City Council Faces Herculean Problems
Interim City Manager and tangled finances on Tuesday’s agenda.
Hercules City Council members tonight will attempt to restore order to a chaotic municipal government faced with more than $500 million in financial obligations by appointing an interim city manager and putting renewed focus on the city’s money problems by considering the authorization of an independent outside review of its tangled finances and the creation of a citizens’ Finance Advisory Committee.
At the same time, council members will publicly discuss the possibility of delaying $427,000 in payments to a city consultant, the Red Barn Company, pending completion of the financial review. It is unknown how a delay in payments would impact the company, but Red Barn’s legal counsel Todd Olson said the question would be answered by company president Tom Weigel at Tuesday’s meeting.
Weigel received a letter from former interim City Manager Charles Long on December 7 -- the day he was fired -- calling for the immediate termination of contracts between Hercules and Red Barn, an action city spokeswoman Michelle Harrington said “has prompted staff to seek the Council’s input on this item and to formally authorize the delaying of payments pending the financial review."
Red Barn, based in Newport Beach, is a prime consultant to the sputtering downtown urban renewal efforts and controls a company developing the New Town Center project.
Since June 2009, the Hercules Redevelopment Agency has paid Red Barn more than $3.1 million for consulting fees and expenses. Those expenses included almost $375,000 paid to a consulting firm owned by a Red Barn investor, $310,000 in legal fees – some of that for advice on how to respond to a subpoena of its business records -- and tens of thousands more by the company’s subcontractors, who received reimbursements for expensive Apple computer monitors and music from the Apple iTunes Store. Red Barn itself billed $300,000 in fees and $139,000 in expenses. It is unknown how much Red Barn billed the Agency between May of 2008 and January of 2009. In May of 2008 Red Barn signed a contract with the Development Agency to manage construction of the BART parking facility on Willow Avenue.
Payments to Red Barn have been coming from a $12 million Primary Project Fund created in 2005 when Hercules New Town Center LLC, a company in which Red Barn is a principal, was contracted to develop several parcels of vacant land straddling Interstate 80 near its intersection with Highway 4. This development was to include commercial space and affordable housing. According to Red Barn, the project fund now contains less than $1 million.
In an effort to deflect growing public criticism of its spending, Red Barn last week distributed a flyer defending its work for the city and emphasizing its accomplishments, underscoring its work on the BART transit center and the development of the Market Hall segment of the New Town Center project, saying that it has spent “substantial amounts of its own funds” on the project, but not disclosing a dollar amount. The company said it was prepared to present the city with solid proposals for development that could bring up to $500 million of private investment and generate as much as $200 million in taxes. At the same time, Red Barn outlined a number of problems with the New Town Center, noting, among others, a lack of “Market interest in City’s vision.” But Red Barn said the results of its spending so far “speak for themselves.”
Council action comes at a time when the city and its related entities -- the Hercules Redevelopment Agency and the Hercules Public Financing Authority -- are operating under a crushing financial load. With interest payments included, Hercules’ total city-related debt exceeds $500 million, much of it in long-term bonds which city officials expect to repay from increased taxes and fees generated by redeveloping blighted areas of the community and selling electricity and sewer services to new residents and businesses that have not yet materialized in numbers sufficient to generate projected revenues.
Although the city has yet to release its annual financial report for the Fiscal Year ended last June 30, the most recent financial reports, those for 2009, coupled with other public disclosures, show the city currently owes $360.5 million in principal and interest on bonds issued to finance redevelopment activities and fund the city’s electric utility and sewer operations. Coupled with other development-related long-term notes, payment of a court settlement, general fund debt and the city’s share of debt incurred by other municipal agencies (so-called “Overlapping Debt”) such as local school and community college districts, county pension fund obligations, BART and the East Bay Regional Park District, the total reaches at least $526 million, not including interest on the overlapping debt.
At the same time, the city’s general fund, which receives the bulk of its revenue from property taxes, is subject to “cooperation” agreements requiring advances to both the Redevelopment Agency and the Public Financing Agency in the event they are unable to make debt service (principal and interest) payments on their outstanding bonds. The general fund has been experiencing annual deficits for the past four years, although it's unknown if those shortfalls continued during the 2009-2010 fiscal year. Between 2006 and 2009, the aggregate general fund deficit totaled $4.1 million.
