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State Audit Finds Misuse of Hercules RDA Funds

Former city manager responsible for millions in improper payments, according to state controller.

Under the stewardship of former city manager Nelson Oliva, the now defunct Hercules Redevelopment Agency made millions of dollars in improper payments and engaged in other questionable financial and real estate transactions that were in large part responsible for the city’s current financial problems. 

These were the findings released today by California State Controller John Chiang, whose office conducted a review of RDA operations between 2005 and 2010. 

A second, separate review examined the city’s accounting operation between 2007 and 2010 and found internal financial controls almost non-existent. 

See all of Patch's coverage of the financial crisis in Hercules

In a letter to Hercules Mayor Dan Romero accompanying the report released Wednesday, Chiang said his review found “serious mismanagement practices” by Oliva, who “had an apparent conflict of interest in relation to the RDA’s contract with NEO Consulting.” 

Chiang criticized former city council members, who also served as the RDA’s directors, saying there was no indication that they “ever raised any concerns about [Oliva’s] actions: despite the fact that at least $7.1 million in improper expenditures was charged to the agency’s operating fund and another $1.4 million was charged to the city’s Low and Moderate Income Housing Fund. “Weak oversight and poor management practices invited self-dealing, nepotism and other public trust abuses that crippled Hercules’ fiscal health,” Chiang said in a statement accompanying the audit. 

Among the questionable practices found during the review were the “arbitrary and capricious awarding of loans that appear to be gifts of public funds” and the payment of more than $3 million to Oliva’s consulting company. 

In examining the housing fund, Chiang’s auditors found a number of improper charges, including at least $222,170 for mailboxes, $26,400 in lobbying expenses and $18,848 for the city’s beautification program. But what may portend future problems for the city were $32.8 million in “.”

The controller said that several parcels of real estate were acquired during Oliva’s tenure but the city cannot “produce any pertinent documents such as appraisals that would be used to determine whether the real estate had been purchased at fair market value.

Chiang said bond funds were improperly used to purchase one parcel that was outside the city limits. Several of those parcels were transferred from the RDA to the city last year and are now being sold. Whether the transfers were proper will be the subject of a future RDA asset review being conducted for every former RDA in the state.

So far only two of those reviews have been completed – for the Cities of Milpitas and Morgan Hill. The IRS is currently conducting what it calls a “routine review” of the RDA’s 2007 tax increment bond issue and how proceeds from the sale of those bonds were used. In the second audit examining internal controls, among other things, auditors uncovered a “vague set of contracts with local school principals.”

The controller said the city paid almost $200,000 to four local school principals for unspecified professional services, with one principal billing the city for attending a school ceremony and another for politically-related activities. 

Unlike an where the controller criticized the city’s cooperation in producing documents, this time Chiang reported that the city had provided all documentation that it could find, but  city officials admitted some documents could not be located.

Dwayne Hoover September 14, 2012 at 06:55 AM
Wil Take a look at the city maps. And yes the maps are an old plan and a school may not be feasible without some clean up. One thing is certain it sure will not be feasible if there are houses built on the property. Land can be cleaned. And in fact much of the surrounding area is being cleaned up now. Houses would be permenant. Once built there would be no choice left. In point of fact the land is zoned for retail anyway and the better choice for a school is at the corp yard.
Goldilocks September 14, 2012 at 06:59 AM
This is an excellent post, Jeffrey. It succinctly sums up the Oliva malfeasance and how we waterfront residents have lived here going on 10 years with little or nothing to show for it and millions spent. I do think you're off base bringing Lisa Hammon & Fred Deltorchio into this. He was assisting the FBI with their investigation of Nelson and Lisa did the gutsiest public resignation I've ever seen once she was on to Nelson. What about Eguzki?!
Susan D.Keeffe September 14, 2012 at 08:34 AM
Wil, I don't think my response to you was vitriolic but I apologize if you think it was. I've been here since 1988 and am aware of several sites the school district reviewed at one point, including the little park at the corner of Santa Fe and Railroad which was designated as a school site when I first moved here. The final offer from the city was the Corps yard site and Dr. Harter referenced it specifically at the educational forum held recently. The site was deemed unacceptable by the district for a variety of reasons but it remains the best option - there aren't many options to choose from if we want a school west of San Pablo Avenue.
Jeffrey Boore September 14, 2012 at 04:49 PM
Thank you for the compliment on my post. I don't know someone named Eguzki and I'd be interested in hearing more. I can't say that I'm familiar with everything that Fred Deltorchio did, but I include him in that list because I saw him being underhanded in trying to derail the waterfront development. He tried to embarrass the City Council into publicly refusing an authorization for a payment that would have been the death knell to the waterfront when (1) he knew perfectly well that nearly all of that money had already been authorized as payment for work completed and (2) he knew that Charlie Long was out of the country and so would be unavailable to correct his public misinformation. The Council took the brave action and did the right thing, and in the aftermath Charlie and Fred had angry words that could be heard all over town. Charlie was rightly furious over Fred's cynical attempt to do this, transparently motivated by Fred's trying to save the jobs of his friends on the police force even if it meant killing the waterfront forever. I have a different take on Lisa Hammon. Her departure was certainly dramatic and she made vitriolic statements, but she squandered much of the opportunity to point out real malfeasance and instead complained about relatively trivial things like favoritism in things like paid time off work. I blame her for about 18 months of delay in the ITC and for taking the city to the point where we almost lost all of the grant money. Here is why --->
Jeffrey Boore September 14, 2012 at 04:50 PM
The train station is obligated by the Waterfront Initiative to be built in "Waterfront Warehouse" architectural style. The Initiative is very specific in spelling out exactly what architectural features comprise this. Instead, she let Jesse Harder and the rest of the HDR team completely ignore that requirement and design a modernistic train station (dubbed "Safeway Station"), as is his personal preference. When presented to the public, there was outrage, then a series of meetings for about a half-year, and we still don't have a conforming design (although it is better than the original). She did nothing to acquire the land for the train station or to accomplish the necessary environmental review processes. She also allowed many design changes that would have had unacceptable impact on the surrounding private development, so much so that at one point the landowner even prevented survey work on his land to defend against her destructive actions. In her own words, her mission was to build a train station in an empty field and she had no interest in the surrounding private development. She was incompetent at managing that project, she pointedly ignored the community's wishes, and she was inexplicably hostile toward the owners of the land surrounding, and on which the train station was to be built. If she had behaved competently, this September we'd be celebrating the opening of the train station instead of the groundbreaking.

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