You can tell SDSU’s Paseo project is in trouble when they pay Tom Shepard $10K to give it positive spin

Who's in charge here?

Architect's rendering of The Paseo. Neither Weber nor his bosses at CSU went public about their ongoing dispute, even though the foundation had spent millions of dollars.
  • Architect's rendering of The Paseo. Neither Weber nor his bosses at CSU went public about their ongoing dispute, even though the foundation had spent millions of dollars.

It was touted as an urban village, akin to a combination of Horton Plaza and Point Loma's Liberty Station, at the doorstep of San Diego State University. One hundred fifty-three thousand square feet of retail, including an Urban Outfitters and a 7-Eleven; a 14-theater multiplex cinema; housing for 1300 students; and 110,000 square feet of university offices, all designed, built, and financed by the San Diego State University Foundation — a nonprofit university auxiliary — at no cost to taxpayers. Estimated price tag: $350 million.

Paseo site plan. In early April 2005, Carter came up with a proposal to sell the project to a real estate investment group from the East. Roush had a quick response. "Bond counsel refers to this group as 'shady.'"

Paseo site plan. In early April 2005, Carter came up with a proposal to sell the project to a real estate investment group from the East. Roush had a quick response. "Bond counsel refers to this group as 'shady.'"

Christened the Paseo, the elaborate development proposal, 18 years in the planning, had the blessing of everyone from neighborhood community groups to the San Diego City Council to San Diego State University president Stephen Weber, who was also president of the SDSU Foundation (renamed the San Diego State University Research Foundation early last year). Because it was part of the City's College Community Redevelopment Project — part of Mayor Dick Murphy's City of Villages — the commercial portion of the Paseo's real estate, which would be subject to property taxes, would provide the neighborhood with new revenue for improvements. It sounded too good to be true, and it was.

Until the spring of last year, only a few insiders knew that the Paseo was in trouble, beset by internal criticism and bureaucratic bickering. Records recently disclosed by the university after a request under the state's Public Records Act reveal that as early as mid-2003, Weber's bosses in the California State University's chancellor's office in Long Beach had voiced serious doubt about the project.

In a June 30, 2003, letter to Richard West, CSU's executive vice chancellor and chief financial officer, Weber wrote, "We now understand that your key concern is the level of risk engendered by the retail component of the project. As we discussed, we continue to review the retail component of the project and its associated risk, and we will pursue an updated housing demand study. We have also determined to undertake a risk mitigation assessment and develop an exit strategy.

"We support your approach of retaining a consultant to advise you and Chancellor Reed as to the viability of the retail component," Weber continued. "We ask that this process be initiated as soon as possible. The cliché that 'time is money' is probably more true in property development than in most endeavors. It is also difficult to be 'on hold' with interest rates at a fifty-year low. Thank you for your reasoned approach to this issue, which is so important to our campus.Clearly, the project was endangered, if not facing outright demise. Later West and others would make clear that the chancellor's office would never approve the project if the foundation financed it, claiming that the foundation's debt, though off university books, would become a de facto obligation of the state.

The foundation had already completed two smaller projects in the redevelopment area, a 66-unit apartment complex costing $8.5 million and the $16 million Fraternity Row. Incorporated in 1943, the foundation has an annual budget of $200 million and over 5800 employees who administer research grants and other funds and manage a large real estate portfolio that includes parking lots, apartment buildings, and a medical facility near Alvarado Hospital.

Neither Weber nor his bosses at CSU went public about their ongoing dispute, even though the foundation had spent millions of dollars on land and architectural designs for Paseo, and City redevelopment officials were spending taxpayer dollars in planning for the project.

The documents reveal that as project delays mounted, Weber lost confidence in his staff and that of the foundation. On July 25, 2003, he fired off a memo regarding development of the school's master plan to provost Nancy Marlin, Student Affairs vice president James Kitchen, and Sally Roush, his top deputy and the university's vice president of Business and Financial Affairs.

"You are each superb in your own area of responsibility, but lately I have observed a diminution of collegiality and a loss of focus. Simply put, we can afford neither as we move into the challenging years ahead.

