Lennar has provided below preliminary information for fiscal 2008 and 2007. Lennar will be working with analysts and investors in the coming weeks to provide additional information regarding its joint ventures. Some other facts regarding its joint ventures are as follows:
-- Each joint venture is governed by an executive committee consisting of members from all of the partners.
-- Lennar does not use its investment in one JV as collateral for debt in another JV.
-- There is no cross collateralization of debt between different unconsolidated entities.
-- Funds are never commingled among Lennar's JVs.
-- The financial position of Lennar's joint ventures is comprised of substantial equity totaling $2.7 billion.
-- Lennar's aggregate equity investment in its unconsolidated joint ventures is 29%, compared to its partners' equity of 71%.
-- The joint venture debt is secured by joint venture real estate assets that are adjusted for impairment on a quarterly basis as necessary.
-- The debt financing of Lennar's JVs is primarily non-recourse; in other cases, Lennar and its other partners agree to provide a guarantee.
-- Lennar's maximum recourse exposure related to unconsolidated JVs with recourse debt is $520 million. In these ventures, there are $2.8 billion of assets and $1.3 billion of equity.
-- Lennar's consolidated financial statements are audited annually and reviewed quarterly by a top-tier, independent registered public accounting firm.
As of November 30, 2008, Lennar had equity investments in 116 unconsolidated entities, compared to 214 unconsolidated entities on November 30, 2007. Summarized financial information on a combined 100% basis related to unconsolidated entities in which Lennar had investments that are accounted for by the equity method was as follows:...
During the past decade, Lennar has delivered more than 250,000 homes. The construction of those homes resulted in tens of millions of underlying payments and contracts. In that context, as of November 30, 2008, Lennar was defending or prosecuting approximately 620 lawsuits that fall into the following categories: homeowner construction, premises liability, personal injury, contract and subcontract disputes, employment, environmental and land use, insurance coverage, advertising, collections, intellectual property, automobile liability, tax matters and others. Reserves for litigation matters are established and adjusted consistent with the guidelines set forth in Financial Accounting Standards No. 5 (Reserves for Loss Contingencies) and audited by Lennar's outside independent accounting firm.
THE BRIDGES LAWSUIT
This is a lawsuit filed in 2006 by Nicolas Marsch concerning The Bridges project in San Diego County, California. Contrary to the allegations, Lennar did not divert a $37.5 million judgment contributed by Marsch to the venture. Lennar and Marsch had a 50-50 interest in the judgment, and no part of the judgment or proceeds from the judgment was misdirected.
The proceeds were used by and for the benefit of the venture to pay for construction and operation costs. Marsch and his advisors attributed zero value to the judgment and achieved tax benefits from this position.
Contrary to the allegations, Marsch has received significant proceeds from the Bridges venture. To date, payments made to or on his behalf exceed $50 million.
Also contrary to the allegations, Lennar has provided substantial information from inception. Lennar regularly provided balance sheets and reports to Marsch for more than 10 years, in addition to annual financial statements audited by an outside independent accounting firm.
Lennar has never pledged The Bridges' assets for the obligations of any other joint venture. Nor does The Bridges have a "bankrupt partner" as a result of the LandSource bankruptcy.
Marsch has been involved in several lawsuits with Lennar. In 2006, Marsch also filed another lawsuit against Lennar in connection with a different project in San Diego. That case was ordered dismissed in its entirety by the California court in November 2008 without a trial.
In 2003, Lennar and others formed LandSource to acquire and hold various real estate interests. In February 2007, Lennar reduced its interest from 50% to 16%. In June 2008, LandSource filed bankruptcy as a result of the collapse of the real estate market.
The claim that Lennar caused the other investors and lenders to lose approximately $1 billion in connection with LandSource is false. The LandSource bankruptcy is a matter of public record with complete financial disclosures. The lenders and investors are large institutional entities who conducted their own extensive due diligence with the aid of independent experts. The LandSource bankruptcy was the product of unprecedented market shifts.
Lennar has never specified imported drywall from China for installation in its homes and never received a discount when it was substituted for domestic products. Lennar has been working diligently with its homeowners in an effort to address this industry-wide defective product issue. In part, these efforts are reflected in today's Wall Street Journal article concerning Chinese drywall in Florida. On Sunday, the Sarasota Herald-Tribune characterized Lennar as "[t]he most responsive builder so far" on the issue of Chinese drywall. In addition, Lennar fully intends to seek remedies from the manufacturer and other responsible parties.
Lennar has created two mechanisms for the public, investors, associates and other interested parties to communicate their concerns directly to the company's Board of Directors. First, Lennar has retained an independent firm, The Network, to receive complaints anonymously and report those complaints directly to the Audit Committee of the Board of Directors, in addition to management. The Audit Committee receives a report of the investigation of each communication submitted.
In addition, Lennar provides an email address which can be used to communicate directly with the independent members of the Board of Directors. Our Lead Director, who is also the chairperson of the Independent Directors Committee, receives all messages sent to this email address. Both of these reporting systems are described in our annual proxy statement, and are regularly communicated to our associates. These reporting systems have been in place for more than four years as required by law and by the rules of the New York Stock Exchange.
For more information, contact Glenn Bunting (email@example.com) or Maya Pogoda (firstname.lastname@example.org) at 310-788-2850.
