Chanos backs City Council

Saturday, Oct. 7, 2006 | 7:55 a.m.

Nevada Attorney General George Chanos declared Friday that the Las Vegas City Council acted prudently last November in reversing its decision to lift a deed restriction that would have allowed Las Vegas developer Bill Walters to build homes in place of his Royal Links Golf Club.

Chanos has not recommended that anyone be prosecuted in connection with the case. But he said in an interview that the matter remains under investigation and left open the possibility of future legal action.

Chanos was armed with a 157-page investigative report by the San Francisco law firm Senn Meulemans LLP, which reviewed the history of the Royal Links land deal. The report did not reach any conclusions "regarding criminal conduct of any individual," leaving those conclusions to the "province of the attorney general."

But the firm concluded that the City Council violated Nevada's Public Purpose Doctrine when it voted Nov. 2 to remove a deed restriction that limited use of the land to a golf course or an open space. The city sold the land to Walters in 1999 with those restrictions.

"I was amazed," Chanos said of the report's findings. "I was amazed at the depth and breadth of the incompetence, indifference and negligence over the last decade. There are a number of people who made serious mistakes and exercised very poor judgment with regard to this transaction."

Walters had offered the city $7.2 million last year to lift the deed restriction. The land is at 5995 E. Vegas Valley Drive, adjacent to a city wastewater treatment facility.

But after council members voted to lift the restriction, a Metro Police investigative report came to light that raised questions about the transaction and whether Walters got a sweetheart deal.

With the Royal Links case generating negative publicity, Chanos on Nov. 15 declared his intent to investigate the matter to provide "an objective examination" of whether any state laws had been violated.

The following day, on Nov. 16, the City Council voted to reverse itself and uphold the deed restriction. The attorney general decided to proceed with the investigation anyway, but after disclosing his own potential conflict of interest over his own separate land deal with the city, his office decided to hire Senn Meulemans as an outside investigator to conduct the probe.

To date, the law firm has billed the state $266,200, $8,800 less than the state authorized it to spend.

If the city sticks with the attorney general's legal decision, Walters will not be able to build a 1,200-home residential development as he had planned. Instead, he would either have to continue to operate Royal Links as a golf course or sell it with the deed restriction attached.

Chanos received the Senn Meulemans report last Saturday and then evaluated it with five of his senior staff attorneys. He said they agreed that it would be appropriate to sue the city if it decided once again to lift the deed restriction.

Walters, in an interview, criticized the report's conclusion that he did not cooperate with Senn Meulemans. He said he was not contacted by the law firm until Aug. 28, just days before it was to complete its report.

"That is a total joke," Walters said. "This is America and people are supposed to be given an opportunity to respond to things."

Walters said he would have been happy to cooperate with Senn Meulemans investigators had they been willing to share with him the documents they had gathered . Walters said the information would have allowed him to refresh his memory about events that took place over the past decade. But he said that Senn Meulemans refused to turn over information, something the law firm acknowledged in its report.

"I will cooperate with people if they give us a fair opportunity to cooperate," Walters said.

Las Vegas Mayor Oscar Goodman wasn't available for comment because he was in Europe on behalf of the Las Vegas Convention and Visitors Authority to promote the 2007 NBA All-Star game in Las Vegas.

But in a prepared statement released through city spokesman Jace Radke, the city indicated it "has begun to review this report, but only received it this morning ... The sheer size of the report requires adequate time for review."

The Senn Meulemans report went into detail about events preceding and following the land sale to Walters. The land use was restricted because the acreage was intended as a buffer between the wastewater treatment facility and residences in an unincorporated portion of Clark County.

At the heart of the report was a lengthy dissertation on the state's public purpose doctrine, which prohibits the use of public property for private purposes. The report said that the city's 1997 lease of the land to Walters and subsequent sale of the property to him less than two years later - as isolated actions - did not violate that doctrine.

"It could be argued that the Royal Links golf course is a commercial enterprise that benefited the city and, therefore, the parcels could be sold or leased for less than their appraised values, so long as the City Council found that the disposal of the property benefited the city," the report stated. "The 'public purpose' is met when the property is used for the common good or benefit of the community."

Allowing the property to be converted to a residential neighborhood would remove its public value as a buffer zone between the plant and houses, however, the report said.

