Atascadero filched FEMA funds
April 2, 2012
By KAREN VELIE and DANIEL BLACKBURN
Prompted by a 2008 investigative report by CalCoastNews detailing how Atascadero city officials conspired to bilk taxpayers out of millions of dollars in disaster aid, a FEMA investigation has determined the city received $8 million illicitly.
Nearly eight years after the San Simeon Earthquake damaged the Printery Building and Atascadero city hall, the Office of the Inspector General (OIG) is recommending that the Federal Emergency Management Agency (FEMA) ask the city to return $8 million in relief funds because of issues with conflict of interest, unsupported requests for monies, and expenditures for a building the city fraudulently called an active youth center.
Following the 2003 San Simeon Earthquake, Atascadero city officials conspired to bilk taxpayers out of millions in disaster aid to construct a replacement youth center under the guise the previous center had been rendered unsafe during the earthquake.
In an April 28, 2004 letter to the Governor’s Office of Emergency Services (OES), city staff requested an “improved project” to build a replacement youth center. The city went on to say, “The youth center is currently located in the … Printery Building that was severely damaged during the San Simeon Earthquake,” the state agency acknowledged the city’s claim in a May 12, 2005 letter to FEMA officials.
However, at the time of the quake, the Printery Building, located at 6351 Olmeda Avenue, was not functioning as a youth center, but as a meeting hall for the Freemasons. The city’s youth center then stood approximately a half-mile away, at 5493 Traffic Way.
Atascadero Mayor Tom O’Malley, Councilman Jerry Clay, and San Luis Obispo County Supervisor Jim Patterson repudiated CalCoastNews in 2008, claiming CCN reports about the illicit request for FEMA funds were untrue, or that the results justified the fraud.
Asked at the time if he was aware of the youth center deception by the city, Councilman Jerry Clay replied, “I didn’t know if both buildings were being used or just what. But it’s pretty neat; we have both facilities now, a community center and a skate park.”
So how did city officials pull this off? The OIG report says that city officials provided FEMA with inaccurate information by claiming that the Printery Building was the city’s youth center, and that the city had planned to continue using the building.
However, city records show the city had moved the youth center to a building a few blocks away and was in the process of selling the Printery Building to former North County developer Kelly Gearhart.
Youth center number one began to materialize in 1994, when owners of the historic Printery Building, the Freemasons, donated it to the city – with the agreement that the city would maintain and renovate the building into a youth center.
Three years later, the still-structurally unsound facility opened its doors to the city’s youth. Immediate concerns surfaced regarding the structure’s condition and the cost of improvements. Following an accident in 1999 resulting in a claim against the city, the council opted to find new digs for the city’s after-school programs.
In 2001, the Freemasons asked the city to return the building due to the city’s inability to abide by its contract, according to the minutes of numerous city council meetings. In August 2003, the city council agreed, with the understanding that Gearhart would be the eventual owner. (Four months later, when the quake hit, the property was in the final days of escrow.)
Shortly after the city’s abandonment of youth center number one, city officials elected to purchase and transform a one-time animal feed storage building into youth center number two. To fund the conversion, officials used state grants and per capita funds awarded to the city in 2001. (Following the quake, the city morphed the non-insulated aluminum building into an indoor skate park.)
City officials agreed with the OIG’s findings that the Printery Building was not fully occupied at the time of the quake.
“City officials agreed that the building was not fully occupied at the time of the earthquake and that there was no intent to reoccupy,” the OIG report says. “FEMA was unaware that a portion of the building was not in active use at the time of the earthquake.”
Investigators also found numerous unlawful acts in the city’s use of funds to transform a former bowling alley into a temporary city hall building while the former city hall was slated to be renovated. In addition, city officials blended their redevelopment staff and city staff, creating a conflict of interest.
“This transaction was less-than-arms-length because the same city officials with responsibility to manage FEMA’s disaster assistance funding were executive officers of the city’s redevelopment agency, thus creating a conflict of interest,” the report said. “As a result of this overlap, the transaction lacked independence because City officials were able to substantially influence or control the actions associated with the transaction. Costs incurred under less-than-arms-length transactions are eligible for federal disaster assistance funding only on a limited basis.”
City officials disagree with the investigators’ findings “on the basis that FEMA’s funding of the second temporary city hall implied concurrence with their action.”
FEMA has until June 20 to provide a written response to the OIG’s audit. If FEMA agrees with the OIG that $8 million in relief funds should be returned, the city will then be provided a chance to respond.
See the original 2008 article here.
Update: added document and link to original article.