Lennar Corporation, founded in 1954, is one of the nation's leading builders of quality homes for all generations. The Company builds affordable, move-up and retirement homes primarily under the Lennar brand name. Lennar's Financial Services segment provides primarily mortgage financing, title insurance and closing services for both buyers of the Company's homes and others. Previous press releases and further information about the Company may be obtained at the "Investor Relations" section of the Company's website, www.lennar.com.
Lennar...Fraud Discovery Institute...PDF...1-7-09
Alex Rue, Esq.
Securities and Exchange Commission
3475 Lenox Rd. NE, Suite 1000
Atlanta, GA 30326
Mr. Peter Del Greco, Esq.
Securities and Exchange Commission
5670 Wilshire Boulevard, Suite 1100
Los Angeles, CA 90036
Special Agent Peter Norell
Federal Bureau of Investigations
901 West Civic Center Drive, Suite 300
Santa Ana, CA 92679
Special Agent Matt Galioto
Federal Bureau of Investigations
135 Pinelawn Road, Suite 350
South Melville, NY 11747
Special Agent Guy Ficco
Department of the Treasury
Internal Revenue Service
290 Broadway, Fourth Floor
New York, NY 10007
If this country and corporate America have learned anything about fraud these past few months it has been that the perpetration of these acts is never compartmentalized. That is, Bernie Madoff’s alleged first crime was not $50 billion, but rather a smaller set of earlier compromises that went undetected, which reinforced the behavior and ultimately lead to larger and larger illegal activity. Unlike bank robbery, for example, white collar crime is not uncovered immediately after the offense takes place, which tends to reinforce the behavior.
In the case of ZZZZ Best, the first crime was not a $26 million stock fraud,1 but the theft from a local liquor store of a $200 money order to meet payroll in 1982. When that crime went undetected, the criminal behavior was reinforced and every time economic pressure reared its ugly head, a pragmatic return to such behavior took place and the wheels of the ZZZZ Best debacle were set in motion.
"Once upon a time there was LENN-RON"
Once upon a time, Lennar Corporation, a public company listed on the New York StockExchange, entered into a joint venture with a private developer to build an elite, high-end housing project and golf course in prestigious Rancho Santé Fe, CA. The deal was simple: The predecessor to Briarwood Capital, LLC would contribute the value of his claims which were at the time of the contribution in excess of 50 million dollars and also included claims to the property itself—some 540 acres--while the big public company would, among other things, manage the development on a daily basis. As part of the agreement between the two parties, Lennar assisted in the acquisition of the land for the development of the project.
But Lennar appears to have had a hidden motive…get the cash!
An operating agreement2 was signed by both parties in August of 1997 and at the closing of this transaction, the smaller developer agreed to contribute the value of his claim and claims to the property itself to the newly formed venture, HCC Investors. In June of 1999 the claims were realized at a sum total of 37.5 million and subsequently wired to the HCC bank accounts per both parties understanding as a capital contribution. And then the unthinkable happened.
Within hours of receiving those funds by wire3 on June 25, 1999, the big public company, despite the required in-writing permission that had to be granted prior to any funds leaving the HCC Investors bank account—wired out the entire sum by sending out two separate wires to the same entity—to the exact penny of the wired-in contribution. The funds were wired to another one of the public company’s wholly owned subsidiaries, which had nothing whatsoever to do with the project. The recipient of the wire, Pacific GreyStone had merged with Lennar Corporation in November of 1997—almost two years prior to the funding of this project and it was not until November of 2001—more than two years from the date of the wire that Pacific GreyStone would perform any work or services on the project.
What happened next was that over a period of approximately of 5 years, Lennar refused, despite obligations to do so in the operating agreement and numerous written requests, to provide accounting for the wired funds of June 25th, 1999 and the revenue of at the time in excess of 400 million dollars. Accounting was only obtained by court order. And it revealed what happened to the 37.5 million dollars...
Lennar’s Civil "RICO" Type Behavior
Predicate Acts Included!
In all the years of experience the Fraud Discovery Institute, Inc has had in proactive fraud uncovering, we have never encountered a more ruthless entity than Lennar Corporation. The company is ruthless because when cash became tight after the building crisis, the company began to routinely engage in litigation in order to buy time on payments owed to joint venture partners and other Lennar creditors. This predatory approach of intimidation by threat of a lawsuit works in an economy where dollars are tight. Lennar wears down their opponents with procedural matters, thereby abusing "due process" in order to better posture themselves for settlement with a much less-capitalized victim.
Lennar Corporation is indeed the "bully of the prison yard." Consider the number of lawsuits shown in the ‘Lennar Litigation Skyrockets!’ in red flag 4 of this report. This is a summary of one lawyer’s search of the public record relating to the approximate number of lawsuits in which Lennar Corporation is currently involved.
Of course the nation’s second largest home builder is bound to run into litigation from angry homebuyers complaining about faulty construction, or even former employees who sue for wrongful termination. However, in the case of Lennar this multitude of lawsuits and the issues raised within the lawsuits cannot be so easily dismissed as the "normal course of business." Instead, it appears to be a clever, intentional plan constructed by senior management to preserve cash at any cost through the abuse of the courts and the "buying of time before resolution" that always accompanies a lawsuit. In other words, why pay a joint venture partner $30 million or $40 million now when you can create a huge cash "float" by paying a law firm hundreds of thousands dollars a month to prolong and hopefully reduce payment?
