Pacific Grove >> The mishandling of the failed luxury hotel project known as Project Bella ultimately cost Pacific Grove $100,000. That was the main finding of a recent Monterey County civil grand jury report investigating why the 160-room hotel development, which was proposed to replace the American Tin Cannery Outlets, failed to become a reality.

The 18-page report, released Tuesday, focused on why the project launched with such high hopes in 2015 only to become dormant a year later and what part the city played in the process. The civil grand jury initiated the investigation in response to a citizen complaint.

Besides finding that Pacific Grove spent over $100,000, which was never reimbursed, other key findings included the determination that City Manager Ben Harvey did not accept gifts from the developer and that any alleged missing funds were ultimately accounted for.

“The Jury does not doubt that the City entered into Project Bella with the best of motivations. However, inspired by the prospect of significant revenue for the City, the project was pursued without due diligence,” the report’s summary states.

It was back in 2015 that Domaine Hospitality Partners LLC proposed building a luxury hotel at the site of the American Tin Cannery, a proposal that required a rezoning of the site and an initiative measure for that rezoning.

Promises of transforming the underutilized outlet mall into a revenue-generating LEED platinum-certified hotel spurred on hopes of generating big revenue for the cash-strapped city.

Then in April 2016, Measure X was approved by 59 percent of Pacific Grove voters. The zoning change made way for the development to move forward.

That zoning change was also the only positive result to come out of the project, according to the civil grand jury report, which stated that it “significantly increased the value of the location” even if at a cost of $101,402.47.

“A new project for a luxury hotel at the (American Tin Cannery) site in the future is still a possibility,” it states.

Still, according to the report, mistakes were made even before the city’s special election.

Those included what the report labeled as “communication failures” on the part of city officials. While it noted that “the scope and complexity” of the project was beyond that of any project Pacific Grove had attempted previously, the jury found that the city was often slow to respond and sometimes gave incomplete answers concerning the project. It also found there was no system in place to track the various versions of contracts as they went through the negotiating process between the city and Domaine Hospitality Partners LLC or was there a way to determine the cost of staff time spent on facilitating them.

The biggest shortcomings were found in the city’s tracking of documents and financial record keeping. Central to that were the reimbursement agreements between the city and Domaine Hospitality Partners LLC, of which the City Council admitted mistakes were made when handling.

“As a result, there never was a legal ‘Project Bella,’” the report states. Despite that, work on and toward the project continued. “Unfortunately, the lack of careful preparation proved fatal, and the project stalled and failed, resulting in a loss of more than $100,000 to the City,” the report states.

Those mistakes were what led to citizen complaints, which led the city to hire San Francisco workplace law firm Jackson Lewis in April 2017 to conduct its own investigation and look into the city’s contract with Domaine.

Attorney Cepideh Roufougar found that simple human error was behind the bungled Project Bella reimbursement agreement that led to allegations of possible wrongdoing.

Still, the grand jury report found that by September 2017 when work on Project Bella had stopped, records showed the project’s total cost at $249,815.45. Add to that the cost of the Jackson Lewis investigation at $31,574.99, minus the $179,987 that Domaine reimbursed, the cost to the city came to more than $100,000.

While Roufougar had also determined allegations that Harvey accepted paid airfare and other gifts from Domaine developer Ron Meer had no merit, the grand jury report looked deeper into Harvey’s part in a group membership into a private airline with his friend and sub-contractor of Domaine, Jared Ficker. Meer was also part of the membership.

Said the report, “In the grand jury’s opinion, the decision to join this air service showed a remarkable lack of sensitivity to ethical standards expected of all members of public employment” and went on to say that the appearance of a conflict of interest was imprudent on Harvey’s part.

On Friday, Harvey said by email that the City Council had directed Jackson Lewis to investigate the allegations made to the grand jury, to which the report of the investigator was received and reviewed by the City Council with the conclusion that no action was needed.

“Following receipt of the (Monterey County civil grand jury) report, the City Council directed that the findings of fact, conclusions and recommendations be referred back to the investigating attorney to determine whether the 26 facts, 15 findings or 8 recommendations provide a basis to modify any finding from the report conducted last year,” Harvey wrote in an email. Until that response is received, he said there is no basis for further comment.

Carly Mayberry can be reached at 726-4363.