Gateway Center: Kiss Your Assets Goodbye.

In October 1991 the Gateway Center at Brea Blvd. and Imperial was launched as one of Brea’s first RDA projects. On March 7, 2017 the City Council, acting as the Successor Agency, terminated 100% of the city’s interests in the center in exchange for a check in the amount of $7.8 million dollars.

But wait… there’s more. Brea had to pass this revenue on to the Orange County Auditor-Controller to pay off all taxing entities (other agencies having a right to a portion of the proceeds). The City netted only $1.2 million. I’ll explain later where it went.

Not such a good deal.

In simple terms, staff provided Council with their recommendations, backed by just a 5 page Memorandum by Keyser-Marston, extolling what a great deal this was.

Since 2012 we’ve received an average of $354K annually from rental income (subject to the same pay off to all taxing entities). This one time payout would generate around 3.5 years income.

Instead, why didn’t we opt to continue collecting annual rent? Our participation agreement ran another 30 years… until 2048. Rents would have more than doubled by then but Keyser-Marston left that out.

What staff and Keyser-Marston also failed to disclose to Council was that we had a 25% equity stake in the Gateway Center. It would be triggered by either a refinancing or a sale (full or partial) of the property.

In 2005 Watt-Craig Associates Limited Partnership, per the timeline provided by staff, “sold majority stake in ownership to AFL-CIO Building Investment Trust (AFL-CIO) but continues to retain a small portion of the partnership interest.”

Staff’s claim, when pressed on the matter, is that only a 100% sale would trigger a payout to the city. Watt-Craig retained a 1% stake in Gateway. Who was the rocket scientist that thought this was okay and that we should walk away from around $16.2 million?

Conservatively, the Gateway Center is worth about $80 million… you do the math. Termination of the city’s interest robbed us of $20 million if the property sold today.

Who knows how much our equity would be worth if we simply let it ride?

You can fool some of the people…

Did no one on Council see these red flags? No, because they assumed staff had provided the full scoop. The deception of Council was anchored in their belief that the property owner, Watt-Craig Associates LP, had opened the discussion of a termination agreement.

Not so, even though the staff report, the Keyser-Marston memorandum, the fancy always to be trusted PowerPoint presentation and the Successor Agency Resolution SA 2017-02 all stated otherwise, “The Owner is proposing the buyout of the Successor Agency’s interest…”

It was disclosed, early last week, that this process was initiated by our Director of Development, David Crabtree, presumably at the suggestion of City Manager Bill Gallardo. It was also disclosed that protracted negotiations followed which lead to staff’s recommendations.

From where I sit, this smacks of premeditation and reinforces the notion that this was all fabricated to generate the revenue needed to balance an otherwise upside-down budget (see below).

I’ve made a series of thorough CPRA requests for all communications and documents relating to the termination of our participation in the Gateway Center project. The City’s initial response last week overlooked numerous responsive documents and the City Clerk, Lillian Harris-Neal, has promised to provide them as quickly as she can.

gatewayFollow the money.

You can’t. As is the custom, the revenue was dumped into the General fund where it vanished into thin air. Well, sort of.

It had been determined that the FY2016-17 budget, thanks to declining sales tax revenue, was coming up short somewhere between $800K and $1M – an alarming dilemma for a city that had “always” balanced it’s budget.

Subsequently, unanticipated revenue miraculously offset the shortfall and… voila, the budget was balanced after all. I can’t help but wonder how many preceding “balanced” budgets benefitted from similar fiscal skullduggery.

A couple more scary thoughts.

Not one of Brea’s commissions or committees has a resident member with expertise in commercial real estate or the taxing authorities.

Staff has been careful to keep City Treasurer Rios, Planning Commissioners McGrade and Ullrich (both with deep experience in commercial real estate and the taxing authorities) as much in the dark as they have Council.

We own Embassy Suites and lease land. Staff is contemplating to sell off another “legacy “ asset!

Where does this leave us today?

In deep shite. We have a new budget about to be proposed in the face of continued revenue decline.

Cuts have been made, without clear validation as to how and where considering that the city’s “soft cost” approach to accounting fails to consider labor as a cost.

Many fees have been increased thanks to the city’s ability to calculate labor and overhead down to an hourly rate.

