The Morning Report
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Wednesday, Sept. 3, 2008 | The four new Southeastern Economic Development Corp. board members installed Tuesday by the City Council have been tasked with restoring confidence in an agency reeling from a bonus scandal, entangled in a number of high-profile lawsuits and searching for a new leader.
The new board members inherit an organization in crisis and will face crucial decisions related to SEDC’s terminated president, Carolyn Y. Smith. The board’s pending business includes whether to rescind Smith’s $100,000 severance package, what to do with a breach of contract and fraud lawsuit against the agency and Smith, and how to move forward on a development deal that’s been tainted by allegations that its outgoing chairman had a conflict of interest.
Several City Council members heralded the appointment of the new board members as the beginning of a new era for the beleaguered agency. But the incoming board will have its work cut out for it dealing with the fallout from a scandal over unsupervised employee bonuses and from controversy surrounding former board Chairman Artie M. “Chip” Owen’s relationship with a developer who was awarded an SEDC development agreement.
The four appointees will replace termed-out trustees, including Owen, who have been staunch supporters of Smith, who departs in October.
City and agency officials have said there is no obvious candidate either within SEDC or within the southeastern San Diego community to take over the top role Smith filled for 14 years. The agency is also facing three lawsuits related to the conduct of Smith or the board.
SEDC is being sued by a local couple that claims it was duped by Smith into dropping its claim on a piece of land overseen by the agency. The couple has also personally sued Smith for fraud in the lawsuit, which is currently in mediation. The board will have final say over any settlement of the case.
Smith is also being sued personally by City Attorney Mike Aguirre, who claims she wrongfully approved hundreds of thousands of dollars in bonuses and extra compensation for herself and her staff. The current board voted last week to indemnify Smith in that suit, but the new board members want to see that decision revisited and possibly overturned.
And SEDC is being sued by a local activist who claims Smith’s severance, agreed to in July, should be voided because it was discussed in a closed meeting — an alleged violation of the state’s open meetings law known as the Brown Act. Last week, the board voted to allow that payment to stand, but incoming board members want to see that decision revisited.
Aguirre also recently declared one of SEDC’s biggest projects, Valencia Business Park, null and void because of Owen’s relationship with the developer chosen by SEDC to build it.
If that wasn’t enough, a long-awaited performance audit of the agency is also likely to be unveiled later this month, giving SEDC’s new board members plenty to mull over as they come into office.
The three incoming board members reached for this story said they relish the chance to reform SEDC from the inside out. One, local businesswoman Gina Champion-Cain, appeared to be chomping at the bit to get started.
Champion-Cain said she has been frustrated at the inaction of the City Council and the mayor, which had not taken action on revamping the SEDC board until now, despite the expiration of the terms of eight of its nine board members. She said she plans to scrutinize every element of SEDC’s budget moving forward, and said the board has a number of important decisions to make regarding staffing and other administrative issues at the agency.
“Let’s get in there and kick some ass,” she said.
The introduction of the new board members marks the end of a period of uncertainty at SEDC, during which the presiding board thumbed its collective nose at efforts by elected officials to quell its influence over the future of the agency.
Led by Owen, the SEDC board voted last week to uphold Smith’s controversial $100,350 severance package for Smith and also to grant Smith indemnity for her legal fees in Aguirre’s lawsuit against her.
Owen and SEDC Corporate Counsel Regina Petty told the board it would be breaching its fiduciary duty to SEDC if it didn’t hear the contentious legal issues at last week’s meeting.
The board took action on those matters despite sternly worded memos from Mayor Jerry Sanders, City Councilman Jim Madaffer and Aguirre, warning board members not to discuss or vote on issues that could have a long-term effect on SEDC.
The three incoming board members reached for this story said they want to have the severance and indemnity decisions looked at again.
“It absolutely needs to be revisited,” said incoming board member Richard Lawrence, a local businessman who also works in the nonprofit realm.
City Councilmen Tony Young and Ben Hueso said the approval of the new, reform-oriented board members marks a key milestone in revamping how the agency conducts business and interacts with the City Council.
Young said he wants to work with the City Council in coming months to improve oversight and accountability at SEDC. As a nonprofit corporation, SEDC has a complicated and convoluted relationship with the city’s elected officials because, while it acts much like a department of the city, it is set up as a nonprofit organization outside of the traditional City Hall bureaucracy. Decisions on development agreements and its budget, however, ultimately must be approved by the City Council.
Young said the first step in that effort is to involve the City Council in the process for choosing a new corporate leader at SEDC, and said the agency also needs to hold a series of public forums to better inform the community about what its role is and to start mending relationships with skeptical residents.
“That’s why we’ve really got to have a powerful, thoughtful, informed board to do this stuff. This is a good start,” Young said.
Champion-Cain agreed, saying that the board must properly learn its roles as both a delegate and an educator of the City Council. She said she favors the structure of SEDC as a nonprofit corporation, but said that the board must properly exercise oversight in order to ensure that the corporation maintains its focus and its integrity.
“There is a lot of good that needs to be done in that neighborhood, and this is the time to do it, and we should not allow a few people to destroy the possibilities that can occur and the goodness that can happen in that neighborhood,” Champion-Cain said.
Joining Champion-Cain and Lawrence on the board are Simon Wong, founder of local construction management firm Simon Wong Engineering and Vernon Evans, vice president of finance for the San Diego County Regional Airport Authority.
They replace Owen, Charles Simpson, Randy Jones and Kea Hagan.
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