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CGF sparks DA referral of
Institute Golf Course for
Williamson Act violations
by Brian Schmidt

This summer, the Committee for Green Foothills formally requested that the Santa Clara County District Attorney investigate potential civil and criminal tax fraud violations associated with a 192-acre property in Morgan Hill operated by The American Institute of Mathematics, a project of Fry's Electronics CEO John Fry.

Committee for Green Foothills' letter to the District Attorney outlined arguments that the landowners have for some time violated a state contract under the Williamson Act that requires preservation of agricultural and open space uses on the property. The letter further described that, because of this contract violation, the landowners may be committing tax fraud costing state and local governments thousands of dollars a year in lost revenues.

Three agencies investigating
Two actions have resulted from the Committee's request. First, the District Attorney's office referred the matter to other agencies that also have responsibility for ensuring compliance with the Williamson Act: the Office of County Counsel, the City of Morgan Hill, and California's Department of Conservation. This referral has particular importance because the Department of Conservation has stated, in no uncertain terms, that golf courses do not belong under the Williamson Act.

Second, the City of Morgan Hill has taken notice that the Institute has violated terms of approval for its development by failing to initiate the ten-year process that would remove the golf course from the tax subsidy it is receiving inappropriately. The City independently began the process to end the subsidy. By doing so, tax receipts from the property will increase immediately and substantially — to the level paid by other taxpayers who are not receiving a subsidy.

According to the after-the-fact Environmental Impact Report for a private golf course built illegally on this property, four of the five parcels operated by the American Institute of Mathematics (AIM) have been in contracts since 1969 under California's Williamson Act, legislation designed to preserve agriculture and open space. The state grants owners of properties in such contracts tax breaks in return for commitments that the properties will be used for agricultural purposes or open space.

The Institute's contract specifically states that the owner shall not use the property, at the former Hill Country Golf Course on Foothill Avenue, "for any purpose other than the production of agricultural commodities and uses compatible thereto." Williamson Act contracts are binding on all successors.

Long history of disregard for environment
As Committee for Green Foothills members may know, AIM has long flouted environmental laws on this property. In 1998, the owners scuffled with Morgan Hill officials when they obtained a permit to grade 40 acres to improve an existing nine-hole course, but then graded 150 acres and constructed an 18-hole golf course without permits, causing serious environmental impacts including loss of habitat for endangered species and threats to surface water and groundwater from fertilizer and pesticide use. The City ordered the work stopped and required the production and approval of an environmental impact report, giving after-the-fact approval to the project.

The landowners were reminded of their Williamson Act responsibilities in 2003, when the Revised Draft Environmental Impact Report for the illegal golf course stated the contract did not allow "construction, maintenance, or operation of a golf course."

Morgan Hill officials initially concluded that cancellation of the contract and payment of appropriate fees would reduce the impacts to a "Less Than Significant" level. However, such cancellation of the contract comes with a hefty penalty of 12.5% of the property's current fair market value. When the City of Morgan Hill subsequently granted after-the-fact approval of the golf course in June 2004, it did not require cancellation of the contract, but it did require the Institute to issue a "non-renewal" notice, which would end the contract nine years after the non-renewal notice.

AIM's failure to file for non-renewal of the contract — and its continued acceptance of a tax reduction to which it is not entitled — indicates that tax fraud may be occurring. The actions taken so far may only be the first step. Hopefully the golf course operators will "come clean" on this and other environmental concerns, and government regulators will monitor the situation as closely as the Committee for Green Foothills has.