SBSentinel

Upland Unified School District On Brink Of Financial Meltdown

Venturi — Tue, 14 May 2013 19:07:45 +0000

(May 10) Auditors are going over the Upland Unified School District’s financial records with a fine tooth comb after having been alerted by the San Bernardino County Superintendent of Schools to a series of financial irregularities.
An examination of the books has already demonstrated, reliable sources tell the Sentinel, misfeasance on the part of current or former district personnel. Auditors are now zeroing in on several specific matters that could constitute malfeasance, the Sentinel has learned.
The district’s financial circumstance, which has been eroding for three years, grew perilous last year in the aftermath of what has been described as a “laissez faire” approach to management that presumed upon future availability of and increases in revenue that never materialized or was committed elsewhere.
Those problems have manifested in the district being faced with a projected $9 million deficit in the upcoming 2013-14 fiscal year budget. Accordingly, the district must make immediate and substantial cutbacks to its upcoming budget or otherwise become insolvent, triggering a series of measures, including a state takeover. Such a takeover would result in rendering the board of trustees powerless, the loss of the superintendent, reduction of educational services to a minimum to ensure operational costs do not exceed revenue and the imposition of a management regime involving administrative caretakers functioning out of Sacramento.
An initial assessment of what went wrong at the district points to the action or non-action of three former district employees – former superintendent Gary Rutherford, who left the district in early January to assume the superintendent’s position with the Desert Sands Unified School District in Indio, La Quinta, Palm Desert, Indian Wells, Bermuda Dunes and Rancho Mirage; former assistant superintendent Linda Kaminsky, who left Upland Unified to become the superintendent of Azusa Unified School District at the end of the 2011-12 school year; and former assistant superintendent of business services Deo Persaud, who was recently dismissed from his position.
Multiple sources, including those at the local, county and state level, say that the district’s top management team under Rutherford failed to disclose and in fact obscured the district’s deteriorating financial situation from the school board, while committing and double committing future district revenue to debt service in a gambit that has left the district ill-positioned to pay for operations, including teacher and non-teacher payroll, in the upcoming fiscal year.
At the root of the problem is the state of California’s practice in recent years of utilizing so-called deferrals to overcome the state’s structural deficit. Essentially, the state, to avoid wholesale educational program cuts, has deferred, i.e., delayed, for up to one year making payments to school districts. Instead, deferrals – essentially IOUs – are issued to the districts. For the last three years, the state has issued $7.4 billion in deferrals to public schools throughout the state.
This has resulted in districts forming groups, known as pools, that band together and use their collective deferrals as security and/or collateral to obtain bond financing or loans which are then used to fund current district operations. The districts are held responsible for the financing costs. This financing methodology – known as TRANs for tax revenue anticipation notes – has become routine among school districts statewide and involves governmental entities beyond the schools themselves. In San Bernardino County, the county treasurer/tax collector is involved in the TRANs arrangements. Also in San Bernardino County, as in all counties, the county superintendent of schools oversees the financial operations of all districts, and is provided with a tentative outline of each district’s budgetary projections for three years into the future and a more in depth projection for each upcoming year’s budget. The county superintendent’s office evaluates those submissions and provides the districts with feedback about the practicality, reliability and workability of those proposed operating budgets and how realistic the district’s projected expectations of revenue and expenditures are, together with advisals about the need to curtail expenditures, reduce or eliminate programs or enter into contract negotiations to maintain fiscal integrity or take other corrective financial action as is appropriate. The county superintendent also rates districts on a three level scale, designating those districts that have revenue that exceeds their operational costs and can maintain reserves as “positive,” those that essentially break even with regard to their revenues and expenditures as “qualified” and those that take in less money than they spend as “negative.”
According to information available through the San Bernardino County Superintendent of Schools, there were numerous “red flags” over the last several years indicating Upland Unified was on a collision course with fiscal reality.
Two and three years ago, Rutherford and his team, in submitting their budget projections, had sought to have the district rated as “positive.” Those upbeat ratings were initially forthcoming but belied a downward trend in the district’s financial state that began gradually and accelerated. In his first submission for the county’s financial evaluation this fiscal year, Rutherford asked for a positive rating, only to have it reduced to qualified. His application for the second interim rating in 2012-13 sought a qualified rating, which was ultimately downgraded to a negative rating.
“In fiscal year 2010-11 both the first and second interim financial rating for Upland Unified were positive,” Christine McGrew, the chief communications officer for the county superintendent of schools told the Sentinel. “In 2011-12, the first interim report was positive and the second was qualified. This year, 2012-13, their first interim report was qualified and the second interim report was negative, all based on San Bernardino County Schools’ rating system.”
While the county superintendent of schools office informs each school district office of its ratings, a mix-up or diversion of that notification after it reached the Upland Unified School District office resulted in delays by which Upland Unified’s trustees remained in the dark as to the qualified ratings in previous years or the negative rating this year until very late in the process. It has only been within the last two months, while working with interim superintendent Sherri Black in preparing for the upcoming 2013-14 budget, that the school board members learned of the district’s dire financial condition.
Those close to the matter suggested Rutherford and his team had originally gotten behind the eight ball through no direct fault of his or their own but rather as a consequence of the state’s action in instituting the funding delays. But over time Rutherford contributed to and compounded the problem, it was suggested, when he shied away from hardnosed bargaining with the district’s unions, mistakenly assuming that the district could continue to pay what have been characterized as generous salaries and benefits to district employees because the state would in time increase educational funding. He hung on to that delusion, believing that Proposition 30, the school funding initiative that was narrowly passed by voters in November, would increase school funding. In reality, that measure served only to maintain school funding levels.
Auditors have come across clear indications that the district did not use TRANs money on what had been projected to be its use in the various budgets that were submitted.
