Del Norte County 2008-2009 - California Grand Jury Reports

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The consolidated year-end volume. The individual investigations it contains are listed separately below.

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June 24, 2009 — Grand Jury Final Report

50 pages 8 findings

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Findings & Recommendations 8 findings

F1: Evolution of the WWTP Design DISCUSSION: The WWTP underwent two design processes between 2002 and the present. The Final Facilities Plan of 2003 was found to be too expensive at $48 Million, and the new Director of Public Works, who assumed office in December 2003, was asked to find ways of reducing the Project cost. In March 2004, the City Council approved contracting for a “Value Engineering” study to determine how efficiencies might be achieved. Based on that study, in August 2004, the Council approved a re-design for improvement and upgrade of the existing WWTP. That design became finalized as the plan for the current WWTP. Among the primary considerations in the 2004 re-design was confirmation of the 2003 Facility Plan’s choice to use a Membrane BioReactor (MBR) in the treatment process. Although it was more expensive than other options, the MBR had the advantage of being “state of the art” and able to meet the City Manager’s mandate that it fit within the existing footprint of the WWTP. Additionally, the MBR choice was influenced by the desire and expectation that the Elk Valley Rancheria would offset the cost by purchasing the better-quality (Title 22) wastewater produced by the MBR process for use at its planned golf courses. Once the basic design components for treatment had been approved by the City Council, the engineering process continued uninhibited until a set of design specifications was ready to be sent out for bid. By that time, the components were sufficiently integrated that any change would require additional engineering work. In its approval of the 2004 re-design, the Council also approved plans for three new buildings: (a) an Administrative/Operations/Laboratory Building, (b) a MBR/Chemical Storage/Electrical Building, and (c) a Dewatering/Maintenance Building. Once those facilities were approved, the planning process shifted focus to how they would look from the outside. A “coastal woodlands” design was approved for development by the Council. At each step in the re-design that led to the current composition and configuration of the WWTP, recommendations from the City Staff and consulting engineers and architects were presented to the City Council for review and approval. Council Minutes of the relevant meetings from 2004–2009 were reviewed by the Grand Jury. It appears that, on most occasions, neither Council questions nor the bulk of Public comment were at all critical of what was being proposed. The lack of meaningful Council or Public critique of the composition and configuration recommendations may have resulted from their highly technical nature, which might have overwhelmed both the Councils and the Public. FINDINGS: The basic design for the current composition and configuration of the WWTP was essentially complete by the end of 2004. All major design and composition decisions leading to the current WWTP configuration were submitted to – and made by – a succession of City Councils in open meetings with opportunity for Public Comment. The written City records reflect no significant Council or Public critique or denial of these design, composition, or configuration proposals.

F2: Sewer Connection Limitations and Growth DISCUSSION: California Regional Water Quality Control Board, North Coast Region (hereafter “RWQCB”) Meeting Minutes and Orders from 2002 to the present were reviewed by the Grand Jury in order to determine the actual “state of play” with respect to sewer connection allocations under the so-called “Cease and Desist” Orders (hereafter “CDO”) affecting the WWTP and its service area. It appears that consistent Staff-level interaction between City/County Staff and that of the RWQCB, along with demonstrated progress toward a solution of the WWTP’s effluent problems, was responsible for obtaining sufficient connection allocations to keep the sewer service area in business. For example: • In February 2004, even though the RWQCB noted that the City did not have sufficient funds to build the $48 Million WWTP then under consideration, sufficient progress had been made on interim repairs and planning for eventual solutions to grant connection allowances for an additional 160 single-family dwellings or equivalents. • According to the Grand Jury’s review of the City’s Monthly Hookup Status Reports, that allowance was sufficient to carry the system through at least the end of 2005. • In June 2005, even though the RWQCB realized that the City still did not have sufficient funds to build the re-designed WWTP, it noted (a) progress toward the Rumiano pre-treatment facility, (b) a pending City-wide Industrial Pre- Treatment Ordinance, and (c) Elk Valley Rancheria’s testimony that “… it would need an additional 160 hookups in the next six months and up to 500 more over a five-year period ….” - payment for which could be used toward the cost of WWTP upgrades. As a result, the RWQCB granted connection allowances for an additional 500 single-family dwellings or equivalents. • According to the Grand Jury’s review of the City’s Monthly Hookup Status Reports, 376 of the total hookups granted by mid-2005 remained available as of December 31, 2008. It appears that, at no time between 2002 and January 2009 was the WWTP service area in danger of running out of sewer hookups. Additionally, the Grand Jury found no record of threatened “recall” of those RWQCB allowances as long as progress toward improvement and resolution of the WWTP effluent problem was being made. FINDINGS: Close and consistent interaction between the Staffs of the City, County, and RWQCB was largely responsible for maintaining an adequate level of sewer connections available under the CDO’s. While completion of WWTP improvements and upgrades to solve the effluent and overflow problems was the ultimate solution to the CDO issue, the key to maintaining RWQCB approval of incremental allowances of additional connections was steady improvement of existing conditions – such as outfall maintenance and new construction, and industrial pre-treatment. At no time during the period reviewed was there a serious threat of “shutdown,” or recall of existing connection allowances.

