Brea’s Rocky Redevelopment : Government: The FBI is asking whether landowners were coerced and HUD says it is investigating possible misappropriation of $400,000.

A decade ago, this tiny town that blossomed in the foothills with the oil boom of the early 1900s embarked on a redevelopment project like many others proposed by countless cities looking to put a new face on America’s aging downtowns.

City officials bought and bulldozed homes and churches, wiping out entire neighborhoods and tearing down historic buildings, including the Red Lantern Theater where Judy Garland once performed.

The vision was to transform a tattered and run-down city core, dotted with vacant and boarded-up buildings, into a bustling, tax-producing shopping center and modern townhouse development that would become the city’s pride.

Yet redevelopment became a sore subject in this town where many residents cherish its Old West, small-town feel amid the ungainly megalopolis that much of Southern California has become.

And fierce controversy has been the redevelopment project’s hallmark as, at long last, construction is scheduled to begin next month.

Three of the five City Council members involved in the process of property acquisition have either lost their council seats or the right to vote on redevelopment, following state conflict-of-interest charges, some of which were successfully prosecuted, while some were ignored, and yet others ended in acquittals.

But the redevelopment rancor in Brea has taken a new and serious turn, and the question pending is whether there were violations of federal laws as well.

FBI agents have been quietly scouring the area to ask former landowners and some still fighting the city about any coercive tactics the city’s Redevelopment Agency may have used when it went after their land.

And officials of the federal Department of Housing and Urban Development acknowledged last week they are investigating the possible misappropriation of at least $400,000 in development grants that were distributed to the city between 1988 and 1992, the most frantic years of the Redevelopment Agency’s activities.

HUD kicked off its inquiry by asking Orange County, which distributes HUD funds to cities, to provide documentation for all HUD money given to Brea in recent years.

The new FBI and HUD inquiries could compound the troubles of this north Orange County community of 37,000 residents, which touches both Los Angeles and San Bernardino counties.

Federal officials have already frozen some funds granted for highway improvements in Brea, and city officials have hired a Washington lobbyist specifically to help persuade federal officials to release the nearly $2 million.

The freeze was imposed after federal highway investigators concluded in July of last year that Brea officials had abused their power to take property for the widening of Imperial Highway.

Their investigative report said there were indications “that several property owners were coerced to sell . . . to the city of Brea . . . which threatened acquisition by eminent domain based on the highway project when in fact . . . (the property) was not being acquired for the highway project.”

Instead, the federal report said city officials intended to transfer the property to its Redevelopment Agency, which at the time was supposed to acquire property only on a voluntary basis.

FBI officials declined to comment last week, but residents and businessmen who owned property near the highway confirmed that agents are now asking them questions about how their properties were acquired, and the city’s use of its condemnation authority.

Joseph Veltri, whose Italian restaurant was a city institution, said an FBI agent came to his Fullerton home two weeks ago to ask “if there was any coercion or threats by city officials to get me to sell my property. I told him I felt I was coerced,” Veltri said, adding that the agent expressed concerns about the lapse of time since the transaction.

Bruce Weiner, a Newport Beach attorney for one of Veltri’s former neighbors, also confirmed that the FBI has requested a meeting with him to discuss the sale of his client’s property to the city.

Like Veltri, former Brea business owner Gary MacDonald claims the city improperly threatened him with condemnation in 1987, until he parted with a successful auto body shop on South Brea Boulevard.

In October of that year, MacDonald received a letter from the city offering him $455,400 for the shop.

“Should you not decide to accept this offer,” the letter stated, “the city of Brea does have the powers of condemnation to acquire property that may be affected by road-widening activities. Accordingly, should this voluntary acquisition not be agreed upon by you, the staff may recommend to the Brea City Council that condemnation procedures be considered in the future for road-widening purposes.”

Five years later, and after he eventually sold his shop to the city for $535,000, MacDonald said he was shocked to learn from state Department of Transportation officials that his property was not required for the Imperial Highway widening.

“Our review of the attempt to acquire your property and its need for the currently proposed widening of State Highway 90 (Imperial Highway) revealed that your property was, in fact, not needed for the widening project,” states a June, 1992, letter Caltrans sent to MacDonald.

“It’s criminal what they’ve done to us,” said MacDonald, whose business failed after he moved it to Placentia, leaving him unemployed and bankrupt.

“They’ve completely rearranged my life. Not a day goes by without this hanging around my neck. I always thought the people are the government, the government works for the people. But in Brea, the government works for the developers.”

Veltri said he, too, was threatened with condemnation, and only agreed to sell his restaurant location after municipal officials told him that they would eventually use the city’s eminent domain, or condemnation, authority to take it.

At the time, however, city policy prohibited the use of condemnation proceedings to acquire property for redevelopment. That policy was only reversed in 1989.

