NO TV PRODUCER WOULD CHOOSE THE MONTEREY COUNTY ASSESSMENT APPEALS BOARD FOR A SERIES. It’s pretty arcane stuff. Homeowners and business property owners come before an independent board of citizens, who are appointed by the Board of Supervisors, to argue their case for why they think the Assessor’s Office made the wrong valuation on their property. The office’s staff argue why the valuation was sound, often relying on complex state tax rules that not even Aaron Sorkin could spin into gripping television.
That is until recently, when an unusual case unfolded before the appeals board. It pits the county’s oldest nonprofit organization, the Monterey History and Art Association, against long-time Assessor Steve Vagnini and his office. Throw in the late surrealist artist Salvador Dalí; a wealthy Ukrainian investor and art collector; the MHAA’s persistent attorney; a resolute former mayor serving as chair of the appeals board; allegations of conflict of interest; plus tens of thousands of dollars at stake, and suddenly a board most people don’t know exists turns into a binge-worthy drama.
The short version of the origin of the dispute is this: A struggling MHAA was losing money keeping the former maritime museum inside the Stanton Center on Custom House Plaza open. Its board looked for something or someone to save them, and thought they had found it by entering into a joint venture agreement in February 2016 with Dmitry Piterman to display his extensive collection of Dalí artwork. The museum would be renamed the Dalí 17 and an admission fee was proposed.
In August 2017, the Assessor’s Office ruled that the change in operations meant nonprofit MHAA was no longer entitled to a property tax welfare exemption as of the 2017-2018 tax year on the Stanton Center. (MHAA had been paying about $370 a year in taxes with the exemption.) Losing the exemption would mean paying taxes of $70,000 a year, based on what the assessed value of the building was at the time.
The drama plays out over nearly 20 hours of public hearings since 2019. There are plot twists and heated arguments along the way. The latest hearing concluded on Feb. 11, and a decision now rests with two members of the appeals board, who will render written findings within a couple of months on the valuation of the Stanton Center, which will determine how much the MHAA will owe in taxes.
Piterman, the Dalí art collector and a member of the MHAA board who argued on behalf of the group before the appeals board, contends it should be zero. The Assessor’s Office argues it should be more like $20,000.
A quote attributed to Dalí fits neatly with the strategy MHAA and Piterman took playing offense in their fight against the Assessor’s Office: “Whoever wants to engage people’s interest must provoke them.”
THIS YEAR MARKS MHAA’S 90TH ANNIVERSARY, but whether there is something to celebrate is in question. Founded in 1931, the group’s primary mission has been to preserve Monterey’s history, partly through purchasing and restoring old adobes and historic buildings. Currently the organization owns an 1843 adobe, Casa Serrano, the Mayo Hayes O’Donnell Library and Doud House. It hosts the annual La Merienda event, a popular picnic and pageant celebrating the founding of Monterey in June 1770.
The Stanton Center is a different situation than the group’s other properties. The city of Monterey owns the land and leases it to the group for $1 a year. MHAA has a 50-year lease with the city, with an option to renew for another 20 years. When the lease finally ends in 2042 (or 2062, if extended), the building reverts to the city.
The MHAA board raised $6.5 million to build the center in 1992 to house a maritime and history museum, where visitors were asked for donations to enter.
But there weren’t enough visitors to break even and both the museum and the group foundered. Records show MHAA was bleeding cash every year, drawing down on an endowment fund. Other financial and staffing issues ensued, leading to a revolving door of executive directors and an investigation in 2011 into the management of MHAA’s assets. (Today MHAA is run by volunteers.) Piterman says that by 2015, they were “technically in bankruptcy.”
That year the MHAA put out a request for proposals, looking for another entity and a new purpose to stop the bleeding. The Weekly reported in February 2016 that there were four proposals, with the winner being Piterman and his extensive Dalí collection of over 500 lithographs, statues and other pieces. Piterman – who is originally from Ukraine, then lived in Spain and caused a stir there as the owner or part owner of soccer teams – had already shown the collection in Spain and Belgium. He proposed a permanent exhibition at the Stanton Center with his company, Dalí 17 LLC.
The idea fit into MHAA’s mission preserving Monterey’s history, since Dalí had lived and worked in Monterey and Pebble Beach during World War II and several years after. It also fit with the group’s need for cash. Piterman agreed to pay MHAA $30,000 up front, then $7,500 a month to start, and later $10,000 a month. Both Piterman and MHAA contend that is not a sublease, but an arrangement to cover MHAA’s monthly expenses for its properties, which Piterman says ran between $7,000-$8,000 a month. The exhibit opened to great fanfare in June 2016.
