Inundated with oversight

Local officials dove head first into the uncharted waters known as redevelopment oversight this week, bathing in financial audits and wading through a five-hour meeting spent haggling over the list of the Morgan Hill RDA’s former obligations that still have to be paid off.
And while they’ll have to trudge through a similar exercise every six months until all the redevelopment agency’s contracts and debts are clear, and the parties involved will likely continue to disagree on which expenses have to be paid and when, board members and staff say the next schedule of payments shouldn’t be as difficult to compile.
“The people on the board have to be educated as well,” said oversight board chair Don Gage, who is a Santa Clara Valley Water District director and a veteran South County politician. “I’ve never done this before, so you have to understand what the new law says, and when they write them they don’t always make them perfect.”
It’s a new and unique duty for public officials in California, as the state law creating this new process liquidates entire redevelopment agencies some of which have been in existence since the 1950s.
“I’ve had a public service career of over 40 years and I’ve experienced many different challenges and new procedures, but this is a first for me,” said City Manager Ed Tewes, who also serves as the director of the RDA successor entity (which is also the city).
The oversight board Monday approved the former Morgan Hill RDA’s Recognized Obligations Payment Schedule for bills that have to be paid from January to June. The total bill for the six-month period is still not finalized, but it will be at least $10.9 million, with another $3.8 million possibly tacked on after external auditors and city staff come to terms on the details.
The Santa Clara County Auditor-Controller will spend the next few days verifying those details, and come back to the oversight board April 30.
The ROPS expenses will be paid for with cash borrowed in a local 2008 bond issue, and from $22 million or so in annual property tax revenue that used to go directly to the Morgan Hill RDA. That annual revenue is now held in a trust fund guarded by the county auditor.
Those items not verified by the outside auditor were disputed because they lacked documentation or the city and auditor disagreed on the exact amounts, and Gage explained the auditor and staff were rushed through the accounting process due to an April 15 deadline truncated by the legal wranglings over the initial state law that eliminated RDAs earlier this year.
Board member Vinod Sharma, the county’s finance director, said both the county auditor-controller’s office, who contracted with Harvey M. Rose consultants to conduct the audit, and city staff were all “working very late in the evenings” prior to Monday’s meeting.
Tewes said the city has the paperwork to back up the expenses the auditor didn’t sign off on, and will provide those in the coming days.
Although Monday’s meeting was mired in technical legal and financial language, board members demonstrated the shared need for an openness on fiscal negotiations that might not otherwise have been aired.
For example, the auditor did not find the check for about $1 million paid by the city to a property owner for the right-of-way for the new Butterfield Boulevard south extension. Tewes said city has a copy of the check, but had not presented it to the auditor before Monday’s meeting.
Another item in dispute was a contract for RDA loan services which expired in 2007. Although the contract expired, the contractor has continued to work for the RDA and the RDA has paid, Tewes said. The auditor couldn’t find the contract, so it was not certified.
On other items the city ended up getting more funding than the auditor initially certified. A key one of those is the former RDA’s homeowners’ down payment assistance program, for which the board certified about $667,000 for the city to provide loans to up to 15 potential Morgan Hill home buyers. The auditor had initially approved $227,000 for the program, which had about $1.4 million on the eve of the RDA’s breakup.
And many items the oversight board was able to certify in one fell swoop with a “master contract” between the successor agency and contractors who had formerly been paid by the RDA. Since the RDA no longer exists, the previous contracts are void, but the successor agency can still pay the contractors – including the builder of the Butterfield extension and other engineering consultants, for example – by replacing the RDA with itself as the payer, Sharma explained.
Gage also serves on the oversight boards for San Jose, Milpitas and Santa Clara. Of those, only the Milpitas RDA wind-down has started off as convoluted as Morgan Hill’s. San Jose is “broke” and Santa Clara’s books were “pretty clean,” and that made their first oversight meetings easier, he said.
The Milpitas RDA’s affairs were somewhat messier, and in Morgan Hill “there were a lot of misunderstandings (about the ROPS) and a short timeframe,” Gage said.
Still more items on the list of about 120 obligations so far will end up being reviewed by yet another layer of oversight – the state department of finance. That department has the authority to review and even reverse any action taken by the Morgan Hill oversight board.
“There will always be issues” about which of the former expenses are legitimate claims, and those will likely end up under review by the DOF, said Sharma, who serves on all nine RDA oversight boards in the county.
And yet another state office – the auditor-controller’s office – has been in Morgan Hill in recent weeks, conducting its own audit. The state’s examination of the former RDA is far more comprehensive than the six-month snapshot of obligations. That office is looking at all transactions made by the RDA since Jan. 1, 2011, the date after which the state law says it can reverse certain local deals or contracts, especially if they were enacted to shelter or hide the RDAs’ assets before facing elimination.
The intent of state law dissolving the RDA is to return its property tax revenues to more traditional recipients of property tax, such as schools, community colleges, and other local agencies including the city and county.
But before any of those services begin to receive any of that untethered cash, the former RDA has to pay off all its existing obligations. That could be a long time, as the Morgan Hill agency has about $231 million in outstanding debts and obligations.