“The district was trying to leverage the deferrals and committed the money to things other than paying off the TRANs debt,” one knowledgeable official told the Sentinel. “They were borrowing on borrowed money and now it has snowballed on the district. The Tax Revenue Anticipation Notes that were secured by the deferrals were used for things other than what was authorized. If and when the deferred money is finally paid by the state, it is supposed to get impounded by the county treasurer. What they [Upland Unified] did is they did not use it to pay off their operational obligations like everyone else. They borrowed money using the deferrals as collateral and didn’t pay off those loans.”
Payments are now coming, or are past, due, and money that should be used to run the district next year is being eaten up to cover debt service on past loans to the district.
In an exclusive interview with the Sentinel, Rutherford said, “I don’t believe it is accurate to say we were double bonding. We absolutely did have a funding shortage. We were utilizing TRANs money, which is a typical strategy used by many school districts to deal with the state having deferred over 40 percent of the schools’ budgets into the next fiscal year. TRANs are a swing loan, if you will, like equity credit on your home where the notes are issued, the money used and then immediately paid off when the deferred tax revenue comes into the district. It is not the preferred way of running a district but this is something you have to do when the state is not coming through with funds due to our schools. There was nothing in the way that we did this that was not above board. We worked with the county and the TRANs arrangements were fully audited and vetted. I am not aware of any double bonding. I am not even sure what that means.”
While Rutherford acknowledged that during his final months in Upland he anticipated a deficit in the upcoming fiscal 2013-14 year, he said it was nowhere near the $9 million figure the district is now struggling with.
“When I left, the number was about half that,” he said. “$9 million seems high.”
Rutherford disputed the report of the district having received a negative financial rating from the county superintendent of schools office. He said that the district had achieved a status of “self-qualified,” meaning that “The district was able to pay for all of this year’s operating costs. We were qualified this year. I don’t know about the next two years, but by our own actions we were self- qualified in the current fiscal year.”
County auditor/treasurer/tax collector Larry Walker expressed concern over Upland Unified’s double borrowing against the TRANs but was prevented from initiating any action at that point by the state, which has granted school districts wide latitude in how they structure their financing of the stopgap measures they use in employing the deferrals.
“We became aware of how the district was using its TRANs money and expressed concern that the money they were borrowing was being used not for the purpose of addressing their cash flow problems but for budgetary purposes,” Walker said. “We were concerned at the time about where that would leave them. With the perspective we have now, I think it is pretty clear that the district had some monumental multi-year problems and its use of the TRANs money it was borrowing that we were concerned about was just a symptom of what was going on. At this point, I could not say what would be worse for Upland Unified officials: having to make the absolutely draconian and horribly painful cuts the district will have to make to stay solvent or see the district taken over and run by a state advisory panel.”
It is only now, after the district is on the verge of becoming insolvent, that the state has swung into action, and the ongoing audit of Upland Unified’s books is being made in anticipation of a potential takeover of the district.
To top it off, auditors have interested themselves in what appears to be “skimming” from bond sales. Attempts to reach Persaud, who was in charge of the district’s financial arrangements over the last three years but who was apparently let go by the district, were unsuccessful.
The catastrophe in Upland Unified is impacting more than the district itself. It is having a deleterious impact on the other districts in the county that were in TRANs collectives, such as Fontana Unified and Rim of the World School District.
“This is a wake up call to all school boards and unions that we cannot keep kicking our financial cans down the street because, like at Upland, the block wall is just ahead and Upland has hit the block wall,” said Scott Markovich, a board member with the Rim of the World School District. “At the county level, both at [county superintendent of schools]Gary Thomas’s office and every school board, we have to get our fiscal houses in order and take very seriously any negative ratings and work on getting budgets balanced because the state is not going to pull any rabbits out of the hat.”
According to audit numbers that are available, Upland Unified is running a $7.9 million deficit in the current fiscal year. It is not clear how much of that deficit has been offset by the use of reserve funds. The district was unable this year and will be unable next year to reach its goal of salting away three percent of its incoming revenue into its reserve accounts. The $9 million deficit next year will come about if the district continues to operate at all of its current levels.
Sherri Black, who has served as the interim district superintendent since Rutherford’s departure, told the Sentinel that “We have been making cuts and they are ongoing, but they have not been deep enough.”
She said the county superintendent of schools was monitoring the district closely, given its precarious financial condition. She contradicted Rutherford’s assertion that the district had a qualified rating. “The county changed our status from qualified to negative,” she said.
Black said Rutherford had accurately characterized the district’s reckoning of its finances at the time of his departure. “In December and January, it appeared our deficit was going t be between four and five million [dollars],” she said.
She said that a major problem bedeviling the district is the unpredictability of funding coming from the state and she intimated that this lack of clarity was in some measure responsible for the circumstance the district is now in.
“It is very difficult when we don’t have reliable projections,” she said. “We do not know what kind of funding will come down to schools in fiscal 2013-14. The county will not let us proceed with the projections we have, which may be inaccurate.”
The district is challenged by its high payroll, Black said. “Ninety-one percent of our budget is personnel related,” she said. “We are paying a very high percentage in salaries.”
Reports of bond skimming pertaining to the district, Black said, “are not true. Anyone saying that does not have accurate information.” She said intimations or rumors that Persaud was implicated in any sort of financial wrongdoing and had been terminated as a result were false. “He took a leave of absence for personal reasons and at this point he will not be coming back. He will no longer be with the district. That is totally unrelated to the district’s financial state. There is no fiscal malfeasance or embezzlement. That report is absolutely untrue.”
To map its way out of the debacle, the district, which has recently hired Redondo Beach Unified School District human resources director Dr. Nancy Kelly to serve as superintendent beginning July 1 but is now led by Black, is looking at a serious round of belt tightening to stave off insolvency and a state takeover. Those include teacher and other employee layoffs, coupled with pay reductions of between $8,000 to $12,000 per year for teachers. Also contemplated is the reduction of school days to the 177 state minimum. One proposal being floated is that the district return to one limited to kindergarten through eighth grade and that Upland High School, Hillside High School and the adult school will return to being under the jurisdiction of the Chaffey Union High School District.

