Legacies of the Monterey Agreement
Diablo Grande
Diablo Grande:
A Signature Experience
By Steve Burke
“A signature experience is that defining moment or event
that tells you who you are. It is what you are known for,”
says Diablo Grande developer Donald Panoz.1 Diablo
Grande, a 29,500-acre new town and destination resort in the
hills west of Patterson in Stanislaus County, is a “signature
experience” in that County’s urban development and in
California water politics.
Held up for 11 years over its missing ingredient, water,
Diablo Grande’s water solution — pumping water uphill
from the California Aqueduct to money — may portend
conjunctive use schemes watering leapfrog sprawl in
California’s future.
Diablo Grande hopes to get its water supply through a
convoluted stratagem putting surplus agricultural water in the
ground near Bakersfield while Diablo Grande turns out water
200 miles to the north from the California Aqueduct, “It’s not
a sleight of hand,” says California Department of Water Resources director Tom Hannigan, himself a former commercial realtor from Solano County. “This probably wasn’t the first kind of arrangement like this,” he adds, “and it probably
won’t be the last.”2
If water ever makes it up the hill and Diablo Grande gets
built, it would comprise six golf courses, 5,000 new homes,
vineyards, a winery, commercial and industrial uses, and
other luxury amenities typically enjoyed by the well-heeled.3
This huge project’s water supply came under scrutiny by
the courts the past 8 years, but an upcoming appellate court
decision will help establish standards by which water
transfers are reviewed under the California Environmental
Quality Act (CEQA).4 As a result, this case draws attention
from environmental, water, and developer interests.
The Land
Formerly the historic Oak Flat Ranch, Diablo Grande
land is dry foothill country once used for cattle grazing on
the east side of the Diablo Range here in central California.
Spanning three watersheds — Del Puerto, Orestimba, and
Salado creeks west of Interstate 5 — the area is wildlife
habitat for several special status species, including the San
Joaquin kit fox, the California red-legged frog, golden eagle,
prairie falcon, western spadefoot toad, and the California
tiger salamander. The land has remained habitat and open
space owned by a single landowner for decades.
The Nature Conservancy owns and manages some 60,000
acres of preserved land adjacent to this project area, and
Henry Coe State Park is just a few miles to the west in Santa
Clara County. Currently, no roads traverse the Diablo Range
in this area from west to east. Placing Diablo Grande so
close to southern Santa Clara County heightens the pressure
to connect the two regions with a road inducing urban
growth, further fragmenting habitat, and straining central
California’s ecosystems still more.5
The Developer
Diablo Grande Partners (DGP), Diablo Grande’s developer,
includes many individuals and financial resources that
created a resort similar to Diablo Grande in Braselton,
Georgia: Don Panoz, chairman of Elan Pharmaceuticals, and
J. Morton Davis, a New York-based investment banker,
together with the previous landowner, Heber Perrot, among
others.6
Willing to sacrifice nature to indulge the taste for luxury
and spread it to northern San Joaquin Valley, DGP’s web site
says Diablo Grande “will feature championship golf on six
courses, an elegant destination resort with hotel and European-
style spa, an executive conference center, an equestrian
center, swim and tennis center, a variety of residential
neighborhoods, world-class recreational amenities, 40 acres of vineyards....
“When Morty Davis and I first saw this valley,” writes
Panoz in California’s grand booster tradition, “we saw an
opportunity to create something remarkable....They say
California is a place you can go to change your life and
achieve your dreams….Come find yours today.”7
In promoting, this “dream” (though it’s better likened to a
nightmare), DGP compiled a track record of disregard for
legal process and an arrogance towards state and federal
agencies that has continued to this day.
Fortunately the courts provided a leveling of the playing field where this battle is fought, with substantial international financial power pitted against locals concerned for their quality of life and the
integrity of land use law.
The Big Devil
This big devil is unsustainable.
A purely speculative project, Diablo Grande was officially
initiated in 1990 as an application for an amendment to
the Stanislaus County General Plan. DGP created the
Western Hills Water District (WHWD) in 1992 as the entity
to provide water to Diablo Grande. WHWD was formed
under false pretenses, one of many manipulations by DGP.
