A Mendocino County tribe's plan to secure millions of dollars in public funds to demolish the historic Palace Hotel is at the center of politically charged strife engulfing the leadership of a state agency.
Newly obtained internal documents show that inside dissent has forced top executives of the state Department of Toxic Substances Control to engage in "damage control." The conflict raises questions about how agency staff manage a special $500 million, four-year state program to assist tribes, non-profits, and poor communities to recycle contaminated sites into productive uses.
Specifically, the handling of Guidiville Rancheria's unorthodox bid for $5.3 million—an award favored by some administrators before a state oversight agency questioned the need—is under scrutiny.
Internal agency documents obtained under the California Public Records Act show the Guidiville controversy has pitted some staff attorneys and lower-level agency managers, concerned about the political blowback from tribal representatives, against a top division chief, who, after review, worried the multi-million award may not "even be legal."
Diane Barclay, the DTSC's Northern California Division Chief, wrote in a May 8 memo to staff legal counsel that she feared the Guidiville Rancheria may have been used as a 'mule' by investors seeking to fund the demolition of the 55,000-square-foot brick landmark and help finance their plans to construct a new hotel and retail complex under the guise of ground contamination issues.
The internal documents confirm that state officials rejected Guidiville's appeal of a decision not to award any public funds for the Palace's demolition. However, the fate of the tribe's quest to secure additional public money for further investigation of possible contamination from an old underground tank found at the Palace site remains unclear.
"There is no money being awarded for demolition. What remains under review is a possible state grant for further investigative work at the site," said Allison Wescott, deputy director of the state agency's Office of Communications.
The agency's Equitable Community Revitalization Grant program leadership initially considered awarding Guidiville the $5.3 million in taxpayer money but backed off after senior staff at the North Coast Regional Water Quality Control Board, the assigned state oversight agency for the Palace site, raised questions about the level of work the tribe and its backers claimed was needed.
Senior water board staff in the Santa Rosa office, which oversees projects in this region, said the board has never required building demolition to probe possible ground contamination and would not do so in the case of the Palace.
As a result, the tribe's application stalled in March after higher-ranking agency officials further scrutinized its funding request amid mounting concerns that it did not meet the specific intents of the special program.
In her May 8 memo, DTSC Division Chief Barclay told the agency's Assistant Chief Counsel Christopher Kane that awarding the millions of dollars Guidiville sought is a "non-starter and probably not even legal according to what we are supposed to be using this money for."
"I will go to the mat on this one," vowed Barclay.
Barclay told Kane that she had the backing of DTSC Chief Meredith Williams, who said decisions were to be "based on the science of human and ecological health risk, not politics."
"The tribe factor is political," declared Barclay.
The documents show that less than half an hour later, Kane responded to Barclay and expressed his concern about a significant "PR issue" and the potential legal implications of the situation.
Kane worried that the staff's earlier sending of an initial award letter to the tribe might create a "detrimental reliance case against us."
According to the internal documents, Kane told Barclay, "I tend to agree that this was probably an overly developer-friendly call in the first place, and I am also in agreement that we should under no circumstances give them the demolition costs."
Kane, however, said, "I do imagine even telling the tribe 'not yet' as opposed to no, is likely to rile them up enough to complain to someone."
"Again, as the right call, this is fine by me, but I wanted to make sure exec staff was prepared to hear about it!" concluded Kane.
According to Wescott, on May 29, a draft letter from Barclay to tribal Chairman Donald Duncan finally informing the tribe that the special state funding would not be awarded and asking the tribe to work with the state Water Board to obtain an investigative grant from conventional state programs was prepared but never delivered.
That may happen as soon as this week, according to Wescott.
Dennis Crean, a local advocate of structurally preserving the Palace and recycling landmark into new commercial and residential uses, said, "We are finally getting a glimpse behind the curtain at the state level regarding the Guidiville Tribe's controversial grant application."
"The idea that the Palace is a toxic waste site has always seemed incredulous, and state officials should have taken a hard look from the beginning. Instead, they've been trying to slip through a giveaway of our tax money. Fortunately, the truth is finally coming to light," said Crean.
As it is, the Palace's fate remains unclear.
City staff has issued a demolition permit, but neither the current owner, Jitu Ishwar, nor the Guidiville group, the proposed buyers, have taken further action. It has been nearly eight months since the City Council declared the aging and unprotected structure a public safety hazard. City officials are repeating a pattern set in 2011 when the Palace, already in steady decline, made the same declaration.
The internal state documents provide an up-close look at a heated controversy about the role of public financing of private development that embroils Ishwar, the city of Ukiah, the Guidiville Rancheria, and a group of local investors who have yet to offer any public explanation of development plans.
Ishwar and his attorney, Stephen Johnson, have repeatedly refused to publicly respond to questions, as does Guidiville tribal consultant Michael Derry or attorney Attila Panczel, who represents local investors led by downtown restauranteur Matt Talbert. The other partners remain publicly unnamed, although they are local cannabis entrepreneurs.
City Manager Sage Sangiacomo and his deputy Shannon Riley insist the Palace is a private property transaction and that the city has no role other than protecting "public safety." City Council members follow Sangiacomo, Riley, and City Attorney David Rapport, resisting requests that they place the Palace issues on a council agenda for public discussion.
An exasperated Crean demanded, "Why all the secrecy and run-around from nearly everyone with power over the fate of our city's most historic landmark? "
Crean asked, "Have we heard a peep from the owner or the supposed buyers about their plans? They've presented no real evidence that they're committed to anything other than using public money to level Ukiah's history."
City Council members are also facing criticism from Crean and other Palace supporters.
"The council has not held any public discussions, even as they have had many discussions behind closed doors. The city staff has maneuvered to bypass a public hearing about demolition," said Crean. He also noted that staff had abandoned city demands for a structural analysis of the building. "And they're not even requiring the owner to salvage anything from the Palace, against the requirements of the city's laws," he said.
Local and state historic preservation advocates question the local push to demolish the 19th-century landmark listed on the National Register of Historic Places. While in an advanced state of decay, they believe the Palace could still be recycled into new commercial uses as an investor envisioned in 2022. Another investor with ties to acclaimed preservation projects in the region is also vying for Palace ownership if the Guidiville group plans collapse.
Last November, the city of Ukiah sidestepped public review of the proposed demolition by declaring the Palace a public safety hazard because of its deteriorated condition. Then, last month, staff issued a demolition permit to the current owner, Ishwar, without a City Council hearing.
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