"I recognize the increasing pressures that the budget imposes on us all, but you need each other, and I need you all working together as a team if we are to lead San Diego State through these difficult waters."

On September 8, Weber sent a memorandum marked "Confidential" to SDSU Foundation chief executive officer Frea Sladek complaining about the foundation's plans to include a sports bar and a 7-Eleven as part of the Paseo.

"To be perfectly candid, what is bothering me is that this seems to be driven completely by staff rather than having your endorsement after coordinated conversations with the campus.

"For example, at our last presentation we found the Gerdi [Jerde, the foundation's architectural firm] folks redesigning the campanile. I am not clear why the Foundation is spending its money on redesigns of the campanile, but I am clear that it is completely inappropriate.

"Now I am told that Gerdi folks have been asked to design the interface between the Paseo and the campus. I want to be very clear that this is going to be the campus's call rather than the Foundation's.

"If the Foundation would like to look at the interface between the campus and the Paseo, it should do it in rigorous conversations with Sally.

"Do not misunderstand me, we are not unwilling to look at the interface -- in fact, I do not think the interface has had as much thought directed to it as it should have. It is just that the project has to be a collaborative project between the university and the Foundation."

Six months later, on March 30, 2004, Weber dispatched a memo to Roush requesting that she assemble his executive staff. "I want to convene a summit with regard to the outstanding issues on the Paseo Project. By 'outstanding issues' I mean those aspects of the project with regard to which you have not been able to reach agreement."

Despite the meeting, questions about how the university and the foundation would collaborate remained unanswered on May 7, when Weber sent another memo to Roush and Sladek. "As we come closer to a 'go/no-go' decision on the Paseo, we need to sort out the business relationships between the University and the SDSU Foundation vis-à-vis the Paseo.

"These are issues that have arisen before in tangential ways, such as the university's request to be held harmless. However, what I am more interested in is a synergistic conversation that will ensure that we maximize the opportunities to both parties that this project presents."

But if Weber truly thought that the Paseo project was ripe with synergistic opportunities, some on his staff felt it was ready for the knife. Chief financial officer Roush, in particular, demanded more personal control over the project.

On May 25, 2004, Roush e-mailed Ellene Gibbs, the school's associate vice president of Financial Operations, about an upcoming meeting between university and foundation staffers. "What a way to have the beginning of my vacation ruined," said Roush. "You, and President Weber, will see that I have added a discussion of the role of the campus chief financial officer. Much of the tension revolves around the failure of the SDSUF organization to acknowledge and work within that construct.

"If that does not apply to the Paseo, that needs to get stated up front -- to me as well as to them," wrote Roush, threatening to boycott the gathering. "If the campus CFO role is to be diminished in this project, there is no need for the summit meeting.

"My colleague from Portland State University has just accepted the CFO position at the University of Idaho, which is still reeling from their redevelopment scandal. More individuals will be fired before it is all over. I cannot be party to anything that I feel will harm the University's operating and policy requirements. I hate to sound so negative but from far away this still looks very problematic."

It was touted as an urban village, akin to a combination of Horton Plaza and

(In 2003, the University of Idaho's president resigned and the vice president for finance was fired after it was revealed that unauthorized loans had been made from a university trust fund to the university's foundation, which was developing a satellite campus. The project fell apart, and the foundation was left with a $26 million debt.)

The next day, Gibbs e-mailed Roush back, denigrating the design of the Paseo. "We do not believe that the project, as scoped, is good for the University and its students," she wrote. "Let's say it was going to throw off millions: does that change how we expect our students to live, our traffic to flow, the safety we expect, the degree of class we want the front of our campus to have?

"It's like the old joke about the lady asked to sleep with someone for $2,000,000. That was OK, but when asked whether she'd do it for 5 cents, asked 'what do you think I am?'

"I don't see the need for a summit meeting either. But if it goes, you didn't call it so you don't need to lead it. In fact, I'd probably let them be lead speaker on every single agenda item with University only providing responsive comment as to agree/disagree basis in very brief form.

"Time to pick that pocket thread. Sit back and let your staff state their expert opinions one final time. No apologies, no bargaining. (There shouldn't be any bargaining in front of Fdn board members anyway!)"