Supervisors Extend Devereaux’s Contract

Venturi — Tue, 14 May 2013 19:05:50 +0000

(May 10) SAN BERNARDINO—The San Bernardino County Board of Supervisors on May 7 extended chief executive officer Greg Devereaux’s contract to March 2017.
The supervisors said they made the move to ensure the county remains on a “positive and productive” track.
Devereaux, who was then the city manager in Ontario and a former city manager in Fontana, was hired by the county in January 2010, two months after the board sacked his predecessor, Mark Uffer. Devereaux’s hiring was instigated by supervisor Gary Ovitt, who had been a councilman and mayor in Ontario when Devereaux was employed there. Devereaux extracted extraordinary conditions from the board upon his hiring, including a guarantee that he could not be terminated on a simple 3-2 vote of the board but rather only upon a supermajority vote of at least 4-1.
Recognized for his managerial talent and operational savvy extending to even the most obscure elements of government, Devereaux is widely respected but resented in some circles for his dominant personality. He has been criticized for his overbearing manner and what public employee union leaders have characterized as a dictatorial approach.
Board members, however, have grown highly dependent upon his leadership and budgetary guidance in recent years as the county’s revenue sources have diminished. He successfully negotiated contract concessions from the county’s various employee bargaining units, structuring county budgets that the board members believe will allow the county to function within its means over the next several years.
“Greg’s recommendations to the board and his management of the county organization have been invaluable in our efforts to foster effective government and to focus on building a strong, resilient local economy,” board chairwoman Janice Rutherford said at the May 7 meeting. “The board today made sure we and the county will benefit from his advice and leadership as we continue this endeavor.”
The board met several times in recent months to evaluate Devereaux’s performance.
According to a press release sent out after the board’s action on Tuesday, “Rather than continue trying to improve county government through single policies and ordinances each aimed at addressing specific problems as they arose, Mr. Devereaux proposed and received board direction to pursue measures that have redefined the county’s operating culture. During the past three years county government has established clear lines of authority within the organization, and defined and upheld the board’s policy-making role and differentiated it from the role of county staff; ensured board authority exists for all actions taken by county staff and connected all recommendations to the board and budget proposals to specific goals and objectives established by the board; seen the board govern as a body with decisions made in public and not as individual board members giving direction out of public view; and enabled the board to address the needs of the county as a whole rather than as five separate districts.”
The press release also credited Devereaux with working “with all sectors of the county community to identify a countywide vision and assisting the board in defining county government’s role in achieving the vision and negotiating effectively with employee associations to achieve cost savings necessary to avoid layoffs and service reductions.”
Devereaux is paid $25,416.67 in monthly salary and $8,250 per month in benefits for a total annual compensation package of $404,000.04.