The second abuse of the courts by Lennar Corporation can be seen in their use of the legal system to inoculate any new evidence that may paint the company in a negative light and show them for what they really are - a group of ruthless bullies who abuse the power and capital of a S&P 500 company to intentionally do harm to the less funded, smaller entity. Lennar Corporation in and through its counsel has a unique approach to dealing with critics that we who uncover fraud identify as the technique of "diversion and dismissal." ...
New Urgency for Regulators Regarding Lennar... A Preview of Some of the Lennar Red Flags for Fraud... Top Ten Red Flags for Fraud at Lennar Corporation...
The enclosed report is not everything there is to know about Lennar Corporation, but everything law enforcement needs to know to establish probable cause to investigate what appears to be a blatant financial crime in progress. Sadly, the Fraud Discovery Institute reluctantly took on this Lennar Corporation assignment. The main reason we were reluctant is that even a cursory examination of the public record reveals the litigious nature of Lennar in an effort to deter potential critics of the company and even court experts from exposing the real way Lennar does business.
If we did not represent the victims in this case simply because of our fear of legal action by Lennar, who would? Someone must step up and proclaim that the "Lennar Emperor has no clothes," even during a time when money is tight for many consumers and fear is preeminent. We have always held the firm belief that someone needs to speak for the victims and make sure their voice is heard—especially when there are many screaming the "fraud" allegation about the same company.
As we continue to work daily on this case, please let us know if you are in need of any further information.
Co-Founder, Fraud Discovery Institute, Inc
Reviewed by Shannon Boelter
Private Investigator, CA # 25643
The Vacaville Reporter
Make the Case Don't build canal without public buy-in...Editorial
A panel of the governor's top advisers recently recommended getting started on a peripheral canal to carry water around the Sacramento-San Joaquin Delta, even if it means going without approval from voters or the Legislature.
That would be a mistake.
Even if the legal opinion of the state's Attorney General is correct -- that the Department of Water Resources has the authority to build a canal -- and even if water users, not taxpayers, foot the bill, it would be foolish to circumvent the public or its legislative representatives.
Such a move would only enrage voters at a time when ever more of them are being persuaded of the value of such a canal.
The 1982 vote that rejected building a canal on the eastern edge of the Delta pitted Southern California, which needed the water, against Northern California, which controlled it. Under normal circumstances, the sheer number of voters in the southern part of the state might have carried the day.
But southern voters weren't united, while northern voters were. Some 90 percent of the latter rejected the canal, believing that, without it, water would not be shipped south.
It didn't turn out quite that way. Water continued flowing to the southland. Maybe not as much as would have passed through the originally proposed canal, but enough to make the Delta the state's key water source.
But the Delta isn't faring well these days. The 19th century levee system is crumbling. One good earthquake could prove catastrophic. Drought is reducing the amount of fresh water entering the system, allowing salt water to intrude further upstream, threatening drinking supplies.
There are concerns that global warming could cause a rise in sea levels that would mean further saltwater intrusion.
Fish populations -- one sign of the area's ecological health -- have been dropping, so much so that federal courts have intervened to protect endangered species, such as delta smelt. The pumps that push water south now must be turned off at key times and the amount of water taken from the delta, reduced -- a decision that also affects Solano County's ability to draw water from that source.
For the past two years, at least two state panels have been working to develop a comprehensive solution to these problems. If they have accomplished anything, it has been to get people throughout the state to recognize the severity of the situation.
Solving the problems is another matter. More than 200 agencies have a say in what goes on in the Delta, and no two interests are exactly alike. The most recent panel to weigh in, made up of members of the governor's Cabinet, supported most of the recommendations made by the Delta Vision Blue Ribbon Task Force.
Those recommendations range from reducing per capita water use, to increasing water storage capacity, building a peripheral canal and shoring up some levees while allowing others to fail in an attempt to restore habitat while protecting water supplies.
The proposals are controversial, to be sure, but they're steeped in science and expertise.
And they are gaining traction. Just last week, The Nature Conservancy endorsed the concept of a peripheral canal, saying it could help restore the region's natural habitat.
Support for this project is building and the governor would be foolish to try an end run around the public or the Legislature by building a canal without their input.
Fixing the Delta will require everyone's buy-in. The governor should not jeopardize the entire project just to expedite one piece of it. Rather, he should work to educate the public and policymakers and persuade them of the merits of the entire plan.
$461 million expected to be set aside for S.J. River...January 12, 2009 6:00 AM
WASHINGTON - The long-awaited restoration of the troubled San Joaquin River took a step forward Sunday in a rare session in the U.S. Senate that cleared away procedural hurdles in a huge public-lands bill.
Legislation setting aside 2 million acres in nine states, including $461 million for a San Joaquin River settlement, is expected to be approved this week. Supporters hope the House of Representatives will follow suit.
The bill calls for the largest expansion of wilderness protection in 25 years and includes the 330-mile river and 470,000 acres of wilderness in the eastern Sierra.
The San Joaquin flows north from Millerton Reservoir above Fresno to Stockton and the mouth of the Sacramento-San Joaquin Delta. It is California's second-longest river.
Majority Democrats assembled more than enough votes to overcome Republican stalling tactics in an early showdown for the new Congress.