Hang on… am I the only one who sees the contradiction? The city needs to convert to a true cost accounting system and to stop trying to solve the reduced income situation by handing is off to taxpayers to pony up even more.

Time to put on the brakes!

A FY2018-19 operating budget would go into effect in about 47 days. I’ve seen no report from that new fancy special strategic budget oversight committee.

The City Treasurer, Rick Rios, who has leveraged California statutes governing the authority and scope of responsibilities of an elected City Treasurer to reconstitute the office’s role as fiscal watchdog, has yet to see a single page of a proposed budget.

It’s time to put a halt to City Staff’s Ready-Fire-Aim approach to managing city business.

I suggest that Council approves a 30 day emergency stay by employing the proposed operating budget for the month of June only.

This breathing room will allow for Council to give staff more finite instruction, for the Budget Oversight Committee to actually do some oversight and give the City Treasurer the time and opportunity to do the job we elected him to do.

rock the boat

When Is A Law Not A Law?

Well, it seems a law isn’t a law unless City Attorney Markman decides to give it his blessing and Councilman Vargas likes it.

At the March 20 meeting of City Council, the Consent calendar item amending the City Manager’s employment contract triggered a strong public objection to the unsupported dismissal of Measure T, passed by a majority of Brea voters in 2012 and limiting Council and senior staff compensation.

The law matters.

A half dozen or so residents decided to address Council during Matters from the Audience.

Three folks, all admittedly candidates for Council this year, addressed a Consent item about park maintenance, the homeless situation in Brea and Senator Moorlach’s recent study that put Brea fiscally next to last in OC cities.

Measure T and the City Manager contract wasn’t on the radar of any candidate for Council. Thee red flags!

The other speakers all focused in on the law, the contract, the damned good reasons the law should be upheld and the contract pulled from the Consent calendar… subjected to public hearing.

Let’s talk about the initiative process.

The initiative process is a form of direct democracy. Citizens draft a “measure” which they then propose by petition; if the petition receives sufficient popular support, the measure is placed on the ballot and can be enacted into law by a direct vote of citizens.

Unless Measure T can be shown to be in conflict with Constitutional law, it is law in Brea and enforceable.

Again, I suggest that the law is the law. Write the contract accordingly. Through negotiation, Mr. Gallardo can agree to it’s stipulations or reject them. He may also challenge them in court.

So, what the hell happened?

Let’s start here then I’ll give you a rundown of events. The rule of law is the principle that law should govern a nation, as opposed to being governed by decisions of individual government officials.

lawDuring the “Response to Public Inquiries” Mayor Parker, rather than pulling the City Manager Contract from the Consent calendar (Item 18) as had been requested by several residents, allowed the City Manager to defer to comments from the City Attorney.

First came a brief and mostly unintelligible description of the amendment to the City Manager Employment Contract Agreement, which had received substantial objections, mostly centering around the restrictions imposed by Measure T. Then Mr. Markman jumped into a rationalization of why the law approved by Brea voters in 2012 has been largely ignored.

“(The speakers) are blasting something that was done very carefully, in public… you will recall that when Measure T was adopted it was our obligation to analyze it because some parts of it we saw were obviously valid and had to be implemented… like the health benefits being deprived from the Council… some of the other provisions we didn’t think, for various reasons, were enforceable or valid…”

Let me stop you right there Mr. Markman. As you pointed out, Measure T was adopted. A majority of Brea voters passed Measure T with the intent that it become law. Not unlike when they voted to establish a paramedic service… and we know what a fiasco that has turned out to be.

Your obligation, Mr. Markman was to implement the wishes of the voters, NOT analyze it. Who is the “we” you mention that decided some “provisions we didn’t think… were enforceable or valid” – you and Tim O’Donnell?

Because another unnamed city has let a similar initiative languish without implementation is not a good reason why Brea should mirror the same groundless behavior. They, whoever that is, were wrong… ergo you were wrong.

Mr. Vodhanel, during “Matters,” clearly described the history of unsound counsel that cost Brea nearly a million dollars in unnecessary legal expenses… half of which ended up in the RGW coffers.

Any chance you’ll be giving that back?

I don’t care what “thoroughgoing presentation with PowerPoint” you gave Counsel in 2013. If it’s intent was to dismiss a law demanded by Brea voters it was just one more sample of unsound counsel.