(The Weekly attempted to contact MHAA’s current president, but emails were not returned.)
A year after opening, on July 6, 2017, a letter was sent from the county Assessor’s Office to MHAA. “Last year the dynamics of the operation seem to have changed,” it stated. In order to keep MHAA’s exemption, the Assessor’s Office would need more information about the arrangement. “What is the nature of the association between Mr. Piterman and the MHAA?”
None of the MHAA volunteers apparently noticed the letter from the Assessor’s Office, nor the second letter that came a month later informing MHAA that because no information was provided, the office was removing the welfare exemption from the Stanton Center. After paying $370 a year the group would owe $70,000 a year in taxes. About a month later the Monterey County Tax Collector – a separate office, run by a different elected official, Mary Zeeb – seized $27,000 out of the MHAA bank account as a jeopardy assessment, according to Piterman. “They didn’t even know what hit them,” he says of his fellow board members.
THE FIRST TWIST IN THE MHAA APPEALS hearings came right away, in the initial meeting on Aug. 16, 2019. By statute, appeals of welfare assessments are taken to the County Board of Supervisors. Gary Varga, MHAA’s attorney, insisted on taking the issue to the appeals board, and much to the consternation of Jerrold Malkin, the county counsel representing the assessor at that time, the chair of the appeals board, Russ Jeffries, was open to hearing the group’s arguments.
Malkin preemptively objected to the entire proceedings. “It’s all statutory,” Malkin said. “It’s inappropriate to try the welfare exemption case here instead of in front of the Board of Supervisors where it belongs.”
Jeffries, however, was unmoved. The former Salinas mayor was in charge of the proceedings for the independent board, and he wasn’t going to give an inch. He let the hearing proceed, which was so long had to be continued over two additional meetings.
A clue to why Jeffries was so interested in pursuing the exemption question surfaced later, and it had to do with an article that appeared in the entertainment section of the Monterey Herald in February 2016 about the maritime museum becoming Dali 17, stating that Piterman was taking over day-to-day operations and would be charging an admissions fee. When Varga asked the assessor’s office for an explanation as to why it was removing the exemption, a photocopy of the newspaper article was sent to him as part of the explanation.
Malkin explained to the board that it’s common practice to monitor media sources for business changes, since there’s no paper trail for the county assessor when businesses and nonprofits change operations, unlike when a sale of a commercial or residential property occurs when a new deed must be filed. They glean additional information through site visits and speaking with the taxpayer. Jeffries zeroed in on the use of newspapers.
“Well, my experience with newspapers has not been good over 30-some years of political life,” Jeffries told the counsel representing the Assessor’s Office. “I have been misquoted, Mr. Malkin. I have had letters to the editor signed by me that I never wrote… So I’m a little upset that somebody in county government would take a newspaper article and be totally justified for making these kinds of decisions without any investigation.”
Malkin argued they had tried to get more information directly from MHAA, but the nonprofit failed to answer.
“There’s a rule that says if we attempt to get information from a taxpayer and we are unsuccessful getting that information, we are allowed to make a determination based on the information that is available to us,” Malkin said. “And that’s what we did.”
MHAA’S PROVOCATION STRATEGY came early in the hearings, and the target of that provocation was Assessor Steve Vagnini. It turns out that Vagnini, who moonlights as a music promoter and festival producer and is involved in the arts, served on the MHAA board for about two months in early 2015, and that became a key part of Varga’s – and later Piterman’s – aggressive offense. Vagnini had a conflict of interest, they argued. (Vagnini later testified under oath that he was on the board for those two months before resigning in March 2015 due to his time commitments to the annual West End Celebration that he coordinates in Sand City.)
They also floated a more sinister motive, that Vagnini also sat on the board of the now-defunct Monterey International Jazz and Music Experience also in 2015, and was behind that group’s offer to buy out the lease for the Stanton Center for $350,000 on a building worth millions. During the hearing, Vagnini denied that accusation as well. Documents provided to the Weekly by Piterman show that Vagnini’s resignation from the music organization came two months before that group’s offer to MHAA. Vagnini testified that the $350,000 offer came after he left and he had no knowledge of it.
Piterman, speaking to the Weekly after the hearings ended, brushes aside any suggestion that Vagnini did not have a conflict of interest, even though removing the welfare exemption came a couple of years after he left both MHAA and the jazz organization. Piterman calls it a “vindictive act.” He also claims Vagnini was behind the Tax Collector’s Office seizing money out of the MHAA bank account, despite being told during the hearing that in reality, the tax collector and assessor are separate, both elected by the voters. (Varga conflated the two offices and at one point called Vagnini “THE Tax Collector,” with emphasis.)