Senate Majority Leader Harry Reid, D-Nev., and other Democrats said the bill - a holdover from last year - was carefully written and included measures sponsored by both members of both parties.
By a 66-12 vote, with only 59 needed to limit debate, lawmakers agreed to remove technical obstacles despite partisan wrangling that had threatened pledges by leaders to work cooperatively as the new Obama administration takes office.
"Today is a great day for America's public lands," said the bill's sponsor, Sen. Jeff Bingaman, D-N.M. "This big, bipartisan package of bills represents years of work by senators from many states, and both parties, in cooperation with local communities, to enhance places that make America so special."
The measure - actually a collection of about 160 bills - would confer the government's highest level of protection.
Sen. Dianne Feinstein, D-San Francisco, requested the funds to settle the San Joaquin River dispute with the environmentalist group Natural Resources Defense Council.
"We've got our hands full," said Ron Jacobsma, general manager of the Friant Water Users Authority near Fresno. "This is one of the largest, most complex river restorations in the West. But we think it is moving ahead appropriately."
The restoration has split Valley political interests along north-south and east-west lines.
The Natural Resources Defense Council first sued in December 1988, hoping to return water flows and a viable salmon population to dry stretches from Fresno to Stockton.
In September 2006, facing courtroom defeat, the Friant farmers agreed to join their longtime environmental adversaries in settling the suit.
Besides new wilderness designations, the bill would designate the childhood home of former President Bill Clinton in Hope, Ark., as a national historic site and expand protections for dozens of national parks, rivers and water resources.
Reid said about half the bills in the lands package were sponsored by Republicans. Most had been considered for more than a year.
"I am happy that after months of delay we will finally be moving forward," Reid said.
The bill's chief opponent, Sen. Tom Coburn, R-Okla., denounced what he called Democratic bullying tactics.
"I am disappointed the Senate majority leader has refused to allow senators the opportunity to improve, amend or eliminate any of the questionable provisions in his omnibus lands bill," Coburn told fellow senators.
"When the American people asked Congress to set a new tone, I don't believe refusing to listen to the concerns of others was what they had in mind," Coburn said. "The American people expect us to hold open, civil and thorough debates on costly legislation, not ram through 1,300-page bills when few are watching."
Coburn and several other Republicans complained the bill was loaded with pet projects and prevented development of oil and gas on federal lands, which they said would deepen the nation's dependence on foreign oil.
Environmental groups said the bill set the right tone for the new Congress.
"By voting to protect mountains and pristine wildlands, Congress is starting out on the right foot," said Christy Goldfuss of Environment America, an advocacy group. "This Congress is serious about protecting the environment and the outstanding lands that Americans treasure."
Contra Costa Times
Water crisis has parallels with financial meltdown...MikeTaugher
To understand how California reached its current water crisis, one could look for an analogy in the financial meltdown.
In both cases, credit or water once flowed easily: Four of the five years of highest water deliveries from the Delta's two massive pumping plants were 2003, 2004, 2005 and 2006.
In both cases, lax regulatory oversight was a factor in the collapse that followed: The state Department of Water Resources never obtained an endangered-species permit required under state law, and the two federal permits it and the U.S. Bureau of Reclamation operated under were invalidated by a judge who found them ineffective and weak.
And in both cases, a bubble formed and burst: By 2007, record pumping levels had contributed to an ecological collapse that in turn led to a court order to slow the pumps.
Although the causes for the collapse of Delta smelt, salmon and other fish species are complex and hotly debated, the fact is that state water managers, given a loose rein by regulators, cranked up pumps in recent years and the fish species that were supposed to be protected — especially Delta smelt — collapsed.
By the time courts stepped in, drastic measures were in order.
Water agencies, under a microscope and facing the threat of further cutbacks and shortages, point to other causes for the Delta's demise. They argue that the collapse is not their fault, or at least not entirely their fault.
They may be partly right. Scientists are investigating the possibility that ammonia discharged from Sacramento's sewer treatment plant might be contributing to the problems, for example, and no one disputes the role invasive clams, plants and fish are having on the delicate ecological balance in the Delta, the West Coast's largest natural estuary.
But the biological analysis that accompanied federal regulators' latest permit, issued last month under court order, concluded that pumping operations lie close to the root of the Delta's problems and the near extinction of Delta smelt.
It emphasized that the pumps not only kill fish directly, they also have a dramatic effect on the Delta's flow of water — the hydrodynamics. And that influences everything.
So, while pollution, introduced species, habitat quality, food availability and other "stressors" are contributing to the Delta's environmental meltdown, "the extent to which these factors adversely affect Delta smelt is related to hydrodynamic conditions in the Delta, which in turn are controlled to a large extent by (state and federal water project) operations," the analysis concluded.
In other words, the other factors that water agencies point to as overlooked contributors to the Delta's demise are, in fact, made worse by agency operations.
The permit has alarmed water agencies because it will cut water deliveries to farms and cities throughout the state below the record levels of recent years. And it comes after two dry years, depleted reservoirs and concern that 2009 could be a third consecutive year without much rain or snow.
Water agencies are also concerned that further restrictions in the coming months might further crimp the water supply. A second permit, to protect salmon and steelhead, is due in March and another Delta fish, longfin smelt, is being considered for listing under state and federal endangered species laws.
As with the financial meltdown, the bursting of a bubble — whether in house prices or water deliveries — is causing pain.
