Saturday, July 19, 2008 | Mayor Jerry Sanders and three City Council members called for the immediate resignation of Southeastern Economic Development Corp. President Carolyn Y. Smith on Friday in the wake of a burgeoning scandal surrounding her agency’s clandestine compensation program.

City officials originally gave Smith until 1 p.m. Friday to resign quietly, with the ultimatum that they would go public in the afternoon if she did not abide. The memo, released Friday afternoon, co-signed by Council members Tony Young, Ben Hueso and Donna Frye, told Smith to contact the city’s chief operating officer by 5 p.m. with her chosen course of action.

Smith resisted the push, conveying the message as the deadline approached through her board chairman to the mayor’s chief operating officer, Jay Goldstone, that she wouldn’t be stepping down. The SEDC board, however, is scheduled to discuss Smith’s continued employment in closed session during its regularly scheduled meeting Wednesday.

In the same memo, Sanders and the council members called on SEDC board members to terminate Smith’s employment if she didn’t resign.

“We feel that these changes must occur immediately so that we can return this agency of City government to its original purpose of serving the communities it was established to serve,” the letter states.

The difference between a resignation and a termination is significant: A severance clause in Smith’s employment contract could pay her between $200,000 and $300,000 if she is terminated. The same contract states that no severance will be paid if she is terminated “due to acts of dishonesty, gross misconduct or fraud.”

If she doesn’t resign, the mayor’s memo states, the officials will ask the SEDC board to terminate her employment in an emergency board meeting.

Young and Hueso are also leading a push to replace a number of board members whose terms are expired and install what Young called a “reform-minded” board.

In a letter to the mayor sent Friday, board member Darryl Williams said that Smith used the agency’s outside attorneys to control the flow of information “so that board members could not obtain sufficient answers to assist in making good judgments.”

“The culture of SEDC over the years has been to manipulate, cajole, ignore and intimidate the board into utter and complete silence. Materials for review are provided late and board members have customarily been thwarted in their opportunities to raise questions,” Williams wrote.

He also called on the mayor to install alternative legal counsel to the board.

Smith has been at the center of a political ruckus the last week and a half after the publication of a investigation that revealed a clandestine bonus and extra compensation program that had paid Smith and her top deputy, Finance Director Dante Dayacap, an estimated $250,000 over the course of four years unbeknownst to the SEDC board or City Council.

Since then, the mayor has clipped SEDC’s funding by two-thirds and opened his own inquiry into the agency. On Thursday, City Attorney Mike Aguirre opined that Owen had violated the state’s conflict of interest law and that any development agreement with Owen’s business partners, Pacific Development Partners LLC, was void. PDP currently has an agreement to develop the city-owned Valencia Business Park in concert with SEDC.

As chairman, Owen is in charge of the board’s meetings and unilaterally controls Smith’s salary.

Smith has served for 14 years as president of SEDC, a nonprofit arm of the city’s Redevelopment Agency responsible for revitalizing southeastern San Diego. She served as a staff member before ascending to its top position. The 51-year-old San Diego native graduated from Point Loma High School and San Francisco State University.

She is the daughter of Rev. George Walker Smith, a prominent local civil rights leader, former school board member and founder of the civic forum the Catfish Club.

SEDC’s website contains a section on Smith that details a number of projects the president has successfully overseen. Those include Gateway Center East, a business park off Market Street in Mount Hope and Imperial Marketplace, a multi-use development off Imperial Avenue that houses a thriving Home Depot store, restaurants and offices including SEDC’s headquarters.

In Friday’s memo, Sanders and the council members said they believed it is in the best interest of San Diego and the communities SEDC serves for her to step down. “She has served our community for over twenty years and has shown dedication to the redevelopment process,” the letter states.

Pressure has been building on Smith since news of the bonus program broke, with Frye and Councilman Jim Madaffer previously calling on her to step down.

In total, Smith and Dante Dayacap shared more than $250,000 in the extra compensation between fiscal years 2003-2004 and 2006-2007. An analysis this week by city accountants revealed that Smith was paid a total of $261,292 in fiscal year 2007-2008, almost $90,000 more than her $172,000 base salary.

The city’s comptroller has been poring through SEDC’s accounts since last week. On Tuesday, the comptroller, Greg Levin, sent Dayacap a lengthy memo requesting explanations for large fluctuations in Smith and Dayacap’s salaries.

Levin’s letter also asked Dayacap to respond to a city analysis that showed the agency had spent about 38 percent of its annual spending on administrative costs. Mayoral spokesman Fred Sainz called the administration spending “excessive” and said the city’s analysis jarred with SEDC’s claim that it only spends between 5 percent and 8 percent of its budget on administration.

The bonus scandal has fueled a debate both inside and outside of City Hall about whether SEDC as an organization should be disbanded and its duties absorbed by the city’s Redevelopment Agency.

Young, who is pushing to keep SEDC intact, said it was unfortunate that he had to call for Smith’s resignation. He said she’d been a valuable asset to the community and redevelopment and he thanked her for her efforts to improve the quality of life in the community.

“However when the very existence of SEDC is threatened by a continuing barrage of allegations of questionable practices and lack of appropriate Board of Director oversight, it is clear to me that management and the Board must take a course of action that is in the best interest of the community,” Young said in a statement.

In addition to the recent flap over the bonuses, a series of investigations over the last two years have found that:

  • An agency consultant was awarded one of its coveted for-sale homes in an affordable housing program; a former SEDC president who is now a developer was allowed to sell government-controlled homes for tens of thousands of dollars more than authorized by the City Council; and participants in its housing programs were allowed to flip homes for sizable profits despite regulations forbidding such sales.
  • Owen has maintained a business relationship with PDP while on the SEDC board. He has reported receiving between $10,000 and $100,000 a year in commission from PDP in deferred compensation each of the last four years and maintains an ongoing development partnership with PDP’s two principals, the details of which he refused to discuss.
  • Smith has been sued for fraud for allegedly duping a local business into signing away its land rights at Valencia Business Park, paving the way for PDP to take control of the land.

Fred Sainz, the mayor’s spokesman, said there had been significant distractions and SEDC and that it was time for SEDC to get back to its core mission of revitalizing some of San Diego’s most blighted neighborhoods.

“This is an issue that has been building for quite some time,” he said. “Many people have been questioning the performance of the agency.”

Please contact Andrew Donohue directly at and Will Carless directly at will.carless@voiceofsandiego.orgwith your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.

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