I don’t care that you attempted and failed to “negotiated with Mr. Vodhanel directly to try to get some sort of compromise resolution.” Once Brea voters made their wishes known, the original proponent placing the measure on the ballot was no longer in the gunner’s seat… amending the law should be done in a manner that, again, gave Brea voters a voice.

Arguing on behalf of the amended contract.

Now Mr. Markman’s comments, having successfully dismissed any relevance of Measure T or the Brea voters who approved it, turned to yet another prattling of legalese, the sole purpose to rebuff the law and dismantle every objection to Mr. Gallardo’s amended contract.

At what point did the City Attorney’s job description add the responsibility of playing agent for the City Manager? Take your “show me the money” propaganda Mr. Markman and stick to your job description.

Vargas jumps in… puts both feet in his mouth.

lawCouncilman Vargas interrupted the normal flow of the meeting to interject comments relative to Item 18, without objection from Mayor Parker. Totally inappropriate.

With no motion on the floor to approve the Consent calendar or to pull Item 18 for individual consideration… this was little more that grandstanding.

“I would like to make a couple of additional comments on Item 18 without pulling it as I’m prepared to support this Consent calendar.” Vargas said. No objection from anyone on Council. Wimps. Are you really that susceptible to being bullied by someone you all know is in way over their head?

After claiming to be the biggest and most vocal proponent of Measures T and U, Councilman Vargas cites some piece of correspondence from an anonymous woman to allow him to springboard into putting his two cents in without challenge. Anonymous? Put this mystery letter into the public record so we can all see it. No need to redact anything… it’s anonymous!

First, he squashed the four mile limit claiming the city would have to spend large sums for moving expenses and the provision of a silent second. Whoa Mr. Vargas!

A silent second is a type of second mortgage loan that is part of a home sale transaction without the knowledge of the first lender. In most instances, silent second home financing is a form of fraud and thus highly illegal.

Right, wrong or otherwise… Councilman Vargas seems to have dismissed any possibility for further negotiation with the City Manager.

But wait… there’s more!

Councilman Vargas then addresses the limitations to the contract imposed by Measure T and Council’s amending the term from three to five years… which requires explanation, to be sure.

Vargas points out that the City Manager is waiving a 3.2% salary increase, driven by a provision in Measure T for an automatic adjustment of 10% higher than the next highest employee. “I never liked that provision… it was put in long ago and I don’t like it.”

Your use of the unilateral dismissal strikes me the same way,” it was put in long ago and I don’t like it.” Okay Mr. Vargas, you’ve used up all of your unilateral overrides and embarrassed this community enough. What you like or don’t like has no bearing on the law or it’s enforcement. What a preposterous idea.

If, one day, you decide you don’t like the speed limit on Birch Street will we be dodging your big red pickup? If you decide you don’t like laws prohibiting driving under the influence can we expect to see that big red pickup weaving in and out of traffic… putting lives at risk?

You may say that’s just silly… but your rejection of a law adopted by Brea voters on a whim is just as silly. Maybe even more so.

Badda-bing… badda-boom.

With that, Councilman Vargas moves to approve the entire Consent Calendar, someone mumbled a second (we’ll need to see the minutes to determine who it was), there was no additional discussion from any Council member and the whole list was approved – badda-bing… badda-boom.

If that weren’t enough, fast forward to Council Announcements and the only one to speak is Mayor Parker. Unwilling to quash the inappropriate remarks of Mr. Vargas earlier, he launches into his own remarks after the horse is well out of the barn.

Citing that Council is only capable of doing the great job they do because they’re able to hire the very best employees to support them. He continues suggesting it’s Brea’s ability to be salary competitive that brings us “competent and effective” staff we have.

How’s that been working for you Mayor Parker?

Mayor Parker concludes his four minute unsolicited, unnecessary and unwanted comments with an effusive back patting and rationalization session.

Please… don’t let me see his name on the ballot ever again. Not even for dog catcher.

 

law

Paramedic Tax Snowballs Into An Avalanche Of Deceit.

It’s taken over two weeks to fully digest what was immediately apparent to me as I watched the November 6 Council meeting – my inquiry into what it really cost’s to support and maintain a paramedic service uncovered issues of much greater significance, and staff couldn’t be less pleased.

The snowball downhill became an avalanche of deceit.