Southern California cities have become more dependent on the Delta as the region's Colorado River supplies were cut due to drought and a 2003 agreement to adhere to the limits set in a 1922 compact with other states.
Meanwhile, major new reservoirs such as the Kern Water Bank near Bakersfield and Diamond Valley lake in Riverside County, which were largely filled with Delta water in the recent boom years, are being drawn down rapidly.
A recent study by a Berkeley consulting firm pegged the cost of restrictions at more than $500 million a year, a cost that could soar to $3 billion in a prolonged drought. Most of that would be felt in Southern California, where water rates could rise and residents see an increased likelihood of water rationing, the study said.
Rationing is possible as early as this summer, depending on the weather, of course. And water agencies are supporting costly fixes that would run into the billions, despite the more than $4 billion spent since 2000 for a plan now largely seen as mostly failed.
How bad is it?
We're looking at what could be "a water supply and delivery crisis the likes of which Californians have not seen in decades," said the state's top water official, Department of Water Resources Director Lester Snow.
He might be right.
Los Angeles Times
Federal wilderness protection for California land moves forward
The Senate clears the way for passage of legislation that would expand wilderness protection to more than 2 million acres of public land nationwide, mostly in California and the West...Richard Simon
Reporting from Washington — Large swaths of California wild lands would gain federal wilderness protection under legislation that took a step toward approval in the U.S. Senate during a rare Sunday session.
The measure, which would expand the protection to more than 2 million acres of public land nationwide, may be the most significant conservation legislation in a decade, said Sen. Jeff Bingaman (D-N.M.), chairman of the Energy and Natural Resources Committee and the bill's manager.
It would designate as wilderness -- the government's highest protection -- about 190,000 acres in Riverside County, including parts of Joshua Tree National Park; about 450,000 acres in the Eastern Sierra and San Gabriel Mountains north of Los Angeles; and about 90,000 acres in Sequoia-Kings Canyon National Parks, including John Krebs Wilderness.
The measure also would authorize $88 million in funding to launch an ambitious effort to restore the San Joaquin River, which has been drained for decades to supply Central Valley farms. More water would be left in the river, and populations of spring-run chinook salmon would be returned under terms of a legal settlement in a long-running environmental battle over the river.
The proposal is expected to win final Senate approval by the end of the week and then go to the House, where it is also expected to be approved.
"We're very excited that these slices of wild California are so close to being permanently protected," said Ryan Henson, policy director of the California Wilderness Coalition.
As part of its wilderness protections, the measure would authorize a study on whether the Tule Lake Segregation Center, a World War II internment camp for Japanese Americans, should be included in the national park system.
"This is a great moment -- for me personally and for California -- to see three important parts of it move closer to becoming law," said Sen. Barbara Boxer (D-Calif.).
Senate Majority Leader Harry Reid (D-Nev.) called the Sunday session -- and the Senate's first roll call of the year -- out of anger over what he regarded as stalling tactics by Sen. Tom Coburn (R-Okla.), a critic of the bill.
Democrats increased their majority in the November election and were prepared to flex their muscle to prevent a filibuster. But it wasn't necessary. Because the bill includes projects eagerly sought by senators from both parties for their states, it easily cleared the procedural hurdle with a 66-12 vote.
Besides California, wilderness designations would be made in Oregon, Idaho, Colorado, New Mexico, Utah, Michigan, West Virginia and Virginia. The package of about 160 bills also would designate former President Clinton's childhood home in Hope, Ark., as a national historic site.
The measure also includes initiatives intended to reduce wildfire risk and increase water supplies.
The legislation drew opposition from conservatives and property rights groups, which assailed it as a land grab that would close areas to energy production. Critics also questioned whether Congress, facing massive budget deficits and a backlog of park maintenance, should be taking up legislation now that would authorize, among other things, a commission to plan a 450th anniversary celebration in 2015 for the founding of St. Augustine, Fla.
"We can't continue to pass bills by putting together a little bit of what everybody wants and forgetting what's good for our country," said Sen. Jim DeMint (R-S.C.).
Mike Matz, executive director of the Campaign for America's Wilderness, said the legislation would be a "most welcome action by many Americans who face so much uncertainty in their lives. It will be nice for them to know they can visit their most treasured spots and see them just as they are. They will be able to continue to hike, hunt, fish, camp or canoe amid this natural splendor, and that is no small consolation in these difficult times."
Yorba Linda reservoir languished for years
Local water officials had warned as early as 1981 against construction of homes in Hidden Hills until a large water tank could be built. It's still stalled, and 19 homes burned in November...Tony Barboza and Stuart Pfeifer
Like many in his Yorba Linda neighborhood, David Ramocinski had complained for years about the erratic water supply that left sprinklers sputtering and shower heads trickling. When nothing but air came out of his faucets, he wondered if there would be enough to protect his hilltop house if the bone-dry brush that surrounded it ever caught fire.
For three decades government officials have promised to build a reservoir that would finally provide a reliable water supply to the upper reaches of Hidden Hills Estates. But when a wind-whipped fire tore through the adjacent Chino Hills State Park in November, burning Ramocinski's home and 18 others as firefighters tried in vain to coax water from hydrants, the project remained stalled in bureaucracy.
A review of city and water district records by The Times found that the Hidden Hills Reservoir project has been at a standstill for years at a time, even though thousands of homeowners had already paid for it through property taxes, and $9 million sits in an account ready to build it.