F3: Escalation of WWTP Cost Estimates DISCUSSION: One of the most problematic aspects of the investigation was coming to grips with what the cost estimates were – and what they covered – at any given point in time. It appeared that the estimates varied according to which plan was being proposed, or from which source they were derived. Additionally, cost estimates over time rose along with the price of required goods and services. From written records and testimony, the Grand Jury developed the following cost information, almost all of it subject to interpretation: • The WWTP described in the 2003 Final Facilities Plan was estimated to cost about $48 Million. • The early “Value Engineering” process was charged with developing an alternative, or interim, project of about $10 Million. It came in with recommended options that had a capital cost of $10.3 Million, but this was seen as barely capable of meeting the effluent requirements under the CDO – with limited capacity for additional or seasonal flows. • In May 2004, the City Council received a report outlining “value engineering” costs and options, totaling “… 10 to 13 million dollars.” This report did not address a Lab Building, but indicated that “Approving the above plan will provide at least 10 years of plant capacity … [and] … provide flexibility to construct facilities, as the city is able….” • In the Fall of 2006, the Council authorized the City Staff to submit an application to the State Water Resources Board (hereafter “SWRB”) for a State Revolving Fund (hereafter “SRF”) loan in the amount of $19.6 Million. In January 2007, the SWRB made a preliminary commitment to that loan request, with a cap of $25 Million. • In December 2006, the Council approved a recommendation to authorize soliciting bids for the WWTP construction contract. The Council was told that (a) going to bid did not obligate the City in any way to accept a bid, (b) the timing of the bid solicitation was at the optimum time of year to secure the most and best bids, and (c) the bid would be structured so as to permit the Council a “cafeteria-style” range of options “… to allow doing any, or all, of five different projects, with prices for each.” • By January 2007, City Staff had some inkling that the price of the project was going up. The Council was provided with a memorandum outlining WWTP financing options to cover a cost ranging from $26 Million to $42 Million. • Despite that, the bureaucratic wheels ground on as, on February 20, 2007, the SWRB approved the City’s Fall 2006 application for a preliminary SRF Loan commitment of $19.6 Million. • On March 19, 2007, the City Staff informed the Council that only one bid (hereafter “The Wahlund Bid”) had been received, and it was for $37 Million. The Council Minutes for that meeting provide no concrete details as to any Council or Public comments on what should have been a surprising development. Even the SWRB Staff report on the City’s revised SRF Loan application noted that the bid was 50% higher than the originally requested SRF Loan amount. • Even more surprising and inexplicable, the official City records of that Council Meeting were found (on May 12, 2007) to contain not one single page of information which would and should have been provided to the Council on a matter of that significance. Moreover, the City Staff Department responsible for that Agenda Item (Public Works) has been unable thus far to produce a copy of the information and advice provided to the Council for their consideration of the Wahlund bid. Thus, on the written record, the Council appears to have accepted a $37 Million bid without any indication of why they did so. • In late March 2007, the City issued a revised SRF Loan application to the SRWB requesting a preliminary loan commitment for $43.8 Million. A number of questions regarding the adequacy of City processes arise. Most of them relate to the quality of Staff work and the intellectual curiosity of the various City Councils. • The written record of Council meetings relating to the cost of the WWTP Project reflects little in-depth questioning of the Staff. • The several City Managers during the process appear to have delegated the work to the Public Works Director, and do not seem to have been “players” overseeing the cost escalation. • It is disturbing in the extreme to see that the City could have submitted an SRF Loan application in the Fall of 2006 for $19.6 Million, then inform the Council in January 2007 that the price had changed to $26-$42 Million, then reveal a single bid for $37 Million and have to re-apply for a changed SRF Loan commitment for $43.8 Million. While all of this was going on, the written Public Record reveals little effort by City Senior Management or the Council to (a) question what was going on, (b) explain the cost fluctuations to the State bureaucracy, or (c) prepare the general Public for a significant WWTP cost increase. At almost every step in escalation of WWTP costs, information from the City Staff was presented to the City Council for review and approval. Council Minutes of the relevant meetings from 2004 – early 2007 were reviewed by the Grand Jury. It appears that, on most occasions, neither Council questions nor Public comment were at all critical of what was happening. The lack of meaningful Council or Public critique of the evolving and escalating WWTP cost estimates – at least as far as it is indicated on the written record – allowed the process to unfold almost without serious challenge or review. FINDINGS: The number and variety of cost estimates for the WWTP Project from 2003 – 2007 made it difficult for the Council and the Public to keep track of where the City was with respect to the ultimate cost of the Project. Senior City Staff made little effective effort to place these widely varying figures in perspective for both the Council and the Public. Too much responsibility was delegated to the Department of Public Works, which was focused on getting the Project done, rather than on keeping open the necessary lines of clear communication with the rest of the City. There was a breakdown in effective communication with the Public and – as far as the Grand Jury can tell from the available written record – the Council regarding the changing cost estimates in the crucial period from October 2006 to March 2007. This “communication problem” was a major contributing factor to the surprise, disappointment, and resentment evident in the Public reaction to the bidding outcome and the Council’s acceptance of it. There is no indication on the written record that, when the Council accepted the Wahlund bid on March 19, 2007, they exercised the options presented to them in December 2006 (see above). At present, owing to the failure of the City Staff to produce a written record of what the Council was told prior to its March 13, 2007, acceptance of the Wahlund bid, it is impossible for the Grand Jury to determine why the Council chose to do so.

