City Leaders Appear to Favor Keeping SEDC, CCDC

Tuesday, Sept. 16, 2008 | With its two showcase redevelopment authorities slogging through a summer of scandal, leaders at City Hall appear to be favoring incremental changes rather than dissolving their unique nonprofit structures.

The fallout from a hidden bonus system and problematic business connections at the Southeastern Economic Development Corp. and the Centre City Development Corp., respectively, has decapitated the two agencies in the last two months and ground much of their work to a halt.

The problems faced at SEDC and CCDC can in many ways be traced back to the fact that they are structured as nonprofit agencies outside of the typical City Hall bureaucracy, an arrangement that is unique statewide. Because of their autonomy, they lack the same direct oversight offered most city agencies and officials at City Hall have long delegated agency details to their politically appointed boards.

That has led a growing chorus to call for the dissolution of one or both agencies. However, in the scandals’ wake, Mayor Jerry Sanders and a number of City Council members have advocated keeping SEDC and CCDC’s nonprofit structures, choosing instead to deal with their problems by replacing leadership or redrawing policies.

Councilman Tony Young, whose District 4 most directly overlaps with SEDC’s project area, summoned the audit that declared SEDC’s bonus system fraudulent and pushed for the firing of its president, Carolyn Y. Smith.

But he’s vehemently defended keeping SEDC as an organization while pushing for better oversight and more representation from City Hall. He said CCDC is a model not just for the city, but for the nation, and wants SEDC to follow it.

“We have a successful model, we just have to make it work,” Young said.

On Young’s initiative, the council’s Audit Committee on Monday asked Independent Budget Analyst Andrea Tevlin to offer a set of recommendations for updating the operating agreement between SEDC and the city, after auditors blamed an outdated agreement for allowing so much power to be consolidated underneath the agency’s president. Young added a strong caveat to that request: that SEDC maintain its current structure.

Upon that request, Tevlin suggested that the roles and responsibilities of the mayor and City Council be defined with respect to the agencies. Over the last couple of years, officials at all levels of power at City Hall ignored warning signs at SEDC, as few if any felt it was their responsibility to exercise oversight over the city agency.

“It’s unclear to me as I sit here, after two and a half years at the city, who is really in charge of what and who’s responsible for the day-to-day oversight of these agencies,” she said.

A number of people in and around City Hall think the way to make that clear is to bring SEDC and CCDC’s activities back directly underneath the Redevelopment Agency, where the city’s other 11 redevelopment areas are dealt with in a more traditional setting.

District 3 City Council candidate Stephen Whitburn said redevelopment has been necessary both in downtown and in southeastern San Diego.

“However these two agencies were set up to grease the wheels of development by operating outside of the city’s normal process of review and oversight,” Whitburn said. “Blurring the lines of accountability invites corruption.”

California redevelopment law allows municipalities to create redevelopment areas in blighted neighborhoods. The municipalities then have the ability to reign in additional tax funds and divert the money to beautification efforts and to subsidize private development.

Most of San Diego’s redevelopment areas are administered directly by the city’s Redevelopment Agency like other city departments. However, it chose an unusual structure for the areas overseen by SEDC and CCDC.

Both agencies are kept outside of the typical City Hall bureaucracy as nonprofit agencies. They each have their own logo, letterhead and corporate attorneys. But they must adhere to state open meeting and public records laws and most of their major decisions must be ultimately approved by the City Council.

When former Mayor Pete Wilson engineered the idea for CCDC more than three decades ago, he looked to Baltimore for the model, and supporters say it allows the agencies to operate more quickly and with greater professional development expertise. However, as is now the case here, critics in Baltimore derided the model for contributing to secrecy and cronyism.

In July, SEDC came under heavy scrutiny after the revelation of a clandestine system of bonuses and extra compensation that paid employees more than $1 million over a five-year period. Former SEDC board Chairman Artie M. “Chip” Owen has also been accused of violating the state’s conflict of interest law for maintaining a financial relationship with a developer doing business with SEDC.

An audit released last week found SEDC’s pay practices amounted to fraud; President Carolyn Y. Smith has been fired and the mayor has begun revamping the SEDC board.

A day after the board fired Smith, CCDC President Nancy Graham quit as details emerged that she hadn’t disclosed a financial relationship with a downtown developer as she engaged in negotiations with the developer’s affiliate on an iconic 41-story, $409 million condo and hotel development. In the fallout, that project has since been killed by the CCDC board, a proposal for a new City Hall has been stalled and a number of other projects are under review. Audits and investigations are ongoing; Graham has been charged with three misdemeanors.

Still, the mayor is standing by the nonprofit idea. He and Young are advocating for the mayor and the City Council to each have a voting member on CCDC and SEDC’s board of directors.

“There is a culture at this agency that needs to be changed,” said Young, who also blamed a lack of oversight by the mayor, City Council and SEDC board for its current troubles.

The SEDC audit by Macias Consulting Group offered three possible solutions for revamping the agency’s governing structure:

• Include city representatives on the SEDC board, limit the president’s authority, hold more regular board meetings and institute a number of other measures that could limit fraud or inappropriate spending.
• Merge SEDC with the Redevelopment Agency or directly with CCDC, depending on the outcome of the CCDC audit.
• Operate SEDC as a standard public agency within the city.

“We believe that any one of those three would be acceptable for dealing with the issues at SEDC,” said Denise Callahan, a Macias partner.

Council members Kevin Faulconer and Toni Atkins, the other members of the Audit Committee with Young, signaled their support for keeping the redevelopment structures in tact.

“I would not like to see SEDC consumed by another agency … I think it does need to remain as a stand-alone because the focus needs to be there,” Atkins said. “If it gets consumed by other areas, it’s not going to be good.”

Councilwoman Donna Frye has advocated for dissolving the two groups. She doesn’t like the fact that the boards can select the presidents without the City Council’s approval or how the City Council often has to wait for them to take action on important issues.

“It’s public money and it should be overseen by someone who the public can hold accountable,” Frye said.

Please contact Andrew Donohue directly at andrew.donohue@voiceofsandiego.org with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.