Friday, July 18, 2008 | The chairman of the Southeastern Economic Development Corp. has violated the state’s conflict of interest law by maintaining a financial connection to a developer doing business with the agency, according to an opinion by City Attorney Mike Aguirre.
SEDC Chairman Artie M. “Chip” Owen’s abstention from voting on Pacific Development Partner LLC’s projects with the redevelopment department isn’t sufficient to satisfy the provisions of state Government Code 1090, which prohibits public officials from participating in contracts in which they have a financial interest, the letter to Owen, dated Thursday, states.
As a result, Aguirre says, all contracts and agreements with Santa Monica-based PDP struck during Owen’s five years of service on the SEDC board are void and unenforceable.
PDP currently has a pending development agreement with SEDC to develop Valencia Business Park, a troubled project at the intersection of Imperial Avenue and Stevens Way that has been the focus of a long struggle.
“The courts have continually reiterated that no matter how twisted and winding the trail may be, if the connection between a financial interest of the official and the contract can be made, a violation of section 1090 will be found,” the letter states.
Also on Thursday, Councilwoman Donna Frye called for SEDC President Carolyn Y. Smith to resign as the city’s political forces mulled the agency’s future. She said there is increasing momentum at City Hall to remove Smith, Owen and others from SEDC.
“I believe there’s a growing consensus building to have Carolyn Smith removed and that those discussions are ongoing,” Frye said.
Owen has a long-standing business relationship with PDP and its two principals, Mark T. Burger and Ronald A. Recht. The relationship, first reported by voiceofsandiego.org in November, dates back more than a decade, before Owen joined the SEDC board.
He discloses having received between $10,000 and $100,000 a year from PDP from 2004-2007, according to the statements of economic interest that public officials must file with the City Clerk’s Office. The income is from a deal Owen brokered for PDP in 2002, but the commission was deferred and paid out in installments, Owen has said.
Owen has recused himself from any votes on PDP projects since joining the board in 2003. However, the letter states, when one member of the governing body of a public institution has a financial interest in a contract, that member’s abstention from voting isn’t enough. The entire governing body is precluded from entering into the contract, the letter states.
“Because PDP has been paying you annually since 2002 for services rendered that year, you are financially interested in every contract made between PDP and SEDC… because the more money that PDP makes from projects results in the greater likelihood of you continuing to receive your installment payments,” Aguirre wrote.
An official “participates” in the making of a contract if he or she is involved at any step in the process, the letter states. “The contract-making process begins at the time the idea for the contract is conceived and continues through the actual execution of the contract,” Aguirre wrote.
The letter doesn’t say what specific actions Owen took to have participated in the contract, and Aguirre refused to comment on the letter, which was also sent to Mayor Jerry Sanders, the City Council and Smith.
SEDC cannot consider any new agreements or contracts with PDP as long as Owen remains on the board and continues having a financial interest in PDP, Aguirre opined.
The letter analyzes civil law. There are also criminal provisions to 1090 as well that would typically be dealt with by the district attorney or state attorney general. Aguirre’s letter states that his office is continuing its review of the issue.
Owen became SEDC chairman in 2007. In that role, he runs board meetings and has unilateral authority over setting Smith’s salary.
In an interview last year, Smith and SEDC outside counsel Royce Jones said Owen’s relationship with PDP was irrelevant to them as long as Owen recused himself from PDP votes.
“He has a relationship and it has nothing to do with the agency,” Smith said.
Owen didn’t return calls for comment for this story, and Smith refused to comment. In an interview last year, Owen said he had no financial interest in the Valencia Business Park project and declined to answer questions about his personal finances.
Other Owen-PDP connections wouldn’t be apparent from SEDC board minutes or his statements of economic interest. Upon being pressed, Owen last year revealed that PDP principals Burger and Recht also were involved with two of his SEDC-awarded development projects before he served on the board.
And, as of last year, Owen was partners with Burger and Recht in another development project, the details of which Owen has refused to disclose in the interview, saying he’s a private person.
Valencia Business Park has been the site of a long development struggle. PDP was originally awarded the development deal in 2005. Smith and SEDC were subsequently sued for fraud and breach of contract by the owners of a local exotic bird store on claims they were duped into giving up their claim on the land.
Earlier this year, SEDC was forced to put the project back out to bid after PDP altered its plans for the site drastically without renegotiating the purchase price. SEDC re-awarded the project to PDP last month, but for a purchase price of nearly $1 million less than the original deal.
Focus on SEDC has intensified in the last week and a half since the publication of a voiceofsandiego.org investigation that revealed a clandestine system of bonuses and extra compensation for Smith, Finance Director Dante Dayacap and SEDC employees. The story found that Smith and Dayacap had received an estimated $250,000 in bonuses over a four-year period unbeknownst to the SEDC board and City Council, which must approve major SEDC items such as development agreements and its budget.
The Mayor’s Office has launched a probe into the organization and has cut its funding by two-thirds, giving it only enough money to pay employee salaries for a limited time pending the completion of its inquiry.
Councilmen Tony Young and Ben Hueso are also maneuvering to overhaul SEDC’s board of directors and to install a slate of new board members who are willing to take on the agency’s growing crisis. Several of SEDC’s board members’ terms have expired, according to an SEDC memo, and new members must be recommended by council District 4 and District 8.
Young said he has three or four people lined up to step into the expired board members’ seats. He said Hueso has others.
“Clearly some things need to be done and we need a board that’s prepared to do those things. Personnel matters are one of the board’s responsibilities,” Young said.
SEDC’s board can vote to remove the agency’s president, according to the agency’s bylaws. There is no indication the board is considering such an action. The City Council can remove individual board members or the entire board of organizations such as SEDC with a two-thirds vote, Aguirre said.
Top officials essentially fall into two different camps: Those who believe in the SEDC model and want a change in leadership and those who think the organization should be disbanded and its responsibilities absorbed by the city’s Redevelopment Agency.
An SEDC spokesman didn’t return a call seeking comment.
SEDC is a taxpayer-funded entity that manages redevelopment efforts in a 7.2 square-mile area directly east of downtown, much of which falls in Young’s 4th District. Council members from other areas of the city generally defer to the 4th District council member on issues pertaining to SEDC.
City Councilman Jim Madaffer called for Smith to be fired last week and said that SEDC should be disbanded. It is currently structured as quasi-governmental nonprofit organization and its major decisions still must be approved by the City Council.
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