Saturday, July 19, 2008 | As the city’s politicians call for heads to roll and the scandal builds at the Southeastern Economic Development Corp., the agency’s top two officials have offered one explanation for its hidden system of bonuses and extra compensation: That SEDC’s budget, which is approved by the agency’s board and the City Council, allocates a set amount for extra employee compensation each year.

They have said the bonuses and extra compensation are accounted for in two vague budget lines titled “Misc. Salary & Wages” and “Allow. For Overtime/Bonus/Merit.”

But the budgets approved by the board and the City Council over the past five years provide for less than half of the additional compensation that has actually been paid to employees beyond their base salaries in that time.

In the past five years, SEDC’s budgets show a total of $462,000 available for additional compensation. In that time, however, the agency has paid out $1,081,534 in such payments to its employees, according to documents the agency provided the Mayor’s Office late Friday.

In fiscal year 2006-2007, the agency spent three times its budget for bonuses and extra compensation, the figures show. It spent more than it was approved for the entire workforce’s bonuses that year on just one employee: SEDC President Carolyn Y. Smith.

That year a total of $94,000 was earmarked in the budget for any additional compensation to the agency’s 14 employees. The documents show that year SEDC spent almost $313,000 on extra compensation. Smith herself received $94,853 in bonuses and extra payments.

It’s unclear where that extra money came from. The memo and figures provided Friday by SEDC Chairman Artie M. “Chip” Owen in response to a request from Mayor Jerry Sanders provide no explanation for the disconnect.

While the existence of the hidden bonus program was revealed in a investigation last week, the sparse information made public by SEDC at the time obscured the full scope of the payment system, which was unknown to the agency’s board or the City Council.

The documents show that over the past five years, Smith received more than $293,000 in the extra payments. Finance Director Dante Dayacap, her top deputy, received more than $195,000 over those five years.

The extra payments were not limited to Smith and Dayacap. An agency executive assistant, a position currently filled by Kimberly King, received extra compensation of $28,985 in fiscal year 2006-2007, more than half her base salary. Last year, she received $24,186, bringing her total compensation to $87,844.

In fiscal year 2006-2007 and 2007-2008 more than seven officials received extra compensation of more than $20,000 apiece.

SEDC officials have said some of the bonuses were rooted in the stagnant wages that were being approved by the City Council, which has frozen salaries for many city workers in the wake of the city’s financial crisis.

In a July 8 response to the investigation, Smith and Owen state flatly that a one-time bonus system was used to boost salaries in a number of fiscal years beginning in 2004-2005 after wages stagnated in the budget approved by the board and City Council.

“The lump sum payment was equivalent to what the next incremental salary increase would have been but did not change the base salary or the associated benefits,” Smith and Owen wrote.

In Friday’s memo to the mayor, Owen repeated the explanation that Smith has offered to explain the payments. “The SEDC Board of Directors approves the gross amount available for all additional compensation as part of its annual approval of the entire SEDC budget,” the memo reads.

By the end of fiscal year 2006-2007, the amount paid out in the extra payments amounted to about 30 percent of what SEDC spent on employee pay that year, rather than the less than 10 percent represented in the original budget.

A similar trend was discovered by city accountants earlier this week when they examined the amount SEDC budgeted to spend on administration costs each year and compared that to what the agency actually spent.

The city accountants found that the agency spent more than 30 percent of its total expenditures on administrative costs for the past three years. But Smith and Owen claimed that for the past 14 years the agency has operated at an administration level of 5 percent to 8 percent of its total budget.

The Mayor’s Office didn’t have an official response to Owen’s memo Friday. Mayoral Spokesman Fred Sainz said the office hasn’t yet analyzed the data properly because of the late hour at which it was sent. However, Sainz said an initial review of the response raised additional questions.

“They are clearly in violation of good management practices and internal controls given the fact that Ms. Smith’s bonus was not approved by her board,” Sainz said.

In Owen’s memo Friday, he states that the board didn’t oversee the bonus program. He wrote that it “has not taken a separate action to approve a specific ‘bonus’ payment to Ms. Smith, Mr. Dayacap or any other individual employee.”

Owen didn’t answer other questions.

The mayor asked: “Does the employment contract with Ms. Smith include any provision for bonuses or additional compensation that is paid ‘automatically’ without Board review?”

Owen replied: “All compensation provisions including any and all additional compensation provided in the employment contract were approved by the SEDC Board of Directors.”

Smith’s labor contract, last amended in 1996, doesn’t include mention of bonuses or additional compensation outside of a car allowance.

The mayor followed: “If not, what authority has been granted to Ms. Smith or any other employee for making such decisions/payments?”

Owen simply directed the mayor to his previous response.

The request for information is part of a wide inquiry of the agency’s finances the mayor launched following the investigation. He has since cut the agency’s funding by two-thirds, essentially freezing its operations.

On Friday, Mayor Jerry Sanders and three City Council members publicly called for Smith to resign but she refused. The SEDC board, led by Owen, has scheduled a closed hearing during its regular meeting Wednesday to discuss Smith’s employment.

At the same time, Owen has become wrapped in the growing scandal at SEDC himself. This week, City Attorney Mike Aguirre opined that Owen had violated the state conflict of interest law in maintaining an ongoing financial relationship with a developer doing business with SEDC.

Please contact Will Carless directly at with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.

Dagny Salas

Dagny Salas was web editor at Voice of San Diego from 2010 to 2013. She was an investigative fellow at VOSD from 2009 to 2010.

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