F4: Conduct of the Proposition 218 Sewer Rate Increase Poll DISCUSSION: a. The Proposition 218 Process. In August 2006, the California Supreme Court rendered a decision (Bighorn-Desert- View Water Agency v. Verjil) (hereafter “the Bighorn decision”) which brought rate increases for water, sewer, and some other utilities under the Proposition 218 (hereafter “Prop. 218”) process. That process required proposed rate increases for such utilities to be brought before the Public to determine whether or not a majority of the affected population objected to the increase. Prior to that time, government entities such as the City of Crescent City merely had to notify affected Citizens of such increases. The Grand Jury examined all written City Council records from 2006 – early 2007 and found no mention of Prop. 218 considerations applying to any rate increase that might be used to repay the SRF Loan for the WWTP Project. In fact, in the 2006-2007 budget cycle, a $3 per month surcharge had been levied on sewer customers in the County Service Area (hereafter “CSA”), with no notification other than the publication of the Budget. Of interest, that levy later was found to be in violation of the Prop. 218 process, and the Council decided to refund the funds collected – with interest. Various interviews conducted by the Grand Jury supported a conclusion that the City went into the WWTP construction contract bid process “blind” as far as Prop. 218 requirements were concerned. The written Public Record on the Council’s March 19, 2007, Meeting – when the Wahlund bid was brought up for consideration – reflects neither any discussion of how a SRF Loan for that amount would be funded, nor any mention of a Prop. 218 requirement relating to a potential rate increase. There has been some indication that the Council was advised of changes in Prop. 218 requirements for utility rate increases at about the time of its consideration of the Wahlund bid. The City has yet to produce any documentation, so the exact date cannot be determined. By May 2007, the Interim City Attorney advised the Council that it would be necessary to go through a Prop. 218 process in order to pass the sewer rate increase needed to provide security for the needed SRF Loan. In the meantime, the City already had accepted the bid from Wahlund Construction and was moving to contract – with preliminary work between the engineers and the construction planners under way. The City was in a position of having to scramble to get the process done, and to do so under the stringent conditions required by Prop. 218. The Grand Jury has looked into those requirements in some detail, and has determined that the City basically was required to: • Provide a basis (at minimum) for property owners of every recorded parcel [APN] served by an active sewer hookup, and who were rate-payers, to register an objection to the proposed rate increase • At its discretion, provide non-property owners on recorded parcels [APNs] served by active sewer hookups, who were rate-payers, an opportunity to register an objection to the proposed rate increase • Limit the count of “objections” to one per recorded parcel [APN] served by an active sewer hookup • If the number of validly counted “objections” amounted to 50% plus one of the number of recorded parcels [APNs] served by an active sewer hookup, deny the rate increase Clearly, this would have been a difficult process to explain to the Public under the best of circumstances. The City conducted a series of Public Workshops during the Summer of 2007, focusing more on the need for WWTP funding than on the mechanics of the sewer rate poll to be conducted. Additionally, the City Council may have muddied the water even further by (a) first deciding to permit only the property owners to register objections, and sending them mailers to that effect, (b) subsequently deciding to add non-owner rate-payers to the mix, and sending them mailers to that effect, (c) employing an external format for the mailer that looked quite similar to the City’s annual Water Quality Report which many Citizens are in the habit of discarding, and (d) providing a set of instructions inside the mailer that was filled with “legalese” and proved confusing to some of the people interviewed by the Grand Jury. It is unfortunate that the explanation of the Prop. 218 processing requirements provided by then-Mayor Burns at the November 5, 2007, Council Meeting could not have been provided to the Public before the process of registering objections to the rate increase began. It was clear, lucid, and to the point. But, it was too late. Despite the fact that the City desperately wanted, and needed, the rate increase poll to provide a “favorable” result for the City, these decisions, taken as they were made – one by one – appear to have been made in good faith. b. The Count. The Grand Jury has gone over in some detail the methodology used by the City in counting the “objections” received by the City Staff. There is little indication that incoming documents were diverted or tampered with on their way to the City Clerk’s Office. The City Clerk retained custody of the documents all during the count (including when they were provided for review by interested members of