Wednesday, Feb. 4, 2009 | It’s been almost half a year since Carolyn Y. Smith, the president of the Southeastern Economic Development Corp., resigned under the weight of a widespread scandal over hidden bonuses and extra compensation paid to employees of the agency.

Now, as SEDC attempts to pick itself up and dust itself off after the loss of its president and finance director and the replacement of a majority of its board members, the agency finds itself under continued pressure from the City Council to reform its operations or face a concerted campaign to disband SEDC in favor of another redevelopment model.

As it strives to implement a slew of recommendations laid out in a damning performance audit last year, SEDC continues to feel the fallout from the bonus scandal that led to Smith’s demise. The agency is dealing with subpoenas from a federal investigation and ongoing lawsuits directed both at SEDC and its former president over a $100,350 severance package that Smith was promised last summer, but is yet to receive.

Despite the positions of president and chief financial officer remaining unfilled, SEDC’s interim leader Brian Trotier said the agency has striven to keep its head down and concentrate on the task it was created for: Redeveloping and revamping some of the city’s most troubled neighborhoods.

Late last year, the agency agreed to implement many of the audit’s recommendations. Some of those recommendations have already been met, and the agency’s new board has opened a constructive dialogue with the city to implement the audit’s other recommendations, Trotier said.

“We have a new board, a new direction and a new understanding with the city. Now we get to do what we’re supposed to be doing,” Trotier said.

As part of its revamping, SEDC recently hired a new manager of projects and development, one of the key recommendations contained within the audit. The position was one of several that had remained vacant for years at the agency, freeing up budgeted funds that allowed the agency to pay hidden bonuses to staff while remaining within its budget.

To meet another of the audit’s recommendations, Trotier said, the agency has created a new position of chief financial officer, for which it is currently interviewing candidates.

There have been other personnel changes too. Dante Dayacap, who had been SEDC’s finance director since 1991, and who oversaw the agency’s finances while employees received more than $1 million in unbudgeted bonuses and extra compensation, left the agency last November. And Alexis Dixon, the agency’s spokesman, was recently let go as part of “belt tightening” at the agency, Trotier said.

City Councilman Carl DeMaio, who has been vocally critical of SEDC, said the agency has one year to prove to him that it is a worthwhile organization.

DeMaio has led the charge for drastic changes at the redevelopment arm at meetings of the council’s Audit Committee, which has been the main forum for the council to discuss the manifest tensions between SEDC and city government.

“There is support on the council, as far as I can see, to mend it, not end it, when it comes to SEDC. But, I will tell you right now, that, at least for this council member, extends to a leash of a year,” DeMaio said.

DeMaio said SEDC’s response to last year’s audit was a necessary step for the agency. But he said he wants to see the changes go further.

Key to revamping SEDC, DeMaio said, is a full redrafting of the agency’s operating agreement — a written contract between the city and the nonprofit redevelopment arm that defines the relationship between the two and that was last updated decades ago.

For example, DeMaio said, he wants to change the operating agreement to create a new process for hiring SEDC’s president.

Under the current agreement, the president is selected by a committee overseen by SEDC’s board. DeMaio has proposed that the agreement instead state that the hiring of the president is overseen by a three-member committee made up of representatives from SEDC’s board, the City Council and the Mayor’s Office. The idea is just one of several changes to SEDC’s operating agreement that are being discussed at the Audit Committee and will be brought to the full City Council, DeMaio said.

DeMaio said he wants to see the contract between SEDC and the City Council redrafted in a way that ensures the council has far more control over the agency and can thus be held accountable if things go wrong. For years, he said, SEDC was allowed to operate too independently, with too little oversight from city government. Redrafting the operating agreement will bring the agency fully under City Hall’s control, he said.

While the City Council and SEDC discuss if and how the agency should survive, SEDC’s former president Smith has still not received the $100,350 she was promised by the agency’s former board when she resigned in September.

Community activist Ian Trowbridge and his attorney, Cory Briggs, challenged Smith’s golden parachute last summer, claiming that SEDC’s board had violated state open meetings law by voting on the severance payment in secret. In November, Superior Court Judge Jay Bloom agreed and issued an injunction against SEDC barring it from cutting Smith a check.

Briggs said Smith has since appealed Bloom’s injunction. That appeal hasn’t been heard yet and Briggs said the lawsuit he filed against Smith will not proceed to trial until the appeal has been concluded.

Briggs has also filed a separate lawsuit against the city’s Redevelopment Agency claiming that the city can’t release $100,350 to SEDC for the payout because the payment was not budgeted. The lawsuit claims that a Redevelopment Agency statute prohibits the city from spending money that has not been budgeted for. Briggs said the lawsuit is still in its early stages.

SEDC Board Chairman Cruz Gonzalez said Smith has not received any of the severance payment, and that she wouldn’t be receiving a check from SEDC while the injunction remains intact.

“I’m not in any mood to be held in contempt of court,” Gonzalez said.

One other controversy at SEDC appears to have run its course, for now.

A development planned for the Valencia Business Park in Valencia Park was scrapped for a second time by the agency’s board last year after concerns arose about the relationship between former SEDC board Chairman Artie M. “Chip” Owen and the principals of the developer chosen for the project, Pacific Development Partners.

PDP was twice chosen to be the developer for the project, but both times the deal was stripped from the company as questions were raised about the company’s plans for the site and Owen’s relationship with the principals of PDP.

Now, the Valencia Business Park project is back to square one. PDP’s plans for the land have been scrapped by SEDC and the agency is working to draw up a new request for proposals for the project, Trotier said.

Mark T. Burger, one of PDP’s principals, said he will not be submitting a new proposal for the Valencia Business Park site when SEDC’s board again puts the project out to bid.

“Having done it three times and never been successful, no, we won’t be submitting a proposal,” Burger said.

Burger said he is in negotiations with SEDC to recoup some of the money his company has already spent on drawing up plans and applying for the development rights to the site. If those negotiations aren’t successful, he said, PDP will consider legal action to recoup its losses.

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