San Diego County Grand Jury • 2008-2009

Redevelopment in the City of San Diego – a Call for Transparency

Published: June 30, 2009 18 pages

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⚠️ Translation Notice: This content has been automatically translated. The original English text is the official version. Translation may contain errors.

⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.

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Findings and Recommendations 4 findings

F01

Publicly funded redevelopment activities in the City of San Diego are carried out through an organizational structure marked by confusing lines of operational and financial authority and responsibility.

No recommendations for this finding

F02

The information and tools currently available to the Redevelopment Agency of the City of San Diego, the City Council, and the Mayor to oversee the city’s redevelopment activities are inadequate to ensure effective operational and financial accountability. 14

No recommendations for this finding

F03

Essential information about the finances and operations of the publicly funded redevelopment activities in the City of San Diego is not made available to the public on a timely basis.

No recommendations for this finding

F2009

The purposes of the recommended amendments range from the very general (number 17, for example states “Corporation Boards must follow redevelopment law.”) to the very specific (number 5 states “City has right to order a performance audit, to be paid for in full by corporation, no more than once per year.”). 11 /2009 (filed May 6, 2009) IBA is necessary to build public confidence in the transparency of the operations and finances of the City’s redevelopment activities. There is also widely shared agreement among City officials and administrators that CCDC and SEDC should be required to undergo regularly scheduled, independent financial and/or performance audits, with the ensuing reports made available to the public. In fact, the terms of the current Agency operating agreements with both SEDC and CCDC already require submission to the Agency by each nonprofit entity of certified financial statements and a detailed report of audit by an independent Certified Public Accountant within 120 days of the close of the entities’ fiscal years. The Mayor’s Office and the SEDC board also agree that SEDC should submit a monthly consulting report to its board, disclosing consultant contracts entered into in the preceding month and related information. Requiring presentation of such a monthly report by SEDC and CCDC, including details of consultant compensation for the period, also to the Mayor’s Office, the City Council, and the IBA would build public confidence in the transparency of the redevelopment process. Making that report available to the public would also enhance public confidence. City officials and employees expressed widespread agreement in interviews with the Grand Jury that training on California redevelopment law for all public representatives and employees involved in the City’s redevelopment activities should be mandatory. Training in fiduciary duties should be an additional requirement for board members of the City’s redevelopment agencies. Independent Budget Analyst Report 09-01 states the standard for board training succinctly: “On a frequent and routine basis, the Board [should] receive training that shall, at a minimum, cover the Board’s fiduciary responsibilities, general redevelopment and redevelopment-related finance.” The Mayor’s March 20, 2009 Memorandum to the City Council’s Audit Committee also recommends that “Corporation Board member training in ethics, fiduciary duties and governance shall occur every 2 years.” Conclusion Unfortunately the public perception of the City’s redevelopment activities today is one of dysfunctional organizations, weak governance, and opaque operations. Many public officials and employees agree that there is a lack of effective oversight of the operations and finances of the City’s redevelopment activities, exacerbated by insufficient transparency. In general, the City’s redevelopment activities lack distinct lines of responsibility and authority. City employees are often unsure whether the official chain of command is the same as the de facto chain through which they carry out their redevelopment duties. The Mayor is not a member of the board of the Redevelopment Agency and cannot vote on its decisions, but the Mayor is Executive Director of the Agency and has a veto over those decisions. The Mayor, however, serves as Executive Director and holds a veto power solely at the pleasure of the Agency’s board – the City Council. Further, out of concerns for possible conflicts of interests or other uncertainties, the Mayor in fact performs little or no work for the Agency. The legal instruments -- bylaws and operating agreements -- on which the Agency and the City’s redevelopment 12 /2009 (filed May 6, 2009) corporations (SEDC and CCDC) base their operations have not been modified effectively, if at all, to reflect the realities of the strong-mayor form of government. The present structure is, in short, a “legal construct” that is hard to follow even by those who are part of it. These circumstances make a strong case for basic