Housing Inquiry Finds Impropriety : O’Connor Calls for Meeting to Decide if Director Should Remain in Job
An internal investigation released Wednesday by the San Diego Housing Commission reveals that the agency’s staff committed several irregularities and gave “extraordinary assistance” to the developers of the controversial Island Gardens Apartments.
Those findings prompted Mayor Maureen O’Connor to schedule a special meeting next week to determine whether commission Executive Director Ben Montijo will keep his job.
O’Connor and other housing commissioners--the majority of whom are San Diego City Council members--huddled for almost an hour in closed session to mull over the findings of the internal investigation, which was conducted by commission attorney Larry L. Marshall.
After the closed session, O’Connor and council members Abbe Wolfsheimer and Judy McCarty begged off questions from reporters by saying they wanted to read through Marshall’s 1 1/2-inch-thick report before offering any reaction to the findings.
But during a short public discussion about the report, it was clear that O’Connor was bothered by a new twist in the Island Gardens saga. Although Marshall said he found no evidence of favoritism in the project, O’Connor questioned the attorney about the fact that he found Montijo and his staff went through with the complicated housing deal without obtaining final and binding approval from housing commissioners.
“Having been in government for a while, do we have a legal agreement if it was not executed by the commission?” asked O’Connor. “It is the policy- and decision-making body. Approving the project in concept is one thing, but actually executing it is another.”
“I think it’s true with respect to public contracts that you really don’t have a binding contract until it is brought back to a public body and formally adopted,” answered Marshall, who added the point is now moot because the housing deal is finished.
Wednesday’s events are the latest chapter in a growing controversy over how Montijo and his staff handled the bid to renovate the Island Gardens Apartments, located in the 3500 block of Island Avenue.
The commission bought and held onto the 122-unit apartments for nine months so that the developers--a partnership called Conruba, which includes state Coastal Commissioner Gil Contreras--could line up financing to purchase and rehabilitate the Southeast San Diego project. In addition, the commission loaned Conruba $700,000, backed the partnership’s purchase and renovation with $1.3 million in letters of credit, and made sure Island Gardens qualified for a federal rehabilitation program that guarantees substantial rents for 15 years.
Last month, U.S. Department of Housing and Urban Development officials announced they were launching an investigation into the deal, which a HUD official had once warned appeared to show “favoritism” to the developers. HUD officials initiated the investigation after they said the commission refused to open its Island Gardens files for review.
A source close to the HUD investigation also told The Times on Wednesday that the federal agency has decided to hold up on any future allotments under the federal rehabilitation program until the Island Gardens controversy is cleared up. The commission was to have received an allotment recently, said the source.
In addition, The Times reported that commission officials apparently violated federal guidelines by not placing newspaper ads about the subsidy program before awarding it to Island Gardens. The newspaper also found that Contreras hired Montijo’s teen-age son briefly last summer to work on construction crews at Island Garden for $600 a week.
Montijo and his staff have vigorously defended his staff’s participation in the Island Gardens transaction, saying the commission’s financial involvement was necessary to clean up a crime-ridden blight in Southeast San Diego.
Housing commissioners, however, had their own doubts and asked Marshall on Feb. 2 to conduct an internal investigation to see if any HUD regulations were ignored. They put off a performance review for Montijo until Marshall’s report was complete and delivered Wednesday.
Marshall’s report concluded the commission gave “extraordinary assistance” to Conruba. That assistance included buying and holding the property for Conruba, backing the deal with letters of credit, accepting stock in an automotive dealership as security in the deal, extending loan due dates for the developers, and eventually cutting Conruba’s interest rate from 16% to 8%.
“In summary, a review of the transaction shows the commission granted Conruba several significant benefits so that Conruba could acquire and rehabilitate the 122-unit project in a financially feasible manner,” wrote Marshall. “Although the transactions were relatively complex, it does not appear that Conruba received improper favoritism.”
Marshall told reporters later the favoritism shown Conruba was no more than financial assistance given to other developers in other commission deals.