I have hunted down and received, via public records requests to the City of Brea and the OC Auditor-Controller, over 200 pages of data, accounting, meeting agendas, staff reports and minutes… and invested over 1,000 hours since mid-November to review and understand them. I have more to come, one question answered always seems to lead to more questions to ask.

Here’s the really short version of what I discovered:

  • The 1978 ballot initiative creating the Paramedic Tax appears to be a fraud. Not a word is mentioned in any minutes, resolutions or the ballot measure language itself that so much as a penny of the taxes collected would be spent on anything other than to create and maintain a mobile intensive care paramedic program.
  • Since the RDA was dissolved in 2011, over 44% of the Paramedic Taxes collected have been used to meet RDA/Successor Agency admin costs, pass through commitments and bond obligations.
  • In FY2016-17 Paramedic Taxes collected was $3.84 million. The total actually reaching the General Fund was only $2.30 million. The budget for paramedic services was $5.05 million. So, what does it really cost to have paramedic services and where did the city come up with the missing $2.75 million to cover the budget?
  • Digging into the whole RDA – Successor Agency – Oversight Committee thing takes us into a completely different discussion. Trust me, we will have that discussion. There is such an egregious lack of a paper trail that we will never know the names of all the guilty parties or the full extent of their complicity.
  • From what little data is available, redevelopment in Brea may have created as much as $300+ million in tax increment financed debt for which we’re still on the hook for $196 million that we’ll be paying off from now to 2036.

Back to the Paramedic Tax.

paramedic taxAt the November 6 meeting, as Administrative Services Director Cindy Russell began to share staff’s budget update, Council member Hupp interjected a simple question to City Manager Gallardo, “Bill, I know you and staff had a meeting with some concerned citizens in regards to the Paramedic Tax… would you just briefly tell those in the audience listening what you’re doing based upon what happened in that meeting.”

Gallardo responded, “We had a meeting, a very cordial meeting, with some residents interested in finding out the history of the Paramedic Tax and what was approved. The Paramedic Tax was approved in 1978 by over 80% of the Brea voters and this tax goes towards the operational needs of the fire department…”

No, historically, an average of 44% of the Paramedic Tax collected from within the RDA areas was siphoned off to meet redevelopment obligations.

paramedic tax“One of the things from that meeting was how can we better account for… how can we better track the Paramedic Tax? Right now it goes into the General Fund in a lump sum through payments we get from the county then we account for the expenses through the General Fund.”

No, only the tax collected from non-RDA areas has been apportioned to the General Fund by the OC Auditor-Controller. There has never been a Special Revenue Fund created to track and manage revenue from the Paramedic Tax – we have no true record of how these monies were spent.

“At the beginning of the fiscal year we’ll establish a Special Revenue Fund to track inflow of the Paramedic Tax and also track the expenses directly to the Paramedic Program and do that on a go forward basis.”

Because we have no way to audit what we’ve done in the past since we failed to keep adequate records. It will remain a mystery.

“It’s probably appropriate to put something on our website that identifies what its use is, its purpose what its intent is. 80% of calls are medical, basic life support or advanced life support.”

Adding to the mountain of propaganda on a website that precious few Breans access on a regular basis is not an answer. How about we elect a City Treasurer who actually has the skills to act as an advocate on our part and audit the city’s finances?

And yes, 80% of calls are medical in nature… but what portion of the total workload addresses these calls? How much time, effort and equipment fulfills the Fire Departments activities including administration, building and apparatus maintenance, emergency (disaster) preparedness, fire suppression operations, fire prevention activities, regular fire ordinance compliance inspections?

Tossing out impressive sound bites, out of context and without substantiation, is a common method of distracting us from the real truth.

Councilman Simonoff joins the fray.

paramedic taxCouncilman Simonoff asked the City Manager, “One of the subjects that came up, and maybe Jim (Markman) you’re a better resource for this question… with regards to how payments are made to the Redevelopment Agency… can that be better explained?”

Thank you Marty for immediately spotting what I did… that the City Manager tried to duck out of answering Council member Hupp’s question.

Gallardo replied, “Let me give it a shot then Markman can clean it up if I don’t say it correctly. A portion of the Paramedic Taxes along with all other taxes paid by anybody that has a property ownership in the Redevelopment Agency project area a portion of those taxes went to the RDA. By operation of law, any taxes paid in the RDA area automatically went to the RDA. That has occurred since 1978.”

