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Tuesday, July 15, 2008 | Mayor Jerry Sanders has cut funding to the Southeastern Economic Development Corp. by about two-thirds in the wake of a burgeoning scandal over bonuses and other extra compensation paid to its top officials, putting serious constraints on the agency’s ability to operate.
The redevelopment department will only be provided the “minimum amount sufficient to permit SEDC to continue operations,” according to a letter to SEDC’s board Chairman Artie M. “Chip” Owen from top mayoral aides. All other SEDC funding for projects, marketing, lawyers or any expenses other than employee salaries has been frozen, said Sanders spokesman Fred Sainz.
The letter also asked Owen to discontinue the practice of paying employees ancillary compensation such as holiday bonuses and longevity pay, compensation programs which were revealed last week in a voiceofsandiego.org story about a clandestine system of bonuses and other extra compensation paid to top SEDC officials without the knowledge of the SEDC board or the City Council.
In a separate letter, the aides requested a slew of new financial documents from the agency, ramping up an earlier inquiry that sought documents related to the bonuses and extra compensation.
“A fair number of questions have been raised about the appropriateness of SEDC’s actions over the course of the past few months,” Sainz said. “Good judgment requires us to go ahead and freeze things in place until the mayor feels he has done his due diligence.”
The aides who are leading the inquiry asked SEDC to provide the city with documents including the agency’s payroll records, documentation related to the various non-salary compensation payments and records of car allowance payments to SEDC employees.
Among other things, the aides also asked for any documentation regarding conflicts of interests for any employee or officer of SEDC, an apparent reference to Owen’s business ties to a developer that has recently won redevelopment contracts from SEDC.
As the city slashed SEDC’s funding and beefed up its investigation into the agency, two SEDC board members said they made repeated requests to Owen and Smith for greater budgetary oversight over the last 18 months but were repeatedly ignored or rebuffed.
Board members Rich Geisler and D. Cruz Gonzalez said they asked Smith and Owen to give them more access to the agency’s last two budgets prior to being asked to approve them. Geiler’s concerns were also raised in a memo he sent to Owen and Smith in November.
The resulting lack of oversight meant the board had little time to examine SEDC’s budget and was often forced to “rubber stamp” it, the two board members said.
On Nov. 19, Geisler wrote a memo to Smith and Owen that raised, among other issues, concerns about the lack of meetings of the board’s budget subcommittee. The subcommittee should have met quarterly, Geisler wrote, but it had not met once in the 18 months he had sat on the board. That meant the bonuses and extra compensation sailed through without being challenged, he said.
“If you’re going to a battery of subcommittee meetings or budget workshops and you’re having discussion about it, like you should, someone, at some point, would have read the line more carefully that said ‘bonuses’ and said ‘Oh, that’s interesting, can you explain that?’” Geisler said.
The voiceofsandiego.org story last week unveiled a complex system of unbudgeted bonus and extra compensation programs that paid Smith and her top deputy more than an estimated $250,000 above their base salaries in the last four years. SEDC is an arm of the city’s Redevelopment Agency and is responsible for shepherding redevelopment efforts in some of the city’s most blighted neighborhoods.
Smith and Owen didn’t respond to calls for comment. Owen hasn’t responded to interview requests for several months.
Gonzalez, who has also been on SEDC’s board for 18 months, said the board was not given adequate time to examine the agency’s past two budgets.
“We got it at the 11th hour and there wasn’t any ability to make many changes to it,” Gonzalez said. “It was due to go the financial management people at the city right after our meeting, and if we’d had any problems, or wanted to change any particular item, we wouldn’t have been able to.”
Geisler said his November memo was ignored by Owen and Smith. He never got a response to that or other requests to increase involvement by the budget subcommittee, he said.
“I don’t know how used they are to having an active board,” Geisler said. “I don’t know if I was just hindered or just kind of ignored. It was just business as usual.”
Bill Ramseyer, a Pasadena attorney who specializes in nonprofits, questioned whether the board of directors as a whole, which is made up of political appointees, is exercising proper supervision over SEDC.
“In that type of situation often they don’t take their job very seriously and look at board meetings as an opportunity to collect a per diem and do whatever the president or executive director says,” he said. “But because they are on the board they have an obligation.”
Geisler and Gonzalez said they have tried to ramp up oversight of SEDC in the time they have been on the board.
In a memo to Owen and Smith on July 8, Geisler called for the board’s budget subcommittee to launch a “battery” of meetings to review the agency’s budget practices.
He said he doesn’t really expect to receive a response.
“Lots of times you ask a question and you just don’t get an answer, so you just have to keep asking,” he said.
— Andrew Donohue contributed to this report.