As early as 1981, Yorba Linda Water District officials in a letter to the city said no one should even move into the fire-prone neighborhood unless the reservoir was at least under construction.
Nearly 30 years later, the reservoir has still not been built. And only after the November fire did it become a priority. As recently as 2007, the reservoir did not even make the top half of the district's priority list of water projects, ranking 20th out of 29, district records show. The top priority on the five-year list of projects was the district's new administration building, which was completed last year.
Water district officials said the main reason for the delay was they didn't know how big to make the reservoir because they were uncertain how many homes would ultimately sprout up on the hillsides. Build it too small, or too big, and you've wasted millions of dollars, they said.
If a reservoir holds too much unused water, "it flat goes stale. It just doesn't sustain the quality you need," said water district General Manager Ken Vecchiarelli.
In addition, the district had what appeared to be more pressing needs, including the replacement of a 109-year-old reservoir. Other factors that delayed the project included government-required environmental reviews and restrictions on building during the breeding season for the California gnatcatcher, an endangered bird.
But angry residents, several of whom have filed legal claims against the city and water district, say that if the reservoir had been built years ago as promised, their homes might have been saved.
"My home did not have to burn," said Gillian Johnson, a Hidden Hills homeowner who filed a $1.8-million claim. A firefighter, she said, returned to her destroyed home to tell her that the hydrant at the foot of her driveway had been dry during the fire. "You can't fight fire without water. That's the bottom line."
Best known as the home of the Richard Nixon Library & Birthplace, Yorba Linda is a suburb of 65,000 in northeast Orange County that residents pay handsomely to live in, with a median household income nearly twice the state figure.
It is the type of community where public services -- clean streets, neatly trimmed trees, speedy trash collection -- are taken for granted.
Which is why the spotty water service has been such a source of annoyance in Hidden Hills, the only neighborhood in the city not served by a reservoir.
Reservoirs are preferable to pump stations alone because they use gravity to feed water to homes and fire hydrants instead of just pushing it hundreds of feet uphill.
Even Yorba Linda Water District documents have referred to the community's water pump system as "temporary," "undesired and inefficient."
In one six-week stretch last summer, Ramocinski's home lost water pressure eight times, records show. When the disastrous Freeway Complex fire raced toward his home in November, he tried to protect it with his lawn sprinkler system and a garden hose. But the water pressure failed. So he fled down the hill, leaving his home to burn.
Burned-out electric pumps that pushed water to the neighborhood shut down the day of the fire. So did the gas-powered backup. When firefighters tapped into some hydrants, only air whooshed out.
The Orange County Fire Authority said as many as five of the fire-ravaged homes could have been saved if they had had water.
In the weeks that followed, the Yorba Linda Water District expedited plans to build the Hidden Hills Reservoir. Ramocinski and others wonder why it took a devastating fire to spur water officials to action.
In the 1980s, the water district said the reservoir should be built before homes were occupied, records show. In 1989, just before the first homes were built, the water district projected the reservoir would be built within two years.
Yet when the agency signed an agreement with developers to offer water service, they didn't require a reservoir, calling the pump system -- the one that failed during the fire -- a "permanent solution."
Dave Rosenberger, a community college teacher and onetime candidate for the Yorba Linda water board, said it was foolish for the city to approve homes in a high-fire-danger area without requiring a top-notch water system. "An average person with an average education would look and say you don't do that," he said.
But Brett Barbre, who served as a water board director from 1998 to 2000, said the significance of the reservoir has been exaggerated by city and fire officials looking for someone to blame.
"All the homes in Hidden Hills were approved by the City Council. The fire authority signed off on the fire protection portion of the water system," he said. "If they were at all uncomfortable with water service, they could have stopped the development at any time."
Water officials said they had continually repaired and updated the pumps and that they were in good working order before the fire.
Even so, the pumps have had intermittent problems for at least eight years, records show. After receiving a flurry of complaints about water pressure, the water district sent a letter July 10 to more than 80 homeowners in Hidden Hills, assuring them that "neither water quality or firefighting abilities are being compromised by this water system pumping malfunction."
Water district officials said the source of last summer's problem, a broken valve, was repaired within days and that no system -- pump or reservoir -- is capable of supplying enough water to fight a large-scale fire.
"People are lulled to a false sense that because there's a fire hydrant in front of their house it's going to be able to save their house in a large event," said Christopher Regan, the assistant water district manager in Laguna Beach, where poor water pressure hampered efforts to fight a 1993 blaze that burned hundreds of homes. "But in a major firestorm, the fire hydrant isn't going to be enough."
More than two years ago, as Shapell Industries finalized plans for a tract of homes in Hidden Hills to be fed by the planned 2-million-gallon reservoir, the district moved so slowly that the land where the reservoir was to be built was donated to the state, further complicating the planning process.
In a Sept. 29 e-mail, Vecchiarelli conceded the project assignment had been "bounced around for almost two years with little activity between bounces."
Still, the general manager said in a recent interview that even if the district had proceeded with the plans in 2006, the reservoir would not have been completed before the November firestorm.
The water district did, however, push forward with its No. 1 priority: a $9-million administration building in neighboring Placentia.
The 20,500-square-foot district headquarters -- which has a tiled lobby, flat-screen TVs and a $36,000 synthetic lawn -- was completed in March.