“I was rather naive,” Veltri said recently. “I didn’t know I had the power to resist. It’s like a police officer ordering you to the curb. You don’t ask him by what authority he’s ordering. . . . I didn’t think my city was lying to me.”

Veltri was paid $379,968.10, which the family used to set up a new restaurant in Yorba Linda.

But there, without a building of his own, Veltri said property rental and other costs drove the family out of business for good in 1989.

“I invested in the restaurant because I thought we would build on this for future generations,” Veltri said. “I never knew the city had to ruin people’s lives.”

Veltri’s emotional business departure from Brea was made all the more painful in 1992 when he had to appear before the state Relocation Appeals Board to ask for moving expenses not paid him when he sold the original restaurant. Later, the board ordered the city to pay him $20,000, the maximum allowed under state law.

City Atty. James L. Markman denied any wrongdoing by the city, adding that Veltri was provided “a very favorable deal.”

“I feel bad for him that it didn’t work out,” the city attorney said. “I used to eat at his place. There is pain in redevelopment. Everybody acknowledges that. But there is no other way to do urban renewal.”

As painful as this has been for some of the displaced residents and many business owners, the process has also taken a heavy toll among officials.

A newly surfaced report by the state Fair Political Practices Commission says that Carrey J. Nelson, a Brea councilman who now abstains from voting on redevelopment matters, escaped being hit with state conflict of interest charges along with former Mayors Ronald E. Isles and Wayne D. Wedin partly because the statute of limitations had run its course.

“Although it appears that Councilman Nelson violated these (conflict of interest) provisions” by voting on matters while he had a financial interest in property in the redevelopment area, “this case is being closed with no formal enforcement action (because) the violations are dated, having occurred over four years ago,” the FPPC report says.

Moreover, the FPPC noted that the Orange County district attorney’s office, which “successfully prosecuted . . . Isles, and took . . . Wedin to trial on similar conflict of interest violations . . . declined to file any legal action against” Nelson. Isles was removed from office after his conviction, and Wedin, who won acquittal after a jury trial, elected to give up his council seat.

Councilman Nelson, saying that he routinely avoids speaking to reporters, declined to comment on the 8-month-old FPPC report.

Markman, the city attorney, said he was not aware of the new federal probes, but speculated that they were probably instigated by a handful of downtown residents and business owners involved in condemnation proceedings or protracted disputes over the value of their own properties.

The leader of this loosely knit coalition, Markman said, is William Vega, whose family has sued the city for attempting to condemn their property, which is located on a prime corner of the redevelopment area.

Markman said it was Vega who spurred the district attorney’s investigations of Isles and Wedin.

While acknowledging the Isles and Wedin investigations as unfortunate episodes in the city’s recent history, Markman said he is confident the new inquiries will turn up nothing improper.

“I have never seen a city scrutinized by so many different investigatory agencies,” Markman said. “I suggest that if you took the political and professional family involved in any city in Orange County, or anywhere else, and subjected them to years of these intense microscopic investigations, then nobody would come out more unscathed than the city of Brea.”

Though Markman suggests that the worst is all behind, there are indications that the redevelopment project continues to tear the city apart.

Last year, kindergarten teacher Kathryn Wiser ran for City Council on the sole pledge that she would oppose the city’s use of its condemnation powers to take residents’ property. She won, but now finds herself an outcast among the other four council members who are publicly committed to completing the long-delayed make-over of the old downtown.

Heated exchanges with her council colleagues and city staffers have reduced her to tears on some meeting nights.

“The profundity of your ignorance is astounding,” Markman told her at a recent public session. The city attorney said Wiser has brought difficulties on herself with her excessive requests for information and open distrust of city staffers.

City Council meetings are now a virtual arena for public venting on redevelopment problems, broadcast live to a citywide cable television audience.

The sessions often erupt into shouting matches, with residents yelling at council members, and city staff members chastising residents.

Last week, for example, Police Chief Donald L. Forkus was called upon to wade into the crowded gallery to calm residents who were upset with the city’s latest resolution to condemn Sam’s Place, the city’s oldest building and landmark watering-hole for locals and visitors.

“You’re ruining our lives and you don’t give a darn,” said Jim Cook, whose commercial building--Brea’s first City Hall and located next door to Sam’s--was condemned two years ago. “How can anyone negotiate with this council? Nobody is listening.”

Said another: “Jefferson and Lincoln are probably sobbing. Shame on you, SOBs!”

At two particularly rowdy points during the evening, Mayor Glenn G. Parker called for recesses so that order could be restored.

Susan Georgino, who became manager of the Redevelopment Agency in 1989, said last week that the city had not gone about acquiring residents’ properties in a meticulous manner. “There were some things that should have been done better,” Georgino said.

