Pomona Agency to Give Builders’ Pasts Closer Study

In the wake of a Grand Jury report critical of the Community Redevelopment Agency, in part for its inadequate investigation of developers’ financial histories, the agency announced this week that it will conduct more thorough background checks before making agreements with developers.

In addition, the Redevelopment Agency will include a clause in development agreements stipulating that if a developer fails to provide complete and accurate information about his background, the agreement may be terminated, said Sanford Sorenson, Pomona’s director of community development.

“It’s very much like an employment application,” Sorenson said. “You have to rely on the applicant to provide information. . . . If you find out there has been some serious omission or error in fact, that would be grounds for termination.”

The new policy regarding background checks on developers was included in Sorenson’s formal response to recommendations made by the Los Angeles County Grand Jury. The response was announced by City Administrator A. J. Wilson at Monday’s City Council meeting.

Agency Understaffed

The Grand Jury report, released last week, found that the agency was understaffed and did not have adequate procedures for evaluating developers, monitoring projects or keeping track of expenditures for each project. The agency also has not constructed enough low- to moderate-income housing, as required under redevelopment law, the report said.

While he disagreed with some of the report’s findings, Sorenson said, “it’s very important to recognize the potential value of this independent evaluation as a tool for increasing the effectiveness of redevelopment in Pomona.”

In addition to requiring more extensive background checks on developers, Sorenson said, the agency will use more precise accounting procedures and will increase its staff so that it can assign a project manager to monitor each development.

Currently, three staff members supervise developments in 10 project areas.

When he presented the agency’s response to the report Monday night, Wilson stressed that most of the problems noted by the Grand Jury stemmed from the agency having too small a staff.

“We were criticized for being understaffed,” Wilson said. “Typically, government is criticized for being over-staffed.”

Pleased With Response

Mayor Donna Smith said she is pleased with the Redevelopment Agency’s response to the report. Additional staff members should enable the agency to keep better track of redevelopment projects, she said.

“I’m satisfied with the fact that we’re going to get Mr. Sorenson and (the) Redevelopment (Agency) some help down there,” Smith said. “Things should be 100% better.”

But Councilman C. L. (Clay) Bryant, while acknowledging that the agency is understaffed, said inadequate procedures for reaching agreements and monitoring projects have been a long-standing problem.

“For 15 years, I’ve been telling (city officials) that the City of Pomona needs procedures for all the departments, and I’m glad the Grand Jury has said the same thing,” Bryant said.

Sorenson took exception to the report’s finding that the agency has not constructed enough low- and moderate-income housing. The report said the agency has built only 500 such units citywide. The construction of this housing, the report said, “is only a beginning.”

Crime, Unemployment

“Certainly, this particular area is in need,” the Grand Jury reported, noting that crime and unemployment rates for Pomona are disproportionately high and that 33% of the city’s families receive some form of federal assistance.

“That’s kind of a stupid thing to say when they didn’t relate it to the funds available,” Sorenson said. He added that the failure to build enough lower-income housing is “a generic criticism” made of redevelopment agencies statewide.

Sorenson said the report did not take into account that the agency has committed 20% of the tax increment revenue to be received from redevelopment to provide low- and moderate-income housing, as required by law.

That money will fund the construction of more than 600 units of low- and moderate-income housing that are “in various stages of approval,” Sorenson said. At least 60 units of this housing will be ready for occupancy this year, he said, and all of it should be available within two years.

However, Grand Jury foreman Manuel Gallegos said auditors did not find any evidence that additional low- and moderate-income housing units had been proposed.

“The auditors didn’t find any of the plans,” Gallegos said. “They didn’t find anything that had been approved. If there was something in the works, this was not made known to the auditors.”

‘Biased’ Coverage

In his written response to the Grand Jury report, Sorenson also criticized press coverage of the report, saying it has been “obviously biased, taken out of context and many of the comments and conclusions (published in the press) are not even in the report.”

In an interview, Sorenson cited as an example of this coverage a Times article that quoted Gallegos as saying that the biggest problem found by the Grand Jury was “improper management.”

Sorenson would not comment further on Gallegos’ statement, except to say that it was not a fair characterization of the agency’s management. “I don’t want to get into that,” he said.

Gallegos said he stands by his statement that the management of the redevelopment agency had been improper.