According to financial disclosures filed in conjunction with a series of new bond sales during the past six months, the city's Redevelopment Agency and Public Financing Authority currently have outstanding bonds with a total combined principal amount of approximately $241 million. About $137.9 million of this amount are bonds issued by the Redevelopment Agency and $103.9 million are Financing Authority bonds. The bonds are scheduled to be paid off over periods ranging from 10 to 30 years. Proceeds from the sales of these bonds are essentially money borrowed from investors who expect interest on their loans. Interest on the Hercules bonds is estimated to be $167.4 million, and when this is added to the outstanding amount of principal, the total cost of repaying the bonds will be about $361 million unless they are refinanced at lower interest rates or paid off sooner.
When other long-term city financial obligations, and the interest owed on those obligations, is added to the total amount required for paying off the outstanding bonds, city-related debt -- or the total amount of money the city and its agencies must ultimately repay over time -- exceeds $500 million. This debt is frequently categorized as "Long-Term Liabilities" or "Long Term Obligations" on government financial statements.
Any attempt to sort through the city’s jumbled finances will be expensive. Elizabeth Warmerdam, Hercules’ finance director, has estimated the cost could be as much as $146,000 and has presented the council with proposals from four consultants expressing interest in the job.
An independent review of city finances was proposed by Long in a Dec. 3 memorandum to council members and the public outlining the city’s precarious financial condition and suggesting that former City Manager and Redevelopment Agency executive director Nelson Oliva had not been closely monitoring city finances over the past two years. However, Long was fired before he could present his report at a special Council meeting Dec. 7. Following Long’s abrupt termination, Oliva hastily returned from an emergency medical leave and quickly resigned, collecting a $250,000 buyout of his contract in the process.
In warning of the city's deteriorating financial condition, Long's memorandum focused primarily on the Redevelopment Agency and its outstanding obligations and anticipated revenue shortfalls. He did not address the additional tens of millions of dollars in outstanding Financing Authority bonds and other substantial long-term city debt, or interest payments required on that debt.
Long’s firing spurred a recall movement, organized by a group of residents seeking to remove council members Ed Balico, Joanne Ward and Don Kuehne from office.
Dan Romero, who will deliver notices of intention to petition for a recall of Balico, Ward and Kuehne, said the public is fed up with the way city hall has done business in recent years, and the three council members have played too big a role in the city’s financial quagmire to continue making decisions for Hercules.
“I think they’re tired. I think they want to leave, and we’re going to do that for them,” he said. “I think there are people who are going to stand up as replacements.” A resident of Hercules for 22 years, Romero said he remembered the time when Hercules was a wealthy city, with the funds and leadership to carry out its ambitious redevelopment vision.
“We’ve had three city managers in succession who have depleted this money, and the last one, Mr. Oliva, is just inexcusable,” said Romero.
Sunday was Oliva’s last day as city manager. Former police chief Fred Deltorchio is expected to be named interim City Manager Tuesday night.
The City Council will meet in closed session at 5:30 p.m. following by its regular meeting at 7 p.m. in the City Hall Council Chambers at 111 Civic Drive.
Acting Regional Editor Bob Porterfield contributed to this report.
Gerard Boulanger
7:23 am on Tuesday, January 11, 2011
The "$500 million in financial obligations " in the first paragraph of Laila's article represent the addition of principal and interest, which is not false per se, but I think it's good to clarify before residents may fall from their chair.
The City + Agency debt is "only" $190M today including the Catellus obligations.
We should also include:
$12M Agency Fund Deficit (covered by the other 60 funds in the pooled cash) and
$5M to be paid to SERAF (hopefully Nelson filed for an extension before Dec. 31st)
tsong Ming
9:01 am on Tuesday, January 11, 2011
Tonight, the council will consider Red Barn's demand to fork over hundreds of thousands of dollars. If the city dares to cut off these payments, our good friends at Red Barn who brought us Market Hall will sue the city.
Why? Because Balico, Valstad, McDonald, Kuehne and Ward authorized former manager Oliva to sign a sweetheart deal with the developer to transfer millions of dollars to Red Barn. And all we got so far is "Market Hall: A New Place to Shop. Dine. And Play." Except when I go there, there is no there there. The council fired Charlie Long for trying to stop these obscene payments.
Now all eyes are on Ed Balico. Do you dare to vote to pay the money? If you don't you know your friend Mr. Weigel will sue your city. Like your friends at Catellus sued the city. Like Walmart sued. Like your partner in crime Oliva threatened to sue if you didn't give him a golden parachute.
I see a pattern here. Balico runs around making all kinds of promises the city can't afford to keep. He has a gambling addiction, and it is our money he uses as chips.
How much of YOUR money has he pissed away? The $500 M obligation mentioned here comes to about $86,500 per household in Hercules, based on census data. And for this half a billion in debt obligation, the council has in the past few years delivered .... a tot lot (frog pad park), a vegetable garden, a dog park and Market Hall.