Though the e-mails show a virtual revolt of university staff, with Roush leading the charge -- demanding to wrest control from the foundation -- Weber remained seemingly oblivious to the brewing mutiny.

"Welcome home. I hope Hawaii was great," he said in an e-mail to Roush dated May 27, 2004. "When you get back I am going to try to put together a meeting which will ask whether we could move for external ownership of this project. I know that would mean less for us -- and perhaps fewer controls, but Charlie seems set on screwing this deal up any way he can."

Charlie is almost certainly CSU chancellor Charles B. Reed, Weber's boss. Elsewhere in the same missive, Weber mentions him again, saying, "Charlie is mad at me again (not important why, but I will fill you in when we see each other next week), and has abruptly cancelled (without explanation)" a meeting about the Paseo financing. "He has said it might be possible to schedule a meeting in July!"

On June 14, in an e-mail to foundation CEO Frea Sladek about disagreements over preparation of an environmental impact report for the Paseo, Roush said, "There is a continuing failure to recognize that for a project that has so much importance for and impact on the University, the University must be the driver."

On August 9, Thomas F. Carter, a longtime member of the SDSU Foundation board and an influential alumnus as well as a staunch backer of the Paseo project proposed by the foundation, e-mailed Weber about a meeting Carter had had with CSU's executive vice chancellor Richard West.

"All in all, I think it was a good meeting and as I told him, we want to work with him to make this happen. My read is that and to use his words 'if we can show him that our proposed financing is dollar neutral' he felt he could support it."

Then Carter alluded to the static that Roush and her backers were creating. "Another issue that I took away from our discussion is that he is getting two messages from San Diego. I think it is critical that we have only one person talk to the Chancellor's office on the Paseo."

Replied Weber: "Yes, there is the rub. What single person can represent us to best advantage? Sally is most knowledgeable and most respected by Richard, but is skeptical and less than enthusiastic about the project as it now stands.

"Frea is not knowledgeable about the project.

"Steve Bloom and Fred do not have the standing and have proven themselves to be 'true believers' -- which is to say, I doubt they have much credibility.

"I am supportive -- but technically deficient."

Four months later, with the Paseo status still unresolved, Carter again e-mailed Weber, this time to say that he had contacted Bob White, an influential SDSU alumnus and Sacramento insider who is a longtime advisor to ex-governor Pete Wilson and has also worked for Governor Arnold Schwarzenegger.

"I have discussed the Paseo financing issue with Bob White," wrote Carter, in the e-mail dated December 5.

"Interesting," responded Weber.

"He said he would represent us for free as long as I am not making any money on this. I am sure you can clarify that for him," Carter wrote.

"Of course," said Weber.

"He understands that issue and is an excellent person to precede our visit," continued Carter.

"Tom, you are always a source of wonder," wrote Weber.

Weber apparently didn't tell his second-in-command Roush about White's involvement, as evidenced by her frantic e-mail to Weber a little over a month later, on January 19, 2005.

"Dennis Hordyk from the Chancellor's Office called me this morning in regard to the Paseo," said Roush. "One of the items he wanted to discuss was a conversation he had with Bob White, whom he knows well from the days when Dennis was in the state Department of Finance. Bob talked about how the Paseo project has been underway for years, much has been spent to date, etc. He talked as though the [chancellor's office] is blocking the campus from proceeding with the project. Dennis was much taken aback. Dennis, a generally mild mannered individual, was very displeased that we had in essence raised the stakes by having Bob White lobby him.

"I think it is a bad idea to have this kind of outside lobbying on an issue such as this," she continued. "I hope I am wrong. What is it we want to occur as a result of the lobbying by Bob White? We already have approval from the Chancellor himself to move forward with the project. It is the debt-capacity problem that we are struggling to manage, and the likelihood of an exception is non-existent. I'm afraid we are using a contact for no useful outcome."

