New Revelations About Basin Street Properties Prompt Calls for Audit of Theater Square Project

A former city councilman is asking the city to conduct a complete audit of the $100 million-dollar Theater District project following revelations of a potential conflict of interest between developer Basin Street Properties and its sub-contractor North Bay Construction. The project resulted in an estimated $10 million in cost overruns that were taken from the redevelopment, wastewater and other funds.

“Given our current economic stress, the public and taxpayers deserve to have a clear, verified and honest report on what happened in this project, why and whether there is any legal, financial or ethical recourse which might lead to a recovery of any or all of the cost overruns,” wrote David Keller in a letter to city council. Keller served as a councilman from 1997 to 2001.

The Theater District, completed in 2007, is owned and was developed by , now headquartered in Reno, Nevada. It was built by North Bay Construction, formerly owned by John Barella, owner of the controversial Roblar Road Quarry west of Petaluma.

It was in that it was revealed that Barella is the single largest investor in Basin Street Properties, having lent an estimated $100 million to the company since 1996. He also sits on its board of directors.

As the project proceeded, it ran into unexpected costs including from contaminated soil found on the site. In September 2005, the City Council approved an addition $4.8 million to cover the costs, even though the council was unaware of the overruns for months.

Then-Councilwoman Pam Torliatt was the only one to oppose the additional charges, saying she could not approve continued funding to a project that did not provide the city with regular updates and had no timeline for the creation of an assessment district, essentially a tax on businesses located there.

Now many are wondering why the city was left with the bill for extra work and if the cost overruns would have been approved if the relationship between Barella and Basin Street Properties—which Barella described as “one and the same” in court documents—was known. And, more importantly, did the city overpay for the project by essentially paying a surcharge on work that was contracted to North Bay Construction and could it recoup any of the money?

“What I find most distressing is the overhead on top of overhead,” said Mayor Dave Glass, referring to the “super contingency” and other fees North Bay Construction was adding to the city’s bill, according to revelations in last week’s Bohemian article. 

Asked about whether an audit would be productive, Glass said he doubted the city had the resources or the political will to do so.

“No one is saying we overpaid $10 million, but I personally would have asked a lot of additional questions had I known what I know now,” Glass said. “But at this point, I doubt that it would lead us anywhere.”

Councilmember Mike Healy, who was one of the council members who approved the cost overruns, said he regretted the undisclosed ownership, which has given rise to an appearance of impropriety. But he said there was no evidence of actual wrongdoing, although he called the possible conflict a “teachable moment.”

“My sense was that the questions in all of our minds were: how much would it (audit) cost and how would we pay for it and how likely is it that we would uncover any actual malfeasance or misfeasance?” Healy said.

“On both of those counts, it doesn't appear to me that a full blown investigation is warranted merely by the revelation of John Barella's investment position in Basin Street.”

As for the cost overruns, Healy said they were closely looked at before being approved.

“I and all the council members with whom I have served over the years scrutinize change orders and cost overruns very carefully,” he said. “I know that happened here.”

He added that in the interest of transparency, all reports pertaining to the project should be placed on the city’s website so that residents could have access to them.

City Attorney Eric Danly said he did not think there was any legal recourse for the city in light of the new disclosures and was doubtful what other new information an audit could reveal.

"There has been closure of this project and we did the closeout work, we looked very closely that whatever the city was owed it was receiving," Danly said.

He added that "it would have been nice to know from the standpoint of the final document review in order to address issues like markups to make sure the city wasn’t in essence subsidizing a project in ways it didn’t intend."

However, Mike Harris, who voted for the cost overruns in 2005, said he would welcome a forensic audit of the project.

“We just need to have an analysis done to confirm everything,” Harris said.

Karen Nau, who sat on the council when the cost overruns were approved, said she was not sure about an audit, but suggested that the city keep a closer eye on its contracts going forward.