County agency accused of misuse of state funds

January 5, 2010

By KAREN VELIE

The California Department of Transportation (Caltrans) has accused San Luis Obispo Council of Governments (SLOCOG) of the inappropriate expenditure of more than $1 million in taxpayer funds, claiming the county agency transferred funds slated for road maintenance to purchase new office space.

In an August letter demanding SLOCOG return misused funds, Caltrans officials contend that SLOCOG used tax revenues ear marked for the maintenance and construction of public streets to purchase a building at 1114 Marsh Street in San Luis Obispo and asked what actions SLOCOG will take to “resolve the issue in a timely manner.”

In an odd twist, SLOCOG administrators admit they failed to inform either the County Board of Supervisors or the SLOCOG Board of Directors of the alleged misspending of taxpayer funds and the state’s reimbursement demand.

“I decided not to bring in the full board,” said SLOCOG Executive Director Ron DeCarli, who admitted he regrets the lack of disclosure even though, at the time, he did not see the issue being a problem.

In February, when SLOCOG staff and attorneys informed their board that the use of street maintenance and construction funds to purchase an office was legal, the board approved the expenditure. SLOCOG is an association of county governments that serve as a regional transportation planning agency, metropolitan planning agency, regional census data affiliate, and service authority for freeways and expressways.

In April, Caltrans officials told SLOCOG administrators they thought the purchase of a building might be an impermissible use of state funds. Nevertheless, SLOCOG forged ahead and purchased the new office building in May.

“When Caltrans raised their concerns with us, we said, ‘You use the same funds,’” DeCarli added. “Our attorney (Assistant County Counsel Rita Neal) agreed.”

As a result, county attorneys are battling Caltrans attorneys over whether funds allocated for road maintenance and development can be used to purchase a building for a regional agency that has duties that are not transportation related. If attorneys for the state prevail, state highway funds could be withheld from the county until the alleged misused funds are recovered.

In response to the state’s demand for reimbursement, Neal countered with claims that SLOCOG’s use of State Highway Account (SHA) funds to purchase an administration building was an allowed use. Neal noted a 1944 decision in which the Attorney General said that the Department of Motor Vehicles had a legal right to use highway funds to purchase office space, according to an Oct. 2 letter from Neal to Caltrans.

In a Catrans interoffice communication provided to CalCoastNews, state officials disagreed with Neal’s response, “The issue is not whether SHA funds can be used to purchase an office building. They can be. The issue is whether SLOCOG can use SHA funds for the purchase of an office building.”

“It could have statewide ramifications if it is permitted,” said Michael Giuliano, Department of Transportation district local assistance engineer. “The use of state highway account money is always subject to being audited and it is likely we will exercise that option.”

Within the next few weeks, Caltrans plans to respond to County Counsel’s October rebuttal. Both sides expect it will take some time for their attorneys to “hash out the issue.”

“It ultimately may end up in a court,” Giuliano said.

However, DeCarli notes that SLOCOG has over 19 funding sources from which they can transfer the contested funds and avoid further conflicts.

“It is not worth fighting over in court,” DeCarli said. “We can find a different funding source and transfer the monies.”

In addition to the purchase of SLOCOG’s new administrative building, CalCoastNews uncovered the agency’s acquisition in 2007 of a small narrow lot on Mill Street between Palm and Santa Rosa Streets for $1,050,294 through the use of — primarily SHA funds. SLOCOG administrators originally planned to construct an administrative building on the property, though they later determined it was not financially feasible.

“It was part of a larger plan, working with other county agencies, to consolidate property there,” said SLOCOG Administrative Director Pete Rogers. “The plan was to jointly own the new building that would consolidate the parcels.”

SLOCOG officials said they approved the purchase of the lot, using state road funds, in order to eliminate monthly lease expenditures. However, as the economy weakened, they believed the project was no longer viable and decide to hang onto the “asset” until the real estate market rebounds.

Gas taxes, often touted as being a great form of taxation because they charge the gasoline purchaser for road maintenance, have generated the necessary funding to maintain our nation’s byways throughout the past century. Californians pay 62.8 cents per gallon, the highest gasoline tax in the country.