In addition, Marshall’s report documented several other irregularities and questions:
- The failure by commission staff to advertise the availability of the federal rehabilitation program. HUD guidelines require an advertisement be placed in a general-circulation newspaper to solicit bids from landlords and property owners for the program, which guarantees to subsidize rents on any housing unit renovated for $1,000 or more.
Marshall found that the commission published only two newspapers ads--in 1980 and 1984--although the agency received five allocations under the rehabilitation program since 1979. Instead, Montijo’s staff tried to drum up property owner interest through a marketing program that included direct mailings and articles in Apartment Owners Association publications.
“Thus, it appears that the Housing Commission failed to publish notices in accordance with HUD guidelines,” wrote Marshall.
- The “informal” way Montijo’s staff chose projects worthy of the federal rehabilitation program makes it difficult to determine whether it followed HUD and commission selection guidelines. There were indications, however, that Island Gardens was given allotments from the program that might have gone to other eligible projects.
Marshall said four property owners with 32 housing units were told their projects were eligible but no allotment of rehabilitation money was available at the time. When an allotment finally came through, it was given to Island Gardens, although the project was never officially placed on the list of potential recipients.
“While HUD guidelines and the Housing Commission plan provide that selections are not to be made solely on a first-come, first-served basis, several applicants whose applications were rejected because no certificates were presently available were not notified as promised when additional (rehabilitation) certificates were later issued by HUD,” Marshall wrote. “Conruba’s Island Gardens project absorbed these certificates, many of which might have otherwise been available to those whose applications had previously been rejected.”
- Commission staff agreed in early December, 1984, to buy Island Gardens and hold onto it for Conruba. But the deal was never approved in its final form by the commission, which gave conceptual approval to the deal in November, 1984.
“The assignment of Purchase Rights and Repurchase agreement was approved in concept only and not returned to the commission for specific approval of its detailed provisions and authority for its execution,” Marshall wrote.
Under questioning from O’Connor Wednesday, Marshall said the lack of official approval for Island Gardens doesn’t mean the commission is free to “walk away” from the project.
” . . . A whole lot of conduct has occurred on either side of the ledger with respect to this project. The renovation in fact has been completed, money has been spent . . . The deal is a done deal--fully executed is the legal expression,” said Marshall.
- After the commission agreed in December, 1984, to buy the apartment complex and hold onto it for Conruba, the developers had 100 days to arrange financing and buy it back. Yet Montijo and his staff delayed telling housing commissioners that Conruba “breached” the agreement when it failed to make good on the 100-day deadline.
Marshall said that deadline was March 13, 1985. But it wasn’t until July, 1985, that commission staffers began to “exert significant pressure on Conruba to perform.” It wasn’t until Aug. 2, 1985--five months past the deadline--that they finally told commissioners.
“The commission should have received timely notice that Conruba had breached the agreement,” Marshall wrote. “If the commission had received such notification, it could have extended the time for Conruba to perform, exerted pressure on Conruba to perform or have availed itself to the security and enforced its breach of contract remedies.”
O’Connor on Wednesday asked Marshall to recap his findings in an open Housing Commission meeting. But she first announced that commissioners had decided to convene a special meeting with Montijo on Feb. 26 to “discuss the renewal, questions of his contract . . . .”
The timing of the special meeting next week could be crucial. Marshall said after the meeting that Montijo’s contract, which is up for renewal on April 30, calls for 60-days notice if commissioners decide to ask for his resignation.
Marshall, who has admitted being peripherally involved in the Island Gardens deal as the commission’s general counsel, told reporters he was accepting responsibility for some of the irregularities outlined in his report. He said he intends to be more in the “information loop” in future projects.
Asked if commissioners intended to terminate Montijo, Marshall, who has advised commissioners on the provisions of Montijo’s contract, said, “I think it’s always been under consideration.”
Montijo, however, said he believes commissioners will keep him on, despite Marshall’s report.
“I feel if the thing is looked at in total, and there’s additional information, I don’t see any reason why they shouldn’t renew the contract,” said Montijo.
