City Relieved At Finding of No Inappropriate Gift of Public Funds –
As one person noted on Tuesday, instead of an investigation into DACHA on the Davis Taxpayer’s dime, we had one on the Yolo County Taxpayer’s dime.
“DACHA encountered practical and affordability problems from the outset and currently no longer exists as an entity, the report finds.
They added, “The Grand Jury found that greater care should have been taken initially by the City and the Redevelopment Agency when performing legal analysis of documents such as DACHA’s articles of incorporation and bylaws and that better initial oversight of DACHA by the City could have prevented this situation.”
One of the issues that was of concern was the city’s loan to DACHA being used to reimburse the initial investment by members.
However, the Grand Jury found that “no inappropriate gift or use of public money was made at any time, for any purpose by the City in connection with DACHA.”
Nevertheless, they conclude, “The City has incurred losses that may not be recovered and may increase in the future. Better initial oversight of DACHA could have prevented this.”
At 4:15 pm, just over three hours after the report, the city had their initial response to the Grand Jury findings, “Although a more thorough review of the report is underway, the City is pleased with the overall tenor of the report and findings, which indicate the community’s affordable housing program is achieving its intended purpose of providing housing for low and moderate income residents of Davis. The City will be looking carefully at the findings and recommendations in the report and providing responses as required within ninety days.”
“We appreciate the Yolo County Grand Jury reviewing the city’s affordable housing program with a focus on the DACHA project. This is a matter of very legitimate community concern, and the Grand Jury is to be praised for the role they played,” said Mayor Joe Krovoza in a statement from the city. “The City appreciates and certainly concurs with the conclusion that there was no inappropriate gift of public funds within the DACHA-related transactions.”
The city indicated that the report will help to assist and improve the city’s affordable housing program.
“Although the City strives to provide a variety of types of affordable housing options, unfortunately, the DACHA project was not successful,” the city release read. “The City agrees that earlier and greater in-depth review and analysis of any housing project in the future would be beneficial to the city’s affordable housing program.”
The response goes on to say, “The primary disagreements in this matter are between DACHA, its past and present members and boards, and the consultants DACHA retained.”
“The City’s Redevelopment Agency, as the primary lender and funder of the DACHA Project, has acted to protect the limited financial interests of the citizens of Davis related to the DACHA organization,” the press release continues. “Toward this end, the Agency foreclosed on the 20 DACHA properties when mortgage payments due to the Agency were not paid. The Agency now owns all of the former DACHA units and the City Council will determine how best to utilize these units to advance the City’s and Agency’s future affordable housing program.”
The Interim City Manager did not return phone calls or emails from the Vanguard.
Mayor Krovoza, however, told the Vanguard, “The City appreciates and certainly concurs with the conclusion that there was no inappropriate gift of public funds within the DACHA-related transactions. That was the main allegation and the city has been exonerated in this area.”
At the same time, he acknowledged some of the problems with DACHA that were laid out in the Grand Jury report.
“It’s very clear that the city should have taken a much closer look at the structure of the DACHA non-profit and the basic model it promised for affordable housing in Davis,” the Mayor told the Vanguard. “The City believed DACHA and its model would be largely self-executing. Clearly, that wasn’t the case. We have learned important lessons and we will apply them as we move forward with future affordable housing approaches for Davis.”
Councilmember Sue Greenwald, an early critic of the affordable housing program, in a comment on the Vanguard indicated, “The Grand Jury exonerated the city of wrong-doing, and praised the city’s motives and the affordable housing program in general. Since the purpose of the report was to explore possible wrong-doing on the part of the city, that is the main conclusion of the report.”
She continued, “The program was not supposed to need active city oversight, and I don’t believe that staff would have recommended nor council approved the project if the city had to micro-manage it. To actively manage the project would have cost far too much city staff time.”
She wrote that she in particular agreed with the following Grand Jury recommendation, “The City and RDA should do a more thorough job of analyzing the risks and benefits of any novel project before deciding to invest significant taxpayer funds in it.”
“As I have said many times on the dais,” she responded, “I had concerns about the risks and benefits of this particular model from the very beginning. A much more critical examination of the model would indeed have saved everyone including the low-income residents of DACHA a lot of money, time and turmoil.”
The Vanguard also spoke with DACHA board member Ethan Ireland who, at the advice of counsel, declined comment other than to say, “The report speaks for itself.”
David Thompson of the Neighborhood Partners, speaking for Twin Pines Cooperative, sent a lengthy statement to the Vanguard.
He wrote, “Due to the issues in the pending law suits the Grand Jury appears to have focused on a few very narrow components of the DACHA situation.”