the Public), and until they were turned over to the Grand Jury for review. The count was performed by a standing set of City Staffers, under the direction of the City Clerk and the advice of the City Attorney. The City Manager selected the Staffers who took part in the count. Tallies of the ongoing count were entered into a program designed by the City’s Information Technology Officer to assist in the following tasks consistent with the Prop. 218 requirements: • Cross-check names of property owners against billing addresses and/or recorded parcels [addresses were considered valid substitutes for APNs as long as they equated to recorded parcels with active sewer connections] • Cross-check non-owner rate-payers against billing addresses and/or recorded parcels with active sewer connections • Identify and set aside duplicate submissions, such as multiple objections sent in from the same billing address or parcel number • Identify and set aside duplicate submissions, such as names and addresses on petitions that were the same as those on objections sent in from the same billing address or parcel number • Identify and set aside submissions, either mail or petition, with names and/or addresses that did not equate to valid billing addresses or to addresses or APNs for recorded parcels served by active sewer connections Determining and validating “eligible” objections was made more difficult by the fact that existing County databases of APN’s and City databases of billing or street addresses were inconsistent. This gave rise to a number of apparent mis-counts or non-counts that continue to be challenged by the Public. Testimony has indicated that, in some cases, the “human element” assisted in making the count as inclusive as possible. Staffers from the Finance and Water Departments, who are quite familiar with their rate-payers, were able to equate some names that came in without addresses to the proper address and/or APN so that their objections could be counted. As to the matter of multiple rate-payers on the same sewer-served recorded parcel – such as those living in separately-metered apartments – some may feel that their votes were not counted since someone else’s objection was recorded for the same parcel. If it occurred that way, the Grand Jury has discovered, it was because of Prop. 218’s “one objection per parcel” requirement. c. Prop. Is Evolving. The Grand Jury has learned that even more changes may be forthcoming in the application of Prop. 218 to utility rates. In March 2009, the California Court of Appeals for the First District held that a Prop. 218 rate-increase process in Marin County was invalid because it was not conducted by secret ballot, in addition to all of the other requirements discussed above. Whether that will be binding on other jurisdictions remains to be seen, but it is evident that the City must remain current on such developments. Another gap in City Council awareness of significant changes in Prop. 218 mechanics, such as that which occurred in 2006-2007, should not be allowed to happen. FINDINGS: The City Council did not receive timely warning and advice from the City Staff regarding the new requirement for a Prop. 218 process to approve the sewer rate increase that was needed to secure a SRF Loan to cover the cost of WWTP construction. The apparent delay – from August 2006 to May 2007 – in notifying the Council of changes in the Prop. 218 requirements for utility rate increases reflected a lack of ongoing awareness of the regulatory environment in which the City was operating. Having entered into a $37 Million construction contract, apparently without awareness of the Prop. 218 requirement, the City had to rush to devise and implement a Prop. 218-compliant Public approval/disapproval process. In so doing, the City also had to overcome the deep suspicion and resentment among the Public regarding the “Wahlund surprise” that resulted from the apparent “failure of communications” discussed previously. The various outreach efforts conducted by the City Council and Staff regarding WWTP funding in the period leading up to the sewer rate poll were not focused on explaining the mechanics of the Prop. 218 poll process itself. Actions taken by the Council to define – and later expand – the field of eligible “objectors” to the rate increase, was poorly coordinated and, though well-intentioned, resulted in considerable confusion as to how the poll would be conducted and whose objections would be counted. The poll instrument (mailer) itself was poorly designed and confusing, not only complicating the process, but also undermining Public confidence in the outcome. The incompatibility of County and City databases needed to establish the eligibility of “objectors” was a significant problem that needs to be addressed before any future Prop. 218 polling is conducted. The actual count of “objections” was performed according to a logical methodology, and adhered to the requirements of Prop. 218. That some objections were set aside appears due to Prop. 218 restrictions and database incompatibility problems. Prop. 218 interpretations are evolving. The City Council and Staff should remain current regarding significant regulatory changes that would affect City business.

