By David Thompson and Luke Watkins –
Neighborhood Partners (NP) has asked the city council to seek an independent investigation of DACHA’s activities. The council majority continues to refuse to allow a bright light to shine on this public funds fiasco.
The city attorney has billed over $125,000 for legal fees relating to DACHA. Staff also allowed DACHA to suspend its city loan payments to spend about $125,000 on legal fees.
And on April 22nd, the city intends to foreclose on their $4 million loan to DACHA, effectively dissolving the organization, and costing each DACHA family about $8,000.
Before the city takes such a drastic step, shouldn’t the public first know the truth?
Last Sunday’s Op-Ed by city manager Bill Emlen attempted to justify the foreclosure. Emlen got many facts wrong.
He claimed that NP was paid more than $200,000.
Legal documents show that NP was paid a total of $137,220 in fees for our role in the development of DACHA’s 20 units. Emlen did not disclose that this $6,861 per unit amount is less than 20% of the $34,383 per unit developer fee he recommended in 2009 for a similar 29-unit project.
In his piece Emlen leans on a 2006 “audit” of DACHA to justify the city’s actions.
Prior to the audit, NP met with Emlen to agree on ground rules for the audit to be impartial. NP felt that we had obtained Emlen’s commitment to allow us to review the draft audit, identify factual errors and provide any missing but readily available information.
We were barely contacted by the auditor. The final audit report was provided to us late on June 20th. Not so impartially, the auditor had presented it to the DACHA board a week earlier. Immediately NP pointed out that we had information that the auditor said had not been turned over, but he had never asked NP for (14 sets of board minutes). NP was told, “It is too late.”
We were given less than 24 hours to respond (as an addendum at the end of the audit report), before it was sent on to Social Services Commissioners in advance of their June 22nd meeting. It went to the City Council on June 27th. At the city council meeting, we were each allowed 3 minutes to comment.
We offer the following quotes from others surrounding this “audit”:
“The bulk of the criticisms of the audit report are aimed at the accounting systems and procedures, which are not the responsibility of NP. As to the criticisms of the lack of adequate reserves, the use of interest-only loans, the lack of minutes and information to complete an audit and the non-viability of this type of cooperative housing model, the arbitrator finds that many of the conclusions in the audit report and the City of Davis summary are not established by the record.”
Ken Malovos, Arbitrator (who awarded $331,872 to NP in its dispute with DACHA)
“I was not contacted by anyone at Gilbert and Associates to review the financial records, nor was I asked any questions about our accounting for DACHA.”
Steve McElroy, VP, the John Stewart Company, DACHA property manager, 2002-05. (The John Stewart Company manages more than 29,000 affordable units.)
“We have never had an audit finding…This is incorrect…Our full back up disk was offered to the auditor, which would have provided them with this information. They elected not to review the disk…”
Gail Madsen, Principal, Madsen and Walton, DACHA property manager, 2005 to present (Despite this supposedly scathing audit, the city never required any follow-up audits in 2007 or 2008, even while city staff was recommending a loan of $4 million in public funds.)
In light of the above quotes, check out the following portions of e-mails sent by the auditor to the city staffer overseeing the audit. The auditor was modeling a financial scenario for DACHA that involved replacing its below-market rate city funding with a 7.5% fixed rate loan. In his final audit report, he used three even more unrealistic models as evidence that DACHA was failing. Why did he do this? We don’t know. But it certainly made the finances look shaky to the casual reader of the audit. See what he writes on 5/29/06:
“Hi Danielle. Brace yourself…. In this scenario… the net cash flows are a cumulative negative $132k over the first 12 years, but gradually rebound for a net $255k gain over 30 years.”
Does the following auditor’s question seem appropriate for a seemingly impartial audit?
“Let me know if you can think of any points or clarifications that should be made…Ponder the points you think this report should make for the benefits of its intended audience…”
“…I think what you need from us at this point is to…comment on your point that the limited equity coop wasn’t well suited for the task in the first place.”
Shouldn’t the above information be enough for the city council to show the courage to call a halt to this sham foreclosure and instead initiate further investigation and negotiation?
The city could cure the present foreclosure by simply allowing DACHA to utilize $230,000 that it has in its own reserves.
Recently, we have had a number of very productive conversations with some DACHA residents (who had nothing to do with the previous dealings) and feel that we are close to a resolution. But we need time.
Given the extent of public funds involved, the citizens of Davis deserve to have the correct facts. However, rather than fighting each other over facts NP would prefer to be working with DACHA and the city to reach a solution.
