Claremont Insider: Claremont Officials Spinning Tangled Webs

Monday, May 24, 2010

Claremont Officials Spinning Tangled Webs


Claremont City Manager Jeff Parker and Human Services Director Mercy Santoro did their bureaucratic best to rewrite history in their recent interviews with the Daily Bulletin. Parker and Santoro were quoted in yesterday's Bulletin in an article about the possibility of cuts in city staff and services being connected to the costs of the newly opened Padua Park.

Both Parker and Santoro put their spin on the story. Santoro was quoted in the article, saying that all the funding decisions for the park occurred before the City faced any real budget problems:

"We were not having drastic budget reductions until January 2009," Santoro said. "We were not faced with takeaways until well after. We were well into our project when we were faced with having to look at reducing our workforce."

Parker claimed in the Bulletin article that once the City Council awarded its contract for building Padua Park, the City's hands were tied because the cost of breaking the contract would have been $500,000:
"Theoretically, we could have said, `Gee, the economic downturn will not let us build the park.' And could we have gone back? ... I'm sure they would have said, `Sure. Do you want to pay me a half a million to walk away?' It doesn't make a lot of sense" to change the contract, Parker said.

Santoro also said the City had been planning the park for 19 years and seemed to claim, like Parker, that they could not postpone building the park. Santoro and Parker must have had their fingers crossed behind their backs when they were interviewed for the story, because none of their claims is supported by the record.


We considered the points the Claremont officials made and then examined the record. Take Parker's claim of having to pay the contractor $500,000 to buy out the contract. We noted that Parker mentioned breaking the contract and ending the project while conveniently omitting other options. Parker himself had mentioned the idea of reworking the contract back in December, 2009, when the $850,000 grant for the park from the San Gabriel and Los Angeles Rivers and Mountains Conservancy was placed on hold in December, 2009, because the state had stopped selling the bonds needed to fund RMC grants.

The city council could have put the matter on hold until the RMC came through with the money the City was counting on for the park's construction. Parker indicated that the cost would have been less than $100,000. If the City could work out a deal like that in order to wait for the RMC's funds, as Parker seemed to think, they certainly could have worked out something with the contractor to place the matter on temporary hold until the City's deteriorating financial picture improved.


As to Santoro's claims that the money for the park construction was allocated before the City realized the extent of their financial problems, a look at a timeline of Padua Park funding decisions along with events in the banking and housing crisis shows that there was plenty of time for the City to hold the project in abeyance and use the money for other things - like paying for employees' jobs.

We looked at two of the City's Padua Park funding decision points - the 10/9/07 decision to appropriate $1.6 million from the General Fund for the park's construction and the 9/23/08 decision to award a park construction contract and dip into the City's General Fund reserve to pay for the job. When you set those two dates, almost exactly one year apart, against the backdrop of the housing and banking crises, you can see that there were plenty of red flags warning the City to proceed with caution in its spending.

The housing market, on which the state and the City depend for property tax revenue, peaked in 2005, three years before the Padua Park contract was awarded. In early 2008, housing's decline was well on its way to a far off bottom. Even if we accept for the sake of argument that Parker was correct about being locked into the park construction contract, there was plenty of time before the City Council's 9/23/08 vote to give Mega Way, Inc. the contract to build the project. Here's a graph showing the Case-Shiller housing market index from mid-2006 to mid-2009 (we've overlaid the two Padua Park decision points):

(Click to Enlarge)
Background chart courtesy of Juan Toledo

The City had 350 days between the first arrow and the second to put an emergency hold on the project. At the City's 6/12/08 budget workshop, the staff's presentation said the City had a hiring freeze on and was reducing staff through attrition by not replacing employees who decided to leave. Staff also noted a decrease in sales tax revenues and the need to raise sanitation service fees - all signs that the revenues wouldn't cover expenditures.

The City was also having to deal with foreclosures in the spring of 2008. Empty, untended houses prompted the city to adopt an ordinance requiring owners of foreclosed properties (banks mostly) to properly maintain the houses they took over, and unemployment in California reached a 12-year high of 7.3% by July, 2008. Those were additional indicators that should have told us to expect even more mortgage defaults as well as declining sales tax revenue due to more people losing jobs.

Here is a timeline of the Padua Park decisions with some major and minor events in the Great Recession (in red):
  • Early 2005 - housing market peaks, then begins its long decline.

  • 10/9/07 - Council authorizes $2.4 million for Padua Park, including $1.6 million from the General Fund. Vote is 4-1 with Councilmember Calaycay voting "No."

  • 4/8/08 - Federal Reserve brokers the sale of investment bank Bear Stearns to JP Morgan Chase and underwrites the purchase with a $29 billion loan.

  • 4/30/08 - NYSE suspends trading of PFF Bancorp stock, one of the banks in which the City held its short-term savings accounts.

  • 7/11/08 - Talk of a federal bailout Fannie Mae and Freddie Mac reported in NY Times.

    FDIC takeover of IndyMac Bank.

  • 8/28/08 - PFF announces shareholder meeting to vote on merger deal with Illinois-based FBOC, Inc.

  • 9/8/08 - Government places Fannie Mae and Freddie Mac in conservatorship.

  • 9/13 - 9/14/09 - Fed and US Treasury Dept. allow Lehman Bros. to fail.

  • 9/16/08 - Fed bails out AIG with a $85 billion loan.

  • 9/17/08 - Dow Jones Industrial Avg., already down over 3,000 points from its peak, declines 449.36 points - 4.1%.

  • 9/23/08 - Council votes to award $2.4 million Padua Park construction contract to Mega Ways, Inc., in Pomona. City awaits announcement from RMC on $850,000 grant. Again, 4-1 with Councilmember Calaycay the sole "No" vote.

    Council also votes 4-1 to go forward with Padua Park's phase 1A, appropriated an additional $450,000 from the City's General Fund and $527,859 from the General Fund reserve.

So, you can see there were plenty of serious red flags ignored by Parker, Santoro, and the Claremont City Council, plenty of opportunities to not spend the $3.4 million or so appropriated for Padua Park's construction on 10/9/07 and 9/23/08. That last meeting occurred a week after the federal government allowed Lehman Bros. to fail and right at the very height of investor anxiety. All of this occurred at the very moment an already down stock market was preparing to take its own dizzying plunge.

City officials knew what was happening with the financial markets and knew those markets were unraveling in September, 2008. Yet, the City proceeded with awarding a contract for a project that could have easily been put on hold. Worse still, the City dipped into it's rainy day General Fund reserve at a time when they would need it most. The decision to go forward with the park's construction that September represented a total of $3.4 million that could have been used to balance the city's budget, which in turn would have allowed the city to avoid the really big cuts in staff and service.

The City certainly has no control over the financial markets or housing and employment figures, but it does have a responsibility for conservative spending in times of crisis. It's just incredibly sad to see the City dig itself into a very avoidable fiscal hole, and it's even sadder to see city officials, elected and paid, refuse to take ownership of their poor decisions.