Lots of cash and little scrutiny in city redevelopment

By Kim Christensen and Jessica Garrison, Los Angeles Times

Oct. 1, 2010 12 AM PT

It was a redevelopment deal with an unusual form of payment: plain white envelopes stuffed with cash and delivered to a go-between at a preschool.

FOR THE RECORD:
Redevelopment: An article in the Oct. 1 Section A about redevelopment spending said the Banning Community Redevelopment agency paid “top dollar —and then some” for a vacant car dealership it bought last year for $1.2 million without an independent appraisal. In an interview earlier this year, Mayor Bob Botts declined to discuss a Riverside County grand jury’s finding, based on witness testimony, that the city paid above market value. The article should have included a later response to the jury, in which the city said the purchase was supported by various factors including favorable seller-financing and comparable sales data furnished by a broker involved in the deal. The article also said the Riverbank Redevelopment Agency paid $1.7 million for a theater before conducting a structural evaluation that deemed it unsound. It should have noted that the city had two less extensive inspections done before the sale closed.

And that was only part of what developer Randy Wang said he paid to Temple City officials who “repeatedly solicited bribes” in return for their support of his $75-million Piazza mall project.

His allegations led to criminal charges against then-Mayor Judy Wong and three other people, all but one of whom have pleaded guilty or no contest to bribery, perjury or other crimes. Wong recently was sentenced to 16 months in state prison, the harshest penalty so far.

As for the project — 3.7 acres of retail space and restaurants — construction that was to be finished two years ago has yet to begin.

“Does anyone REALLY believe this will get built in our lifetime?” asked a miffed Facebook user on the “I Love Temple City” page, under the heading of “The Piazza/vacant lot/mud hole.”

The Temple City fiasco reflects problems at many of California’s 400 municipal redevelopment agencies, obscure arms of government that pair public money with private developers to improve blighted areas.

The Times found widespread instances of corruption, questionable spending and poor accountability at such agencies, which take in $5 billion in property tax revenues each year. Under state law, the agencies are allowed to keep any increases in tax revenue in areas they improve.

For years, the agencies operated largely unnoticed, with little state scrutiny. Now, California’s budget crisis is forcing them to make a case for their importance — and their considerable resources. They lost a big round in May, when Gov. Arnold Schwarzenegger and the Legislature authorized shifting $2 billion from their coffers to schools.

Proponents say redevelopment has paid for thousands of affordable homes and public buildings, reviving moribund neighborhoods and business centers. They point to Pasadena’s Old Town and San Diego’s Gaslamp Quarter as models of success.

“There are literally hundreds of communities in California that look better today, are healthier and better places to live and work than they would have been without redevelopment,” said John Shirey, head of the California Redevelopment Assn.

Still, The Times found many agencies beset by problems that have cost taxpayers millions. Sometimes it’s malfeasance; other times it’s officials at small agencies lacking the skills to manage large sums or negotiate complex deals.

Even scofflaw agencies run little risk of getting caught, and rarely face consequences when they do.

One state audit found that dozens of agencies had failed for years to share money with schools and counties, as required. Los Angeles County agencies shorted schools and services by at least $60 million in fiscal year 2005, a review by the state controller found in 2008.

Auditors also found that the City of Industry reported to the state that it gave $2.5 million to schools and the county in 2006. The problem was the payment should have been $21 million.

And when auditors sought more information, 14 of the county’s 74 agencies did not respond and 11 others admitted they did not follow the law. .

A recent report by the Senate Office of Oversight and Outcomes concluded that no state agency oversees redevelopment. Instead, “oversight is left largely to the city council members and county supervisors who sit as local redevelopment agency board members.”

In many projects, even the most basic accountability is lacking, said George Lefcoe, a professor of real estate law at USC.

“What we really want to know as taxpayers is, what kind of public funds were involved — what did we give and what did we get?” he said. “You cannot get those answers anywhere.”

Small agencies, big problems

The old All Star Dodge dealership in Banning looked to be just another ghost of business past in a town hit hard by a sour economy.

But that didn’t keep the city’s redevelopment agency from paying top dollar for it — and then some. Without an independent appraisal, agency board members, who double as the City Council, shelled out $1.2 million for the vacant property in July 2009.

It still sits empty.

“Everything about that deal stinks,” said Philipp Goebels, editor of The Banning Informer website, which devotes much of its attention to the city’s “redevelopment disasters.”

A Riverside County civil grand jury cited the deal in a February report that also faulted the agency for paying for facelifts for vacant businesses while neglecting blighted neighborhoods, and giving $162,000 to a nonprofit “cultural alliance,” co-founded by Mayor Bob Botts, for services it never delivered.

Botts called the grand jurors’ findings “their opinion” and defended the All Star Dodge deal.

“We weren’t just buying property,” he said. “We were working on a project that would be good for redevelopment, that would be good for the city. We had some very, very specific reasons for doing it.”

But he would not say what they were, and by law he didn’t have to. Because redevelopment agencies act in an entrepreneurial role, they have the leeway to conduct much of their business privately.

Redevelopment agencies in California multiplied after 1978, when Proposition 13 limited local governments’ power to raise taxes and prompted them to find new sources of revenue. But many smaller cities that established agencies could not afford skilled people to run them.

“Just because someone is running it doesn’t mean they’re qualified to manage large amounts of money,” said Stanislaus County Supervisor Jeff Grover about the redevelopment agency in Riverbank, a city of 22,000 in the Central Valley.

In 2007, the Riverbank agency spent $1.7 million for the Del Rio Theater, with plans for a downtown arts venue. Unfortunately for local taxpayers, their leaders didn’t order a structural evaluation of the 60-year-old building until after the sale.

