Grover Beach’s use of redevelopment funds scrutinized

June 5, 2011

By LISA RIZZO

Critics of a proposed sale of a community garden allege Grover Beach city leaders have been using state redevelopment funds to bail out the city during revenue shortfalls by funneling money from its Improvement Agency into its general fund. And the city is preparing to do it again.

“The redevelopment agency is clearly getting screwed,” said San Luis Obispo Attorney Babak Naficy who has been tracking the transactions. “The more I look at this, the more it seems to be a scandal.”

Naficy was retained by a new “grass-root neighborhood group” coined as Organization Keeping Recreational Activities (OKRA) which formed to launch legal opposition against a proposed sale of a 6,620 square foot city-owned lot located at 920 Brighton Avenue in Grover Beach which they say is a bad deal for the redevelopment agency.

Like many small cities throughout California, the governing members of the redevelopment bureau known as the Grover Beach Improvement Agency are the same people sitting on the city council. They are required to act in different capacities to look out for the best interest of the agency and the city separately to avoid collusion.

The agency is an arm of the state, a separate legal entity and receives more than $1.1 million annually from the state redevelopment agency to help eliminate blight in the town. State law requires that 20 percent of that money be used to support or create low income housing.

Naficy argues Grover Beach city leaders are not looking out for the best interest of the low-income community which is being shafted by the lack of “due diligence” as the city makes “self dealings.”

One such alleged deal, expected to be approved Monday following a required public protest hearing, is the proposed sale of the Brighton Avenue property to the Improvement Agency for $235,000 to help meet the city’s 2011 budget expectation.

Protesting the sale, OKRA says its main point of contention is city leaders have “grossly inflated” the purchase price for the lot which is “ill-suited for constructing low-income housing.” They believe Grover Beach is motivated by a desire to meet a general fund revenue goal that the city is expecting to help fill a budget gap. OKRA also argues Grover Beach is skirting process by not making the necessary zoning changes first, conducting a conformity report and environmental review.

While the Grover Beach City Manager Bob Perrault, who also acts as the Improvement Agency Director, and the City Attorney Martin Koczanowicz have not returned CalCoastNews’ calls for comment, Perrault did prepare a staff report which addresses some of the critics’ concerns.

Good or bad, this is the deal

The plan is to sell the Brighton Avenue lot for $235,000—an arrangement where the buyer and the seller are technically the same five people but acting as different legal entities.

Looking at comparable properties in the area, OKRA argues it’s a price tag that is “extremely high,” and from the affordable housing perspective not the best deal for the buck.

OKRA contends that the city it not representing the buyer, the Improvement Agency, fairly and plans to take too much from the public fund which is set aside for affordable housing. They say if the organizations were seeking a fair deal they would have at least had the property appraised or formally consulted a real estate professional or developer.

Instead of an appraisal or expert opinion, the city’s methodology behind the $235,000 purchase price was to compare similar properties in the area. Perrault lists the research in his staff report.

The majority of the properties detailed, however, do not support the city’s proposed sale price. Four of the seven properties are larger than the Brighton location by as little as 872 square feet and as much as 3,355 square feet but are priced $10,000 to $90,000 less than what the city has deemed an appropriate asking price for its lot.

OKRA contends that if the Improvement Agency wanted to spend its affordable housing funds wisely, it would have looked at an inventory of property for sale in the city for the best deal available.

A basic search of comparable and existing vacant properties in Grover Beach shows numerous larger lots selling for much lower prices. For example, a lot roughly three blocks away on North 12th Street is nearly 5,000 square feet larger than the Brighton property and is listed for $70,000 less.

Filling the deficit

Naficy says he believes the city is trying to unload its property on the redevelopment agency purely to fill a budget gap.

Grover Beach’s 2011-2012 budget calls for a $250,000 sale of a city-owned parcel to meet funding requirements so the council selected 920 Brighton Avenue. The city needs the money fast to make up for the budget deficit and may not have the time to list the property for sale and solicit offers from the general public even with the possibility of a higher bid.

