Turmoil Threatens Newfound Prosperity

After languishing for decades as the low-rent alternative for service workers from nearby Palm Springs-area resorts, this desert outpost known for its relaxing thermal waters is booming.

The population of 19,400 is expected to double by 2015. Lots that sold for $8,000 a few years ago fetch 10 times that amount. City coffers are brimming with building fees.

But the town’s newfound prosperity has not brought stability. As city leaders grapple with the demands of explosive growth -- widening roads, increasing services, building sewers -- allegations have surfaced that at least two prominent officials may have used their positions to benefit from the growing affluence. These are among the issues:

* A potential conflict of interest involves a councilman’s vote to approve a major subdivision without disclosing that he had purchased land nearby. The City Council is scheduled to discuss the matter Tuesday.

* The council has requested that a county grand jury investigate a land purchase by the city manager, who later urged the council to approve a development and road upgrades near his property.

* The city manager fired the police chief last March, a few days after he went to the FBI and county prosecutors with what he described as “evidence of possible criminal activity within different functions of city government.”

“Our greatest problems have always been naivete and ineptitude,” said Lane Sarasohn, president of the Desert Hot Springs Chamber of Commerce. “You make the best of the cards you’re dealt, and this city is still playing with very few face cards.”

‘Old Chaos,’ ‘New Chaos’

The city is still stinging from the stigma of its 2003 municipal bankruptcy. Desert Hot Springs was on the losing end of a 1995 lawsuit brought by a developer after the City Council rejected his project. The city was under court order to pay $10.8 million in damages. Only last year, the city floated a bond to pay off the debt. But the protracted litigation and bankruptcy had kept developers away for nearly a decade.

Adam Sanchez, head of the local Boys and Girls Club and a member of the city’s Planning Commission, has come to refer to bankruptcy as the city’s “old chaos” and the controversies currently rattling City Hall as the “new chaos.” Residents and developers alike are worried that political woes will hinder the growth and vitality that they have long hoped for.

City Atty. Patricia Larson said the district attorney’s office has “talked to a number of people” and confirmed that an investigation has been launched. But, she said, “I haven’t a clue about what they are looking at.”

Ingrid Wyatt, a spokeswoman for the Riverside County district attorney’s office, would neither confirm nor deny that there is an investigation.

In the meantime, skip loaders are chewing up the landscape in California’s 25th fastest-growing city, which used to be little more than a hodgepodge of mom-and-pop businesses, trailer parks, modest homes with septic tanks and spas that catered to snowbirds. Today, new stucco homes with panoramic views of mountains and desert-scapes command $250,000. The first shopping centers are sprouting along the main drags and crews are repairing some of the worst roads in the desert.

Necklace of Cities

Southern California’s newest boomtown is spread across alluvial plains in the northwest tip of the Coachella Valley, part of a necklace of cities that stretches 30 miles from Palm Springs to Coachella. Newcomers there are a mixed lot, and many were priced out of neighboring cities of Rancho Mirage, Palm Desert and Cathedral City.

Take mortgage broker Scott Lantman and his wife, Diah, who recently moved out of a Palm Springs condominium and into a new 1,935-square-foot house here with a spectacular view of Mt. San Jacinto. The couple paid $220,000 for the house.

“We heard so many negative things about this city, that there were bad people living here, and drugs and gangs,” Diah Lantman said while watering the lawn of a frontyard decorated with palms and edged with red brick. “But we think this area is changing fast. We just love it here.”

After years of being little more than a desert burg with barely enough money to pay for essentials, city organizations, including Little League teams, the Boys and Girls Club and the Fourth of July parade committee, are receiving donations and sponsorship from developers eager to win over townsfolk.

But given their significant financial stake in the community, the developers are also worried about the controversies enveloping City Hall.

In a boardroom draped in subdivision maps, Walter Luce, chief executive of Mayer-Luce Development Group, put it this way: “We have $140 million invested in this town. We are going to move this city forward, and protect our investment.

“So we are demanding political stability -- no, we are dictating it,” Luce said. “What is needed right now is a good city hall with competent people.”

The City Council is slated to discuss a controversy on Tuesday involving Councilman Hank Hohenstein.

In 2002, Hohenstein bought a 16-acre parcel within 300 feet of a major housing development, Stone Ridge. At the time the project was in its early planning stages. About three years later, in February 2005, Hohenstein voted to approve Stone Ridge but didn’t tell the City Council of his land holding at the time.

Hohenstein said he believed the land was far enough away to avoid controversy. But the proximity of his land to the development raised concerns among his council colleagues when they became aware of the issue last March.

‘Second Thoughts’

Generally, under the state political reform act, government officials are prohibited from participating in government decisions if they are likely to affect their personal economic interests, said Jon Matthews, a spokesman for the California Fair Political Practices Commission.

“A few days after voting in favor of the project, I had second thoughts,” Hohenstein said. “I later apologized to the City Council because it brought controversy to Desert Hot Springs. But I do not regret buying the property or my vote for the project.”

Larson, the city attorney, said last week that Hohenstein “should not have voted on the Stone Ridge project.”