State law has a process for the dissolution of a cooperative. And it would appear that DACHA and the city are not following this legal procedure. Given the other legal questions that Emlen has so far refused to answer, why make another mistake? Public funds are scarce – the city shouldn’t be squandering them on more legal bills.
David Thompson has given a lifetime of service to cooperatives and Luke Watkins has given a lifetime of service to affordable housing. They are each more than 30 year Davis residents. Neighborhood Partners has created 336 units of affordable housing in Davis since 1998.
Who exactly wrote this piece??? It appears under a David Greenwald “byline” but the content and construction,e.g., frequent use of “we” in the narrative, as well as the different font, extolling David Thompson, at the bottom of the piece appear to identify David Thompson as the author of this self-serving commentary. DPD, are you assuming full responsibility for the content of this commentary with “written by David Greenwald”?
Felt the same way as above. I was hoping for an objective piece since their is so much hyperbole on both sides it is hard to gain the facts. I agree tho that an impartial body should review and present their findings.
Alleged email between city and auditor: “…I think what you need from us at this point is to…comment on your point that the limited equity coop wasn’t well suited for the task in the first place.”
If the city is conceding it didn’t think the limited equity coop was well suited for the task, that there was something wrong with the business model, then it is clear the city did not do its homework in taking a closer look at what was being pitched by NP from the the project’s inception.
NP/DPD: “Shouldn’t the above information be enough for the city council to show the courage to call a halt to this sham foreclosure and instead initiate further investigation and negotiation?”
Sham foreclosure? How so? Are you saying the city has no right to foreclose? Or just that NP does not want the city to, bc NP stands to lose money/reputation/future work if this foreclosure happens?
NP/DPD: “The city could cure the present foreclosure by simply allowing DACHA to utilize $230,000 that it has in its own reserves.”
According to the city, DACHA has zero dollars left, or am I missing something here? Please explain…
I am not understanding why the City Council is refusing to do an independent audit. If the city has nothing to hide why not agree to an independent audit? The city management level of staff have the worst reputation and have proven that their levels of incompetency have no limits. The City Council needs to do the right thing and not be part of a cover-up for city staff. It is becoming evident that we are at a point that we need to consider finding a new city manager. Emlen appears to be in a constant mode of cover-up for staff.
The NewPath lawsuit is another example of a staff cover-up. Instead of firing the responsible party (who was Katherine Hess then Director of Community Development who approved the permits) they simply transferred her duties to Redevelopment and Economic Development. Now does that that make any sense? Simply transfer an incompetent upper level staffer who has caused the city a lawsuit that the citizens are paying for to a more responsible job? From what I have read on the Vanguard, this was only one of many problems caused by Hess.
Isn’t it time to fire Emlen and Hess and get new competent management level city staff who can handle the job and who will not keep incurring costs to us for constant mistakes?
In answer to E. Roberts Musser’s question about whether DACHA has any money left to cure the default and avoid foreclosure:
When the city of Davis loaned DACHA $4.2 million in 2008, part of the funds were for reserves.
A portion of those reserves (approximately $200,000) were immediately disbursed to the DACHA members to “stabilize their shares”. The city staff report referred to this $200,000 as a share stabilization reserve, and made no hint that the funds were going to be immediately transferred to DACHA, so that they could reduce their members’ share amounts from roughly $20,000 to $6,250. There is a law suit that will go to court in September between the Twin Pines Cooperative Foundation and DACHA concerning this action and others that TPCF asserts violated state law. In the face of NP’s then lawsuit for $500,000, the effect of this share reduction was to reduce the equity that each DACHA member had at risk, in the event that NP won a large judgment against DACHA – which we did in June 2009 ($331,875)-in our opinion fraudulently transferring assets to prevent a creditor from collecting their debt.
In addition, the city loaned DACHA an additional $230,000(a part of that $4.2 million)for reserves, but held on to those funds, with the intent of transferring them to DACHA when the city decided that DACHA needed them. The city is still holding that $230,000.
When NP levied DACHA’s bank account in October 2009, we collected approx. $57,000. The city immediately put DACHA’s $4.2 million loan into default, claiming that our levy has stripped them of all of their cash, leaving them unable to pay their monthly loan payment. And then the city set in place a legal process known as “assignment of rents” directing DACHA residents to pay their rent directly to the city, so that NP could not again levy funds in DACHA’s bank account. Why is the city not simply utilizing funds from that $230,000 reserve to cure the default? It is collecting DACHA members rent directly now, so it should have plenty of funds to pay the subsequent loan payments.