Boom! There it is. “By operation of law” means, from the very beginning, revenues generated from tax increment were required by the state to pass through the RDA obligating a portion to meet RDA expenses. This is the genesis of the hoax perpetrated upon Brea’s unwitting voters, 80% of them, in 1978.

Gallardo continues, “The good thing is that the RDA’s were dissolved by the state in 2011 so they don’t exist any more. As we pay down any bond obligations in those project areas, little by little that RDA revenue, I’m sorry, that General Fund revenue lost to the city and also the Paramedic Tax that went to the RDA are slowly but surely coming back to our city for our paramedic services.”

Inside that unfortunate word salad are a truth, dissolution of the RDA was a good thing; a Freudian slip “that RDA revenue, I’m sorry, that General Fund revenue…”; and a complete smokescreen, “slowly but surely coming back to our city…” not until 2036 and we have no guarantee where the “lost revenue” will be spent.

Not to be overlooked, Council member Marick weighs in.

paramedic taxCouncil member Marick then directed a question to City Attorney Jim Markman, “Did the city have any opportunity or any say into whether the Paramedic Tax revenue went to the RDA or is that how the law was set up?” (Asked and answered… as they say).

Brace yourself, here is how Mr. Markman replied, “There are some misconceptions because no one has been here long enough to remember this other than Wayne Wedin, Rex Gaede and me.

Basically, in ’78, this was put on the ballot for two reasons. One, Brea had two redevelopment project areas and whatever property tax that was there was going to be allocated elsewhere and they were facing Prop 13 which most people thought would pass which was going to freeze property taxes in place so there were a number of problems facing the city at the time funding redevelopment where the source of income, which was going to grow, got frozen at the 1% tax rate and that took away projected tax allocation money.

Also, and The City Council knew that the Paramedic (Tax), which they proposed and was passed by 80%, was sized as to what the rate was as a special tax so they would generate enough revenues to fund the paramedics and account for the fact that money generated in the redevelopment project areas was not going to be there for that purpose unless and until essentially redevelopment went away several years later which is exactly what happened.”

Boom! There it is. That sounds like a confession if I ever heard one! And, if any interested prosecutor is reading this, the case for proving intent seems like a slam dunk as well.

paramedic tax“So, if anyone doesn’t believe that discussions occurred, that they had those numbers figured out… they issued bonds, numerous bonds, for the Redevelopment Agency that clearly state and show you the allocation of what would have been a Paramedic Tax if its in the project area going to redevelopment.

So nobody was ever fooled or surprised by that and they sized it because Brea wanted paramedics in 1978. And, they wanted to fund the paramedic program so they had to set a tax rate that accounted for redevelopment allocation.”

Okay, having already made his confession, what does this tell us? Only that the size of the gang, those poor unwitting co-conspirators, was bigger than we thought. Seems the gang included virtually every member of City Council holding office since 1977.

Again… Mr. Markman continues, “And that’s what’s happened ever since, except for two things that happened. Once we reached the cap on how much redevelopment money could be allocated… money over that cap that’s generated by that Paramedic Tax goes to the paramedics and the redevelopment allocations are now way reduced because all they’re doing is paying debt on our Last and Final ROPS which essentially, for the most part, are bond issuances that are being paid off over the years and, as they are paid off, that money would be reallocated to paramedics remembering, however, that there is a lot more people here than the 17 or 18 thousand that were here in 1978 when the Paramedic Tax was enacted.

That Council knew that that number would grow, the city would grow, that was the whole idea of redevelopment and when that was all over the allocation would go back to the Paramedic Tax so none of this was stumbled into or a surprise to anybody.”

If the City Manager’s responses were a word salad, this is a banquet of b*llsh*t. If anyone can extract a single cogent fact or convincing statement within this medley of malarkey please share it in the comments section.

Well, let’s wrap this up.

You can view the meeting’s streaming video on the city website HERE to verify that my transcriptions are faithful.

The specious responses from the City Manager and Attorney underscore the callow and indefensible decisions made by them and their predecessors. They have raised the exclusion of the public to a level of pure artistry.

Issues over the last couple of years have escalated from petty small town personality politics to clearly criminal enterprises that wasted millions of taxpayer dollars to either line someone’s pockets, inflate someone’s pension or fulfill some small mind’s notion of what Brea should be.

Whatcha gonna do?