organizational changes to clarify the lines of responsibility and authority for the redevelopment activities of the City. A fundamental characteristic of the operational and financial aspects of the City’s present redevelopment activities is opacity. The inevitable result of opacity is the inability of City officials and the public to assess performance confidently -- to measure efficiency and effectiveness with certainty. It is the sense of the Grand Jury that, however much reorganization may be needed, the most important step toward minimizing the recurrence of the reported problems with the City’s redevelopment activities is not reorganization, but the institutionalization of consistent measures to increase transparency in those activities. Without transparency, there can be no realistic prospect of effective oversight, whatever the organizational structure. In short, the remedy for the widely-held perception that there is little or no accountability in the City’s redevelopment activities is “sunshine” -- the assurance of transparency with respect to the operations and finances of the City’s redevelopment organizations. FACTS AND FINDINGS Fact: The City of San Diego (City) created the Redevelopment Agency of the City of San Diego (Redevelopment Agency or Agency) in 1958, with the City Council constituting the members or board of the Agency. Fact: The Redevelopment Agency is an independent legal entity, separate from the City. Fact: Since 2006 the City Council, acting as the Redevelopment Agency board, has appointed the Mayor of the City to successive terms as the Executive Director of the Redevelopment Agency. Fact: As the Executive Director of the Redevelopment Agency, the Mayor has no vote on matters decided by the Agency’s board, but the Mayor has been given a veto over development- related actions approved by the Agency’s board. Fact: The Redevelopment Agency has no direct employees; it operates through contracts with the City (service level agreements for administrative services, and operating agreements for managing redevelopment project areas) and contracts with two nonprofit corporations, Centre City Development Corporation (CCDC) and Southeastern Economic Development Corporation (SEDC) (operating agreements for managing redevelopment project areas). Fact: The City created both the CCDC and the SEDC as independent, nonprofit agencies of the City for the purpose of providing economic development services which can be done under contract with the Redevelopment Agency. 13 /2009 (filed May 6, 2009) Fact: The principal terms in the Redevelopment Agency’s current operating agreements with SEDC and CCDC relating to operational or financial oversight (other than those relating to budget submissions) require the corporations to: make their accounting books and records available for inspection by the Agency; submit to the Agency annually a report of a financial audit by an independent Certified Public Accountant; get approval from the Agency for transfers of funds between budget categories; submit to the Agency monthly vouchers for reimbursement of expenditures; and submit to the Agency a monthly statement of income and expenses (CCDC only). Fact: The City Council, acting as the board of the Redevelopment Agency, has the power under the operating agreements with SEDC and CCDC to terminate those agreements after giving ninety days’ notice. Fact: The City Council has the power under the bylaws of both CCDC and SEDC to elect the directors of the corporations and to remove directors by a two-thirds vote. Fact: The principal provisions of the current bylaws of SEDC and CCDC relating to operational or financial oversight state that: SEDC and CCDC will make their accounting books and records available for inspection by the City of San Diego; SEDC will submit to the City an annual report of financial information; SEDC and CCDC will supply annually to the City, upon request, financial statements based on an audit by an independent accountant. Fact: The City of San Diego is the sole member of both CCDC and SEDC, and under the bylaws of both CCDC and SEDC, the City (acting through the City Council) has the power to amend, or to adopt new, bylaws for both corporations. Fact: Audit reports and annual reports of the Redevelopment Agency have not been timely filed with the State of California in the past. Fact: The information available to the public through the internet sites of the Redevelopment Agency, CCDC, and SEDC relating to the entities’ operations and finances is limited, inconsistent, incomplete, out of date, and sometimes erroneous. Finding #01: Publicly funded redevelopment activities in the City of San Diego are carried out through an organizational structure marked by confusing lines of operational and financial authority and responsibility. Finding #02: The information and tools currently available to the Redevelopment Agency of the City of San Diego, the City Council, and the Mayor to oversee the city’s redevelopment activities are inadequate to ensure effective operational and financial accountability. 14 /2009 (filed May 6, 2009) Finding #03: Essential information about the finances and operations of the publicly funded redevelopment activities in the City of San Diego is not made available to the public on a timely basis.