F5: Role of City Staff Members in WWTP-Related Issues DISCUSSION: The Grand Jury looked into the roles of the various City Managers, City Attorneys, and Finance Directors, as well as the City Clerk and the Public Works Director in WWTP-related issues. At least as reflected in available written City records and through interviews, it appeared that Staff interaction on WWTP matters was minimal. City Managers appeared to have delegated much of the responsibility for WWTP matters, including loan applications and issues that logically would fall into other Departments, to the Public Works Director. While this permitted “single- management” of the WWTP Project, the apparent lack of City Manager oversight and Staff-level cross-checking of information and recommendations led to the process deficiencies noted under other “issues,” above. For his part, the Public Works Director assumed a heavy load of responsibility for all aspects of the WWTP Project. While commendable, this caused him occasionally to be spread too thin to address important procedural and public outreach matters that seemed peripheral to the main objective of designing and building the plant. At several points in the process, the written Public Record does not reflect City Attorney involvement in matters that should have come under his purview. Examples include lack of updated guidance on Prop. 218 changes to the City Council before (a) they voted to approve the 2006-2007 Budget containing a $3 per month surcharge for sewer users in the CSA, and (b) their March 2007 acceptance of the Wahlund bid for $37 Million. FINDINGS: Staff procedures within City Hall did not appear adequate to prevent some Prop. 218 procedural errors – and a considerable loss of Public confidence – in the conduct of the WWTP bidding, contracting, and rate increase approval processes. Available written Public Records and testimony indicate that interdepartmental coordination and interaction did not occur in several decision processes relating to the WWTP Project. This led to incomplete information being provided to the Council and to the Public.

F6: Role of City Managers in WWTP-Related Issues DISCUSSION: As indicated above, several City Managers seemed to have delegated much, if not all, of the matters relating to the WWTP Project to the Public Works Director. On the written Public Record, there was little evidence of City Managers’ questioning of commitments and recommendations on policy and fiscal matters related to the WWTP. Moreover, in the critical period from late 2006 to 2007, most of the advice and information provided to the City Council about the WWTP came from the Public Works Director, with little apparent interpretation or input by the City Manager. As a result, it appeared that the Council received advice that was focused on getting the Project done, with little attention to ramifications of the Project’s impact on other City matters. The role of a City Manager as “silent partner” to Department Directors seems unnatural, and at variance with procedures observed in other jurisdictions, where they function as a highly visible “guiding hand.” If a City Manager is required to participate in presenting an important issue to a decision-making body, he or she will understand it more deeply than would be possible from simply being an “observer.” In 2006 – 2007, the City Manager did not ensure that the Staff was up to date on changes in Prop. 218 requirements affecting the potential funding of the WWTP. This resulted in considerable difficulty for the Council, confusion for Citizens participating in the Prop. 218 process, and a significant loss of Public confidence in the outcome. In 2006 – 2007, the City Manager apparently did not ask hard questions and follow up with regard to significant fluctuations in cost estimates for the WWTP Project that were provided to the SWRB, the City Council, and the Public. This led to the March 2007 “Wahlund surprise” and significant loss of Public confidence in the City’s stewardship of the Project. In 2007, the City Manager did not ensure that (a) the Prop. 218 process for approving the proposed sewer rate increase was understood clearly by the Public, (b) the rate increase poll document was understandable, and (c) the counting process was understood clearly in advance of the poll. Once again, this led to a loss of Public confidence in the overall WWTP process. FINDINGS: Several City Managers were not sufficiently involved in WWTP matters to fill the gaps in Council information and Public outreach that resulted from the Public Works Director’s natural focus on the Project itself. As evidenced by some of the lapses in coordinating Staff work relating to the WWTP Project, City Managers need to take a more active role in Staff work on major projects than that observed with respect to the WWTP from 2004 to 2007.