They contended unwaveringly that WHWD was “solely
for the benefit of agriculture,” an obvious fabrication, as
WHWD’s boundaries clearly circumscribed the Diablo
Grande project. Local officials turned a blind eye to the facts,
however. With DGP in control of WHWD, Diablo Grande
moved through the County’s land use process. Objections to
the project’s many problems were raised during the review
process by the public, including environmentalists and
farmers.
The project would add more air pollution to the San
Joaquin Valley air basin already designated as severe (the
worst possible) by the US Environmental Protection Agency
(EPA). The basin is under strict federal mandate to resolve
meet federal Clean Air Act requirements for criteria pollutants,
with draconian results if it fails (and it appears likely
to). Its energy consumption would only worsen an already
overwhelming crisis. And so on.
Water would have to be imported from somewhere else in
a state that seemingly has no extra. Amazingly, for a project
with a land area almost equal to that of nearby Modesto, the
EIR offered neither a specified water source, nor a review of
any associated impacts.
Long enamored of the project’s economic benefits, the
Stanislaus County Board of Supervisors voted unanimously
to move the project forward, neglecting their duties as
protectors of the public trust.
The supervisors have never made any bones about their
enthusiastic support for this project throughout the review
process. They view it as an economic boon to the county,
taking what is an all-too-common perspective of elected
officials that all growth (i.e. urban expansion) is good and
that environmental review requirements such as CEQA are
nothing more than temporary hurdles to be circumvented
and/or ignored.8
Tax dollars and one-time construction jobs are the major
issues for our local leaders. The big devil will pay handsome
fees to local governments that will serve it, and to the
Newman-Crow’s Landing School District where some
Diablo Grande students will go to school. Long term and
big picture considerations are left unaddressed. The complex
arenas of land use planning and environmental review
are only rarely and grudgingly acknowledged by our local
politicians, and Diablo Grande is no exception. They would
prefer to ignore such irritants as CEQA, the National
Environmental Policy Act, the Endangered Species Act, and
the like.
Future economic costs are glossed over, looming as
burdensome and uncompensated to the County, such as
infrastructure maintenance and repair, and the costs protecting
public health and safety. And there has been more than a
little grease provided through DGP’s campaign contributions
to incumbent County supervisors over the last ten
years.
Topping off this tragicomedy, the Supervisors certified
Diablo Grande’s first EIR in 1993.
The First Lawsuit
Since DGP and the County winked at CEQA’s intent for
fully disclosed, thorough, and comprehensive planning, the
only recourse to ensure insure compliance with regulatory
requirements was to sue. DGP ignores the fact that lawsuits
are the most costly and time-consuming way to process
development projects.
In November 1993, within 30 days of final environmental
impact report certification, the Stanislaus Natural
Heritage Project filed suit, later joined by Ecology Action,
the Sierra Club, and the National Audubon Society. Given
the local pro-development climate, it was no surprise the
case was denied in Stanislaus County Superior Court, but on
appeal to the 5th District Appellate Court the project was
halted in February 1997.9
But by then, two golf courses had
been constructed through manipulation of the land use
process, contrary to good environmental planning.
The Appellate Court’s 1997 decision voiding Diablo
Grande’s EIR directed DGP to identify sources of water
supply and address the impacts of providing it to Diablo
Grande. A “Supplemental EIR” (SEIR) focused on water
supply was prepared for public review.10
The SEIR identified eight potential sources of water, which in some combination
could theoretically provide all of the water needs of the
project at build-out. (The court did not say these sources had
to be secured, only “feasible,” and their impacts addressed
through the CEQA process.)
Diablo’s total water needs (at project buildout) are 12,800
acre feet per year (AFY). The eight possible sources include
464 AFY from an on-site groundwater alternative to 12,000
AFY via treatment of Modesto sewage effluent. Some supply
alternatives were clearly unrealistic and discarded during the
SEIR process, including the reclamation of Modesto sewage
effluent.
