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

Malfeasance: Brea’s Status Quo?

In the weeks ahead, breaking news regarding several cases of fiscal misconduct will be finding their way into public discussion. The egregious nature of several will likely lead to widespread use of the term malfeasance.

Let’s take caution in our choice of words to be certain we characterize people and their actions clearly and fairly. An exact definition of malfeasance (in office) is difficult: there is no single legal consensus definition.

Malfeasance is generally defined as “a wrongful act which the actor has no legal right to do.” Many courts find malfeasance (in office) where there is “ignorance, inattention, or malice”, which implies no intent or knowledge is required.

Much of what we’ll hear, however, will probably trigger accusations of malfeasance.

Truth: the final frontier.

I’ve invested literally hundreds of hours pouring over a vast array of communications, agendas, minutes, resolutions, staff and consultant’s reports, spreadsheets and financial records from both the city and from Orange County.

I’m not alone. Several others, equally curious about Brea’s past fiscal practices and current fiscal policies, have invested similar time and energy… and come to similar conclusions.

What has been common practice in the past has cost Brea the loss of significant assets and revenue sources and has placed an undue burden upon tax payers to meet unconscionably large financial obligations well into the future.

There is clear evidence, going back several decades, of both ignorance and inattention to detail contributing to the failure of Council members to exercise the full due diligence their office and those who’ve elected them demand.

Malfeasance… I believe so. Malice… not so much. Let me explain.

I’ll point the finger…

Repeatedly it has been found that Council member’s information packets come up well short of including a full set of facts. Consistently, the missing information helps lead Council to forgone conclusions staff has predetermined are preferable.

Again and again it appears that staff has usurped the visionary role and authority of Council. While the evidence of malfeasance is frighteningly clear, at least to me and those digging into these matters, a couple of critical questions remain unanswered.

Obviously staff has the means and opportunity to play fast and loose with Brea’s financial future. What’s missing is motive. Why would our city staff, highly educated… the best and the brightest, do what they’ve done and to what end?

What’s next?

We may never find any answer to why and what for but we can cast a bright light upon this nightmare in the hopes that today’s Council will find the courage to challenge history and change the future.

malfeasance

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?