Thank you Laila for this excellent summary of the dire situation we face.
Citizens, vote RECALL.
Joseph Catindig
9:16 am on Tuesday, January 11, 2011
$86,500 per household is pretty stiff! Well, we need to see Ed Balico spend some time in jail then....or any of his elves.
31 Year Resident
10:04 am on Tuesday, January 11, 2011
There's a whole bunch of crooks who need to serve major jail time for the fiasco. I still don't think we have discovered all the misdeeds these crooks have obligated us to. We will pay for this for many years. Additionally, what business entity will want to locate here and have to contend with all this crap?
Susan D.Keeffe
11:51 am on Tuesday, January 11, 2011
The shocking thing is all of these transactions were buried in the Consent Calendar and not one Council Representative voted "no" or asked for more information. We heard-over and over - everything was covered in subcommittee meetings! Really? What was covered that they liked so much? With no Agendas and minutes its impossible to tell. Balico was incensed Long fired Red Barn and went off at length about it. He then unilaterally directed Oliva and Cabral to reinstate Red Barn and even though there was no resolution, no discussion and no vote, they did! There has been NO fiscal oversight. This amounts in failure to do their jobs and this is why they must go now. if they authorize those Red Barn payments now, it should be clear to everyone their lack of understanding of the crisis, their role in that crisis and their negligence.
John Kelley
7:27 pm on Tuesday, January 11, 2011
We moved away from Hercules by the Bay's Victorian Village in 2003. The Planning Commission and Economic Development Director made a mockery of the National Register of Historic Places "Hercules Village" added 1980 - Contra Costa County - #80000799. The Historic District was chipped away until only Bay and Pinole Streets comprised the remander of the Hercules Village. The Economic Developer and his spouse prevented changes to homes on Bay and Pinole Streets. They disregarded the Architectural Control and Hercules by the Bay Board of Directors and welded unprecedented control to prevent a homeowner's right to make changes to their home. Changes that fit within the National Register's guidelines. After a year of fighting, I had enough. It was clear that the home's on Bay and Pinole Street were falling into disrepair. The encroachment of the Economic Developer's "New Urbanism" created a claustrophobic bubble around the Victorian Village. At the time, Mayor Balico and the city council were clearly under the influence of the Planned communities and held the homeowners within the Victorian Village as "elitists." Hercules would be better served by term limits... or face becoming the Bay Area's City of Bell.
Paul Tahinay
1:55 pm on Friday, January 14, 2011
John, guess what Steve Lawton is up to now? Check his LinkedIn page here: http://www.linkedin.com/in/srlawton. I'm a 20+ yr resident and very familar with the issues that you mentioned regarding the Lawtons, Historic Homes & the Hercules by the Bay Homeowners Association. Charlene Raines said "Ask Director Lawton why he signed the Red Barn invoices for payment." Maybe Charlie Long did, fired Steve and demoted Gloria Leon. He is either inept or part of the scam, what do you think? Steve Lawton and the other Department Heads should be investigated also. Steve Lawton & Alfred "Mick" Cabral are the two highest ranking generals of Emperors Sakamoto & Oliva. Lord Adelfo Balico was always very proud of his crew and constantly praised them for doing a good job [yuk]. Erwin Blancaflor (Balico's cronie) & Dennis Tagashira (Sakamoto's/and most likely Oliva's cronie also) also contributed to the problems. Based on what Lisa Hammon said, the Personnel Director has got to go too.
Phil Simmons
4:38 pm on Friday, January 14, 2011
Paul Tahinay
I looked at the linkedin page. It looks like a place holder to me for either finding a business to get into or a job to get into, a common practice for executives. I'm not sure I'm willing to accept the worse here.
Paul Tahinay
6:02 pm on Friday, January 14, 2011
We'll find out sooner or later when the dots are connected, t's are crossed and the i's are dotted. Keep in mind that he approved most if not all payments to Red Barn.