Further Escalation In Ontario’s Battle With Los Angeles Over Airport

Venturi — Tue, 14 May 2013 19:04:02 +0000

(May 10) Ontario ratcheted the level of vituperation with the city of Los Angeles over Ontario Airport up a notch, joining with the cities of Inglewood and Culver City in their challenge of and environmental plan for Los Angeles International Airport.
Ontario was accompanied in that challenge by the county of San Bernardino, its partner in the Ontario International Airport Authority, in a letter filed on Tuesday, May 7.
In response, Los Angeles World Airports, the municipal corporation that runs Los Angeles International Airport, Ontario International Airport, Van Nuys Airport and Burbank Airport for the city of Los Angeles, withdrew a proposal that had been approved by the Los Angeles Board of Airport Commissioners the same day to provide incentives to airlines to increase their flights into and out of Ontario International.
In 1967, Ontario entered into a joint powers agreement with Los Angeles to have that city’s department of airports manage Ontario Airport. Under Los Angeles’ control, Ontario Airport grew exponentially, increasing its per year flights from under 200,000 to 7.2 million by 2007. In 1985, after Los Angeles met the criteria outlined in the 1967 agreement related to capital improvements and expansion of the airport, Ontario deeded the airport to the city of Los Angeles. Since 2007, however, passenger traffic at Ontario Airport has decreased to 4.2 million per year, even as Los Angeles World Airports has undertaken an energetic improvement plan at Los Angeles International Airport, where ridership has increased.
Ontario officials have charged that Los Angeles and Los Angeles World Airport officials are purposefully slighting Ontario Airport in a deliberate effort to boost Los Angeles International Airport. They have undertaken an aggressive campaign to force Los Angeles to redeed the airport back to Ontario, publicly insisting that the larger city should do so at no consideration because the airport is considered a public benefit property which has no sale value. Privately, however, Ontario has offered Los Angeles $250 million for the airport as Los Angeles has sought potential private and public buyers for the aerodrome at prices ranging from $225 million to $650 million. Ontario considered Los Angeles’s revelation of its private $250 million offer to be an affront and has since formed with the county of San Bernardino the Ontario International Airport Authority, an entity intended to take over ownership and operation of the airport once Los Angeles relinquishes it.
Last month Ontario, through the Washington, D.C.-based law firm of Sheppard Mullen Richter & Hampton, filed an administrative claim, considered to be the precursor of a lawsuit, against the city of Los Angeles and Los Angeles World Airports, charging them with chronic mismanagement of the airport.
Last week, the Los Angeles City Council approved a $4.8 billion modernization plan for the airport that has long been opposed by activists and the cities of Westchester, Culver City and Inglewood. Ontario and San Bernardino County took that as their cue to jump in on the side of Culver City and Inglewood, who had already launched a legal challenge over environmental issues related to that modernization.
While Ontario and San Bernardino County officials have little or no actual interest in the environmental issues outlined in the challenge, they maintain the Los Angeles International Airport modernization program can further erode passenger traffic levels at Ontario International Airport.
In a letter dated May 7 from the Irvine-based law firm of Buchalter Nehmer, representing Ontario, Culver City, Inglewood and the county of San Bernardino, it is stated that they collectively “hereby request that Los Angeles World Airports (‘LAWA’) agree to mediation pursuant to Public Resources Code Section 21167.10 as to the above-referenced city council approval.”
Under the law, Los Angeles has five days to agree to or deny the request for mediation. Upon denial, the four entities have 30 days to file a lawsuit. Mediation and a lawsuit, presumably, would be aimed at preventing the airport modernization from taking place.
On the same day, the Los Angeles Board of Airport Commissioners had voted to move forward with three programs intended to bring more flights into Ontario Airport. Tacit to that approval was LAWA’s willingness to fund the programs.
One of those was an incentive program offering rent-free space to carriers for a specified period, conditional upon increasing the frequency of flights to or from existing destinations or adding new destinations. The commissioners also agreed to transfer excess and often idle employees at Ontario to Los Angeles, a move which will reduce operational costs at Ontario, thereby lowering enplaned passenger fees to the airlines, which could encourage carriers to fly out of Ontario more often.
Shortly after the meeting, however, LAWA officials learned of Ontario’s ploy in joining with the county of San Bernardino to back Culver City and Inglewood in their challenge of the Los Angeles International modernization plan. Almost immediately, LAWA Executive Director Gina Marie Lindsey and Ontario airport manager Jess Romo countermanded the cooperative elements of the Ontario Airport flight expansion effort approved by the commissioners earlier, such that the estimated $1.5 million needed to offer the airlines the flight incentive packages involving free space will have to be funded by Ontario.
Ontario officials were unperturbed by that development, insisting that the measures the commissioners had approved were mere window dressing that would have no significant impact in increasing passenger traffic at the airport. They suggested that LAWA’s move would simply result in the airlines having to absorb custodial costs that heretofore were not part of their cost formula and that any savings the airlines realized from lower enplaned passenger fees would be erased by housekeeping duties the carriers would have to take on.
Moreover, Ontario officials are looking past the current make-up of LAWA management and the Los Angeles Board of Airport Commissioners, most of whom they believe will be replaced in the aftermath of the Los Angeles Municipal elections next week. Ontario officials believe they can broker a deal for the return of the airport with the new Los Angeles municipal administration, regardless of whether it is headed by Wendy Gruel or Eric Garcetti, who are vying against each other for Los Angeles mayor.

CalPERS Won’t Refinance SB’s Pension Fund Debt

Venturi — Tue, 14 May 2013 19:02:04 +0000

(May 10) Holding the line on a policy that it maintains is crucial to preserving the integrity of its entire pension program, the California Public Employees Retirement System has said it will not refinance bankrupt San Bernardino’s unpaid employee retirement contribution debt.
The city of San Bernardino filed for bankruptcy protection in August. Throughout the current 2012-13 fiscal year it has withheld $12.3 million in payments to the California Public Employees Retirement System (CalPERS). The city has vowed that as of July, it will reinitiate making its retirement fund payments.
At this point it wants to renegotiate the financing plan for the money on which it is in arrears.
CalPERS, concerned that showing leniency to San Bernardino would result in other financially challenged municipalities throughout the state temporarily skipping out on their financial obligations to the fund, is unwilling to refinance that debt or show any compassion to the city.
Moreover, San Bernardino’s return to the fold as a paying member into the system will not result in CalPERS ending its legal challenge to San Bernardino’s bankruptcy filing in Riverside Federal Court.
CalPERS has sued San Bernardino, maintaining that it has priority status among the city’s multitude of vendors, suppliers and creditors, and that the courts should force the city to meet its $1.7-million-per-month obligation to the public workers’ retirement fund. So far the judge overseeing the case, Federal Magistrate Meredith Jury, has refused to grant CalPERS’s motions, ruling that requiring the city to expend its scant revenue to cover retirement costs would undercut San Bernardino’s effort to get back on its feet financially.
Nevertheless, CalPERS is not prepared to accept the $12.3 million installment repayment plan the city is proposing, maintaining that under California law the withheld money, interest, penalty interest, late fees and all costs of collection are due it immediately, and that further delays will entail accruing interest and that interest will continue to accrue until the due amount is fully paid.
In what is considered to be a positive step out of the bankruptcy abyss, the city council in April approved a 14-month budget in consonance with its “pendency” plan, which was presented to Jury in November as a strategy for the city finding its way out of bankruptcy. That plan calls for “deferring“ $37.4 million in general fund debt payments owed in 2012-13, including $16.8 million of its current obligations for pensions. The fiscal year ends June 30. At that point, the city will be in arrears $13 million to CalPERS, another $3.3 million on an outside $50 million pension bond and $500,000 to Public Agency Retirement Services, which coordinates retirement benefit perquisites.
In a move that will partially ameliorate CalPERS, San Bernardino is proposing to undertake a “fresh start” with the state governmental employee retirement system. But those payments call for “reamortiz[ing] CalPERS liability over 30 years” structured in such a way that the city achieves a savings of roughly $1.3 million per year. The exact nature of that restructuring has not been clarified. CalPERS is highly skeptical of that proposal and distrustful of the city’s representations and has so far refused to accept the extension of payments the city envisions.
City officials have made at least three sojourns to Sacramento since November to see if a mutually acceptable payment schedule that allows pensions to continue to be paid out to current and future city retirees can be made. Two major sticking points exist: The $13 million the city is deferring indefinitely and the city’s proposed decreased annual payments into the fund from here on out.
At present, CalPERS is instituting system-wide rate hikes intended to remain in place for at least the next seven years in an effort to achieve system integrity through 2043. CalPERS, which manages $256 billion in assets, is San Bernardino’s biggest creditor. San Bernardino’s contribution into the retirement fund is equal to 0.3 percent of CalPERS annual revenue stream.
Based upon its past filings in bankruptcy court, CalPERS does not appear to be disposed to accepting any place in the San Bernardino debtors line other than first.
“It is not mere speculation to say that the city may not be able to pay its post-petition bills after languishing in bankruptcy for an indeterminate amount of time,” said a CalPERS filing in federal bankruptcy court. “To the contrary, the pendency plan suggests that the city has no intention of paying its postpetition obligations to CalPERS but, instead, intends to ‘modify’ those administrative claims in its plan of adjustment,” the filing said.
CalPERS maintains that as a quasi-governmental entity, it is exempt from the protection provisions of the city’s bankruptcy filing.