And of course the $230,000 could be available to partially pay DACHA’s debt to Neighborhood Partners. DACHA has asked the city to release those funds for that purpose, but the city has so far refused.
We have proposed to DACHA a settlement in which we will be paid a total of $271,500. This is a reduction down from the approximately $300,000 that the judgment still allows us to collect (In 10/09 we received $57,000 of the $331,875 but interest is legally accruing on the balance at 10%. We offered to accept $165,000 in cash (from that $230,000 reserve) and the $106,500 balance in monthly payments from DACHA over a multi-year period (plus 3% simple interest on the outstanding balance at each year end – to encourage them to pay it off sooner – this is the same rate the city is charging on their loan).
I believe that the hold-up to this settlement being achieved is a refusal by the city to allow those funds to be used for this purpose. Instead they would rather foreclose on the DACHA loan on 4/22, wiping out about $8,000 in equity for each household. How does this make sense?
How is this petty self-serving business dispute meritorious of space in the Vanguard? Perhaps it doesn’t. But we continue to be shocked by how much public money (about $300,000 in legal bills so far) that the city is willing to spend defending a private debtor(DACHA)in this matter.
The whole thing is very peculiar, expecially Ruth, Stephen and Sue’s refusal to support a third party review of the city role in this mess. What are they trying to hide? How would you feel if this was being done to your small business by the powerful city bureaucracy?
The DACHA situation comes down to the acts of a previous board and they are numerous. For example, each of the board members (2006-2009) was ineligible to serve according to the bylaws. They were all delinquent to the organization. At the time, the City made a loan of $4 million in public funds the 20 DACHA members were delinquent $64,000. The city staff knew the board members were ineligible. NP and TPCF both warned the City Council and DACHA of these numerous allegations but nothing has been done.
NP and TPCF have accumulated a lot of documentation about the allegations which we will readily share with anyone who would like to see it ). We’ll be glad to sit down with anyone who would like to discuss it with us (757-2233. We believe there is enough that a rational person would say this appears to need to be looked into by an independent party.
The two council members (Lamar Heystek & Don Saylor) who did sit down with us for an extensive period concluded that an independent investigation was warranted. Mayor Asmundson has been shown the documents that show the ineligibility of the board members to serve. The two other council members (Souza and Greenwald) have been offered an opportunity to look at the materials but so far have not responded. The entire council has been provided with extensive information and so far has taken no action.
You can see a lot of the material at http://sites.google.com/site/itsthelawdacha/home
The City asked all parties to get together. NP said we would get together but the City had to agree to initiate an independent investigation. NP said that in an effort to get talks going we would set aside our demand for an investigation if the City would set aside foreclosure. Now the City intends to continue with the foreclosure with a requirement that NP must give up asking for the independent investigation.
Trying to be a little rational and overcome barriers NP, TPCF and DACHA have been engaged in good communication over the past week. The present DACHA board is certainly more responsible and willing to engage. However, there are serious implications for all parties both in reaching agreement and in not reaching agreement. More time would allow the parties to continue their communication but it cannot be done in the next few days.
After waiting months for all parties to get together, the City could have shown mature leadership by pulling back on the foreclosure.
The foreclosure is only going to make matters for a number of reasons. In particular, because as TPCF has pointed out to the City, foreclosure first and dissolution immediately afterwards does not appear to follow the process required by California Law. The process in the law creates a number of opportunities of rectifying the situation. I will attach in a second post.
An independent investigation conducted impartially would be a great help to the citizens of Davis. The City of Davis does appear to be on our way to an expenditure of what could be $900,000 in legal fees and improper distributions coming from public funds. At one Council meeting Council member Heystek asked, could this have been done differently? My reply is that yes it could and it should and we need to look at why not. The citizens of Davis cannot afford a DACHA to happen again so we should know why it happened in the first place.
AB 1246 Chapter 520 p 6 Dissolution segment
817.2. The procedure for the dissolution of a limited-equity housing cooperative or workforce housing cooperative trust that receives or has received a public subsidy shall be as follows:
(a) The city, or the county for any unincorporated area, in which the limited-equity housing cooperative or workforce housing cooperative trust is located, shall hold a public hearing. The cooperative or trust shall pay for all costs associated with the public hearing.