No recommendations for this finding

Conclusions 4

CL1

Publicly funded redevelopment activities in the City of San Diego are carried out through an organizational structure marked by confusing lines of operational and financial authority and responsibility.
CL2

The information and tools currently available to the Redevelopment Agency of the City of San Diego, the City Council, and the Mayor to oversee the city’s redevelopment activities are inadequate to ensure effective operational and financial accountability. 14 SAN DIEGO COUNTY GRAND JURY 2008/2009 (filed May 6, 2009)
CL3

Essential information about the finances and operations of the publicly funded redevelopment activities in the City of San Diego is not made available to the public on a timely basis.
CL4

Unfortunately the public perception of the City’s redevelopment activities today is one of dysfunctional organizations, weak governance, and opaque operations. Many public officials and employees agree that there is a lack of effective oversight of the operations and finances of the City’s redevelopment activities, exacerbated by insufficient transparency. In general, the City’s redevelopment activities lack distinct lines of responsibility and authority. City employees are often unsure whether the official chain of command is the same as the de facto chain through which they carry out their redevelopment duties. The Mayor is not a member of the board of the Redevelopment Agency and cannot vote on its decisions, but the Mayor is Executive Director of the Agency and has a veto over those decisions. The Mayor, however, serves as Executive Director and holds a veto power solely at the pleasure of the Agency’s board – the City Council. Further, out of concerns for possible conflicts of interests or other uncertainties, the Mayor in fact performs little or no work for the Agency. The legal instruments -- bylaws and operating agreements -- on which the Agency and the City’s redevelopment 12 SAN DIEGO COUNTY GRAND JURY 2008/2009 (filed May 6, 2009) corporations (SEDC and CCDC) base their operations have not been modified effectively, if at all, to reflect the realities of the strong-mayor form of government. The present structure is, in short, a “legal construct” that is hard to follow even by those who are part of it. These circumstances make a strong case for basic organizational changes to clarify the lines of responsibility and authority for the redevelopment activities of the City. A fundamental characteristic of the operational and financial aspects of the City’s present redevelopment activities is opacity. The inevitable result of opacity is the inability of City officials and the public to assess performance confidently -- to measure efficiency and effectiveness with certainty. It is the sense of the Grand Jury that, however much reorganization may be needed, the most important step toward minimizing the recurrence of the reported problems with the City’s redevelopment activities is not reorganization, but the institutionalization of consistent measures to increase transparency in those activities. Without transparency, there can be no realistic prospect of effective oversight, whatever the organizational structure. In short, the remedy for the widely-held perception that there is little or no accountability in the City’s redevelopment activities is “sunshine” -- the assurance of transparency with respect to the operations and finances of the City’s redevelopment organizations. FACTS AND FINDINGS Fact: The City of San Diego (City) created the Redevelopment Agency of the City of San Diego (Redevelopment Agency or Agency) in 1958, with the City Council constituting the members or board of the Agency. Fact: The Redevelopment Agency is an independent legal entity, separate from the City. Fact: Since 2006 the City Council, acting as the Redevelopment Agency board, has appointed the Mayor of the City to successive terms as the Executive Director of the Redevelopment Agency. Fact: As the Executive Director of the Redevelopment Agency, the Mayor has no vote on matters decided by the Agency’s board, but the Mayor has been given a veto over development- related actions approved by the Agency’s board. Fact: The Redevelopment Agency has no direct employees; it operates through contracts with the City (service level agreements for administrative services, and operating agreements for managing redevelopment project areas) and contracts with two nonprofit corporations, Centre City Development Corporation (CCDC) and Southeastern Economic Development Corporation (SEDC) (operating agreements for managing redevelopment project areas). Fact: The City created both the CCDC and the SEDC as independent, nonprofit agencies of the City for the purpose of providing economic development services which can be done under contract with the Redevelopment Agency. 13 SAN DIEGO COUNTY GRAND JURY 2008/2009 (filed May 6, 2009) Fact: The principal terms in the Redevelopment Agency’s current operating agreements with SEDC and CCDC relating to operational or financial oversight (other than those relating to budget submissions) require the corporations to: make their accounting books and records available for inspection by the Agency; submit to the Agency annually a report of a financial audit by an independent Certified Public Accountant; get approval from the Agency for transfers of funds between budget categories; submit to the Agency monthly vouchers for reimbursement of expenditures; and submit to the Agency a monthly statement of income and expenses (CCDC only). Fact: The City Council, acting as the board of the Redevelopment Agency, has the power under the operating agreements with SEDC and CCDC to terminate those agreements after giving ninety days’ notice. Fact: The City Council has the power under the bylaws of both CCDC and SEDC to elect the directors of the corporations and to remove directors by a two-thirds vote. Fact: The principal provisions of the current bylaws of SEDC and CCDC relating to operational or financial oversight state that: SEDC and CCDC will make their accounting books and records available for inspection by the City of San Diego; SEDC will submit to the City an annual report of financial information; SEDC and CCDC will supply annually to the City, upon request, financial statements based on an audit by an independent accountant. Fact: The City of San Diego is the sole member of both CCDC and SEDC, and under the bylaws of both CCDC and SEDC, the City (acting through the City Council) has the power to amend, or to adopt new, bylaws for both corporations. Fact: Audit reports and annual reports of the Redevelopment Agency have not been timely filed with the State of California in the past. Fact: The information available to the public through the internet sites of the Redevelopment Agency, CCDC, and SEDC relating to the entities’ operations and finances is limited, inconsistent, incomplete, out of date, and sometimes erroneous. Finding #01: Publicly funded redevelopment activities in the City of San Diego are carried out through an organizational structure marked by confusing lines of operational and financial authority and responsibility. Finding #02: The information and tools currently available to the Redevelopment Agency of the City of San Diego, the City Council, and the Mayor to oversee the city’s redevelopment activities are inadequate to ensure effective operational and financial accountability. 14 SAN DIEGO COUNTY GRAND JURY 2008/2009 (filed May 6, 2009) Finding #03: Essential information about the finances and operations of the publicly funded redevelopment activities in the City of San Diego is not made available to the public on a timely basis.

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