Will Use Code Enforcement To Shutter Maternity Hotels, County Official Says

Venturi — Tue, 14 May 2013 19:00:05 +0000

(May 10) Based on the city of Chino Hills’ experience with a spate of so-called Chinese maternity hotels, the county board of supervisors this week heard a report from the county’s top planning official relating to its options in preventing their establishment and operation in unincorporated county areas.
Three such birthing centers were operating in Chino Hills in 2012 beneath the city’s land use regulatory radar until their existence became publicly known in the late fall. In the most highly publicized case, Hai Yong Wu and Yi Wang began operating a maternity hotel out of what was originally a seven-bedroom home located at 5250 Woodglen Drive in Chino Hills. After it became known that Wu and Wang were housing pregnant women from China in the final stages of their pregnancy at the home in the upscale neighborhood so that their children could be credited with U.S. Citizenship, a wave of protest ensued. Upon confirming that the house was being advertised as “Los Angeles Hermas Hotel” intended to provide pre-birth and post-birth resting quarters for Chinese women, the city of Chino Hills sent code enforcement personnel to the premises, who found that the home, originally built in 1974 with seven bedrooms and six bathrooms, had been altered to feature 17 bedrooms and 17 bathrooms, many of which were not built to code. The inspectors documented no fewer than 18 code violations and then used citations generated on the basis of those to force operations there to temporarily cease.
As part of a follow-up effort to prevent the Woodglen Drive home from reopening as a maternity hotel, the city had city attorney Mark Hensley seek an injunction barring Wu and Wang from operating the facility. A pre-injunction hearing was scheduled for February 19. Before that hearing took place however, Hensley succeeded in obtaining a stipulated agreement whereby nine of the building code violations were acknowledged and a correction plan was put into place. Under the terms of that agreement, which was confirmed as a court-ordered settlement issued by West Valley Superior Court Judge Keith Davis on February 11, Wang was dismissed as a party and Wu was required to remedy sewage line discharge violations, cover exposed electrical wires on the premises, outfit the single entrance bedrooms with emergency exits, provide ventilation, correct illegal construction of add-on rooms in the house, install smoke and carbon monoxide detectors and alarms, and ensure clearance of flammable materials.
Hensley also reported the stipulated agreement contained a provision that the property cannot be used for commercial purposes, effectively shuttering the house as a birthing facility, he claimed.
Two other smaller but similar establishments which had set up operation in Chino Hills have quietly ceased operations in the face of rising public opposition.
This week the San Bernardino County Board of Supervisors received a report presented by Tom Hudson, the county’s land use services director, on code compliance and legal issues related to maternity hotels.
“On February 26, 2013, the board of supervisors directed staff to research and evaluate what the county can do to protect public health and safety concerning the operation of maternity hotels,” Hudson said. “The term ‘maternity hotel’ typically applies to a place providing lodging and other services for women who travel to the United States specifically to give birth in this country and establish U.S. citizenship for their children. Women pay sums ranging from $10,000 to $20,000 to travel legally to the United States on tourist visas and stay approximately two months. During their stay, they give birth and receive assistance with documentation of the child’s U.S. citizenship. This practice is also known as ‘birth tourism’ and multiple web sites are devoted to facilitating travel arrangements, accommodations and establishment of the child’s citizenship.”
Hudson’s report continued, “In a recent incident, a large single-family residence in the city of Chino Hills was found to have been operating as a maternity hotel. Unpermitted additions and interior modifications had been made to establish 17 individual bedrooms and bathrooms in the house, resulting in failure and overflow of the home’s septic system. This was an extreme case that attracted attention because of the combined impact of illegal construction, overcrowding, and sewage overflow. Other cases, mostly in Los Angeles County, are discovered through complaints to code enforcement from neighbors who notice the sudden appearance or continual stream of pregnant foreign tourists occupying the homes.
“An important point regarding the burgeoning birth tourism trend is that travelling to this country on a tourist visa while pregnant is legal,” Hudson said. “The federal government has sole authority to regulate and control immigration in the United States. County staff has studied the issue based on information from other jurisdictions where maternity hotels have been discovered. Three key activities related to establishment of these facilities have been identified and all would be illegal and subject to investigation, fines and other enforcement measures as provided in the San Bernardino County Code:
“First,” Hudson said, “operation of a maternity hotel would fall under the existing defined uses of either a boarding house or a lodging service. Both uses are prohibited in single-family residential districts, and therefore any operation of a maternity hotel in these districts would be illegal.
“Second,” Hudson went on, “construction to expand or modify a house in a single-family residential zone to accommodate a maternity hotel use without obtaining proper permits would be a code violation, subject to enforcement under standard procedures and existing regulations. A permit request for this type of modification would be denied based on the land use requirements outlined in No. 1 above.
“Third, depending on the number of women and infants housed in a facility and the conditions and standard of care provided for the infants, there is a potential for child welfare or public health concerns, such as the septic issues that arose in Chino Hills. Code enforcement staff has protocols in place for calling in other agencies as needed to respond to conditions they may find in the field.
“To date,” Hudson said, “county code enforcement has not received any reports of maternity hotels operating in the unincorporated area of the county, but code enforcement staff is ready to respond in the event a complaint is received.”

