Posted on Fri, Aug. 08, 2003


S.F. Bay wetlands purchase a good deal for taxpayers

By Steve Thompson and Robert Hight

The federal government and the state of California recently acquired 16,000 acres of salt ponds in the San Francisco Bay, a unique opportunity to restore a huge swath of wetlands for future generations to enjoy.

Recently, however, questions have been raised about the appraised value of this once-in-a-lifetime purchase. Did the state pay too much? Did the seller, Cargill, get a sweetheart deal? The answer to both questions is a resounding ``no.'' This second-guessing unfairly criticizes the professional appraisers involved, and demonstrates a fundamental misunderstanding of the lawful processes state and federal agencies must follow in acquisitions.

How it works

Unlike developers, state and federal agencies must follow established guidelines in appraising and purchasing property. Government can be a slow and cumbersome player in the real estate market. We not only have a duty to protect the taxpayers' funds, we also -- unlike private buyers -- have a duty to be fair to the parties we are buying from.

Since bond funds, such as those used in the Cargill purchase, can only be used to acquire land from ``willing sellers,'' it is crucial that ``fair market value'' be established by licensed professionals.

Regarding the value of the Cargill property, making salt from sea water in the ponds was determined to be an interim use, similar to farming on land that is in transition to residential use. The Cargill property potentially has a far higher and better use -- namely, as restorable wetland that can serve as mitigation for future development that impacts or reduces sensitive lands and habitats.

Mitigation has become a viable economic use of land in the age of environmental protection. The term comes from the requirement of a developer (private or public) to mitigate the impacts of development on sensitive land. The law requires, for example, that developers who build homes or office buildings impacting wetlands to replace them with from one to three acres of wetlands of the same quality. In some cases, degraded wetlands sell for $30,000 to $60,000 per acre; fully enhanced wetlands have sold for $150,000 to $1 million per acre.

Using mitigation as the highest and best use, the Cargill appraisal arrived at a value of $20,000 per acre. (The state ultimately paid $6,000 per acre). The $20,000 per acre figure took into consideration the potential demand for mitigation land that the appraisal determined would ebb and flow with swings in the Bay Area economy over a projected period of about 15 years. The San Francisco airport project was only one of many potential projects that could require mitigation; others include a possible expansion of the Oakland port, highway and rapid transit projects, and other public and private developments.

Striking a deal

The appraised fair market value of $243 million for the salt ponds was well beyond the budgets of state or federal wildlife agencies. So U.S. Senator Dianne Feinstein, who has a longstanding interest in improving the bay's environment, called Cargill's CEO and convinced him to consider selling for $100 million, with the difference being donated. In return for the donation, the company would be able to take as a tax deduction whatever the IRS would recognize as the difference between fair market value and $100 million.

The state contracted with a private firm familiar with development and wetland issues to review of the original 2000 appraisal. The Fish and Wildlife Service also performed a thorough review. All agreed that the original appraisal was professional, thorough, well-reasoned and that the methods used were appropriate and reasonably supported. Once negotiations resumed, the Department of General Services' professional appraisers approved the negotiated purchase price of $100 million.

A solid process

For unique properties like the Cargill salt ponds there may never be such a thing as the ``right'' price but, on balance, the public is better protected by a process that relies on expert opinion and government transaction professionals.

While the appraisal is fundamental to establishing the right price, in this case there was also value in concluding the purchase in a way that kept Cargill employees working in the salt-making operation as partners in restoring the ponds to wetlands while maintaining flood protection for the adjacent cities.

The public now owns what will one day be the largest restored wetlands on the West Coast. The result, as Senator Feinstein said when the agreement was reached last December, is a ``project that will benefit generations of Californians to come.'' At $100 million -- less than half the appraised value -- this is a very good deal for today's taxpayers, too.

STEVE THOMPSON is manager of the California and Nevada office of the U.S. Fish and Wildlife Service. ROBERT HIGHT is director of the California Department of Fish and Game. They wrote this for the Mercury News.

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