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OK, I’m still not sure they’re worth $20 million, but the little tidbits we haven’t seen before unveiled by the Kroll team are pretty interesting.
Check this one. A big part of the report is the sewer deal. For the uninitiated, don’t worry, it’s not too complicated. The city wanted to be hospitable to big business so it set its sewage rates accordingly. But it also asked for loans and grants from the state to help pay for sewage infrastructure needs.
The loans and grants came with some strings attached, however. Namely, the city had to charge residents and businesses according to how much stress they put on the sewage system.
At one point, city officials warned the City Council that it was charging residents too much and businesses too little to use the sewer system. Dennis Kahlie, a utilities official for the city, told the City Council that if the city didn’t change its rates, the State Water Resources Control Board, or SWRCB, might demand return of hundreds of millions of dollars in grants and loans.
The trouble came because the city didn’t disclose this potential liability to buyers of its bonds.
Let’s let Kroll take it:
Mr. Kahlie recalled that Mayor Murphy asked him if the SWRCB was demanding the City to make the change immediately. Mr. Kahlie responded that it was not currently asking, but certainly would at some point. According to Mr. Kahlie, he reminded the City Council it was contractually obligated to impose a compliant rate structure, to which Councilmember James Madaffer responded, “Let ’em sue us!”
The SWRCB didn’t sue, of course, but somebody did.
And Kahlie’s the one that Kroll now says committed securities fraud.
Madaffer and the rest of the Council were just “negligent.”