"Moreover, the city expressed concerns about possible odor complaints from the WPCF (wastewater treatment facility) and required an odor easement, as part of the sale of the property, to further guarantee that the city would not be subject to litigation due to noxious odors from the plant," the report stated.

"For these reasons, it appears that lifting of the deed restriction would be a violation of the public purpose doctrine. The deed restriction and the odor easement were put in place to safeguard the public purpose - namely to preserve the buffer land and prevent future lawsuits against the city based on noxious odors."

The report also criticized the city for allowing Walters to change from a public golf course to a private course .

And the report added: "While there is some public purpose and community benefit to providing a public golf course, such as Royal Links, with free and/or reduced rate effluent water to keep the grass on the golf course green for city residents to use, the same cannot be said for providing water to a private golf course which benefits only its members."

Water use on the course became a central element of the controversy.

According to Senn Meulemans, the water agreement between Walters and the city involved the developer's company agreeing to design, construct and maintain a high-speed water pumping system. In exchange, the city agreed to grant Walters free water credits for Royal Links and the nearby Stallion Mountain golf courses, which he also owned, at a rate that would amount to $1.7 million in free water.

The report also criticized an independent analysis commissioned by the Las Vegas Sun, which is owned by the Greenspun family.

Editor Brian Greenspun has been a business partner of Walters. The study was done by Stout Risius Ross Inc., whose specialties include property valuation. It has offices in Washington, Chicago, Cleveland and Detroit.

The Stout Risius Ross study found that if Walters was able to build homes, Las Vegas would gain $16.5 million in economic benefits by terminating its water agreement with him. The report said taxpayers would receive another $14.3 million for the value of so-called return flow credits .

Senn Meulemans disagreed. "The fallacy in the (Stout Risius Ross) financial analysis is that the city does not and will not, in the future, receive any revenue from the sale of potable drinking water to residential customers. In fact, the city of Las Vegas does not own or operate a facility which provides drinking water to residential customers, and the city of Las Vegas does not receive 'return flow credits' for reclaimed water channeled back into Lake Mead or revenue from the sale of drinking water to residential customers.

"According to an interview conducted on Aug. 9, 2006, with Mr. Richard Mendes, General Manager of the Clark County Water Reclamation District, the city of Las Vegas does not directly receive 'return flow credits.' Mr. Mendes stated that the Southern Nevada Water Authority actually draws the water out of Lake Mead and it is the one that makes use of that credit. Thus, from a purely economic perspective, the city of Las Vegas will be losing revenues by not supplying the Royal Links golf course with effluent water (at 26 cents per 1,000 gallons)."

In its investigation, Senn Meulemans pored over thousands of pages of city documents and e-mails and interviewed more than 50 people.

"Our investigation was not intended to and did not focus on whether there was any wrongdoing by real estate developer Bill Walters or his companies," the report stated. "We leave it to law enforcement and the public prosecutors in the state and federal government to review this report and other available information and examine the conduct of persons in these matters who are in the private sector."

Having said that, the law firm stated that former city Public Works Director Richard Goecke, "who was involved in most phases of the lease, development and sale of the Royal Links golf course to Bill Walters, indicated his refusal to cooperate with SM (Senn Meulemans) through his attorney, Charles Kelly."

And the law firm added that Bill Walters, through his attorney, Richard Wright, "declined to be interviewed or provide responsive documentation. Mr. Walters' attorney, as a precondition to an interview, required SM to release all reports and documents that we had generated to date. We, of course, refused this request."

As part of its conclusion, the report stated that "it appears that there has been a consistent pattern of political and financial favoritism granted to Mr. Walters' business entities by the city of Las Vegas. However, without the police power to subpoena documents to compel witnesses to testify, our report can draw no conclusions as to why Walters' business entities were afforded such favor."

Chanos, who has since declared he no longer has a conflict, said he would ask Walters and Goecke for their cooperation. If not, he said, he reserves the right to use other legal means to compel their cooperation.

To the extent that Chanos - who chose not to seek a full four-year term after being tabbed by Gov. Kenny Guinn last year to fill the vacancy left by newly appointed federal Judge Brian Sandoval - will be replaced in January, he said that would not affect the ongoing investigation. He also said he could argue that statutes of limitation could still apply because his office was not aware of many of the details of the Royal Links case until his office received the Senn Meulemans report.

"Our inquiry will determine whether the errors in judgment were negligent or intentional," he said.

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