He continued, “For example, the Grand Jury says nothing about the five year history of the numerous board members who were in excessive and constant delinquency and therefore ineligible to serve and yet were allowed to borrow $4 million in public funds.”
Actually, the Grand Jury did hit on that issue, writing that while there may have been some serious delinquencies in payments of carrying charges by some members to DACHA, “there was no failure by DACHA to make mortgage payments to the City. The City was not damaged by any such delinquencies and no public money was lost as a consequence of any such delinquencies.”
“We wished the Grand Jury had time to look at all the allegations they were presented with but we understand there are limitations of time and resources,” Mr. Thompson told the Vanguard noting that there were some important factual errors with the Grand Jury Report.
However, he noted that the Twin Pines Cooperative was overall “pleased with the Grand Jury’s findings which confirm several issues it has sought to bring to the attention of the City’s elected official and looks forward to proving its other allegations which were not addressed by the Grand Jury.”
“Those allegations pertain to self-dealing transactions, improper board conduct, fraudulent transfer, misappropriation of public funds, and the breaking of the Davis Stirling Act and AB 1246, etc. through the Court system,” Mr. Thompson continued.
Vanguard Commentary:
It is important to look at the city involvement in DACHA and their roles as two separate functions. In essence, the city had two jobs here, first as the regulator of affordable housing, and second as a lien holder.
The initial role of the city was as a regulator and provider of affordable housing. Here, the Grand Jury admonishes the city for failure to do proper oversight and foresee the problems that later arose. As such, the project ultimately failed.
This, despite the fact that the city had to step in, starting in 2005, continuing with a greater role until the city was forced to loan, foreclose on and now sell the project.
The Grand Jury found that the city did all right as the lien holder. There was not a misuse of public funds – as accused by some. But they failed as a regulator of affordable housing, which ultimately lost the city money that it will not recover and led to DACHA’s downfall.
As Sue Greenwald put it, there were indeed risks with this model from the start, and, unfortunately, it was not self-executing but rather needed much more oversight.
The original terms were too burdensome on what were supposed to be low or middle income residents. The purchase price was too high, the carrying charges too steep. This led to risky loans and it led to the city’s attempt to stabilize the finances.
The Grand Jury found that a proper assessment and oversight at the start might have prevented this.
That said the city made a good faith effort to save the project first through a loan and share stabilization and then through foreclosure.
The most serious charges, those of the misuse of public funds, proved to be untrue. However, the city needs to reassess how it will act in the future to ensure the success of affordable housing projects, as that is one of its chief charges and failures in this case.
Our goal from the start was to learn the truth from someone who did not have a stake in this process. We never believed the city’s contentions, as they were always steeped in the need to protect against liability and perhaps minimize missteps.
We would have preferred the city to have appointed its outside investigator, but the council voted that effort down 3-2. The Grand Jury is the appropriate body to examine this and we are satisfied with their findings and join the city in expressing relief that there was no misuse of public funds.
We hope the residents of DACHA can move on with their lives and that the pending legal matters are settled amicably.
—David M. Greenwald reporting
[quote]The response goes on to say, “The primary disagreements in this matter are between DACHA, its past and present members and boards, and the consultants DACHA retained.”[/quote]
The consultants DACHA retained?
[quote]”It’s very clear that the city should have taken a much closer look at the structure of the DACHA non-profit and the basic model it promised for affordable housing in Davis,” the Mayor told the Vanguard. “The City believed DACHA and its model would be largely self-executing. Clearly, that wasn’t the case. We have learned important lessons and we will apply them as we move forward with future affordable housing approaches for Davis.”[/quote]
The city has to pay more attention to detail when it comes to proposed contracts. It is not what is promised and the puffery that goes along w sales pitches that counts – it is what is in the 4 corners of the contract itself.
In 2010 and during 2011 an extensive list of complaints about city staff’s improper actions relating to the City’s affordable housing program were filed with the Yolo County Grand Jury by a number of people and organizations. The complaints began with city staff forgetting to place community equity seconds on 52 homes in Wildhorse which meant the City lost out on sharing in the $10 million dollar gain.
Due to the issues in the pending law suits the Grand Jury appears to have focused on a few very narrow components of the DACHA situation. For example, the Grand Jury says nothing about the five year history of the numerous board members who were in excessive and constant delinquency and therefore ineligible to serve and yet were allowed to borrow $4 million in public funds. And the City’s appointee was a party to many of the allegations.
Go to
http://sites.google.com/site/itsthelawdacha/home for more information.
We wished the Grand Jury had time to look at all the allegations they were presented with but we understand there are limitations of time and resources. There are a number of important factual errors with the Grand Jury Report. For example, the report says, “the DACHA Cooperative has dissolved as a legal body.” DACHA does exist as a corporate body and is presently responding to a series of demands for information it has received from the Attorney General.