County Employee Pensions’ Cost Rises To $172.5 Million For 2013-14

Venturi — Tue, 14 May 2013 18:58:19 +0000

(May 10) The county’s taxpayers will shell out $172,478,057 prior to August 1 to cover the cost of pensions for retired county employees in the upcoming fiscal year.
This week the board of supervisors authorized auditor-controller/treasurer/tax collector Larry Walker to make an advance payment of the county’s estimated fiscal year 2013-14 annual contribution to the board of retirement within 30 days after the commencement of the county’s fiscal year July 1.
According to Walker, “For fiscal year 2013-14, the total county general fund retirement contribution is estimated to be $179,068,000, discounted by $6,589,943, at a simple interest rate of 3.68% for a prepayment amount of $172,478,057.”
Walker said “Government Code 31582 allows the county to advance pay part or all of the county’s estimated annual retirement contribution, if paid within 30 days after the commencement of the county’s fiscal year. The county has taken advantage of this alternative in the past, prepaying the general fund contribution to the board of retirement for the entire fiscal year. The prepaid amount is discounted by the board of retirement, resulting in savings for the general fund. For fiscal year 2013-14, the county has calculated a 3.68% simple interest discount rate, which results in a discount of $6,589,943 to the general fund.”
Walker said he and the office of county CEO Greg Devereaux had analyzed the financial impact of prepaying the retirement contribution, and “determined that the county will benefit from the transaction. The estimated retirement contribution of $179,068,000 and the related discount amount of $6,589,943 are estimated and may change. Any benefit or loss realized by the board of retirement as a result of the retirement pre-payment will be incorporated into San Bernardino County’s employer’s contribution rates, thus ultimately accruing to the county.”
The county’s retirement costs have been escalating. In 2011, the county made a $132,263,097 prepayment to the board of retirement to cover the cost of pensions for retired employees during the 2011-12 fiscal year, reflecting a prepayment discount of $5,299,603 from the $137,562,700 owed by the county as its annual contribution to the retirement fund that year. Last year, the county made a $154,626,037 prepayment to the board of retirement to cover the cost of pensions for retired employees during the 2012-13 fiscal year, reflecting a prepayment discount of $5,907,863 from the $160,533,900 owed by the county as its annual contribution to the retirement fund through June 30 of this year.
In this way, county taxpayers have seen an average $20,107,480 per year increase in the cost of paying for pensions over the last two years.

County Footing Entire Cost Of Road Improvements At Apple Valley Gateway

Venturi — Tue, 14 May 2013 18:56:03 +0000

(May 10) More than $10 million worth of improvements will be made to Yates Road to make way for the proposed new design of the Yucca Loma Bridge near the gateway into Apple Valley.
The cost of the project will be footed entirely by the county of San Bernardino and its transportation agency, with no financial participation by the town of Apple Valley in the construction.
This week the county board of supervisors on behalf of the county entered into a cooperative agreement with the San Bernardino County Transportation Authority and the town of Apple Valley in which the county, the authority and Apple Valley will contribute $1,867,635, $8,624,695 and $0, respectively, toward the $10,492,330 estimated cost to make the necessary road improvements along Yates Road, between Fortuna Lane and Park Road to accommodate the proposed new design of the Yucca Loma Bridge in the Apple Valley area.
According to Gerry Newcombe, the director of the county’s department of public works, “Yates Road will be widened from two lanes to four lanes from the westerly terminus of Yucca Loma Bridge (near Fortuna Lane) to Park Road, with the transition from four lanes to two lanes just west of Park Road. The Yates Road Project construction work consists of, but is not limited to, adding soundwalls, reconstructing the pavement, widening the roadway, striping, inverting a dirt median, installing a traffic signal at Park Road and placing embankment fill.”
The entire bridge project will cost $75 million, with more than $40 million of that coming from Measure I Funds, the countywide sales tax override intended to provide funding for transportation improvements throughout the county.
According to documentation from the county, project design and environmental documents relating to the road improvements will run to $3,134,000. This cost will be principally financed by federal funding ($2,774,000). The local match portion of $360,000 will be funded with $87,000 from the county and $210,000 from the town of Apple Valley and $63,000 from the city of Victorville.
The project, as part of the Yucca Loma Corridor project, is identified in the Victor Valley Subarea Major Local Highway Program Project List and the San Bernardino Associated Governments Authority Nexus Study.

