Atascadero City Council criticized over rising costs in Wal-Mart deal

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

Wal-Mart was noncommittal this week on whether it would renegotiate terms of an interchange construction project in Atascadero, while critics are urging the city to take a tougher stance in light of the vastly underestimated cost of the work.

On Friday, Wal-Mart responded to The Tribune’s requests for comment for the first time since the city announced last month that interchange improvements related to two new shopping centers could be at least three times higher than originally thought when the city signed a cost-sharing agreement with the retail giant.

When asked if Wal-Mart is willing to reconsider the cost-sharing deal and to provide a construction date for its center, a spokeswoman simply stated: "We continue to evaluate next steps and have not set a construction schedule."

Meanwhile, on Tuesday, the public had one of its first chances to address the Atascadero City Council since the city’s announcement.

Some residents took issue with the council for negotiating a deal based on a cheaper estimate two years ago, leaving Atascadero to pay the cost overrun. That overrun could be millions of dollars more, based on the latest projections announced last month.

“A couple years ago, we fought as hard as we could to talk sense to this council about the interchange,” resident David Broadwater said at the meeting. “We tried to warn about massive overruns — and it was virtually ignored by all members of the City Council and Planning Commission.”

Residents also asked whether the city would re-negotiate the deal, and were left without an answer.

“Now is the time … to show some backbone, play hardball and protect the interests of Atascadero taxpayers,” resident Tom Comar said.

Comar was part of a group that unsuccessfully sued the city for approving the developments in 2012.

At Tuesday’s meeting, City Manager Rachelle Rickard read a statement recapping the history of the project and outlined the city’s application to Caltrans for the proposed interchange improvements.

“While we all have a case of sticker shock, the city has time,” Rickard said. “The current estimate is still a preliminary estimate and .... the interchange project is not expected to be approved by Caltrans for another two years.”

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 separate roundabout at El Camino Real and Del Rio Road, two traffic lights and other required roadwork before its center can open.

History of the deal

In 2012, the Atascadero City Council approved 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. The Annex property was recently purchased by Madonna Enterprises.

Key to those discussions was how the city and each developer would fund the construction of two roundabouts at the Del Rio Road interchange with Highway 101, which studies said would need to be built after the Wal-Mart comes in but before The Annex could break ground.

When the council approved the projects, it also approved a cost-sharing agreement with the developers that capped how much each needed to contribute toward the cost of the interchange.

Consultant engineers estimated the roundabouts would cost about $4.5 million. From that figure, the city struck a deal with the developers that divvied up a percentage of the $4.5 million that each party would pay and capped each developer to $200,000 extra apiece for any overruns. The percentages in that deal were based on how much traffic each participant would bring to the interchange.

They are: Wal-Mart would be responsible for 29 percent of the $4.5 million, The Annex for 24 percent and the city for 47 percent.

The city's share is based on fronting the cash for future development that might come to the area — such as housing projects — that would eventually be paid back to the city through developer impact fees.

At the time, the City Council unanimously approved the projects and cost-sharing deal after the city’s Planning Commission also gave its OK.

But, even then, the city didn’t have the cash in existing developer impact fees to front the cost of future development in the area and had proposed borrowing money from savings held in its sewer account.

At the time, Planning Commissioner Len Colamarino was the sole no-vote on the Wal-Mart/Annex project because he said the financial unknowns were too great.

On Tuesday, Colamarino, who is now running for a council seat in the Nov. 4 election, reminded the council that he warned them about the costs.

“The deal was not a good deal,” he said. “It was glaringly apparent that there were flaws in this deal ... and now we’re paying the price.”

Looking forward

Meanwhile, over the last 18 months, Rickard said the city has been contracting with other engineers to prepare a proposal to Caltrans for the interchange project. During that process, they found that the original estimate for the roundabouts had swelled to about $12 million, leaving Atascadero on the hook for the inflated costs.

“While it is easy for all of us to look back and say what should have been done, it is important that we look forward to figure out what we will do,” Rickard said on Tuesday.

One such idea is to pursue a grant from the San Luis Obispo Council of Governments, a regional transportation planning agency, for its 2015 funding cycle, Rickard said.

Atascadero resident Ray Johnson supported the idea, saying he’s served on SLOCOG’s board of directors before and such funding shouldn’t be considered a “bailout,” as some other speakers suggested Tuesday.

“That’s our money coming back to our town, and to count that as welfare or some other type of (bailout) money is unfair,” Johnson said. “Those who oppose Wal-Mart will oppose it till they drop. So it’s not new that they are opposing it at every turn of the road.”