Georgino said the city was aware that residents and businesses had suffered financial and mental strain as a result of the project. “It’s always difficult when you’re acquiring someone’s property,” Georgino said. “But this City Council has bent over backward to treat people fairly.”

Georgino said the city used the threat of condemnation against MacDonald so that the business owner could claim a tax benefit. When property is acquired by eminent domain, sellers have up to three years to reinvest their money without incurring capital gains taxes. Other sellers have two years.

Publicly, the city’s apparent misuse of its condemnation powers was highlighted as early as two years ago, when the Brea Small Business Coalition filed a lawsuit charging that the city had failed to abide by state law requiring a relocation plan for displaced property owners, and did not provide for relocation assistance.

Orange County Superior Court Judge Robert C. Todd ordered the city to prepare a relocation plan, and questioned the manner in which the city was acquiring property from landowners.

The judge said the city was not giving residents “good-faith” information as required under state and federal laws.

“It appears that the city and the (Redevelopment) Agency have been ‘picking off’ properties one at a time without encouraging business owners, residents and tenants to participate in redevelopment,” Todd said. “It seems that the thrust of city efforts has been to locate major developers for the purpose of development.”

Markman and other city officials said Brea has been generous in providing relocation assistance, paying out nearly $6 million since 1987 to move 225 households and 41 businesses.

Some of those relocation expenses paid by the city, however, were part of the settlement reached in the business coalition’s lawsuit settlement.

Under terms of that settlement, the city agreed to pay up to $6,500 to affected landowners for reimbursement of legal and appraisal fees related to property acquisition or relocation.

Mayor Parker said that while some of the displaced residents and businesses had quit Brea, the city has been successful in retaining a number in new locations.

“We’ve worked very hard to negotiate in good faith,” Parker said. “When they (Vega, Cook and others) say we won’t listen, that’s not true.”

Only adding to the controversy has been the pair picked by the city for the area’s major project, a mixed-use development with a Ralphs supermarket, a Payless Drugs, a Cost Plus, an Edwards Cinema and a cluster of townhouses at the corner of Brea Boulevard and Imperial Highway.

Chosen to build the project is a partnership involving Ray Watt, a former undersecretary for Housing and Urban Development during the Nixon Administration, and Tom Craig, the son of a former Brea mayor for whom a city park is named.

Almost half of the 50-acre parcel that the city has acquired for roughly $26 million is being sold to the developers for $4.5 million.

According to a Redevelopment Agency memo recounting a meeting with partnership representatives, Craig’s “political influence” was duly noted.

A staff memo from that April 3, 1990, meeting states that Tom Craig would have a 10% limited partnership interest in the project in exchange for his “$500,000 cash investment and . . . political influence.”

Markman denied that city staffers raised the issue of Craig’s supposed “political influence” during an agency meeting. He said the memo to agency board members was merely quoting remarks made by John Hunter, the managing partner of the Watt/Craig team.

“That was John Hunter talking,” Markman said. “It was John Hunter saying, ‘I’ve teamed up with a guy who I believe is locally influential and he’s got 10% of the project.’ ”

But Hunter said last week he did not recall making any such comment at the meeting.

About Craig’s involvement, Hunter said: “Craig has invested real hard dollars to buy an interest in the property. He is an astute businessman who knows Brea. It is no secret what his abilities are. But he was willing to buy an interest to have a piece of the action, and it’s a straightforward transaction.”

Hunter said the arrangement to build the shopping center was also beneficial to the city because the local government has been guaranteed up to 25% of the center’s profits for 56 years.

So far, 80% of the shopping center space has been rented and long-delayed construction is expected to begin in March, Hunter said.

For Mayor Parker, construction will be a major landmark in a project that has consumed much of his local political career.

Elected to the council in 1990, Parker said he was prepared for the troubles that have enveloped the project.

Any violations attributed to the city in past state or federal reports, he said, were probably a result of “people who had not crossed the Ts or dotted the I’s.” He said he was not aware of either the FBI or HUD inquiries.

“I’m convinced nothing was done with the intention to harm anyone,” he said. “But one of the commitments I made was to finish the downtown and I knew we weren’t going to make everybody happy. We’re beyond the point of return.”

The Saga’s Chronology

1971: City Council declares need for Redevelopment Agency to rehabilitate blighted, unproductive areas of city. Council accepts plan establishing most of city as redevelopment area, including the old downtown. Late in the year, voters reject redevelopment proposal and plan to use condemnation authority to acquire property in redevelopment zones.

1972: Redevelopment Agency officially relinquishes power of eminent domain--which allows government to claim privately owned land--as a means of acquiring property.

1977: Brea Mall opens.

1981: New Civic Center opens, moving city offices from South Brea Boulevard, near old downtown, to a complex next to the mall.

1983: Redevelopment plan amended to include commercial district in old downtown. In part of amendment, agency reaffirms commitment not to use eminent domain to acquire property.