F7: Role of the City Councils in WWTP-Related Issues DISCUSSION: Through reading more than six years’ worth of Council Minutes and WWTP-related Staff reports, the Grand Jury has gained an impression that various City Councils were called upon to tackle and decide a number of important – and often contentious – questions of policy and fiscal import. Additionally, it appears from the written record that many issues relating to the WWTP were so technical that Council members were especially dependent upon Staff and Consultants for advice and recommendations. The written record reflects a number of occasions when Council questioning of Staff and discussion of alternatives appeared to be minimal. While this may be due to a defect in the way that Council Meeting Minutes are prepared, they are the record most of the Public has to work with when reviewing past Council activities. The Grand Jury’s overall impression of the body of written records is that, with several notable exceptions, various City Councils from 2003 to 2009, were not sufficiently critical of Staff input to avoid the problems that arose with respect to the WWTP Project. For example: • In 2003, the Council appears to have approved a Final Facilities Plan, and its associated Environmental Impact Report (hereafter, “EIR”), with no prospect of being able to meet the $48 Million price tag. • In 2004, the Council relied on Staff assertions of a $12-$13 Million price tag to approve a “value engineered” re-design and associated Supplemental EIR. • In the Fall of 2006, the Council approved a Staff recommendation for application to the SWRB for a $19.6 Million SRF loan, when the Staff knew, or should have known, that the engineering cost estimates already were well above that. No significant questions appear to have been raised. • In December 2006, the Council approved a Staff recommendation to solicit bids on the WWTP Construction Project when Staff assured them of (a) multiple bids, (b) no obligation to accept any bid, and (c) an ability to choose from among the five separately-costed main components in any bid. No significant questions appear to have been raised. • On March 19, 2007, Staff presented, as the only bid, one from Wahlund Construction for $37 Million. The Minutes reflect no serious questions and, despite the fact that the Council had been advised in December that it could either reject the bid or choose from among the five main components, the whole bid was accepted with only one negative vote. The Council’s role in the Prop. 218 issue has been discussed in detail above, along with the difficulties it encountered as a result of outdated advice regarding changes in Prop. 218 requirements. Here again, the Council appeared totally dependent on Staff for advice. The written record and testimony shows a tendency on the part of City Staff and several Councils to have been dismissive of Public input and comment on questions relating to the WWTP. FINDINGS: Throughout the period covered by this investigation, a series of City Councils was overly dependent on City Staff for advice and recommendations – especially with regard to technical matters. Compounding that difficulty, it appeared that these Councils, in large part, were not sufficiently demanding of Staff on major matters. In several instances, incorrect, incomplete, or untimely information from Staff placed the Councils in a position where they had little choice but to rush to judgment with insufficient information. City Councils, as a matter both of right and of good government, can require and demand that City Managers, and the Staffs that they supervise, provide Council members with timely, complete, accurate, and unbiased information, advice, and

F8: “Conflict-of-Interest” Questions DISCUSSION: a. Reporting Requirements. The Grand Jury reviewed State and Local Conflict of Interest (hereafter, “COI”) Guidelines to determine which, if any, restrictions applied to outside business activities by City Staff Members. Additionally, scores of property, zoning, and land use hearing/decision records were obtained and reviewed to assess the scope of the City Public Works Director’s real estate and development interests. Eleven (11) different interviews were conducted regarding (a) the City’s interpretation and application of its own local COI guidelines, (b) the City’s awareness of the Public Works Director’s outside business activities, and (c) the City’s sensitivity to “the appearance of a conflict of interest.” Finally, the Public Works Director’s Statement of Economic Interests [CA Form 700] Reports for 2003 – 2008 were obtained and reviewed. These reports are required by the California Fair Political Practices Commission (hereafter, “FPPC”) for persons whose official positions and private activities might produce a conflict of interest. b. The RBS Connection. It appears that in June 2004, shortly after his return to Crescent City to assume the post of Public Works Director, he and at least two partners from the Sacramento area formed a Limited Liability Corporation (LLC) called RBS Washington Boulevard/Summer Lane (hereafter, “RBS”) for the purpose of buying and developing a 50 acre tract of land behind Wal-Mart and Ace Hardware. In July, 2004, RBS completed purchase of the land for about $1.1 Million. Subsequently, RBS sought and obtained annexation to the CSA in order to complete its access to the Public sewer system. A number of other activities, including subdivision, zoning, re-zoning, boundary adjustment, use permits, and partial sell-off of portions of the subdivided 50 acre tract occurred during the period 2004 – 2009. In the majority of these activities, the Public Works Director interacted with County officials on behalf of both RBS and a subsequent buyer of sold-off portions of the RBS tract. For the majority of these development applications, access to the Public water and sewer systems was mandated for gaining County approvals. The City provided, as required, so-called “will serve” letters in support of RBS’s land use approval applications. These letters, none signed by the Public Works Director himself, assured the County that the City had sufficient water and sewer capacity to serve the developments or uses under consideration. In March 2006, a special Sewer Capacity Evaluation