Highway Patrol Investigating Officer-Involved Fatal Collision In 29 Palms

Venturi — Tue, 14 May 2013 18:54:36 +0000

(May 10) TWENTYNINE PALMS — A fatal traffic collision here on April 30 involving a sheriff’s vehicle moving at a high rate of speed remains under investigation by the California Highway Patrol.
Luc Van Bui was traveling north on Encelia Ave in a Toyota Camry around 7:30 p.m. After stopping at the Encelia intersection with Twentynine Palms Highway, Bui, 64 of Perris, pulled into the intersection and was broadsided by a sheriff’s vehicle, a 2010 Ford Crown Victoria, driven by deputy Erdem Gorgulu, who was eastbound on the highway en route to a radio call.
Multiple witnesses estimated Gogulu’s speed as at or exceeding 80 miles per hour. Witnesses said the patrol car’s lights and siren were not activated. In addition, Gorgulu’s heading and his moving downhill and out of a setting sun approaching an intersection with visibility problems combined to doom Bui, who was pronounced dead at the scene.
Gorgulu was transported by Morongo Basin Ambulance to Desert Regional Medical Center in Palm Springs with what appeared to be a serious leg injury.
The highway from Lupine Avenue to Encelia Avenue was closed for an extended period of time while an investigation of the scene, which was later extended west to Sunrise Road, remained ongoing. Three roads in the accident perimeter were also blocked to through traffic during the morning of Wednesday, May 1.
Previously, Twentynine Palms officials asked Caltrans to approve a traffic signal at the Twentynine Palms Highway/Encelia intersection. Caltrans rejected the request on the basis of insufficient traffic numbers.

Group Seeking Wholesale Recall Of Nine Elected San Bernardino Officials

Venturi — Tue, 14 May 2013 18:52:43 +0000

(May 3) SAN BERNARDINO—A recently formed group of self-styled political reformers has taken aim at the mayor, city council and city attorney in San Bernardino, targeting all nine for recall.
In recent months, San Bernardino has filed for bankruptcy protection, even as it continues to run a $46 million deficit.
On Tuesday, a coalition of business owners and residents calling themselves San Bernardino Residents for Responsible Government began serving the officials with notices of intent to recall.
The group is led by Scott Beard, a local realtor and San Bernardino resident. Beard said the recall effort is being uniformly pursued against all sitting council members as well as the mayor and the city attorney despite the relatively brief tenures of two of the members of the city council, the sharp political differences between some of those targeted for recall and his own previous support of some of the council members.
“This is about doing what is right for our community and the current council is incapable of doing that,” Beard said.
The city officials have failed collectively and individually in serving the city, Beard said, and for that reason all were being targeted. He said all seven council members had fallen short of the standard his group believes officials in their capacity should achieve, even considering that councilmen Robert Jenkins and John Valdivia have been on the council less than two years. Jenkins, who was elevated to the council in a special election held in July 2011, and Valdivia, who was elected in November 2011, both share in the responsibility for the city’s dreadful state, Beard said.
Beard acknowledged having supported councilwoman Wendy McCammack in the past, though he said reports that he was currently supporting her in her mayoral bid were erroneous. “Wendy and I have been neighbors and friends for a long time and I did support her but that was prior to the dysfunction we have seen over the last six months. None of them can work together and they all need to be removed from office,” Beard said.
As to the well publicized political rivalry that has long existed between mayor Patrick Morris, a Democrat, and city attorney James Penman, a Republican, who vied against each other for mayor in 2005 and 2009, Beard said their differences over various matters are irrelevant to the pertinent issue of the city’s continued decline.
“That is something between the mayor and the city attorney,” Beard said. “We are a non-partisan group trying to save the city from destruction perpetrated on it by these city officials in each of their capacities.” He said that Penman, as city attorney, needed to be held to account for his failures. “He is absolutely responsible,” Beard said. “He is the only city official who has been in office for over two decades. How can you not include him?” Morris is being targeted for recall as well, though he has indicated he will not seek reelection later this year and will leave office next spring.
“To deal with this we have to remove everyone who is responsible, so symbolically we have to serve them all,” Beard said.
Whether the group will pursue Morris as spiritedly as the others who will remain in office past next year is another question, Beard indicated. “I can tell you we won’t waste our resources where they are not needed,” he said.
Beard responded to charges that he is ill-suited to be leading a political reform movement, given his place near the center of a raging governmental corruption scandal in the late 1990s. The San Bernardino County District Attorney’s Office and the U.S. Attorney heavily focused on a 15-year, $26 million lease approved in a controversial 3-2 vote on June 23, 1997 by then-supervisors Jerry Eaves, Jon Mikels and Kathy Davis for the former Kmart building in Rialto owned by SHL Associates Ltd., a partnership of Beard, former county chief administrative officer Harry Mays and Lance Goodwin of New York. The building was converted for use by the county’s behavioral services department. The deal was promoted by then-county chief administrative officer, James Hlawek, who had been Harry Mays protégé. Subsequently, Eaves, Mays and Hlawek were indicted by a federal grand jury in connection with bribery and kickback schemes pertaining to several county contracting arrangments. Mays and Hlawek were convicted on federal charges. Eaves eluded being convicted on federal charges after similar charges were filed against him in state court. He eventually pleaded guilty and resigned from office. In his confession to federal prosecutors, Hlawek said that Mays provided him with a briefcase stuffed with about $60,000 in cash as a payoff for securing the county K-Mart building lease with SHL.
Beard, who was a longtime Eaves supporter, this week told the Sentinel that the rehashing of Hlawek’s accusations was an illegitimate attempt to discredit the recall effort. “I was investigated by every law enforcement agency in Southern California, including the FBI,” Beard said. “I was never charged with a single thing. I still own the building and the county is still my tenant. That is a cheap shot that has no merit.”
San Bernardino Residents for Responsible Government will not pursue a recall of city clerk Gigi Hanna and treasurer David Kennedy, the city’s other elected officials, Beard said, because they were not culpable for the city’s condition.
Beard said his group has collected enough donations to see the recall petition gathering process through “within the statutory time line” required to put the recall questions before voters next November, at which point councilwoman Virginia Marquez, Fred Shorett and Robert Jenkins must stand for reelection in their wards and an election for mayor is scheduled as well. Petitioners must gather the signatures of 15 percent of registered voters to recall Morris and Penman and 25 percent of the voters in the ward of each of the council members to qualify the recall question for the ballot against the officeholders

