SANDAG’s Investigation Might Not Investigate Several Major Issues

SANDAG’s board of directors last week chose an Orange County firm to investigate its forecasting scandal, in which agency leaders ignored warnings from panicked staff that a tax increase wouldn’t raise nearly as much as voters were promised on November’s ballot.

The firm is, by all accounts, well-respected nationally – it played a high-profile role in the Enron investigation. It even has done recent work on actuarial forecasting.

But it’s unclear the firm will be able to investigate all of the issues Voice of San Diego has uncovered related to the agency’s existing tax measure, TransNet, and the proposed tax increase voters rejected last year, Measure A.

SANDAG has structured its investigation into itself in a way that could leave issues uninvestigated.

A SANDAG board member who has taken a lead role in the investigation says he wants everything to be on the table. And the investigator himself said it’s possible his work could be expanded beyond the agency’s explicit request, but emphasized that it’s too early to say.

Here are three big questions about the investigation that could be clarified as more details into the probe come available.

What About the Costs?

SANDAG’s broken economic forecast, which dramatically overstated its revenue estimates for sales taxes – whether TransNet or Measure A – has received the most attention, but it’s nowhere near the only thing SANDAG did that concealed problems with its tax-funded transportation program.

In fact, it may not even be the agency’s biggest sin.

SANDAG also took an entire year to disclose that – by its own estimate – the costs of all the TransNet projects promised to voters had increased by $8 billion.

Pretending the remaining TransNet projects were $8 billion cheaper than current estimates allowed the agency to say the program was on track. If it had disclosed the cost increase earlier, it would have campaigned for Measure A while acknowledging the new tax money might be spent on old promises.

In October 2015, SANDAG updated the costs of all of its projects. Four months later, it updated its financing plan for TransNet but continued to rely on the outdated cost estimates until December 2016, after Measure A failed. When the agency admitted that its forecast was fatally flawed, it also acknowledged what it had known for 14 months: TransNet was $8 billion more expensive than it had been letting on.

But SANDAG’s document outlining the scope of the investigation doesn’t mention anything about why the agency didn’t update TransNet’s cost estimates as soon as it knew they had gone up.

Steve Vaus, a SANDAG board member and mayor of Poway who has taken a leadership role on the subcommittee overseeing the investigation, said as far as he’s concerned, the firm can follow whatever leads it wants.

“In my opinion, everything is on the table,” he said. “We did not intend to limit them.”

John Hueston, lead investigator for Hueston Hennigan LLP, the firm leading the investigation, said it’s too early to say what the scope of his investigation will be.

“My answer is, ‘I don’t know at this stage,’” he said. “In my experience, if there are intertwined issues within the subject area, the institution would desire to probe that issue. What I can tell you, though, is the institution has a right to define what they would like to have investigated, and to draw lines.”

Where’d That Number Come From?

SANDAG’s request for submissions from interested investigators outlines what it sees as the scope of the investigation.

There’s one bullet point in the document that jumps out, because it’s just so specific.

In a section on internal materials to be reviewed, the document lists “Emails – approximately 2,700 emails.”

That’s the number of emails that turned up when SANDAG responded to Voice of San Diego’s request for public records.

There’s no reason to think our request captured every correspondence that’s relevant to SANDAG’s scandal.

In fact, we had to narrow our request considerably during a months-long back-and-forth to get the records in the first place – an exchange that nearly led us to mount legal action on two separate occasions. Plus, many of the emails have nothing at all to do with the agency’s broken forecasts, but were swept in because they happened to include certain keywords.

Why use the results of a reporter’s public records request as the basis of the investigation?

Hueston said his investigation wouldn’t be limited to those emails.

“You’ve added facts that I didn’t know,” he said. “Often an institution will try to include an initial guess so it’s easier to estimate possible costs. Otherwise it’s very difficult to get an idea of how much an investigation costs.”

There’s another relevant sentence right before the specific reference to 2,700 emails: “the list is by no means intended to limit the scope of items subject to review.”

“I made sure they put that line in there,” Vaus said.

Is It Just About Measure A?

Throughout the document, SANDAG’s emphasis is squarely on the $18 billion revenue forecast for Measure A, the tax increase rejected by voters in November.

That was a big deal. Staffers identified and told executives of problems with the agency’s economic forecast. A half-cent tax hike like Measure A would raise much less than the agency’s model said.

Agency leaders waived off those concerns, and took the overstated figure to the ballot. That meant they could make unrealistic promises to voters about the projects it could build and how quickly.

But the false number on the November ballot wasn’t the only issue those staffers identified.

Their findings also had significant implications for TransNet, the agency’s existing tax measure. And since that measure couldn’t raise what was expected, SANDAG was going to need to make up for it elsewhere – either by dipping into the new Measure A revenue, or by getting more from the state or federal governments – to keep up with the promises it had already made.

But SANDAG’s document outlining the investigation focuses on the narrow question of what voters were told about Measure A.

The investigation is titled “Independent Examination of Measure A Communications.” The scope of work is written as an examination “related to the error in the forecasting model and determine which individuals knew that the revenue estimate was overstated, when those individuals gained that knowledge, who that information was shared with, and if it was not shared with senior staff, why.” It says the investigators will review documents “regarding forecasting model for Measure A.”

If the investigation only looks into Measure A, it will be leaving a number of issues off the table.

What About SANDAG’s Own Explanation?

SANDAG’s own version of events offers another area for potential inquiry.

SANDAG executives said newly hired chief economist Ray Major discovered seemingly overstated estimates of wage growth – and therefore taxable retail sales – in the fall of 2015. He and staff then outlined their findings and presented them to executives in December 2015, but the executives didn’t act because longtime Chief Economist Marney Cox – then a senior adviser, since retired – waived away the concerns and said the forecast was still plausible. The issue died.

Then, Voice of San Diego published a series of stories before the election, noting the same areas of concern Major had already identified. We even published a chart nearly identical to one Major’s staff presented to executives a year earlier.

Suddenly, SANDAG decided to see if there was a problem. After weeks of research, it concluded the forecast was broken, and discovered the culprit: a copy-paste error put the wrong data in the wrong place, throwing everything off. Staff then went to the board to say the model couldn’t be trusted and needed to be thrown out.

But why did it take press reports for SANDAG to look into the problem, when those press reports didn’t include any information – none at all – that hadn’t already been presented to staff nearly a year earlier? If it had taken the problem seriously initially, it would have discovered the error months before the election. The agency would have had a whole additional year to figure out how to plug the gigantic shortfall TransNet is now facing.

SANDAG’s document outlining the investigation’s scope doesn’t mention any of those questions.