“All of the criticism in the report had to do with establishing policies, establishing procedures, establishing ways to monitor projects,” Gallegos said. “All of these things are part of management’s responsibility. . . . We didn’t find procedures and policies written down and that’s what we were looking for.”

The Grand Jury report focused on two redevelopment projects that have been plagued by problems--the proposed Inland Pacific World Trade Center and the Cobblestone Creek condominium project--and an upscale housing development in southwest Pomona that was cited as one of the agency’s most successful ventures.

The trade center project, which remains in limbo since the city’s development agreement with promoter H. Thomas Felvey expired May 1, was cited in the report as an example of inadequate investigation of developers.

Late Review

Although the city granted Felvey the exclusive right to develop the downtown site in 1984, it did not request a review of the promoter’s financial and development background until August, 1985, the report stated. Preliminary results of the inquiry were received by the city in January, 1986, but did not become public until 1987.

Felvey’s background, as revealed by The Times in May, 1987, included numerous lawsuits stemming from unpaid bills and incompleted projects, to which the promoter had failed to respond. It was also disclosed that two of Felvey’s firms had been suspended by the state Franchise Tax Board.

In the case of the Cobblestone Creek condominium project, a moderate-income housing development that was to have had 296 units, the Grand Jury found that the agency’s files did not include the financial history of Essex Investment Group, the original developer.

Essex was later acquired by BX Realty Inc., and 64 units were built on the Towne Avenue site. However, BX Realty has defaulted on a loan held by California First Bank, which is foreclosing on the property. BX Realty has also repaid only $250,000 of an $800,000 loan from the Redevelopment Agency.

Sorenson said a more rigorous investigation of developers’ backgrounds “might have had an impact” on the trade center project, but he said it probably wouldn’t have avoided the problems with the Cobblestone Creek condominiums.

Bank’s Confidence

In that project, he said, the agency depended more on First California Bank’s confidence in the project--as demonstrated by its construction loans--than on the financial background of the developer. The Grand Jury’s objection to the agency’s handling of the project involved a lack of documentation.

“The criticism on Cobblestone was not so much that we didn’t (check the developer’s background), but that there wasn’t anything in the file to reflect this,” Sorenson said.

In response to the Grand Jury’s finding that the Redevelopment Agency does not adequately monitor expenses for each project, Sorenson said the agency “can identify where every penny is spent and for what purpose.”

Beginning with the coming fiscal year, however, the agency will establish separate accounts to keep track of expenditures for each project area, a change recommended last month by the agency’s own auditors.

The report also criticized the agency for granting developers exclusive rights on a project without first determining whether a market exists for the project and whether it is financially feasible. Sorenson said exclusive rights are granted in part “to allow the developer an opportunity to prove that his concept is valid.”

Question of Blight

In looking at the highly successful Phillips Ranch housing development, the Grand Jury raised the question of whether vacant land should be considered blighted for the purposes of redevelopment.

Although state law currently does not permit vacant land to be included in a project area, the Phillips Ranch project was built almost entirely on undeveloped land before the law was changed in 1986.

The Grand Jury found that while the land on which the project was built was not blighted, Pomona as a whole was economically depressed. The report recommended that the law be changed to enable redevelopment agencies to include vacant land in a project area in such cases.

“The Grand Jury recommends (that) current state law be amended to allow what Pomona did properly in the first place,” Sorenson said.

However, the Grand Jury also questioned the use of tax-exempt financing in the Phillips Ranch project. Tax-exempt bonds made it possible for developers to offer mortgages with 11% interest for the upscale homes while the prevailing interest rate was 18%.

Financing Legal

Although the use of tax-exempt financing for moderate- to high-income housing was permissible when the bonds for the Phillips Ranch project were sold, state law has since been amended to restrict the use of such financing to projects that serve “a bona fide public purpose.”

The Grand Jury recommended that the Board of Supervisors survey redevelopment agencies in the county to make sure they are complying with the law. Sorenson’s response did not address this matter, calling it “an internal issue” between county agencies.

In responding to the Grand Jury report, Wilson has downplayed its critical nature, describing it as a “management review” that largely recommended improvements in record-keeping procedures. Bryant, however, said he hopes the report has a lasting impact on the way the Redevelopment Agency conducts its business.