Of the remaining possible sources, two emerged as most
promising from the proponents’ perspective: Stanislaus
County groundwater from the Turlock Irrigation District
(TID) of 11,000 AFY; and a transfer from the Berrenda Mesa
Water District in Kern County (8,000 AFY). The TID option
proved infeasible when the city and county of San Francisco
invoked its first right of refusal over any “extra” water from
TID, as they stated emphatically in their comment letter on
the draft SEIR.
Suing the Big Devil Again
This SEIR was finalized in July 1998 and like its predecessor
received approval of the Board of Supervisors. But like
its predecessor the SEIR was also substantively flawed and
Modesto activists sued Diablo Grande again on August 26,
1998, this time by the group Protect Our Water (POW) and
the author. The two main complaints were an inadequate
cumulative impacts analysis, and failure to recirculate the EIR
when new evidence was admitted into the record late in the
process.
The Berrenda Mesa supply was only cursorily reviewed in
the SEIR. DGP claimed that the review it received in the 1995
Monterey Agreement EIR was adequate.11 The Monterey
Agreement had made substantial changes in the allocation of
SWP water and while it was implemented with amendments
to all state water service contracts in 1996, its EIR was
challenged under CEQA. At the time of our second Superior
Court case, there had been no ruling on Monterey by the 3rd
District Court of Appeals.
A separate suit was filed by the local and state Farm
Bureau organizations, based primarily on concerns over potential impacts to local agricultural water supply from the
transfer of water from the Stanislaus County groundwater
basin to urban development in the foothills. Such a transfer,
from the Turlock Irrigation District to the Diablo Grande
project, was one of the options approved in the EIR. The
Farm Bureau also took issue with violations of CEQA
similar to those of POW.
The Farm Bureau and POW suits were soon consolidated,
meaning that, while maintaining distinct and separate
legal status, they were processed at the same time by the
court system. The Farm Bureau’s suit is especially notable
for two reasons:
First, they had never sued Stanislaus County and a
developer in this area.
Second, in 1993 (“Round One”) of the Diablo Grande
project, the Farm Bureau obtained written assurances from
the County and DGP that local groundwater would not be the
water source for the project.
But in “Round 2,” beginning in 1997, those agreements
were simply deleted, despite numerous written concerns and
protests expressed by Farm Bureau, an egregious violation of
trust on the part of the County. It is remarkable that local
supervisors in this fashion chose building interests over
farming interests, given that agriculture is the economic base
of Stanislaus County; without adequate imported water
supplies, agriculture here is not viable.
For the first time ever in a local CEQA case, the Superior
Court ruled in October 1999 for both POW and Farm Bureau
on the majority of points. The judge ruled all proposed water
sources were infeasible with the sole exception of Berrenda
Mesa, the water transfer from Kern County. DGP was
directed to redo the SEIR, this time also with adequate
cumulative impacts analysis.
Once the court’s initial ruling was made, proponents
applied unrelenting pressure to persuade the court to allow
for processing of “mini-projects” as part of the overall
29,500-acre master project, provided they were reviewed to
CEQA standards.
DGP immediately made use of this exception to the
courts denial of the EIR for the entire project (though it is in
essence piecemealing, and contrary to CEQA). They
presented the county with a “mini-project” of 236 lots known
as Unit One of Phase One. Most of the lots are for residential
units, but one is for a 7-story hotel.
Berrenda Mesa’s Water
The County approved Unit One in December 1999,
stipulating that before building permits were granted,
proponents first had to receive all required state approvals
for the supply of Berrenda Mesa water.
DGP soon appealed the Superior Court judge’s ruling that
the non-Berrenda Mesa sources were infeasible, as well as
the requirement to recirculate the EIR and provide a thorough
cumulative impact analysis. We (POW and I) crossappealed,
contesting the judge’s finding of feasibility of
Berrenda Mesa.
We did not realize at the time of the Superior Court’s
proceedings, and therefore did not present to the court, that
the Berrenda Mesa water transfer needed approval from the
California Department of Water Resources (DWR), a
daunting process which had not even begun at the time of the
Superior Court decision.