was prepared for RBS by Stover Engineering to supplement the various development applications. It concluded that the only shortfall in providing sufficient sewer capacity was the need to upgrade two Lift Stations for wet-weather conditions. Mitigation fees of $2,000 per single family equivalent (hereafter, “SFE”) unit were imposed as conditions on the proposed developments to help fund those system improvements. c. The CFY Connection. In September 2006, a Sacramento area developer of low-income apartment complexes applied to the County for a major use permit to develop an 81-unit complex of low- income apartments on a portion of the RBS tract. RBS was listed as the property owner, and the Public Works Director signed the application on its behalf. The developer was C.F.Y. Development, Inc. (hereafter, “CFY”). In its application, CFY indicated that it would have access to the Public water and sewer systems. It relied on the March 2006 Stover Engineering Sewer Capacity Evaluation to demonstrate that adequate sewer capacity would be available. Virtually all of the County approval process documents highlighted the availability of Public water and sewer service as a condition of development. City “will serve” letters for water and sewer service were provided in support of the CFY application. The City’s November 9, 2007, sewer letter said that CFY would be charged for 68 SFE connections for its apartment complex, and indicated that the City still had 400 connections “… available on a first come first service basis.” The Public Works Director played an active role in shepherding the CFY applications through the approval process, appearing at the County Planning Commission’s Public Hearing to praise the project, introduce Mr. Cyrus F. Youseffi (the CFY President) and indicate that he had been familiar with CFY’s high quality work in the Sacramento area. In December 2007, after the CFY development application had made its way through all County approval processes, CFY purchased the land from RBS for $700,000. Application for a similar CFY low-income apartment development on another portion of the RBS tract was submitted in November 2008. That one called for two 81-unit apartment complexes, to be built in two phases. Although it remains in the early stages of the County approval and permitting processes, the new CFY development will require access to Public water and sewer service in order to gain approval. d. CA Form 700 Irregularities. The FPPC requires that officials in designated positions complete a CA Form 700 at various points in their tenure. The Public Works Director was required to complete his Form 700’s upon taking office and annually thereafter. That form has a section where “Real Property” economic interests are to be reported. The City had a Conflict of Interest Code in effect at the time of the Public Works Director’s assumption of office. That Code remained in effect thereafter – until it was changed by the City Council in March 2009. Although the City has not yet complied with the Grand Jury’s months-old request for complete copies of any Conduct or Conflict of Interest Codes, examination of recent revisions to the Code suggests that the wording applicable to the Director of Public Works was: “The following designated members and employees report financial interests within the jurisdiction of Crescent City, California in accordance with the disclosure categories listed: …. [here, the Director of Public Works/City Engineer is listed under disclosure categories I and II] …. “Designated members and employees assigned Disclosure Category I must report: All interests in real property, investments and business positions in business entities and income from sources which are located, doing business or planning to do business in the jurisdiction of the applicable agency (City of Crescent City/ Redevelopment Agency/ Housing Authority) [Wording and punctuation as in original]….” The old Crescent City Code was silent on the geographic area question, but the California Attorney General’s guideline is more specific. The California Attorney General’s Handbook on conflict of interest identifies covered real estate economic interests as follows: “An official has an ‘interest in real property’ when the official, spouse or dependent children have a direct or indirect equity, option, or leasehold interest of $2,000 or more in a parcel of property … located in, or within two miles of, the geographical jurisdiction of the official’s agency (e.g. within two miles of city boundaries for city officials).” Whether or not the RBS tract is within two miles of the City limits can be argued in several ways. However, the issue seems more clear cut when the “agency” of the Public Works Director is considered. His “agency” is responsible for water and sewer service beyond the physical city limits – at least to the edge of the Urban Services Area boundary, which encompasses the RBS tract. In both sets of guidelines, it appears that the only requirement was for the Public Works Director to report or disclose his real estate development interests. However, he did not do that. • In 2004, he or his outside project appeared in official documents relating to development of the RBS property in at least seven instances. His CA Form 700 for that year reflected “no reportable interests on any schedule.” • In 2005, he or his outside project appeared in official documents relating to development of the RBS property in at least four instances. His CA Form 700 for that year reflected “no reportable interests on any schedule.” • In 2006, he or his outside project appeared in official documents relating to development of the RBS property in at least seventeen instances. His CA Form 700 for that year reflected “no reportable interests on any schedule.” • In 2007, he or his outside project appeared in official documents relating to development of the RBS property in at least thirty instances. His CA Form 700 for that year reflected “no reportable interests on any schedule.” • In 2008, he or his outside project appeared in official documents relating to development of the RBS property in at least ten instances. His CA Form 700 for that year – filed after the City amended its COI Code in March 2009 – finally reflected his interest in RBS, but made