1985: City on its way to acquiring property for old downtown redevelopment.

1987: Agency approves widening Imperial Highway, which borders downtown redevelopment area.

1989: Condemnation authority added to agency powers “in order to gain possession of certain properties . . . in a timely manner,” redevelopment records state.

1990: City awards exclusive development rights on old downtown project to Watt/Craig partnership.

1992: Coalition of small-business owners sues agency, alleging it lacks relocation plan for displaced residents and businesses. City later approves relocation plan giving displaced tenants and businesses preference should they move into new project area.

* Former Brea Mayor Ronald E. Isles convicted on seven conflict-of-interest charges involving his relationship with local developer and votes he cast on the downtown redevelopment project.

* In an unrelated case, former Councilman Wayne D. Wedin is acquitted of conflict of interest involving a different developer.

1993: State Fair Political Practices Commission reports Councilman Carrey J. Nelson’s financial interest in a property within redevelopment district may violate conflict-of-interest regulations. Nelson remains a councilman but has resigned his agency position.

1994: City officials say construction on Watt/Craig project expected to begin in March.

Source: City of Brea

Researched by KEVIN JOHNSON and DAVAN MAHARAJ / Los Angeles Times

Some of the Players

Here are some of the city officials struggling over redevelopment:

Glenn G. Parker, Mayor and Redevelopment Agency chairman

* Founder and President of PARKGLEN Community Management Inc., a Brea property management firm.

* In 1990, participated in Brea Downtown Charette, a citizens advisory group that made recommendations on redevelopment plan.

* Elected to City Council in November, 1990, before redevelopment plans were formulated. Has voted for redevelopment and use of eminent domain, saying city has too much money invested to retreat.

Bev Perry, Mayor pro tem and Redevelopment Agency vice chairwoman

* Serves on city’s Development Committee and co-chairs Development/ Redevelopment Task Force of the Brea Project.

* Elected to City Council in November, 1992. Staunch supporter of redevelopment.

Carrey J. Nelson, Councilman

* Appointed to City Council in June, 1978, for two-year term. Elected November, 1982; reelected in 1986 and 1990. Served as mayor in 1984 and 1990.

* Both Orange County district attorney and state Fair Political Practices Commission said it appeared Nelson violated conflict-of-interest laws by voting on matters that could have affected the value of property he owns in redevelopment area. The district attorney declined to prosecute in 1993, saying the statute of limitations had lapsed.

* Has abstained from voting on redevelopment issues since district attorney’s investigation.

* Unlike other council members, does not serve on Redevelopment Agency.

Burnie Dunlap, Councilman and Redevelopment Agency member

* Participated in Brea Downtown Charette.

* Generally votes in favor of redevelopment projects.

* Elected to City Council in November, 1990. As mayor in 1993, lobbied federal officials and local congressmen to release almost $2 million in highway money frozen after federal officials found the city did not follow proper procedures to condemn private property.

Kathryn E. Wiser, Councilwoman and Redevelopment Agency member

* Kindergarten teacher at Laurel Elementary School.

* Elected to City Council in November, 1992, promising she would oppose use of eminent domain. Has honored campaign pledges on redevelopment and frequently clashes with city staffers and other council members, insisting redevelopment project be halted.

* Says she does not oppose redevelopment, but objects to how project has been handled.

Gene A. Leyton, Redevelopment Agency member

* President and founder of Anaheim-based County Financial Services.

* Appointed to City Council in 1985; elected in 1986, served as mayor in 1988. Did not run for reelection in 1990.

* Appointed to fill Nelson’s seat on Redevelopment Agency when Nelson resigned.

* Ownership of property one-half mile from redevelopment area concerns council critics, but FPPC concluded votes for redevelopment did not appear to violate conflict-of-interest laws.

Frank Benest, City manager and Redevelopment Agency director

* Hired in 1989 to oversee Brea’s $100-million budget, 357 full-time, 135 part-time workers.

* Generally recommends council and Redevelopment Agency vote in favor of redevelopment projects and acquisitions of property through eminent domain.

James L. Markman, City attorney

* Hired in 1977; served as assistant city attorney, 1970-77.

* Clashes frequently at council meetings with Wiser and downtown residents who accuse city of attempting to rob them of their property.

* Describes critics as motivated by greed; says council will not give in to their tactics.

* Also serves as city attorney for Buena Park, Stanton and four other Southern California cities.

Susan M. Georgino, Director of redevelopment services

* Hired in 1989. Manages Redevelopment Agency and its $40-million annual budget.

* Has come under frequent attack by residents and business owners opposing city’s use of eminent domain.

* Says Brea residents will benefit from project, and that city has been fair to homeowners, businessmen.

Source: City of Brea; Orange County district attorney; FPPC reports

researched by MIMI KO / For The Times