(b) The city or county shall provide notice to all interested parties. The notice shall be given at least 120 days prior to the date of the hearing. The city or county shall obtain a list of all other limited-equity housing cooperatives and cooperative development organizations in the state from
the California Center for Cooperative Development, if the list exists, and provide notice to all of the entities on the list in an effort to create a merger with an existing limited-equity housing cooperative or workforce housing cooperative trust. The notice shall be mailed first class, postage prepaid, in
the United States mail.
(c) If the dissolving limited-equity housing cooperative or workforce housing cooperative trust merges with an existing cooperative or trust, to the extent possible, the merger shall be with the geographically closest cooperative or trust.
(d) If the dissolving limited-equity housing cooperative or workforce housing cooperative trust does not merge with an existing cooperative or trust, both of the following shall occur:
(1) Upon completion of the public hearing required pursuant to subdivision (a), the city or county shall adopt a resolution approving of the dissolution and make a finding that the dissolution plan meets the
requirements of state and federal law, meets the donative intent standards of the United States Internal Revenue Service, and is free of private inurement, which includes, but is not limited to, a prohibition on any member receiving any payment in excess of the transfer value to which he or she is
entitled pursuant to subdivision (b) of Section 817.
(2) The city or county shall forward all of the information and written testimony from the hearing to the Office of the Attorney General for the Attorney General to consider as part of his or her ruling on the dissolution.
817.3. Each entity named as a sponsor organization of a workforce housing cooperative trust formed pursuant to Section 817 shall have the legal standing of a member unless it revokes, in writing, its sponsorship. 817.4. (a) In any action instituted on or after January 1, 2010, against a board of directors and its members based upon a breach of corporate or fiduciary duties or a failure to comply with the requirements of this chapter, a prevailing plaintiff may recover reasonable attorney’s fees and costs.
(b) If an organization formed under this chapter uses public funds, it shall not use any corporate funds to avoid compliance with this chapter or to pursue dissolution if the intent or outcome is for some or all of the members to receive any payment in excess of the transfer value to which he or she is entitled pursuant to subdivision (b) of Section 817.
“….then it is clear the city did not do its homework in taking a closer look at what was being pitched by NP from the the project’s inception.”
Probably true but not the issue at hand which is what is the best plan to protect the interests of the city(and DACHA residents) given the current situation. Anyone who has followed Council meetings over the years is well aware of the deference given to David Thompson as the self-annointed Davis “guru” on affordable housing matters. A healthy skepticism and probing questions were rarely offered from the dais, with the exception of Councilperson Sue Greenwald, in response to Mr. Thompson’s public analysis and opinions.
Davisite 2 wrote, “DPD, are you assuming full responsibility for the content of this commentary with “written by David Greenwald”?
I find it odd that the editor, who is usually actively involved with the discussions his blog generates, has not responded to this question.
“I find it odd that the editor, who is usually actively involved with the discussions his blog generates, has not responded to this question. “
The most likely explanation, and the one that I HOPE is true, is that David just forgot to change the byline to that of the guest commentary author and that David is just taking a well-earned day “off” on this beautiful Sunday.
I will be glad to debate the City Manager at any time on the questions that have been raised about the $4 million dollars of public money that were loaned to DACHA. I think the citizens of Davis deserve answers because it is clear that city funds may not have been adequately protected and monitored.
I helped to set up Dos Pinos and that has worked well for almost thirty years, never had ineligible board members, and never broke California Corporations Law, the Davis Sterling Act and Cooperative Law.
The Auditor hired by the City of Davis said DACHA was breaking the law, and the Arbitrator approved by the Yolo County Superior Court said the board members were ineligible.
The report filed with the Yolo County Superior Court stated:
“What is curious is that representatives of the City of Davis were present throughout the entire time when the new Board took these untoward actions and they did little to discourage the Board”.
Yet there has been complete silence at the city in response to the allegations. The OpEd a week ago did not answer one of them. We all should want transparent government.
David Thompson, Neighborhood Partners, LLC.
“I find it odd that the editor, who is usually actively involved with the discussions his blog generates, has not responded to this question.”
You do? I was on an airplane. Came home and went to the civil rights meeting, and then fell asleep.
“I find it odd that the editor, who is usually actively involved with the discussions his blog generates, has not responded to this question. “
Observer: What is even more “odd” and more telling is that David Thompson and Luke Watkins, whom we can assume reads the comments as well as offering their own lengthy comment “tomes”, did not clear up the error as to who was the author of this self-serving commentary.