Berrenda Mesa is a water service contractor of the State
Water Project (SWP), the state’s water utility owned and
operated by DWR under a permit from the State Water
Resources Control Board (SWRCB). There are 31 contractors
of SWP water and a precisely defined service area
within which the water is delivered.12
To approve the Berrenda Mesa transfer, the SWRCB
would require of WHWD and Berrenda Mesa’s permit two
specific amendments to DWR’s permit:
First, add an additional contractor to the SWP list,
essentially cutting the SWP water “pie” into one more slice,
and second, expand the SWP’s service area to include
Western Hills Water District (WHWD). For DWR’s permit
amendments to be approved the SWRCB would need to
review the proposals, including a new and separate CEQA
review for amending DWR’s permit.
But more importantly, if any existing contractors (29 of
whom had were the original contractors back in the ‘60s)
objected to the amendment, the Berrenda Mesa transfer
could not occur.
We believed that the Berrenda Mesa transfer would not
survive this process. “There isn’t enough water to go around
now” in the State Water Project, Hannigan was quoted as
saying recently.13
Had the Superior Court judge known the facts of the
Berrenda Mesa water transfer permit process, it is likely he
would not have found this proposed water source to be
“feasible.”
Because of these procedural hurdles, Berrenda Mesa’s
amendment to the SWP permit (which would have provided
for the transfer to Diablo Grande and expanded the State
Water Project’s service area to do so) was withdrawn after
protest from existing SWP contractors (whom we surmised
did not want to share SWP water).
Then the Monterey Agreement EIR legal challenge was
upheld in September 2000, voiding that EIR as inadequate.
The 3rd District Appeals Court decision voided the review for
Berrenda Mesa on which the SEIR depended. We have filed
for judicial notice to include this information in our appeal
on Diablo Grande.
The Big Devil’s Details
Tom Clark, general manager of the Kern County Water Agency, came up with a new water scheme for DGP.
Clark proposed that the Kern County Water Agency
(KCWA) buy Berrenda Mesa’s water that was to be transferred
to Diablo Grande. As the Bakersfield Californian
reports, “but instead of selling the water directly to Diablo
Grande, the agency would store an equivalent amount of
water from other sources other than the state project in one
of its underground water banking areas in the Kern River Fan
area west of Bakersfield.” That water bank is called the
Pioneer Water Bank project.
Diablo Grande would pay KCWA for that “banked” water
what it would have originally paid to Berrenda Mesa. The
big devil would then be allowed to divert from the California
Aqueduct the 8,000 acre-feet it “bought” from Berrenda
Mesa, water essentially “laundered” through the KCWA
courtesy of the Pioneer Water Bank.14
“It is not a subterfuge,” Clark told the Californian. “In
terms of the actual molecules of water, it’s not much different
from the previous deal, but in terms of the legal precedent
and the legal obligations, it’s very different. There’s no
expansion of the [state project] service area.”15
We claim the obvious: Tom Clark and the KCWA expose
the utility of conjunctive use water schemes for keeping the
spigot on for wasteful, destructive, and unneeded urban
development in California. This legal and technical loophole
in California water transfer law needs plugging, pronto. This
would increase Californians’ chances of more democratic
control of the state’s destiny.
Beating the Big Devil Yet?
So where do things stand?
The short answer is that the end of the story is a long way
off. The oral hearing in DGP’s appeal on the second decision
before the 5th Appellate court in Fresno took place March
13th. The court is expected to decide within 90 days.
A ruling in POW’s favor would mean that the 1998
Supplemental EIR on water supply would have to be redone,
with a thorough treatment and analysis of cumulative
impacts and additional sources of water identified. With the
now infeasible Berrenda Mesa water transfer, none of the
proposed sources listed in the previous SEIR would be valid.
This new environmental review on water supply issues
would probably take up to a year. In the meantime, Diablo
Grande’s use of temporary well water from the Marshall-
Davis properties east of Interstate 5 is scheduled to end at the
end of May 2001. They would then be faced with supplies of
less than 500 AFY and total needs of well over 1,000 AFY.
Even with approval of the Pioneer Water Bank transfer
scheme by DWR and Kern County Water Agency, the
Pioneer “water” was not part of the SEIR which the appellate
court now has under submission. This water deal must be
reviewed under CEQA in Stanislaus County before it can be
legally valid, and before imported water could then run
uphill to DGP’s money.