no mention of his activities on behalf of CFY. • In all of the documents reviewed, he was identified either as “property owner;” “RBS Member;” “RBS Partner;” “Hidden Creek, Inc. Manager, Director, or Chief Financial Officer;” and/or “Hidden Creek of Crescent City Homeowners Association Director.” The Public Works Director indicated that he omitted listing his RBS-related interests on his CA Form 700’s because he interpreted the applicable geographic area as bounded by the City limits. Testimony to the Grand Jury has indicated that no Senior City Officials were charged with examining or monitoring the content of the CA Form 700’s filed by various City Staff and Council or Board Members. They were simply checked off a list, forwarded as appropriate, and filed. While various City Councils adopted Resolutions on the “Biennial Review of the Conflict of Interest Code,” there is no indication on the written record that it actually was reviewed or that any deficiencies were noted by the Councils involved. e. Was There An Actual Conflict? Given the ambiguity of the written guidelines, and the apparent failure of Senior City Management to define its application to the Public Works Director’s range of responsibilities beyond the City limits, it is unlikely that a strong technical case can be made for actual conflict of interest on his part. The fact that 660 additional hookups were obtained from the RWQCB between 2004 and 2005 – without a City commitment to anything other than interim improvements and making progress toward an upgraded WWTP – appears to negate the argument that the Public Works Director pushed for an overly expensive WWTP to support the RBS and CFY real estate developments. The fact that a succession of City Managers and City Councils seemed to be aware of his activities and did not take action to counsel him or “rein in” his activities apparently led him to believe that he was not in violation of the City’s guidelines. In fact, the record shows that in early 2006 he reported his activities to the Interim City Manager and requested guidance. Despite the fact that this provided an opportunity for the City Manager, the Council, and the City Attorney to adjudicate the appropriateness of his outside business activities under City guidelines, no conflicts appear to have been identified nor acted upon by those City leaders. f. What About The “Appearance of Conflict”? The written record and testimony to the Grand Jury reflect no real concern on the part of past or current City leaders about the appearance of a conflict of interest by the Public Works Director. When City leader comments were discovered on the written record or made to the Grand Jury, they ranged from “it’s beyond the City limits,” to “as long as his project is treated the same as others, it’s okay.” The Public, however, appears to have been concerned about the appearance, if not the fact, of a conflict of interest between his City work and his outside real estate development activities. According to the written record and testimony, when these complaints were raised by members of the Public to the City Council they were given short shrift. In fact, testimony from several witnesses has indicated that, at one City Council meeting leading up to the rate increase protest count, a Council member pointedly told an inquiring Citizen, “…. What … [the Public Works Director] … does is his own business.” Both the available written record and testimony before the Grand Jury indicate that the Public certainly perceived a conflict of interest. Additionally, they indicate clearly that the Council and City Leadership’s unwillingness to take on the question and resolve it contributed to an atmosphere of distrust that colored the entire WWTP contract acceptance and sewer rate increase processes. g. The City Closes A Loophole. Belatedly, after several years of Public expressions of concern over conflict of interest matters – perceived or otherwise – the City Council, in March 2009, revised the City’s Conflict of Interest Code to define clearly its applicability to specific City employees and expand its geographic scope to cover the entire County. Of interest, the CA Form 700 submitted by the Public Works Director after the Council’s Code amendment finally disclosed his RBS connections and activities. FINDINGS: The City had no active, enforced program of Staff training and review relating to COI matters. Definition of who was required to disclose outside economic interests, and for what geographic areas, was ill-defined. Although FPPC-required CA Form 700’s were required for specific City employees, their submission was treated as a pro forma exercise, and no serious review to identify potential COI trouble spots was undertaken – by either the various Councils or City Managers. The Public Works Director’s outside real estate development interests were widely known within the City leadership, but were not reported on his CA Form 700’s for the years 2003 – 2007. Lax attention to the CA Form 700 process, coupled with an apparent City leadership and Council view that economic interests outside the City limits created no conflict, allowed the Public Works Director to omit – for more than four years – disclosure of activities and interests in areas affected directly by his responsibilities for water and sewer system management throughout the Urban Services Area. Given (a) the failure of City leadership to question the Public Works Director’s outside real estate development activities – even though they were given an opportunity to do so in 2006, and (b) the ambiguity of the City’s old Conflict of Interest Code – makes it difficult for the Grand Jury to find an actual conflict of interest on his part. The appearance of a conflict of interest on the part of the Public Works Director did occur, and was ignored by various City Councils and City Managers. To its credit, the City Council finally closed the existing loopholes in the City’s COI Code in March 2009, by expanding the geographic scope of economic interests to include the entire County. The long-standing, unresolved, COI cloud surrounding the Public Works Director and the WWTP Project contributed to an atmosphere of Public distrust that colored the entire WWTP contract acceptance and sewer rate increase processes.