Paul Tahinay
1:03 pm on Saturday, January 15, 2011
Phil, the dots are beginning to connect. I wonder who's next to resign or get fired but I'm sure Gloria Leon will have followers out the door. ---Paul
John Kelley
1:14 pm on Saturday, January 15, 2011
Ponder #1: The undeveloped side of Pinole Street was once a beautiful meadow. It was disturbing to have nearly three story houses tightly packed together. I was working from home at the time, so I had first hand knowledge of the new buildings and the relationship to sewer lines and acid pits. We had blue prints of the area. I raised a concern about the positioning on a new home in proximity to sewer main. I was told that the sewer main had been diverted 20 feet north. This would have created a 60 degree turn, a 90 degree turn and a 30 degree turn through the walking path and the center of Pinole Street. However, there was no sign that the asphalt had been disrupted. There weren't any work crews in the street during this time period. There would have also been a disruption to the sewer service. The blue print clearly out lines the former acid pit, yet three of the families I talked to said it wasn't disclosed to them
John Kelley
1:26 pm on Saturday, January 15, 2011
Ponder #2: During a city council meeting in 2002, I was surprised that each member of the council and all the municipal worker had laptops. The Hercules By the Bay Architectural Board addressed the city council. We three stood awkwardly infront of the lectern, I was standing on the far left. It was then that I noticed a couple of people were using Instant Messaging. At future council meetings, I noticed that people would type, read, then acknowledge each other. If they were using Instant Messaging, where is the public record? If they weren't Instant Messaging why did they start closing their laptops during sessions?
John Kelley
1:48 pm on Saturday, January 15, 2011
Ponder #3: The battle that divided the Victorian Village. Not all of the historic homes are sitting on their original foundations. Many of the homes were moved to Bay and Pinole Street. Each house has a plaque for National Register of Historic Places. This is a fractional truth. The houses are within the Hercules Village Historic District. Here is the description from the National Register "This 344 acre Historic District contained thirty-seven contributing buildings and one contributing structure when it was added to the National Register in 1980." Let me repeat that "...thirty-seven contributing buildings and one contributing structure..." All that remains are the 20 historic home, and 4 deteriorating buildings. So, the district is historic, but the houses aren't specified individually. A fractional truth at best. Also, the guidelines for Historic Places state that you cannot move buildings to create a Historic District.
John Kelley
1:52 pm on Saturday, January 15, 2011
Ponder #4: Where are all the EIR docs and land use blueprints? They were online at one time. I'm raising the issue, because the land you call home maybe California's "Love Canal."
Paul Tahinay
8:02 pm on Saturday, January 15, 2011
John, let's look in the closets of Steve Lawton and Erwin Blancaflor. I'm not sure what Erwin's official title at that time but he was promoted to City Engineer, then Public Works Director and now Utilities Manager (demoted? by C. Long but retained the handsome salary of ±$172K + Benefits)... It's had to keep track of the promotions cooked up by Sakamoto and Oliva. I know some of title changes are for the purposes of justifying pay increases.
Below is the link to the Salary Schedules & Benefits Summaries. I strongly believe that this one of the primary causes of our Herculean Problem.
http://www.ci.hercules.ca.us/index.aspx?page=190
tsong Ming
11:53 pm on Saturday, January 15, 2011
$172,000 a year salary + full benefits?
This is Hercules, not SF or NYC.
tsong Ming
12:04 am on Sunday, January 16, 2011
Paul I still can't get over that.
Many SF department heads don't make that much, and SF is both a city and a county, with over 750,000 residents!
Hercules is all of 20,000 people and geographically the size of a thimble.
There is hardly any public infrastructure here for a Public Works Director to manage!
This Blancaflor guy makes $172,000 + full benefits?
Really?
Is that a typo?
Wonder how much his counterparts make in Rodeo and Crockett and Pinole?
Paul Tahinay
4:30 am on Sunday, January 16, 2011
tsong Ming,
Pinole's city manager makes ±$172K and their Public Works Director ±$143K.
Now, compare that to County Public Woks Director's salary that is ±$156K. This is not his counterpart, this is a job that manages and oversees several Departments plus 2 airports and 5 members of the County Board of Supervisors to deal with.
Pinole's city manager makes ±$172K and their Public Works Director ±$143K. Rodeo and Crockett are unincorporated communities therefore they are under the county's jurisdiction. Also the responsibility of the county public works director.
Take another look at the Salary Schedules & Benefits Summaries, lots of 100K+ employees. Again, I strongly believe that this is one of the primary causes of our Herculean Problem.
http://www.ci.hercules.ca.us/index.aspx?page=190
tsong Ming
8:25 am on Sunday, January 16, 2011
Paul: I will take a look at the link, thanks for providing that. I don't have a problem with public employees making a descent salary. $172,000 for a city engineer and $300,000 for a city manager (counting bonus) still sounds like a lot to me. That is just the baseline. Factor in their pension and benefits, and it is a pretty big chunk of change for a small city.
I guess the bottom line is, what are we getting for it? If Oliva and those guys were pulling down the Big Bucks, they should have delivered Big Results. They should have managed the city as professionals, and not hired their friends and relatives.