Vagnini made the point that he oversees three offices – assessor, recorder and clerk of the board, not the tax collector’s office – and had no involvement in the case until mid-2020, after the commercial appraiser for the county retired.
But Piterman refuses to believe it: “Somebody is pulling, as they say, the threads here and using someone as a puppeteer.”
“I’d like to say, for the record, I find these accusations very disturbing,” Vagnini testified on Jan. 15. (He declined to comment for this story.) “I’m not benefiting from anything here, so I find that is an insult to my integrity as an elected official in Monterey County for 18 years.”
Jeffries replied: “You’ve been sworn in, Mr. Vagnini, and I take that as accurate.”
DESPITE PROTESTATIONS of unfairness and conflict of interest and insistence that the appeals board had jurisdiction, MHAA lost the first round. In January 2020, the appeals board – Jeffries and board members Glen Alder and Gene Doherty – met in closed session to weigh the evidence presented in August and September. They ruled they did not have jurisdiction.
MHAA next took its appeal to the Board of Supervisors and in May, and the board denied the appeal in closed session.
The deadline for MHAA to challenge the Board of Supervisors in court came and went in November. (Varga believes he still has a legal path.)
In January 2021, MHAA was back before the appeals board to argue over the value of the Stanton Center now that its exemption was gone. It was the first time Vagnini would address the board. He testified he noticed right away there was an issue, that the building had been assessed at the wrong amount for years by a former county commercial appraiser – $6.2 million – but that no one noticed because the exemption was in place.
After taking the appeals board through a painstaking explanation of how he came to his conclusion, Vagnini said his opinion was that the value as of Jan. 1, 2017, should be $2.4 million on what’s called possessory interest – in other words, MHAA’s right to possession of land owned by the city of Monterey. (Vagnini used the entire term of the lease with the city, including the option to renew for 20 years, in his calculation.)
MHAA argued that the calculations should only include the first 50 years, meaning the possessory interest is less. The MHAA appraiser testified that he believes the value should be $960,000. Piterman argued separately that the actual value of the interest should be zero, in part because the museum doesn’t make any money. (Vagnini said the assessment is based on fair market value, not income, and he purposely considered that value at a lower rate because it is a nonprofit and not a for-profit business, like a restaurant or retail store.)
The final meetings proved contentious, with Varga and Piterman attempting to bring up conflict of interest accusations multiple times and reintroduce protests over the removal of the welfare exemptions under the guise that it had something to do with value, only to be shut down by Jeffries, warning them not to make personal attacks.
After promising Jeffries no more attacks, Piterman spent the better part of an hour insinuating Vagnini had ulterior motives, while quoting from Robert Kennedy and Shakespeare.
Vagnini opened his closing statement saying Varga had no understanding of how county operations work, and rebutting attempts to attack his credibility. “There are 135,000 parcels in Monterey County that we value annually,” Vagnini said. “I do not get involved in the day-to-day operations.” Vagnini added that he had nothing but well wishes for MHAA.
“I was really happy to see the Dalí museum take over there and see the MHAA possibly succeed,” he said.
THE DECISION ON THE VALUE of the Stanton Center remains to be seen. The appeals board has up to 120 days, until June, to issue written findings, although Jeffries said a decision could come earlier.
The tax bill will go to MHAA but according to Malkin, the joint venture agreement specifies the Dalí exhibition is responsible to pay. He rejected MHAA’s argument that the organization could fold if it has to carry the tax burden because the county could collect from the museum, not MHAA. When asked later, Piterman says his company was paying all expenses, including taxes, through its monthly payment to MHAA, “but I can terminate (the agreement) at any moment.”
Meanwhile there maybe new issues for MHAA with Monterey. One covenant of the lease is that all taxes, assessments and fees be paid on time or be considered in default. In event of a default after 60 days, the city “shall have the right to terminate this lease and take possession of the premises.”
Piterman, who lived in Pebble Beach for several years, moved to Rancho Santa Fe in San Diego County late last year. Once a devoted collector of Dalí art, he donated half of the collection inside the museum to MHAA last year, and says he plans to donate the other half this year.
That monthly payment Piterman references caused confusion during the hearings, as county officials tried to pin MHAA representatives down on whether or not it was rent. MHAA insisted it was revenue, or a charitable contribution.
“I found it curious, on the one hand, Piterman deducts it as an expense but [MHAA] is marking it as a charitable donation,” said Deputy County Counsel Brian Briggs, who took over for Malkin representing the assessor.
In closing statements, Briggs suggested it wasn’t Vagnini’s credibility on the line: “The credibility, I believe, is on the applicant.”