District officials said the money for the headquarters came from a different pool of funds than the reservoir and did not take any financial resources from the plans to improve the water supply in Hidden Hills.
But for residents of Hidden Hills, the gleaming new headquarters became a symbol of misplaced priorities.
Yorba Linda Councilwoman Jan Horton said the delays in building the reservoir show the water district did not make public welfare a priority.
"I think the community deserves an explanation," she said. "If there was a system not completed and that caused us to not be able to respond to this fire as well as we could have, that needs to be looked at. They need to come forward and answer, 'Why did they sit on it for so long?' "
Ramocinski, who now lives in a rental house, said he won't feel safe rebuilding until the reservoir is built.
"Why would I want to rebuild when this could happen three, four or five years in the future?" he said.
There is no schedule for construction yet.
NASCAR tracks plan ticket-price cuts
Auto Club Speedway is one of many facilities nationwide that will offer a break on certain seats...Jim Peltz...1-10-09
Daytona International Speedway and Auto Club Speedway in Fontana are among several NASCAR tracks planning selected ticket price cuts or other promotions in the face of the poor economy.
Daytona International, home of the season-opening Daytona 500 on Feb. 15, said Friday it slashed the price of “a limited number” of seats – to $55 each from $99 – in its 58,000-seat grandstands along the 2.5-mile track’s back straightaway.
Auto Club Speedway, which hosts the following Cup race Feb. 22, cut prices in the first five rows of its main grandstands to $35 a seat from $55.
Two Virginia tracks, Richmond International Raceway and Martinsville Speedway, along with Texas Motor Speedway also announced ticket promotions for upcoming Cup races.
New York Times
Democrats Look for Ways to Undo Late Bush Administration Rules...Charlie Savage
WASHINGTON — Democrats are hoping to roll back a series of regulations issued late in the Bush administration that weaken environmental protections and other restrictions.
Potential targets include regulations allowing concealed weapons in some national parks and forbidding medical facilities that get federal money from discriminating against doctors and nurses who refuse, on religious grounds, to assist with abortions.
“Congress is going to have to roll up its sleeves and review these midnight regulations,” Senator Ron Wyden, Democrat of Oregon, said in an interview, “because it’s clear that they are part of a desire for the administration, as it heads out the door, to put some ideological trophies on the wall.”
Mr. Wyden, the chairman of a subcommittee on natural resources, said he was focusing on a series of recently issued environmental rules. Among them are measures relaxing protections for endangered species, allowing uranium mining near the Grand Canyon, and making it easier for coal companies to dump mining debris in nearby streams and valleys.
The enactment of such rules has been the subject of a drumbeat of news reports in recent months. Though it can take years for a new administration to complete the process necessary to overturn a rule that has taken effect — allowing a president to tie his successor’s hands — Democrats will have far greater opportunity to rescind Mr. Bush’s late rules than has typically been the case in a period when the party in power changes. With Democratic control of both chambers of Congress and the White House, the political planets are aligned to make much of the Bush administration’s late handiwork unusually vulnerable.
Spokesmen for the House speaker, Nancy Pelosi, Democrat of California, and the Senate majority leader, Harry Reid, Democrat of Nevada, said they shared their colleagues’ desire to overturn some of the regulations but were waiting for guidance from the administration before adopting a specific strategy.
President-elect Barack Obama’s incoming White House counsel, Gregory B. Craig, said in a statement that their team was in the process of reviewing “these new regulations that are being issued during the final days” of the Bush administration and “will take appropriate steps to address any concerns in a timely manner.”
Congress has the authority to rescind an agency’s regulation by passing legislation to trump the rule. Democrats in both chambers said they were considering attaching amendments rescinding various Bush-era rules to the coming stimulus package, which is considered “must-pass” legislation.
Still, there are drawbacks to such an approach. Mr. Obama has indicated that he wants to keep the stimulus package streamlined. And Democratic efforts to add amendments to a Senate bill could be blocked by Republicans with a filibuster.
For that reason, Democrats say that they are also considering using the Congressional Review Act of 1996, an obscure and rarely used process that sets up fast-track procedures to overturn regulations.
The law allows Congress to rescind a rule by passing a “resolution of disapproval,” which cannot be filibustered. The resolution also requires presidential approval and can be invoked only for a few months after a rule is issued.
The only instance in which it has been used successfully was in 2001, shortly after Mr. Bush took office. Republicans used it to nullify a late Clinton rule setting ergonomic standards for workplaces.
Republicans did not have much need for the law then. The Clinton administration had issued most of its late regulations in its final weeks, and so most had not yet taken effect when Mr. Bush entered office. As a result, Mr. Bush was able to freeze most of Mr. Clinton’s rules without Congressional help.
But the Bush administration, seeking to avoid a similar fate for its rules, imposed an early deadline on agencies to finalize them. Most of its late rules will already have taken effect by the time Mr. Obama becomes president, meaning he will not able to freeze them.
Congressional Democrats, though, could use the Review Act to take aim at any rule made final dating to mid-2008, potentially trumping Mr. Bush’s maneuver, said Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University.
Representative Nick J. Rahall II, a West Virginia Democrat who is the chairman of the House Natural Resources Committee, said he intended to do just that. Mr. Rahall said he wanted to rescind a rule reducing safeguards that ensured that federal projects did not harm endangered species.
