County Grand Jury Calls West Covina Redevelopment Agency to Task

The West Covina Redevelopment Agency has been called to task by the Los Angeles County Grand Jury for failing to provide taxpayers with their money’s worth in dealing with developers.

In many instances, the grand jury reported last week, the redevelopment agency has not sought competing proposals from developers, thus limiting the city’s options and reducing tax revenues.

The grand jury also faulted the agency for not having specific guidelines or procedures to evaluate developers, their proposals or their projects’ financing. Agency staff, the report stated, often lack financial expertise, and projects are often loosely monitored.

The end result, the grand jury concluded, is that the city has lost an undetermined amount of potential revenue.

At the same time, the agency has also failed to set aside a portion of its tax revenues to provide low-income housing, as required under state law establishing redevelopment agencies, according to the grand jury.

‘This Is Important’

“This is more than just housekeeping,” said Robert D. Leland, the grand jury foreman. “This is important. It’s a question of how organized they are in dealing with a whole lot of money and dealing with developers.”

The city is reviewing the report and has until Sept. 1 to formulate a response, which could include any proposed changes in policy or procedures. The report was one in a series of reviews of redevelopment agencies within the county being conducted by the grand jury.

Assistant City Manager Leonard Eliot, who also serves as the agency’s assistant executive director, said the city would probably answer within 30 days.

“We want to have some time to make an appropriate response,” he said. “Obviously, we don’t agree with very much of it.”

Mayor Robert L. Bacon declined to comment, saying he had not thoroughly reviewed the report.

But Councilman William Tarozzi, a frequent critic of the redevelopment agency, said the report is on target.

“I think they’ve raised some very legitimate questions,” he said, adding that he would like to hear the city staff’s response. “I would hope that our agency and staff would have some logical answers. I would suggest that we make some changes, if changes are warranted.”

The West Covina agency was reviewed, the report stated, “because of continuing adverse media attention concerning the relationship between the agency and its developers.”

The agency has become controversial in recent years, with some residents questioning the amount of development and what they contend are too favorable financial terms for developers.

The agency’s critics have said it dragged its feet on the $150-million Lakes at West Covina, which broke ground last year and is to include offices, retail space and a hotel. A number of developers backed out from the project during the past decade.

The agency was also criticized for the proposed terms said to favor the developer of a $117-million expansion of the Fashion Plaza shopping mall, and for various financial deals with Ziad Alhassen, a prominent West Covina developer, such as one that demanded no interest on loans.

Under state law, redevelopment agencies are intended to be financially independent arms of the city that help bring in new revenue while eradicating blighted areas. Generally, agencies offer inducements such as cheap land or publicly funded improvements in hope of luring developers into undertaking projects.

The grand jury based its conclusions on an audit of the agency by the accounting firm of Coopers & Lybrand.

In the report, the grand jury found that the agency staff does not try to get competing proposals from developers. “Based on the agency’s current method of negotiating with only one developer for a particular project, the agency board is usually put in a position of accepting a proposal as it is presented,” the report stated.

The report noted that agency board members, who are also City Council members, generally feel that developers have the upper hand in negotiations, will not compete with other developers and may go elsewhere if pressed for too many concessions.

Negotiations Under Way

West Covina is now negotiating with May Centers Inc. and landowner Sylvan Shulman, the proposed development team for the Fashion Plaza mall expansion. The proposed terms of the deal have become controversial, with the developers asking for a large portion of future sales tax and property tax revenues from the project.

Tarozzi said the negotiations are an example of problems in dealing with only one developer. Competing proposals, he said, could force a developer to propose a more lucrative deal for the city.

“I think that the agency, on any particular project, should look at more than one developer,” he said.

The report noted that after a deal is completed, the agency needs clearer policies concerning the method and timing of payments by developers to the agency. As an example, the report cited an arrangement between the agency and Alhassen.

Originally, Alhassen and the agency had agreed to split any cost overruns for land acquisition for the $30-million West Covina Village shopping center.

Eliot, without approval from the Redevelopment Agency Board, accepted Alhassen’s promise to repay a $567,000 debt over 12 years, without demanding interest or collateral. The unsecured note became Tarozzi’s main campaign issue in the April, 1988, election when he was elected to the council.

Although the City Council subsequently passed an ordinance requiring that all repayments of $5,000 or more receive agency board approval, the grand jury concluded that the problem stems from a lack of procedures and has not been corrected.

“The method and timing of payment chosen resulted in the agency accepting an unsecured, 12-year, $567,000 interest-free note, with a current value of $213,000,” the report stated.

Another Concern

Grand jury foreman Leland said jurors were also concerned about the apparent lack of well-defined roles and responsibilities for the agency’s staff--including its executive director, City Manager Herman R. Fast, and his assistant, Eliot. In noting the unclear chain of command, the report noted that Eliot appears to be running the agency instead of Fast, although the city manager is legally in charge.

In evaluating proposals, the report stated, untrained staff members often inadequately analyze financial aspects of projects. As a result, the board has difficulty comparing and evaluating projects, the grand jury concluded. As an example, the grand jury report stated that offices at the Lakes site are going to be leased at a rate well below fair market value. Had the agency board received accurate market estimates, the leases would have been higher, the report said.

The agency was also criticized for not meeting its obligation under state law to provide more low- and moderate-income housing. Under state law, 20% of the tax revenue going to redevelopment agencies is supposed to be used to build or rehabilitate such housing.

West Covina has not set aside the required 20%, estimated to be about $680,000 annually, because the City Council in 1982 passed a resolution saying the city had already made “a substantial effort” in providing such housing. As a result, the report stated, the city considered itself exempt from the law, a conclusion that the grand jury disputed.

The agency has not conducted any review of the amount of such housing provided since the resolution was passed, according to the report.

In calculating its expenditures on low-income housing, the city may have incorrectly used federal housing funds, which the city lacks discretion in spending, the report stated. Because these are not under direct city control, they are not considered a local contribution under the law, according to the report.