Stanislaus County Civil Grand Jury Cases 12-03c and 12-04c City of Modesto Neighborhood Stabilization Program

Modesto City Council and City Manager Direction and Responsibility The Modesto City Council did not exercise sufficient oversight responsibility in setting goals for the NSP2 program, developing a blueprint for management of the program, setting an appropriate timeline for staff to monitor the program, and then report back to the City Council in a timely fashion. Insufficient interest was expressed by the Mayor, City Council and the City Manager in the NSP2 program. Program implementation was delegated to a subunit within the city’s PRN department. Oversight was delegated to the city’s CHCD committee, which in turn delegated complete approval authority to the CHCD-NSP subcommittee. Delegation was one-way. There was little reporting back until problems began to become public and inquiries initiated by the Modesto Bee.

City Staff Administration of the NSP2 Program The city staff responsible for the NSP2 program have been very helpful in providing their time and records. They have been open and honest with information and describing the problems that they faced. The city staff in the PRN department did a good job in developing a management plan and rational guidelines and procedures for the implementation of this program. They monitored detailed rehabilitation expenditures but did not adequately foresee or address issues with respect to the purchase of properties, identification and qualification of potential buyers and tenants, and purported overall objective of the program—neighborhood improvement and property value stabilization. The city staff did not implement HUD guidelines and set up quarterly monitoring to 4 ensure that the parties involved were following practices appropriately. No quarterly meetings were held for a year. Quarterly monitoring of the developers as required by HUD may have forestalled or mitigated some of the problems early on.

Project Costs In severely blighted neighborhoods, some properties were overly rehabilitated in relation to the condition of the neighborhood. When a property is purchased in a run-down neighborhood and there is more rehabilitation to do because the property may have been trashed, which happens a lot, or it is just in poor condition, a cap should be placed on rehabilitation costs, so that the taxpayer gets a reasonable return on investment. If the property does sell, those costs will more than likely never be recouped because of the neighborhood and conditions of the market. If the property is rented, there is a better chance that the investment was a better use of taxpayer money. Demolishing the structure might be the best alternative. Another decision might be to not consider that property for rehabilitation and move on.

Tenant Eligibility at SCAP: Conflict of Interest and Pubic Perception of Favoritism The handling of tenant eligibility at the SCAP program was inappropriate, egregious, and showed favoritism to family members and staff. The city had guidelines for applicants to the housing program for rental and homeownership in the NSP2 program. The handbook entitled Homebuyer Program: Policies and Procedures specifies owner or tenant requirements. It details policies and procedures for the review and determination of the applicant’s program eligibility. City staff were not vigilant with respect to these guidelines and were lax in their monitoring of this element of the program by SCAP, the nonprofit developer.

Cost of Acquisition and Rehabilitation of Properties The Coolidge Avenue property was rehabilitated within reasonable cost parameters. Costs overall were in reasonable bounds and the craftsmanship at the properties was satisfactory.

Councilmember Acting Alone The councilmember who was first informed about potential SCAP problems did not appropriately brief, and express his findings and concerns, to the Mayor and fellow councilmembers before contacting the Modesto Bee. This action denied elected city officials the opportunity to proactively address a pending problem.

Councilmember Conflict of Interest The councilmember who had a conflict of interest in the acquisition and rehabilitation of NSP2 properties, and who at first participated in the occasional City Council discussions of NSP2, and who at first accepted a substantial sales commission—only later recusing himself and returning the commission—was on some level deceitful and dissembling in not fully disclosing relevant business affiliations and associates. 5