Engineers last year declared it unsound, city records show, and it could be razed.

“I was pretty mad,” said Mark Ensley, a former school board member. “I was like, ‘C’mon, guys, you buy this thing without doing a thorough inspection and now you’re going to tear it down?’”

King City, a Monterey County town of about 11,600, had big plans for Town Square, a $9-million redevelopment project.

It also had Scott Galbraith, a free-spending redevelopment director with a taste for establishments like Chester’s Beer of the World and Hooters, according to a 2004 city-funded investigation that accused him of making sweetheart deals with Town Square’s developer.

The city’s private investigator also found that Galbraith steered $375,000 to a Canadian marketing firm he had ties to, and that he billed the city $89,000 in personal expenses, including restaurant tabs and airfare for his wife.

The investigator reported the episode as a “total system failure” marked by “incompetence and impropriety and “little or no accountability.”

Galbraith denied the allegations and said city leaders were well aware of his actions. No criminal charges were filed, but the city sued Galbraith and the developer, who filed a counterclaim that they had been defamed. The dispute was settled out of court.

In 2008, the San Gabriel Valley city of Rosemead paid $4.4 million for a hotel property it planned to redevelop as part of a larger project including retail outlets. In the interim, the city leased it for two years, planning to collect $6,000-a-month rent the first year and $10,000 the next.

But the contract didn’t require the operator to actually make the payments, and the city allegedly lost more than $50,000 in unpaid rents. Apparently no one on the council at the time caught the omission, said Councilman Steven Ly, who was elected last year.

“The best-case scenario is that it was just bad mismanagement,” he said. “The worst case is that there was something nefarious going on.”

‘I loves my job!!! Free Lunches!!! Lol’

Hercules, population 25,000, boasts a certain coziness that has little to do with its size or location on San Pablo Bay in Contra Costa County.

In 2003, after a federal grand jury indicted its affordable-housing manager on charges of bilking the program of $390,494, the town turned to Nelson E. Oliva and his NEO Consulting firm to take over.

Oliva, who had worked for Hercules’ then-city manager, Mike Sakamoto, in Bellflower’s city government, landed a two-year contract worth $255,000 for his company, doing business as Affordable Housing Solutions Group.

It was the start of a lucrative relationship — and it didn’t end when Oliva succeeded Sakamoto as city manager in 2007. Last year alone the company did $950,000 in city business, including overseeing other city programs.

Apparently to head off conflict-of-interest concerns, Oliva gave the company to his daughters, Adrianna and Taylor, one then in high school, the other in college. Taylor Oliva, a recent graduate of UC Davis, was named president in 2007, according to NEO’s website, which until recently had lauded her as the firm’s “guiding force … responsible for the overall operations of all corporate activities.”

That job description was a little more formal than one the Contra Costa Times found on her Facebook page earlier this year.

“Ha ha ha ... I loves my job!!!” read the posting, which has since disappeared. “Its good money and my co-workers are great. It also happens to be a perk being the bosses daughter, believe it or not. Free Lunches!!! lol.”

A county civil grand jury investigated the city’s no-bid contracts to NEO; affordable housing loans to relatives of council members; and sweetheart deals on homes financed with affordable-housing funds.

“There were multiple incidents of problematic conduct between the city and NEO,” the civil panel reported in June. The findings led to no criminal charges, but the grand jurors recommended the city “expand its ethics and conflict-of-interest training” and open up its contract-bidding process.

Neither Nelson Oliva nor Taylor Oliva responded to requests for comment.

NEO’s executive director is Walter McKinney, who was police chief in Hawaiian Gardens when Oliva was its city manager in the 1990s. In July, he told the City Council he now owns NEO and knows of no conflicts of interest.

Big agencies, big problems

Large agencies can afford more professional staff and tend to be more closely watched by advocacy groups. Still, they are not immune from making bad deals.

Pastor Billy Ingram first heard of plans to redevelop the Crenshaw district’s Santa Barbara Plaza in 1984, in a speech by then-Los Angeles Mayor Tom Bradley.

“Since then, I have been in hundreds of meetings and I have heard all of the propositions, the schemes, the games, the snake oil, you name it,” said Ingram, whose Maranatha Community Church is by far the best-kept parcel on the 22-acre property.

The plaza was sliding into decay three decades ago. Today it is a sprawl of mostly boarded-up businesses and chain-link fencing surrounding a huge wasteland of a parking lot.

Los Angeles leaders once envisioned the site, redubbed Marlton Square, as a $170-million showpiece of new shops, affordable homes and condos for seniors. Little of that has come to pass, thanks largely to the decision to award millions in subsidies and loans to developer Christopher Hammond, whose good record of building affordable housing was offset by his history of financial troubles.

The Times reported in 2004 that Hammond or his companies had bounced dozens of checks totaling $200,000, and that he was being evicted for not paying his office rent. Then-City Controller Laura Chick also warned the council, but it still tapped Hammond, a prolific political contributor and fundraiser, to shepherd the project. She later said city leaders “blew it.”

Work was to be completed three years ago but stopped in January 2008, after Hammond and his companies failed to acquire all of the properties needed.

Now, after $37 million in public money has been pumped into the project in loans and grants, it is mired in lawsuits and foreclosure actions.

The city has been buying up parcels, said Councilman Bernard Parks, who represents the area, and will bring in a new developer when the legal issues are resolved.

Ingram isn’t taking any of it on faith.

“It is unbelievable. It is a disgrace. It is shameful,” he said. “If I didn’t have inspiration from God, I’d be depressed driving to my church.”

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Coming Sunday: Cities across California have skirted or ignored laws requiring them to build affordable housing, a Times investigation finds.