Atascadero faces millions of dollars in mounting roadwork costs related to Wal-Mart project

This view of the Del Rio Road overpass over Highway 101 in Atascadero looks toward El Camino Real and the site of the proposed Walmart store in 2012.
This view of the Del Rio Road overpass over Highway 101 in Atascadero looks toward El Camino Real and the site of the proposed Walmart store in 2012. dmiddlecamp@thetribunenews.com

The city of Atascadero is on the hook for millions of dollars more than was originally anticipated for roadwork costs related to the Wal-Mart project, due, in part, to 2-year-old contract negotiations that at least one council member now says were negligent.

In 2012, the Atascadero City Council approved the construction of two shopping centers at Del Rio Road and El Camino Real: a Wal-Mart center and a separate shopping and dining development called The Annex.

But it approved the projects using cost estimates for required roadwork improvements, not actual numbers.

Councilman Bob Kelley, one of the five council members who unanimously approved the project in 2012, said the city messed up.

“The city failed in their negotiations to determine what the fair share was for all parties involved by not having a true, accurate number on what the cost of the project would have been,” he said.

During a project update to the City Council last week, city staff presented the new cost estimates for the projects’ required road improvements.

The work was estimated at $4.5 million two years ago. Now the price tag — primarily for two roundabouts at the Del Rio interchange at Highway 101 — has ballooned to about $12 million.

“To be that much more expensive was appalling,” Councilwoman Roberta Fonzi said.

The agreement

In addition to the work being more expensive, the developers aren’t required to make up the difference.

When the city negotiated the agreement, the contract split the roadwork cost between the developers and the city based on the original, projected $4.5 million figure.

Today, that agreement is still binding.

“The way the project is currently conditioned is there’s a fixed amount that they (the developers) are required to pay, and the city attorney says that still stands,” community development director Warren Frace said.

Prices went up, according to Frace, because of several factors:


Going forward, Wal-Mart can build its store and two commercial tenant spaces before the interchange improvements are required. Wal-Mart does, however, have to build its own roundabout at El Camino Real and Del Rio Road, two signal lights and other required roadwork before its center can open.

The additional interchange improvements on the overpass are then required before The Annex can be built. The Annex property was recently purchased by Madonna Enterprises.

The city now faces about $6 million in road improvements it can’t afford.

Today, the city has slightly more than $1 million banked from traffic impact fees that it planned to use to pay its share of the costs.

Two years ago, the city also discussed borrowing money from its sewer account savings to help fund the roadwork.

Now, all the council can do is wait for its city staff to evaluate possible solutions.

The council is looking to hear staff recommendations on whether funding assistance from the San Luis Obispo Council of Governments (SLOCOG) is a viable option and how the city could pay for its share of the new cost estimates.

The $12 million is still a projected figure, Frace said, and a more specific number won’t be available until the city gets a permit from Caltrans. That process is underway.

Fonzi said she would also like to see if the roundabouts are the only option to mitigate the traffic increases, but no direction on that has been provided to staff yet.

Project history

In 2011, a year before the City Council ultimately approved the projects, the developers for the Wal-Mart and Annex centers were at an impasse on how to pay for the Del Rio Road interchange project at Highway 101.

City staff then stepped in to negotiate a cost-sharing plan to fund the improvements that said the roadwork would be broken down with Wal-Mart responsible for 29 percent, The Annex for 24 percent and the city for 47 percent of the estimated $4.5 million.

The city’s share is based on fronting the cash for future development that might come to the area — such as housing developments, Frace said — that would eventually pay the city back through developer impact fees.

The city also negotiated that Wal-Mart and The Annex each pay $200,000 extra should the roadwork cost more than anticipated and capped it at that amount.

A viewpoint from Wal-Mart published in a September 2011 edition of The Tribune included comments from Amelia Neufeld, then senior manager of Wal-Mart Public Affairs in Central California. She wrote: “Wal-Mart’s position is clear and has not changed: Wal-Mart, the Annex developer and the owners of the future development — not taxpayers — should pay for traffic improvements.”

Later, the developers began to argue on what each party’s “fair share” of roadwork costs meant. That’s when the city stepped in to negotiate the percentages.

A Wal-Mart representative was traveling and unavailable for comment Tuesday.

The roadwork includes three roundabouts, two new traffic signals and a host of related fixes designed to manage the increased number of shoppers in the area.

Of the two other council members who returned requests for comment, Councilman Brian Sturtevant said that he wished he had dug deeper before approving the project.

“Looking back, I wished we had pressed for not so much preliminary but … more specific,” Sturtevant said.

Meanwhile, Councilwoman Fonzi said she trusted that the engineers’ estimates were correct.

“I think we made the decision at hand we needed to at the time. We knew the people wanted Wal-Mart, and that we needed to make that decision and move forward,” Fonzi said.

Mayor Tom O’Malley couldn’t be reached for comment, and Jerry Clay is no longer on the council. Councilwoman Heather Moreno was not on the council when the decision was made.


Now, residents are upset by the new information.

Resident Tom Comar, part of the group that unsuccessfully sued the city for approving the developments, claiming it didn’t properly study the environmental effects, said the new costs are troubling.

The city’s approval of the developments, “lacked recognition of the realistic costs of traffic mitigation that the city and taxpayers would be responsible (for). This was a dereliction of duty,” he said.

Atascadero resident and Cal Poly political science professor Michael Latner said the city made a bad deal two years ago.

“The council’s decision to legally commit taxpayer money to the development, under very unfavorable circumstances for the city and based only on estimates of the true costs, was reckless to say the least,” he said.

Comar worries that the city’s proposed sales tax increase measure to fund new paving for other city roads could be used for the roundabouts.

At a recent Tribune interview, all six candidates for Atascadero City Council said they would not support using the tax money to fix the interchange.

Frace said the contract negotiations took place between the shopping centers’ developers and the city’s former public works director and city engineer Russ Thompson, former city manager Wade McKinney, and Frace himself. Thompson and McKinney have since left the city for jobs outside the area.

Frace admits “the cost estimate was clearly flawed, so we definitely acknowledge that,” but he declined to comment on whether he thought the negotiations were bad.

The original cost estimate was done by consultant EDA Design Professionals in San Luis Obispo, which Frace called “Wal-Mart’s engineer,” for the project’s environmental impact report. The estimate was then reviewed by Thompson.

“The city’s engineer (Thompson) was concerned it might be a little short, and that’s why we added the extra $1 million condition,” Frace said.

That $1 million breaks down in the proportional share agreement to $200,000 from each developer and the rest from the city.

For its part, Caltrans spokesman Jim Shivers said it’s premature to comment on the roadwork issue.

“We have not received a project study report which outlines the scope of work related to this project,” Shivers said. “Caltrans is in an oversight role on this project while the city remains the lead agency.”

He also said that roundabout standards were created by the federal government and Caltrans follows those standards.

Related stories from San Luis Obispo Tribune