In his staff report, the city manager confirmed “the general fund will receive the proceeds of the sale” and the fiscal year 2011 “general fund budget anticipates the proceeds from the sale of the property.”

“While we understand that the city is facing a budgetary short-fall, we do not believe that using the Improvement Agency’s low and moderate income housing funds to balance the city’s budget is fair or consistent with the law,” Naficy said in a letter delivered to the city last Wednesday.

Grover Beach officials contend the property would be deed restricted for an affordable housing project and would help meet low income housing goals for the city and agency.

Meanwhile, the staff report says “the city’s general fund becomes the beneficiary of the sale.” The city remarks the funds were set aside for affordable housing and that is what they will be used for.

Similar transactions have been made over the last several years, where Grover Beach leaders have sold city-owned property, without appraisals or professional valuations, to the Improvement Agency for the exact amounts of anticipated short-falls in the city’s general fund, according to city records.

In a 2010 case of a parcel at 1541 Hillcrest Drive, Mayor John Shoals “commented that he had concerns regarding the proposed property being suitable for an affordable housing project, but that he recognized the city’s current budget constraints which necessitated pursuing this option,” according to the minutes of a June 21, 2010 meeting.

Regardless, moments later the council and the agency jointly adopted resolutions to approve the sale of the property, which is surrounded by cellular towers and a water reservoir, for a future affordable housing project using redevelopment funds.

The Hillcrest site is now owned by the Improvement Agency but has yet to be developed, according to county tax assessor records.

In a February staff report regarding zoning changes, the city acknowledges the Hillcrest property is still a “possible location for an affordable housing project.”

Suitability

Opposition to the Brighton sale stems from the fact that the property is currently being used as community garden in which nearly all the plots are being cultivated by residents. It is zoned as a public facility and is designated in the general plan as parks and recreation.

As the city confirmed in its May staff report, converting the property to “residential use would require a general plan amendment, zone change and a possible amendment to the Ramona specific plan.”

OKRA argues the fact that the proposal conflicts with Grover Beach’s general plan should alone bar the city from selling the property for a residential purpose. In addition, the critics say the Improvement Agency cannot buy the property as an investment; instead it should be directly used to create low-income housing.

As to the conformity report and environmental reviews that have not taken place, the city manager said in his staff report that “environmental review shall occur” “if the potential zoning change to this and perhaps surrounding parcels is presented for consideration by the city council.”

The public hearing prior to any formal decision authorizing the sale is scheduled for Monday at the Grover Beach City Council meeting which begins at 6:30 p.m. The hearing will be a joint meeting, meaning the governing body will be acting in both capacities as the city council and the Improvement Agency.

Reprimand and threat to pull funds

Regardless of the city’s decision Monday, which arguably teeters in a gray area, Naficy said he is feeling leery and would not want the state to catch wind of it, as any misuse could provide cause for Governor Jerry Brown’s proposal to pull redevelopment funds from cities across the state to help balance California’s budget—money Grover Beach has recognized it cannot afford to lose.

“For the people in the low-income housing community there is a long history of abuse of redevelopment funds. I am concerned that this kind of abuse would become the poster child for why these funds from the state would be scrapped,” Naficy said.

Following media reports alleging funding abuse in California cities, the State Controller’s Office conducted a review of 18 redevelopment agencies across the state and found inappropriate uses of affordable housing funds.

The office issued a statement in March expressing frustration for such abuses of taxpayer dollars.

“For a government activity which consumes more than $5.5 billion of public resources annually, we should be troubled that there are no objective performance measures demonstrating that taxpayers are receiving optimal return for each invested dollar,” State Controller John Chiang said.

“Locally-controlled economic development is vital to California’s long-term prosperity. However, the existing approach – born in the 1940’s – is not how anyone concerned with performance, efficiency, and accountability would draw it up today.”

“The lack of accountability and transparency is a breeding ground for waste, abuse, and impropriety,” Chiang said. “In whatever form local redevelopment takes in the future, the level of oversight and openness must be consistent with the amount of public dollars entrusted to their care.”