“It is critically important that the city show how this error came about,” she said.

“Councilman Hohenstein will recuse himself from this matter,” Larson said.

A month and a half ago, Desert Hot Springs launched a nationwide search for someone to replace City Manager Jerry Hanson, who plans to retire effective today.

Hanson had intended to serve as interim city manager until the council could hire a replacement. But in a June 30 letter, he said he would resign, saying that inquiries by The Times and the Desert Sun about his finances and land deals had made him a polarizing figure in the city.

Despite his retirement, Hanson will stay on the city payroll for an indefinite period as a $125-an-hour consultant, Larson said.

In June, the council unanimously voted to request a grand jury investigation of Hanson’s land purchases in town.

Hanson said he bought about 10 acres in June 2004 for about $250,000. Seven months later, he issued a staff report recommending that the City Council approve the proposed Stone Ridge housing project, which is near his land. Based on Hanson’s recommendations, the council on Feb. 1 approved the 2,100-unit project, contingent on the developers’ paying for $600,000 in street improvements.

The issue sparked controversy when City Councilman Gary Bosworth complained that Hanson had not publicly disclosed that he owned the property. Nor did he leave the council chambers when the project was being discussed.

Bosworth filed a complaint in April with the Fair Political Practices Commission alleging that Hanson may have used his official positions as both city manager and city engineer to influence city staffers and the council to process and approve Stone Ridge.

“At the very least, that appears to be a possible conflict of interest, or unethical,” Bosworth said in a recent interview.

Larson said she did not view Hanson’s land deal as a conflict of interest because the property is more than 2,500 feet from the project boundary line, therefore meeting legal requirements.

Hanson said in an interview last month that he recommended that the council require the Stone Ridge developer to pay for such street improvements as curbs and sidewalks on Pierson Boulevard, a main east-west street, including work along a stretch of the road skirting his acreage.

“I hope my property value goes up,” Hanson said in the interview. But more important, he said, is that the entire city will benefit from the street improvements.

Hanson, who has a base salary of roughly $125,000, triggered more controversy after someone leaked his W-2 form to the Desert Sun.

In an interview with The Times, Linda Kelly, the city’s administrative services director, said Hanson earned at least $322,809 in 2004, including $89,269 in vacation pay, about $5,000 in health benefits and a $92,215 buyout of a severance pay clause in his city contract.

The disclosure outraged residents, including Chamber of Commerce president Sarasohn.

“It was an embarrassment for our city,” Sarasohn said in an interview. “I thought it was like taking candy from a baby. Jerry used his lawyer’s skills to get more money from the city than the city intended to give him.”

Hanson said he believes he should be credited for the city’s revival and said he is proud of his work for the city, which included demoting, transferring or firing dozens of employees he regarded as incompetent.

Among them was former Police Chief Roy Hill, who was fired in March, after he reported allegations of corruption to the FBI and the district attorney.

The FBI declined to comment on the matter.

In a prepared statement to reporters, Hill said, “Over the past months, I have obtained information ... from many different sources that appears to be evidence of possible criminal activity within different functions of city government. As chief of police, I did not have the resources, nor the ability, to properly pursue this criminal probe, but I had an obligation to my sworn oath of office and the citizens of Desert Hot Springs to take action.”

Municipal rules grant the city manager full authority over hiring and firing city employees, including the police chief. The City Council did not contest Hill’s dismissal. Hanson replaced Hill with an interim chief who was convicted on one count of falsifying a police report in 1998 in Hawaiian Gardens.

“Morale in the police department has nosedived,” said Paul Steier, chairman of the Desert Hot Springs Public Safety Commission. “A number of experienced officers have started trying to process out to other law enforcement agencies.”

On another political front, Desert Hot Springs City Councilwoman Mary Stephens, a front runner in the city’s ongoing mayoral race, recently took an accounting job with Mayer-Luce, one of the biggest developers in town.

Since taking that job, Stephens has promised to recuse herself from voting on matters involving her boss.

In the November election, voters will fill two City Council seats and elect a new mayor. Campaign issues have focused on ensuring long-term economic stability, increasing public safety for a growing population and cementing confidence in city government.

But even that may not satisfy residents who have come to believe Desert Hot Springs’ transformation into a red-hot housing market was a mixed blessing. Many of the city’s 48 spa owners have started buying adjacent empty lots in hopes of sustaining a semblance of “open space” around their establishments and to prevent nearby septic tanks from polluting their wells.

‘I Feel Cynical’

Steve Lowe, manager of a spa remodeled to resemble a hotel in Paris frequented by avant-garde writers and artists, compared the arrival of massive housing developments to a “tsunami of red barrel tile.”

“I used to be hopeful,” Lowe said. “Now, I feel cynical about what appears to be just plain old suburban-style sprawl. I’m so angry about it that I don’t go to City Hall meetings anymore.”

That kind of talk worries mayoral candidate Stephens.

“This city needs a lot of nurturing right now. People are wound up and scared. They don’t trust their politicians or developers,” she said. “But now that we have a little real money, we’re going to start behaving like a real city. Desert Hot Springs is not normal. But we’re getting close.”