Chino City Attorney Broke Conflict Law, Group Claims

Venturi — Tue, 14 May 2013 18:50:13 +0000

(May 3) Chino City Attorney Jimmy Gutierrez was illegally involved in drafting his own firm’s professional services contract with the city, according to an open government group now threatening legal action over the matter.
The Inland Oversight Committee has issued a demand that Gutierrez and his law firm, Gutierrez, Fierro & Erickson, return hundreds of thousands of dollars in legal fees the city has paid to Gutierrez and the firm. The Inland Oversight Committee’s lawyer, Cory Briggs, maintains Gutierrez ran afoul of the state of California’s conflict-of-interest law when he assisted in preparing agreements for city attorney services between the city of Chino and the Gutierrez, Fierro & Erickson law firm.
In an April 23 letter to Gutierrez, Briggs wrote, “On behalf of my client, The Inland Oversight Committee, I am writing to inform you of my client’s intent to bring a lawsuit against you for having a financial interest in contracts to which you are a party, and in which you have a financial interest, in direct violation of Government Code Section 1090. Section 1090 states members of the legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall state, county, district, judicial district, and city officers or employees be purchasers at any sale or vendors at any purchase made by them in their official capacity. As an initial matter, city attorneys are considered city officers/employees within the meaning of Section 1090. In this case, you are an employee of the city of Chino. Consequently, your participation in the making of the July 5, 2005 agreement for city attorney services and the October 3, 2006 agreement for city attorney services – both with the city – were made in direct violation of Section 1090.”
Briggs referenced “the well-established notion that ‘the defining characteristic of a prohibited financial interest is whether it has the potential to divide an official’s loyalties and compromise the undivided representation of the public interests the official is charged with protecting.’“ Briggs then went on to point out that “In 1975, the city began employing you, in your individual capacity, as city attorney. That 1975 agreement did not secure work for anyone other than you. In other words, your law firm Gutierrez, Fierro and Erickson–including its predecessors and attorneys–were never employed by the city prior to 2005. Yet you participated in the making of the 2005 agreement between the city – whose city council you influence and for which you were working and receiving compensation – and your law firm and its partners, Arturo Fierro and James E. Erickson. Your financial interest in the economic well-being of your firm at the time you entered the 2005 agreement resulted in a straight-forward violation of Section 1090, which was repeated again in the making of the 2006 agreement.”
In his letter to Gutierrez, Briggs states, “Common sense tells us that the type of negotiation that occurred between you and the city violates Section 1090. In fact, the California Attorney General’s Guide on Conflicts of Interest states: ‘In the case of an employee, a contract may be renegotiated, so long as the employee totally disqualifies himself or herself from any participation in his or her public capacity, in the making of the contract.’ There is no indication on the face of the agreements that they were negotiated and approved as to form by anyone other than you. Similarly, my client has no reason to believe that the pay raises in the agreements were negotiated by anyone other than yourself. Further, even if you were an independent contractor (which you are not), the negotiating process resulting in the agreements violated Section 1090. As stated by the Attorney General, ‘[w]hen a contractor serves as a public official (e.g., a city attorney) and renegotiates a contract, this office recommends that such contractors retain another individual to conduct all negotiations. In so doing, the official would minimize the possibility of a misunderstanding about whether the contractor’s statements were made in the performance of the contractor’s public duties or in the course of the contractual negotiations.’”
Briggs then delivered an ultimatum to Gutierrez and his firm, telling him to return the money or the Inland Oversight Committee will sue him.
“This letter is simply intended to put you on notice that you have violated Section 1090, and to give you an opportunity to return all monies unlawfully received by you, your firm(s), and partners of the firm(s) as a result of your Section 1090 violations,” Briggs wrote. “Should you refuse to return all money you have unlawfully received in violation of Section 1090 back to the city’s general fund, my client will bring suit and request that the court force you, your firm(s), and the partners of your firm(s) to do so.”
Briggs followed his letter to Gutierrez up with a letter to the city of Chino in which he informed municipal officials of his intent to sue Gutierrez.
“My client hopes that it will not be necessary to file suit against him, his law firm, or his partners in order to obtain full repayment of the money that was illegally paid out to them,” Briggs wrote in the letter to the city. “In case it becomes necessary to sue, however, my client would like to give the city the opportunity to join my client, or even take the lead, in the lawsuit.”
In both the letters, Briggs provided a deadline of today, Friday, May 3, 2013, for a response, indicating he will move ahead with a lawsuit at that point if his demands of Gutierrez are not met. Briggs told Chino officials, “If I do not hear from you in writing by that time, I will assume that the city does not object to my client pursuing recovery of the money for the benefit of the city and its taxpayers.”
Both the city and Gutierrez have not fared particularly well when they previously locked horns with Briggs. Three years ago, Briggs represented an environmental group, Citizens for Responsible Equitable Environmental Development, which challenged the city in court over what were alleged to be deficiencies in the city’s general plan. As a consequence of that suit, the city amended the general plan on terms consistent with the Citizens for Responsible Equitable Environmental Development’s assertions, and the city paid Briggs $215,000 for his legal billings to the group for representing it.
The spokeswoman for the city of Chino, Michelle Van Der Linden told the Sentinel, “We are in receipt of the letter and are reviewing several points in it,”
She would not venture a prediction as to whether the city will join with Briggs and the Inland Oversight Committee in an effort to recover money the city paid to its own attorney. “We are obviously in the process of researching those points and are still reviewing and analyzing. To make further comment at this time would not be appropriate,” Van Der Linden said.
Gutierrez did not deign to comment.