“I intend to work with the House leadership to overturn the harmful regulations governing America’s endangered wildlife via the Congressional Review Act,” Mr. Rahall said in a statement.
Still, the Review Act has problems that could give lawmakers pause. It requires that a separate resolution be filed, debated and voted on for each rule, which could consume a great deal of time.
In addition, the act prohibits issuing a new regulation that is “substantially the same” as the nullified one, a vague ban that could pose a legal problem if Democrats merely want to adjust the regulation, said Peter Strauss, a law professor at Columbia University.
To avoid such problems, Representative Jerrold Nadler, Democrat of New York, has introduced a bill, the Midnight Rule Act, that would give incoming cabinet secretaries — starting with the Obama administration — greater power to rewrite regulations issued during the final three months of the previous presidency.
“Congress needs to pass the Midnight Rule Act,” Mr. Nadler said in a statement, “to give President-elect Barack Obama the ability to quickly reverse these policies and undo these last, right-wing gasps of the Bush administration.”
But his bill would need to be enacted quickly amid a crowded field of other Congressional business if it is to have any impact on Mr. Bush’s rules. It would also have to avoid a filibuster by Republicans in the Senate.
Still, Mr. Nadler’s bill has received support from beyond the usual critics of the Bush administration. Bank lobbyists want Congress to pass it because they want to rescind a new rule requiring them to identify and block financial transfers for “illegal” Internet gambling. Financial institutions say complying with the rule will be difficult because it does not make clear which gambling sites are illegal.
Smith Barney on the block as Rubin steps down at Citi
After nearly a decade at the banking giant, former Treasury secretary says he will not seek re-election; Citi also in talks to merge Smith Barney unit with Morgan Stanley...David Ellis. CNN's Karina Frayter contributed to this report
NEW YORK (CNNMoney.com) -- Citigroup's Robert Rubin said Friday he would step down following scrutiny about his role at the financial giant -- which has lost in excess of $20 billion over the past year.
The New York City-based bank said Rubin would retire from his role as senior counselor effective immediately and would not stand for re-election as director at the company's next annual meeting.
"This is not a decision that I have come to lightly," he said in a statement. "But as I enter my 70's and with all that is now in place at Citi, I believe the time has come for me to make these changes."
Separately, Citigroup (C, Fortune 500) is in talks with Morgan Stanley (MS, Fortune 500) about merging their brokerage operations, a source familiar with the negotiations told CNN.
Under the terms of the deal, Morgan Stanley would make a payment to Citigroup for an undisclosed sum for a 51-percent stake in Citigroup's Smith Barney asset management division. The deal would be structured as a joint venture, but Morgan Stanley would be able to increase its stake over the next three to five years before ultimately assuming total control.
The deal, which could be reached in the next couple of days, would create a massive network of brokers totaling about 20,000, according to the source.
A Citigroup spokeswoman declined to comment, calling it a rumor. Calls to Morgan Stanley requesting comment on the matter were not immediately returned.
Rubin had many critics
Rubin, who joined Citigroup nearly a decade ago after serving as Treasury Secretary during the Clinton administration, had faced questions about his failure to stop the company from ramping up its risk exposure, most notably to the U.S. housing market.
Over the past four quarters, Citigroup has lost more than $20 billion and is widely expected to report yet another loss when the company reports its latest quarterly results at the end of this month.
In November, the bank teetered on the brink of collapse before the U.S. government announced a massive rescue package for the firm in which regulators agreed to backstop losses tied to more than $300 billion in troubled assets at Citigroup.
At the time, the Treasury Department agreed to inject $20 billion into the company. That was on top of the $25 billion invested in Citigroup a month earlier.
Citigroup shares, which have lost more than three-quarters of their value in the past year, slipped nearly 6% in Friday trading.
Citigroup CEO Vikram Pandit praised Rubin's "invaluable contributions" to the company, such as his role in building business relationships around the globe.
Rubin said he planned to focus his energies on other activities, including the Local Initiatives Support Corporation, a community development organization that he has long chaired.
Economy could lose 2M jobs in '09 - report
Conference Board says there's no sign that labor market will improve any time soon...Larissa Padden
NEW YORK (CNNMoney.com) -- The nation could lose 2 million more jobs in 2009 after the loss of 2.6 million last year, a business research firm said in an employment report issued Monday.
The forecast came in a report issued by the Conference Board, which said its Employment Trends Index fell 1.6% last month to stand at 99.6.
"The continued deterioration in the Employment Trends Index signals that no turnaround in the labor market is expected in the near future," Conference Board senior economist Gad Levanon said in the report.
The index has declined for 17 straight months, with drops of 1.6% or more over the past six months.
Wachovia chief economist John Silvia says that nothing has really changed in this month's report.
"I know that this is frustrating for a lot of people because they would like to see a change in the trend," Silvia said. "But what we're seeing is the same as before."
However, Silvia also said that the worst may be behind us and that 2 million more jobs seems a bit aggressive an assessment.
"A lot of companies have already cleared the decks in 2008," Silvia said. "Given that we've already claimed a loss of 2.6 million jobs, we can probably expect to see another million and a half."
But the job market remains tough for those looking for work. The "jobs hard to get" component of the report rose to 42% in December from 37.1% in November.
"We can expect to see a further decline in the next six months, but we've probably already seen the biggest number we're going to see," said Silvia.