Twin Pines Cooperative Foundation is pleased with the Grand Jury’s findings which confirm several issues it has sought to bring to the attention of the City’s elected official and looks forward to proving its other allegations which were not addressed by the Grand Jury. Those allegations pertain to self-dealing transactions, improper board conduct, fraudulent transfer, misappropriation of public funds, and the breaking of the Davis Stirling Act and AB 1246, etc. through the Court system. Yesterday, over the objections of the City of Davis and the Redevelopment Agency, the Court approved TPCF’s right to amend its lawsuit detailing these violations with greater specificity.
David Thompson, Twin Pines Cooperative Foundation.
We were however surprised at a number of key factual errors in the Grand Jury Report for a matter such as this. For example, the report says, “the DACHA Cooperative has dissolved as a legal body.” DACHA has not dissolved as a legal body and it puzzles me that the Grand Jury could make such an error about the legal status of DACHA.
In fact, today’s blog contains the following’ “the Vanguard also spoke with board member Ethan Ireland.”
DACHA did attempt to secretly dissolve the corporation without following state law. DACHA, having received public funds is not allowed to use corporate funds to avoid following state law. But DACHA has used corporate funds. However, Twin Pines Cooperative interceded with the Attorney General’s office. The AG’s office has now affirmed that no matter what had been tried before DACHA must follow state law. These types of board actions are part of the suits against DACHA.
Ethan Ireland has also confirmed under oath that an investigative auditor from the Attorney General’s office is seeking a series of financial documents about DACHA. TPCF is glad to see the AG’s office looking at DACHA.
The Attorney General has jurisdiction over DACHA as it is a public benefit corporation. Numerous board actions by DACHA appear to be in contravention of the laws and regulations covering public benefit corporations. These are part of the law suits and are not the purview of a Grand Jury.
David Thompson, Twin Pines Cooperative Foundation
[quote]City Relieved At Finding of No Inappropriate Gift of Public Funds–David Greenwald[/quote]David, I don’t think that the word “relieved” was used by anyone except you.
The courts had already stated that this allegation made by Neighborhood Partners had no merit, and the Grand Jury reaffirmed this opinion.
Is this another grave error in the Grand Jury Report?
“While there were indeed serious delinquencies in payments of carrying charges by some members to DACHA, “there was no failure by DACHA to make mortgage payments to the City.”
This statement does not appear to be correct and a review of the public information shows the statement to be incorrect. DACHA as an organization did not make mortgage payments to the City of Davis from March of 2007 to about September of 2008. Anybody out there in Davis who would like not to pay your mortgage for the next 17 months?
During that time, the DACHA residents increased their own delinquencies to the organization from $38,099 to $64,713. So of the $116,000 in cash flow handed to DACHA by city staff DACHA used it to allow an increase of $20,000 in DACHA’s member receivables.
So clearly, rather than pay up their own delinquencies and pay their own private legal bills for being accused of breaking the law, DACHA asked the city staff to let them off paying their mortgage for 17 months. Why didn’t the City staff urge them to pay off their delinquencies?
Now this was all done by a DACHA board composed of members who were almost all delinquent (and therefore under the bylaws should have been automatically removed from the board). City staff knows the DACHA board was delinquent. These actions by the DACHA board and members are the type of issues being handled in the court cases.
David Thompson, Twin Pines Cooperative Foundation
[quote]”The most serious charges, those of the misuse of public funds, proved to be untrue.”[/quote]Does the Grand Jury’s finding: “no inappropriate gift or use of public money was made at any time, for any purpose by the City in connection with DACHA” mean anything from a legal standpoint? How close is this to a “not guilty” verdict by a jury?[quote]”(David Thompson) wrote, ‘Due to the issues in the pending law suits the Grand Jury appears to have focused on a few very narrow components of the DACHA situation’.”[/quote]What’s the basis for this claim? It seems odd that pending civil suits could or should limit a Grand Jury’s investigation.
[quote]”Much of the Grand Jury’s effectiveness comes from the viewpoint of its members, fresh and unencumbered by prior conceptions about government.”[/quote]As I’m looking for a copy, I come across this (humorous or scary?) description of the Grand Jury on the county website. [b]David, do you have a link to the report?[/b]
Here is the link: http://www.yolocounty.org/index.aspx?page=2043
The Grand Jury’s finding has no meaning legally and it has no bearing to a jury verdict.
I think the Grand Jury did not want to weigh in on issues that a court of law would adjudicate. It is an investigative body but it is not the equivalent to a court of law.