In addition, Diablo has not received a 404 permit from
the Corps of Engineers and faces obstacles with the Endangered
Species Act and cultural resources review. While the
Corps’ Sacramento office announced in early March that the
Corps “expects no problems with issuing a permit to let
construction resume in June,” this may be one of many DGP
“done deal” assurances that have not come to fruition.16
Finally, a lawsuit recently filed against Diablo Grande in
federal court by the California Sportfishing Protection
Alliance over, among other things, 404 violations, has only
begun its lengthy journey through the judicial process.
While Diablo Grande’s many issues remain unresolved,
the project’s implications and precedents may be as large as
its footprint on the landscape. It is assuredly a signature
experience, a protracted battle to protect ecological resources,
the regulatory process, and the public trust.
Tim Stroshane provided research assistance.
NOTES
1. Donald Panoz, Managing Partner, Diablo Grande, quoted
on the home page of Diablo Grande’s web site,
www.diablogrande.com.
2. Tom Hannigan quoted in Vic Pollard, “‘Creative’ water
swap makes waves,” Bakersfield Californian 18 March 2001.
3. Project description contained in Diablo Grande Partners,
Draft Environmental Impact Report for the Diablo Grande
Specific Plan, SCH#91032066, prepared by LSA Associates,
Inc., Pt. Richmond, CA, 31 August 1992, FEIR produced 15
June 1993
4. Protect Our Water and Steve Burke v. County of Stanislaus
(respondents); and Diablo Grande Limited Partnership (Real
Parties in Interest), Case No. 181472, decided 30 September
1999, Stanislaus County Superior Court. The case is now
under submission at the 5th District Appellate Court. This case
has been referred to as “Round 2,” or Diablo Grande II.
5. Marla Cone, “Construction is a leading threat to California
wildlife,” Los Angeles Times 21 February 2001.
6. A search of Google.com revealed that Panoz also owns
and operates Panoz Company, a firm specializing in the
design, engineering, production, and importing of “fine cars.”
7. Diablo Grande web site home page, op. cit., note 1.
8. A good example of one Supervisors’ attitude toward
environmental review of development projects is Nick Blom,
“Diablo Grande under attack by feds,” Modesto Bee 24
October 2000.
9. Stanislaus Natural Heritage Project, et al v. County of
Stanislaus (Defendants), and Diablo Grande Limited Partnership
(Real Parties in Interest), Case no. 301417, Stanislaus
County Superior Court, Appellate Court decision 8 August
1996.
10. Diablo Grande Partners, Diablo Grande Water Resources
Plan, SCH# 97032022, prepared by EMC Planning Group,
Inc., Monterey, CA, 27 January 1998, FEIR produced 12 June
1998.
11. For more on the Monterey Agreement, see Tim
Stroshane, “Monterey Agreement: A Bloodless Coup,” and
“Glimpsing California’s Future: A History of the Monterey
Agreement,” SPILLWAY v1n2, Winter 2000.
12. Berrenda Mesa Water District was dominated by Blackwell Land Company (controlled by the family of the New
York investment banking firm of Lazard Freres) and Berrenda
Mesa Farming Company, which in the late 1980s farmed
almonds and pistachios. These two companies controlled 73
percent of the total cultivated acreage and 90 percent of the
total crop value within the district. When the farm crisis of the
late 1980s hit California agriculture, and the 1987-92 drought
struck, farms in Berrenda Mesa and other districts within Kern
County went bankrupt. One asset Berrenda Mesa had was
water and, with other districts in similar straits, sought to
market their water. See Robert Gottlieb and Margaret FitzSimmons, Thirst for Growth: Water Agencies as Hidden
Government in California, Tucson, AZ: University of Arizona
Press, 1991, Chapter 5, “The Search for Cheap Water,”
especially pp.100-104.
13. Quoted in Pollard, op. cit., note 2 above.
14. Ibid.
15. Ibid.
16. Editorial, “Diablo Grande off the ground,” Modesto Bee 9
March 2001.
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