On February 11, with the Paseo still alive, if limping along, SDSU Facilities Planning and Management director Tony Fulton e-mailed Roush with his criticisms of its design. "They are still proposing a pedestrian bridge crossing College at Lindo Paseo," said Fulton. "And it's the ugliest bridge I've seen in some time. Reminds me of a railroad trestle." He added that the project "will barely meet the proposed energy standards and guidelines that even the City of SD is adopting. This won't sell well with the Trustees but I'm sure it can be faked."

On March 17, a worried Tom Carter again e-mailed Weber. "I understand that Sally Roush or her staff is proposing that SDSU could acquire the Foundation position and develop the Paseo. This would never be accepted by the city."

Replied Weber: "In the best of all possible worlds, that would not be our preference. If it is on our credit no matter what, then we would be better off to do it ourselves and at least have the control we would otherwise lose to a third party."

As to possible opposition to the takeover by the City, Weber responded: "They would block the state from undertaking a development they want to see??? How does a city trump the state of California?"

Weber then forwarded Carter's message to Roush and proposed that Carter be "briefed" by her about the takeover, but she quickly demurred.

"I think it would be difficult and likely unproductive for me to talk to Tom absent you," she wrote on March 17. "His comments regarding me sound increasingly critical, and I don't think it is appropriate for me to be involved in a 'spat' with a community member and an alum."

Alluding to the rapidly developing controversy over the university's sudden move to take control of the project, Roush singled out Fred Pierce, the consultant/

developer in charge of the Paseo, as an unwelcome source of opposition. Pierce was lobbying heavily to complete the Paseo under control of the foundation. (Pierce is a former president of the troubled San Diego pension board. This April, his offices at the foundation were raided by FBI agents, who hauled off computers and piles of records. He has not been charged with wrongdoing.)

"The Foundation or Fred is presenting this as the Foundation and City vs. the University. In my position, I cannot cajole, require, or otherwise get them to stop. As long as that is the position that Tom and other community board members believe in, the whole mess is just that much worse."

Then she threw down the gauntlet to the wavering Weber: "It is really only presidential authority and direction that can get things going in a different direction, if that is even possible."

The next day Weber fired off a terse memo to the foundation's Frea Sladek: "It seems to me more and more likely that the only way in which the Paseo Project can be done is if it is done by the university using university credit. Have you reached that conclusion as well? If not, why not? Assuming you have reached the same conclusion, I think it is time to direct our energies to that end."

But that was not the end of Weber's dallying. In early April 2005, Carter came up with a proposal to sell the project to a real estate investment group from the East. Roush had a quick response. "Bond counsel refers to this group as 'shady,' " she told Weber in an April e-mail. "They have no construction, project management or other related experience. They are a 'shell' corporation for off-book financing. If we want to pursue this effort, you need a discussion with Charlie to ensure you have his approval to proceed in this manner.

"Steve, sooner rather than later we need to make a decision on this project," she continued. "I don't think you have the confidence you need to have in the project management team (Pierce, Bloom) for a project of this magnitude. Each day we delay a decision, it gets more difficult to bring the project to a successful conclusion.

"If you are ultimately going to assign this project over to the University, the sooner it is done the better for all. If you choose to leave the project with the Foundation, again the sooner we all know that the better."

But Weber still continued to wait. On April 27, he sent a letter to Chancellor Charles Reed asking him to consider "an option that would entail the sale of the project to a third party non-profit corporation and provide off-credit treatment for most of the project's components."

The next day, Roush e-mailed a staff member. "This is going to overwhelm us sooner than later, I now think." On April 29, Tony Fulton, the university's director of Facilities Planning and Management, sent an e-mail to Roush. "I'm starting to draft some items for our discussion of the Paseo takeover next week."

Finally, on May 3, Weber sent a memo to the board of the SDSU Research Foundation announcing that the chancellor's office had spurned his latest proposal. Roush, he said, "has been working with the Chancellor's Office to design a credit plan which would give San Diego State access to sufficient credit to devote up to $350,000,000 to the development of the Paseo project."

On May 9, Roush e-mailed Jim Kitchen, SDSU vice president of Student Affairs. "I think there may be some big changes in the near future regarding the Paseo." On May 11, Weber e-mailed the foundation's Frea Sladek. "I am eager to move forward with or without the cooperation of the foundation," he wrote. "Regrettably, we do not have a great record of clear and unambiguous communication either with the system office or among ourselves.

