Baldwin Park cannabis businesses owe the city $4 million in outstanding fees – The San Gabriel Valley Tribune

Cannabis businesses in Baldwin Park owe nearly $4 million in outstanding fees to City Hall, but four companies are pushing back, arguing the fee is unevenly charged and improperly spent.

Baldwin Park turned to cannabis starting in 2017 as a possible new revenue source. It has since struggled to persuade cultivators and manufacturers to pay what it calls mitigation fees, hundreds of thousands of dollars annually to offset the impacts of the industry. Now its threatening to revoke their licenses.

Last week, David Torres-Siegrist, an attorney representing four of the delinquent companies, submitted a letter on his clients behalf urging the City Council to reconsider how it collects these fees in light of what he described as glaring flaws in the system. Three of the four companies are not in operation largely because of a multiyear approval process that requires sign-offs from various county agencies yet they have been billed more than $1 million each since 2017, Siegrist said.

All these operators want is a fair playing field, Siegrist said in an interview. If youre going to call it a mitigation fee, give us a report that proves that were impacting the city, especially the guys who are not producing anything, theyre not even open or operating.

In total, 14 of the citys 16 cannabis businesses were behind on payments as of last month.

Siegrist said the city was unable to provide records showing how it spent the roughly $4 million in mitigation fees that have been paid already. It also has not produced annual reports on its use of the fees, as required by state law, he added. At the same time, Baldwin Park does not charge the fee equally, Siegrist argues. At least one other cannabis business, RD Baldwin Park, received a sweetheart deal that did not require it to pay the same fees until six months after it became operational, something not offered to other companies with the same permit, he said.

Baldwin Park CEO Shannon Yauchzee and Mayor Emmanuel Estrada attributed Siegrists complaints to an attempt to get his clients out of paying their debts to the city. Each of the companies agreed to the fees when they signed a development agreement with the city, both said.

These concerns were never brought up to me until we asked them to pay up the hundreds of thousands of dollars they owe the city, Estrada said. The timing is questionable.

Baldwin Park recently ordered the companies to attend compliance hearings and has threatened to pull the companies licenses if they do not pay the outstanding fees.

There is no special tax on cannabis in Baldwin Park, but Estrada said the city would consider putting one on the ballot if the companies push for removal of the mitigation fee.

Do you want to pay us a flat fee, or do you want us to tax you on all your revenue? Estrada said.

A list of payments from cannabis companies produced by the city showed RD Baldwin Park had not been charged any fees as of March 8.

By contrast, Siegrist said his clients have each paid about $500,000 so far. Collectively, they owe another $2 million in outstanding fees as of March, according to the list.

It isnt that they dont want to pay at all, Siegrist said of his clients. All theyre saying is give us an opportunity here to compete with other folks who havent paid a dime. They are millions of dollars ahead.

In an email, Yauchzee said RD Baldwin Park had simply negotiated a better deal than the other companies.

All of the operators made their own separate and independent offers to the City, Yauchzee wrote. The City then reviewed the offers and either accepted them or declined them.

Siegrist alleges his clients were never given an opportunity to negotiate. Instead, he said, they were told to accept the citys terms or another company waiting in the wings would. Of the 14 development agreements for cultivation and manufacturing approved in the same batch, only one the agreement with RD Baldwin Park delayed the fee payments until after the company received its certificate of occupancy, according to a review of the agreements.

We were told, These are the terms, take it or leave it, Siegrist said. There was no going back and forth.

Earlier this year, another company, Rukli Inc., had its past due fees, roughly $300,000, waived in exchange for giving up its exclusive right to cannabis distribution. The company also received permits for cultivation and manufacturing and will not have to pay fees on those permits for this year as a result of the agreement.

The settlement came after Siegrist sued the city on behalf of Baldwin Park TALE Corp., one of the four cannabis businesses pushing back on the mitigation fees, over allegations the exclusive distribution rights were the result of racketeering. Rukli and the city have denied the allegations.

Baldwin Park charges the operators $220,000 to $330,000 annually in mitigation fees, or about $10 to $15 per square foot at 22,000 square feet, regardless of the actual size of the building, according to the development agreements. In addition, the city requires the companies to agree to make an annual voluntary donation of $50,000 toward the salary of one police officer and code enforcement officer, according to the citys permit application.

In his email, Yauchzee said the mitigation fees are spent on police, code enforcement, recreation, youth services, open spaces and other areas in need of mitigation.

He did not respond to a follow-up asking him to provide documentation showing that spending.

Siegrist argues state law requires the city to set aside the funds in a separate account, to define the impacts that need to be addressed and to show how the money collected is used to mitigate those problems. The city does not appear to have done any of that, he said.

The citys budgets are similarly unclear about how the money is used. Baldwin Parks 2019-20 budget shows the city planned to put $2.1 million from cannabis mitigation fees into a community enhancement fund for programs to benefit the local community. Roughly $7,000 from the fund was earmarked for the police that year.

The following year, the fund had a balance of $641,417 and no planned expenditures, according to the citys 2020-21 proposed budget. Overall, Baldwin Park planned to spend about $3 million less on its Police Department than it did the previous year, the budget showed.

Though millions have been collected for mitigation, it was the El Monte Police Department not Baldwin Park that discovered one of the companies pursuing a permit in Baldwin Park, W&F International, had allegedly started growing without the proper approvals in place. Baldwin Park was inspecting nonoperational cannabis businesses only once a year at the time. Officials pledged to increase the number of check-ups to four times per year after learning about El Montes raid on the warehouse.

Siegrists letter to the city also says the recently revealed arrest of former Councilman Richardo Pacheco warrants an overhaul of the mitigation fee structure. In June 2020, Pacheco agreed to plead guilty to a federal bribery charge as part of an agreement with prosecutors.

Pacheco took $37,900 from an undercover police officer in return for voting for the Baldwin Park Police Associations contract with the city in 2018. The FBI found $20,000 stashed around Pachecos house during a search in 2018, then another $62,900 buried in his backyard. He then turned over an additional $219,700, all from soliciting bribes, after the plea agreement, according to the Justice Department.

Pacheco and the U.S. Attorneys Office agreed that his sentencing could be affected by several factors, including that he took more than one bribe, he held an elected position and the total value or benefit exceeded $550,000, according to his plea agreement.

Much of Pachecos case is still under seal and its not publicly known where the additional money came from. Eleven pages are redacted from an exhibit in his plea agreement describing the factual basis for charging him. Pacheco agreed to cooperate with investigators as part of his deal.

In November, the FBI raided the offices of Baldwin Park City Attorney Robert Tafoya and the homes of Compton Councilman Isaac Galvan and San Bernardino County Planning Commissioner Gabriel Chavez as part of a cannabis-related corruption probe, according to federal officials. No arrests were made.

Tafoya denied any wrongdoing through his attorney and has continued to work on cannabis-related matters on behalf of Baldwin Park. Authorities have not said if the November raid and Pachecos arrest are related.

But Siegrist said the city should conduct an independent investigation to determine whether Pacheco accepted bribes for his votes on any of the cannabis agreements. Were asking them to look at it, he said.

Estrada, Baldwin Parks recently elected mayor, said a new slate on the City Council has been asking more questions about how the cannabis development agreements were made, but he stressed he does not have any legal basis for challenging any specific contract that may be unfair.

Theres nothing I can do about it, he said. Until the FBI releases information or says something, then thats when I can act on any questionable contracts.

He would not say whether the city has or would conduct its own investigations into the bribes.

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Baldwin Park cannabis businesses owe the city $4 million in outstanding fees - The San Gabriel Valley Tribune