San Francisco Plumbers Local Uses Pension Funds for Strange Real Estate Deals

Local 38 of the United Association of Plumbers, Pipe Fitters and Journeymen has an unusual set of priorities. Through its pension funds, the union owns a fleabag single-room occupancy hotel in downtown San Francisco that’s straight out of an early-period Tom Waits song. The San Francisco union claims it doesn’t have yet the money to upgrade the structure. Yet fund managers somehow managed to discover $36 million lying around to pump into a non-ERISA “convalescent trust fund” that owns and operates the Konocti Harbor Resort and Spa on Clear Lake in Kelseyville (see photo), about an hour-and-a-half’s drive north of the city. A number of people are unhappy with this arrangement, starting with the U.S. Department of Labor.


In November 2004 the Labor Department filed a lawsuit against local business manager Lawrence J. Mazzola and various current and former Local 38 officials and pension plan trustees (including Lawrence Mazzola, Jr.) who allegedly diverted cash from five separate funds to the convalescent fund for the purpose of renovating and operating the resort. The mystery, notes a recent investigative report by the San Francisco Bay Guardian, is why this has received so little publicity. Not too many people are talking, including those at DOL.


First, there’s the matter of the fleabag joint. That would be the Civic Center Hotel, a 90-year-old, five-story building at the corner of 12th and Market Streets, home to about 150 people. To put it mildly, it’s seen better days. The glass in the front door has cracks everywhere; the reddish carpet in the lobby is threadbare and grimy; the wallpaper hangs in tatters; and the small elevator has a funny way of stopping about a half-foot below the intended floor. If that weren’t bad enough, the building’s unreinforced masonry renders it vulnerable to earthquakes. Looking on the bright side, the rent is cheap, and the place is located away from Skid Row on 6th Street and the drug-riddled intersection of 16th and Mission.


City housing inspectors, however, being what they are, tend to look on the dark side. Aside from other structural defects, they’re saying the building needs a $1 million-to-$2 million seismic retrofit to be completed by February 16. Otherwise, the owner – i.e., Plumbers Local 38 – faces a $500 daily fine. “We’re trying to comply with all the appropriate rules and regulations,” says Pete Machi, manager of the local’s pension fund, who admits the building has been in union hands for some 30 years. “We haven’t reached any conclusion about how to approach the situation.” Johnny Lewis, a 15-year resident who lives month to month on a disability check, puts the issue more bluntly: “They’re letting the building, and the tenants in it, go to hell.” The union may decide to raze the building, but that raises the issue of where to relocate the residents. Thanks to the city’s quintessential Left Coast zoning ordinance, the Plumbers may have to replace, unit for unit, all lost housing, either on the site or somewhere else. The San Francisco housing market long has been one of the costliest in the nation, and regulations like that aren’t helping any. Even moving to another SRO hotel could double the rent for a lot of these guys.


Meanwhile, in faraway bucolic surroundings, the Konocti resort has raised major questions. Court documents say there were “no loan agreements, pledges of collateral, bonds,” or other financial paperwork for the $36 million deal, which represents about a third of all the union’s pension assets. The way it appears to department officials, fund managers simply took pensioner and worker funds and placed them in the resort. Worse, according to the suit, the union profited from a $6 million loan it made to the convalescent fund to prevent a bank foreclosure that would have forced the sale of the property in 2000. No doubt Konocti, with its 5,000-seat amphitheater and 1,000-seat concert hall, is a great weekend getaway spot. Yet for some reason the financially troubled resort is still losing money. Live musical acts like Heart, Eddie Money, Clint Black, Peter Frampton, and Hootie & the Blowfish haven’t pulled the place out of the red.    

Granted, the management team hasn’t been bringing in hitmakers like Mariah Carey, Outkast or Nelly to turn things around. But had they focused more on maintaining the Civic Center Hotel, it’s a fair bet it could have avoided a lot of trouble. Larry Petit, a 60-year-old resident, is a former union man himself; he spent three years trying to organize a Nebraska meatpacking plant. On January 19, he and more than 40 other tenants petitioned the city rent board to issue sanctions against Local 38 if it doesn’t upgrade the structure. Petit didn’t like doing it, but felt there was no other way to get people to listen. “It goes against my grain to be up against a union,” said Petit, “but what the hell are they doing? Joe Hill is rolling over in his grave.” (San Francisco Bay Guardian, 2/7/06; U.S. Department of Labor, 11/22/04).