"Given recent events, I am less optimistic about our working together, but no less optimistic about bringing the project to a successful completion."

On May 17, Ellene Gibbs, the university's associate vice president of Financial Operations, sent an e-mail to seven SDSU staffers, including Roush and CSU attorney Steven Raskovich, announcing "a high-level strategic meeting, expected to be followed up by meetings that are more tactical" about the Paseo. Among agenda items: "determine plan to acquire land" and "review current contracts to determine whether/ which to be re-signed with University or perhaps voided."

By then, alarm bells were ringing at city hall. Jim Madaffer, the city councilman representing the district, had made the Paseo a pet project and badly wanted to see it completed before his departure from office in 2008. He mistrusted Weber's motives and feared he would soon kill the Paseo outright. Planning groups that had already signed off on the project withdrew their endorsements.

Under an agreement between the foundation and the City, land for the project was to have been acquired either through negotiated purchase or condemnation, and property taxes thrown off by the development had been earmarked to pay for nearby public improvements. With the university questioning the retail component, which would have generated property taxes, the City was facing a loss of income.

Hank Cunningham, assistant executive director of the City's Redevelopment Agency, sent Weber a letter sternly warning him against a transfer of control from the foundation to the university. On June 7, Weber responded. "I believe," he wrote, "that your letter is based on a misunderstanding: you have created a distinction between San Diego State University and the SDSU Research Foundation that is not material."

On June 11, Weber sent a different message in a memo to the foundation board. "I believe it is in the best interest of the University for the University to take on the project directly, making the Foundation 'whole' by repaying the monies invested to date, and putting Business and Financial Affairs in charge of carrying out the project."

"The term 'takeover' does not apply here," Roush told the Union-Tribune in a July 13 story. "The foundation is part of the university; we are one in the same." The paper quoted her as saying that all contracts would remain in place, including the deal for a multiplex theater.

Though it was clear that Weber was moving to take the Paseo away from the foundation, the foundation's board had taken no official action to authorize the move. Weber was behaving as if he alone controlled the foundation and the board were merely window dressing. But for seven months, no one on the board would speak out.

Then in February of this year, Tom Carter, who last month died of colon cancer, stood up at a foundation board meeting and quit. "First I have to say I am going to resign from the board today," he announced. "I have served on almost any kind of board you can imagine. I take it very seriously when I'm on a board of directors. The word 'fiduciary' is always something you must remember. What I have seen happen here in the past year is foreign to the kind of operations I have been accustomed to."

Though Weber had promised to make the foundation "whole," Carter didn't believe that would happen. The foundation had plowed at least $12 million into the Paseo, and now it was being forced to divest its real estate in a fire sale to the university to raise cash to pay off its massive debt.

"We are starting a downward spiral," Carter warned. "This foundation is the largest contributor annually to the university -- $2.5 million. That's not going to be there anymore. When we start selling real estate, that money won't be there in the future. I see a downward spiral that will be very difficult to turn around. I don't want to be fighting with President Weber. He knows where I stand on these matters."

Ten days later, on March 6, foundation chief executive officer Frea Sladek and chief operating officer Steve Bloom retired. Chief financial officer Leslie Levinson had departed a few days before. "Steve, Leslie and I realize that it is unusual for three of the top four leaders to leave an organization within a relatively short time period," Sladek wrote in a statement, claiming the joint exodus was just a coincidence.

If it hews to the road that Weber has outlined during recent board meetings, the foundation will have to live without a big chunk of its real estate development business. Based on the evidence, Sally Roush is in charge of the Paseo project's direction. Tom Shepard, political consultant to Mayor Jerry Sanders, was hired by Steve Weber for $10,000 a month to spin the Paseo story. The City's Redevelopment Agency rescinded a threat to take over the Paseo property and put the project up for bid. At last word, Roush was negotiating with the City's Real Estate Assets Department and Mayor Jerry Sanders for a new Paseo redevelopment deal. Details won't be revealed until the fall.

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