Grand jury report tells story of Victorville’s plunging fortunes

Victorville hoped to strike it rich with a new hybrid gas and solar power plant near the old George Air Force Base, buying up homesteads for the site amid the High Desert’s real estate boom.

The city shelled out $375,000 alone to Chris Massey and his family in 2007 to buy a tiny house plopped on five desolate acres of scrub and Joshua trees — 10 times the property’s assessed value.

Today, the old Massey home sits abandoned, half-demolished by vandals, thieves and the merciless desert sun. The 500-megawatt power plant? It has yet to be built, even after a city agency spent $76 million.

The failed project was just one of many financial disasters that had the city teetering on the brink of ruin after the collapse of the housing market in this patch of Mojave, when unemployment shot skyward and city tax revenues fell into the basement, an audit by a San Bernardino County grand jury found.

“We were just lucky to get out when we did, and to get such a good deal,” said Massey, who took his money and moved his family to Oregon to start anew.

There was no windfall to bankroll a fresh start for Victorville.

The grand jury report revealed the disparate, possibly illegal, measures the recession-flattened city relied on to stave off insolvency: dipping into sanitation funds to help keep the city’s treasury afloat, loaning water agency funds to bail out the city’s electric utility, and siphoning $2 million in airport bond funds to buy land for a city library.

The interagency borrowing was so questionable — with $69 million sloshing around City Hall as of June 2011 — that the Securities and Exchange Commission launched an investigation, which is ongoing.

The city’s financial problems were exacerbated by the multimillion-dollar loss on the power plant and $103 million the city spent on aircraft hangars that were supposed to be paid for by a private aviation company, the report found. An estimated $13 million of the funding for the hangars remains unaccounted for.

Even the city’s public golf courses were losing money, an average of $1.3 million each of the last four years. The city already closed one, and the grand jury said it should considering selling the only one left: Green Tree Golf Course.

“The city’s solvency, capacity to provide current services, and ability to repay large debt obligations is a growing concern,” the grand jury report, made public last week, stated.

Mayor Ryan McEachron insists that Victorville won’t join Stockton or Mammoth Lakes on the list of California’s bankrupt municipalities. Many of the problems highlighted in the grand jury report already have been addressed and, last week, the City Council passed a balanced budget for the first time in three years, he said.

“We’re doing well. It’s not perfect. It’s not great. But we’re not in a position like Stockton,” McEachron said.

Though unemployment hovers around 14%, two Super Walmarts are coming to town, he said. The parent company of Arm & Hammer in April also announced plans for a new Victorville plant that will bring 100 new jobs.

When he became mayor in 2010, McEachron asked both the grand jury and San Bernardino County district attorney’s office to conduct intensive reviews of Victorville’s finances and the money dedicated to past projects. An investigation was necessary, he said, to restore public confidence.

The gravest concerns expressed in the grand jury audit, which was conducted by Harvey M. Rose Associates based in San Francisco, focused on the fiscal management at the Southern California Logistics Airport Authority, a city-affiliated agency that transformed George Air Force Base into a civilian logistics and commercial center.

The Victorville City Council serves as the board of the authority, which continues to operate in the red, according to the grand jury report.

The city’s defunct 500-megawatt power plant, which was slated to be built north of the airport, was initiated and funded by the airport authority’s board.

The grand jury criticized the authority for failure to “conduct proper due diligence” before hiring Newport Beach-based Inland Energy Inc. to oversee the development of the site — the company that developed the city’s first power plant. Under the agreement, Inland Energy was to receive 5% of the proposed plant’s operating profits, which could amount to $135 million over 30 years, the grand jury report stated.

Inland Energy also recommended that the city enter into a $182-million contract in 2007 with General Electric for the purchase of turbines for the plant. When Victorville failed to secure financing for the rest of the project in 2008, after the collapse of the stock market, the city was forced to pay a $50-million settlement to G.E.

“This was not a knee-jerk, unsophisticated process. When we started out, the economy was booming, and we had all these major companies relocating to [the airport] creating jobs,” said former Mayor Terry Caldwell. “Then the market crash and the housing industry went into the toilet. I don’t know how we could have predicted that would happen.”

Caldwell said the city was making $6 million a year on a gas-fired power plant built a decade ago, and had expected the same return on the second plant.

“But for the collapse on Wall Street, everyone in Victorville would be a hero today,” Caldwell said.

Tom Barnett, vice president of Inland Energy, said his company only stood to make a profit if the project was completed — which hasn’t happened. He remains confident that the plant will be built, however. It already has secured all the state permits necessary to begin construction.

“This project is not by any means dead,” Barnett said.

Councilwoman Angela Valles blames the rush to build the power plant, and many of Victorville’s other disastrous financial decisions, on the cozy relationships between council members and people doing business with the city, including Inland Energy.

“It will be a long time before the city is able to recover from the massive waste of public funds that has occurred in the last seven years,” Valles said.

phil.willon@latimes.com