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Wednesday, April 8, 2009 | When Mayor Jerry Sanders’ office said in February that it was considering eliminating the Centre City Development Corp. and Southeastern Economic Development Corp., even the mention provoked an outcry.

Tony Young, the city councilman whose district includes SEDC’s project area, was adamant that he would not support eliminating the nonprofit redevelopment corporation. “I’m not going to allow anybody to just disband an agency that serves my district,” he said.

A month later, Sanders dismissed the idea of consolidation and said he wanted to keep SEDC and CCDC. And when he announced a proposed overhaul to increase oversight of the agencies, Young stood by the mayor’s side in support. So did Council President Ben Hueso, who also represents the area. Councilman Kevin Faulconer, whose district includes CCDC’s downtown focus area, also lauded the move.

Eliminating the independent nonprofits and folding their duties and staffs into the city’s existing redevelopment bureaucracy may have been politically unpalatable. But with Sanders’ new proposed changes, the nonprofits and their boards will be stripped of much of their independence anyway. The agencies will keep their corporate names and letterhead. But they’ll look increasingly like city departments — not independent, legally separate nonprofits.

The plan maintains the nonprofits while stripping away much of the independence that Young and others cite as the justification for their existence.

Rachel Laing, a spokeswoman for Sanders, said keeping CCDC and SEDC as standalone nonprofits ensures that they’ll maintain a specific focus on downtown and southeastern San Diego. They’ll be more responsive to the community than if they were in a large city bureaucracy, she said, such as the city’s existing Redevelopment Agency. It oversees revitalization projects in neighborhoods such as Grantville, North Park and Barrio Logan.

Laing said nonprofits continue to make sense in downtown and southeastern San Diego, but not in other areas. Those neighborhoods don’t generate enough tax revenue to sustain a nonprofit and are too small and far apart to merit the same approach.

CCDC and SEDC are unique in California, the only government redevelopment agencies structured as nonprofits. Other cities throughout California manage revitalization efforts themselves, through organizations like San Diego’s Redevelopment Agency. The unique structure gives them unique quirks. The entities can pay their executives higher salaries than comparable city officials and, in theory, attract better talent.

The organizations’ major decisions have had to be approved by the City Council — and still will. But in the past, the board has chosen the president, who has in turn had broad internal latitude. That will change.

Sanders’ plan pulls the ability to control the nonprofits closer to his office than to the boards that oversee them. The mayor will have the ability to influence nearly every aspect of the nonprofits’ business. Each agency’s board will have a significantly diminished role. Each will still have the power to set the agency president’s salary and compensation. But they won’t be able to fire that person.

Like the police and fire chiefs, SEDC and CCDC’s top executives will answer to the mayor. He’ll have the power to hire them with City Council confirmation. He’ll have sole authority to fire them (they could appeal his decision to the council). Instead of having the City Council approve the agencies’ budgets and then letting the agencies’ employees spend that money within those budgetary guidelines, the mayor will get the power (through the city’s chief financial officer) to approve or reject every contract the agencies enter into.

The mayor’s plan will allow the nonprofits to avoid the city’s procurement and purchasing rules, which include reviews through multiple layers of the city bureaucracy. The oversight’s effectiveness presumes that the city’s chief financial officer will closely review every contract the agencies issue. The agencies will have to complete annual audits, as well as submitting monthly financial statements to the city.

“It’s a limited improvement in oversight and it focuses oversight at the executive level,” said Greg Levin, the city’s former comptroller. “The part that’s missing is all the staff work that supports executive oversight. The staff work is where the real work gets done — to make sure [contractors] have insurance, to make sure they’re licensed to do business, all of those aspects.”

The Mayor’s Office says the agencies’ employees will notice little change in operations other than the increased oversight. Laing said the mayor does not plan to meddle in the agencies’ business — even though he’ll have the power to do so if he wishes. Their boards of directors and executives will set the direction, she said.

Those top executives, though, will answer to the mayor. And the changes clearly allow Sanders — or any subsequent mayor — to direct the agencies’ operations to a much greater extent than before.

“The organization could be subject to the whimsy of politics,” said Fred Maas, CCDC’s chairman. “Anytime you interject politics it changes the equation. But with this mayor, I don’t see it happening. Is there opportunity for whimsy in subsequent mayors? I can’t deny that.”

The mayor’s plan does little to address the structural problem that gave rise to the failings revealed last year. Carolyn Smith, the former SEDC president, awarded herself and other employees more than $1 million in extra compensation during a five-year period. The agency was left on its own and neglected by city leaders. Warning signs popped up for years; few paid attention.

When SEDC’s clandestine bonus system was revealed, eight of the agency’s nine board members were serving on expired terms. The city’s internal reviews failed to catch the unsupervised leakage of hundreds of thousands of dollars a year to SEDC employee paychecks. The city had the ability to review the paychecks SEDC was issuing and catch discrepancies before voiceofsandiego.org did.

The city just didn’t look closely enough.

The proposal has an indirect effect. As the mayor becomes more responsible for catching wrongdoing, the city’s liability increases if he doesn’t. The proposal pierces the semblance of independence each has operated with. That increases the city’s legal liability if either agency is sued for wrongdoing.

City Attorney Jan Goldsmith has cautioned city leaders about that risk. He opined in March that eliminating the agencies would be the best way to protect the city from legal exposure. As they’re currently structured, the city could be held financially responsible for wrongdoing at the organizations, Goldsmith wrote.

Michael Jenkins, a local redevelopment attorney, said the mayor’s proposal makes the nonprofit status of the two agencies less valid, heightening the city’s risk.

“It’s going exactly the wrong direction,” Jenkins said. “It has the disadvantage of not solving the problem while maintaining an overly expensive and overly complicated decision-making process.”

To be sure, the mayor’s plan allows for a swifter response if scandal hits again. The mayor could suspend board members if they violate city regulations. And instead of relying on an appointed board to fire a chief executive, the mayor could quickly dispatch that person if they’re accused of wrongdoing. Smith stayed on for months despite the mayor and City Council’s calls for her resignation in the wake of the bonus scandal.

But whether wrongdoing is caught is predicated on how closely city officials monitor the agencies in the long-term — whether they buck the neglect they’ve demonstrated in the past. The honesty of each agency’s new leader will be vital.

“I don’t accept the premise that there’s any kind of structural remedy that is going to be a panacea for poor conduct,” said Maas, the CCDC chairman. “There isn’t a structure that exists. You can’t legislate behavior.”

Please contact Rob Davis directly at rob.davis@voiceofsandiego.org 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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