The Morning Report
Get the news and information you need to take on the day.
Tuesday, July 8, 2008 | For several years, the president of the agency tasked with redeveloping some of San Diego’s most blighted neighborhoods has been paying herself and her top deputy tens of thousands of dollars in bonuses and extra compensation unbeknownst to members of the City Council or the agency’s board.
The additional pay for the government officials came to light following a voiceofsandiego.org review of SEDC’s tax records, which revealed a complicated system of unsupervised payments for top SEDC officials that are not explained in its public budget. The officials regularly receive annual five-figure bonuses under payment programs overseen by Smith and vaguely titled “acknowledgement” and “cost of living.”
In total, between fiscal years 2003-2004 and 2006-2007, SEDC’s top four officials collectively received about $256,000 through the various bonus and extra compensation programs.
More than $250,000 of that estimated total was shared by Smith and Dayacap. In total, over the four years, Smith received about $140,000 and Dayacap received about $110,000 in the extra payments.
The details of the bonuses and extra compensation programs elicited shock from several members of the City Council, who said they had no knowledge of the payments.
“This is a very troubling problem,” said Councilman Kevin Faulconer. “Salaries and benefits must be very open and transparent, and this research shows that they are not. We need to look at this system and find out how this was allowed to happen.”
The council members decried the spending of taxpayer dollars on bonuses for officials at a time of such fiscal unrest in the city. That the bonuses appear to have been hidden from oversight by the City Council and SEDC’s own board is particularly egregious, said Councilwoman Donna Frye.
“I think it’s abusive when people abuse their power like this,” Frye said.
Every year, SEDC must present a budget for approval to its board and the City Council, which oversees the Redevelopment Agency and its two nonprofit wings, SEDC and downtown’s Centre City Development Corp. That budget lists a salary range for each agency employee, and makes a modest allowance for agency-wide overtime and bonuses.
It contains no information about which employees receive bonuses or how much those annual payments are likely to be for each employee.
Because it is structured as a nonprofit, however, SEDC must also file annual Form 990s with the Internal Revenue Service, which contain a summary of the agency’s top executives’ actual compensation. In some instances, SEDC refused repeated requests to provide precise salary information, making exact calculations of the extra payments impossible.
Each year, SEDC’s budget allocates a set amount for staff overtime, bonuses, merit pay and a section titled “Misc. salaries & Wages.” In fiscal year 2005-2006, the total amount allocated under overtime, bonuses and merit pay was $48,000. The total for miscellaneous salaries and wages was $35,000, bringing the total available outside of standard salaries to $83,000.
That year, two employees — Smith and Dayacap — received total extra compensation and bonuses amounting to $77,276.
How much was paid out in total to all SEDC employees for bonuses and other payments is impossible to calculate from the tax records because they only list payments to the top few officials at SEDC, though SEDC officials said all employees get three of the four extra payments and bonuses available.
In total, the agency budgeted for 14 employees in fiscal year 2005-2006. Smith said decisions on how to allocate the extra compensation are made internally using various formulas, but that she has the ultimate say on how the money is distributed.
That year, Smith’s budgeted salary was $158,000. But the Form 990 states that she actually earned $206,328 in compensation, not including benefits or expenses. The $48,328 Smith earned in excess of her salary came, she said, from the various other payment programs.
The same year, Dayacap’s budgeted salary was $95,000, but the Form 990 shows he received a total compensation of $123,948, the extra income coming from the various payment programs.
Smith and SEDC attorney Royce Jones said the agency has a certain amount of money to spend on employees each year and that it never exceeds that total. The agency is not asked by the City Council to detail the amount paid to each employee each year in payments over and above each official’s stated salary range, Smith said.
“We meet all our goals, we do what we’re supposed to do,” she said.
The payments include: A holiday bonus, paid during December’s holiday season; an acknowledgment payment paid to officials who have been at the agency for several years; a cost-of-living increase, which is paid as a lump sum each year to all employees as long as the agency has the tax funds to pay for it; and payments in lieu of unused holiday and sick days.
Smith declined to provide a breakdown of the sources of each individual’s extra compensation, citing privacy concerns.
Smith said the various payments are not bonuses. She described one of the payments she and other top officials receive as “financial acknowledgment.” Asked how that is different from a bonus, Smith said, “We don’t call it a bonus.”
Similarly, Smith said the cost-of-living payment that SEDC officials receive as a lump sum each year doesn’t constitute a bonus. The cost-of-living payment, which Smith said acknowledges an increase in the cost of living in San Diego, is paid annually to employees as long as SEDC has the tax funds to pay it.
It is paid in addition to any increases in officials’ base salaries, though the agency did not increase its budgeted salary ranges between 2003 and 2006.
Jones said SEDC chooses to pay a lump sum cost-of-living payment to employees each year, rather than reflecting that increase by boosting employee salaries, because doing so means the agency doesn’t have to pay increased benefits on ever-swelling salaries.
But by paying lump sums instead of increasing base salaries, neither the City Council nor SEDC’s board is presented with detail during budget hearings about of how much extra compensation each employee has received by the end of the year.
City Councilman Ben Hueso said the agency has refused to provide a breakdown of employee payments to the City Council, citing privacy issues.
“When we ask them for those figures, they say it’s privileged information,” Hueso said.
Five members of the SEDC board reached for this story said there is no discussion of any of the bonuses and extra compensation at the board level and that they were unaware of them. One board member, D. Cruz Gonzalez, said he didn’t even know Smith’s salary.
“I have asked for her specific salary, not just the salary range, and they won’t give it to me,” Gonzalez said.
By contrast, the board of directors at CCDC meets annually to analyze and review the performance of the agency’s president, said Fred Maas, the CCDC board chairman. Traditionally, at that review, the board would decide upon the president’s annual bonus, Maas said.
Maas said CCDC and its president, Nancy Graham, recently decided to end the practice of paying annual bonuses because the process had become “too controversial.”
Herb Cawthorne, SEDC’s former vice president, left the agency in 2006. He said he remembers getting bonus checks at least twice a year for the cost of living bonus and the holiday bonus. He said he received a holiday bonus check after working for two months at the agency.
“It was happy days at SEDC when the checks came round,” Cawthorne said.
In fiscal year 2006-2007, the last year for which records are available, SEDC included benefits in the total compensation figures for each employee on the Form 990. In previous years, benefits had been reported on a separate part of the form.
The inclusion of the benefits in the total compensation figures makes an exact calculation of each employee’s bonuses and extra compensation impossible, because SEDC would not provide more details about the payments.
But, assuming employees received the same benefits package in fiscal year 2006-2007 as the previous year, Smith would have received bonuses and extra compensation of $68,761. Dayacap would have received $49,946.