Former Mayor Joins Call for Independent Investigation into City Use of Four Million in Taxpayer Money –
Although three highly paid lawyers for the city of Davis had prepared a large number of materials to argue against the City being now named in the lawsuit, Judge Reed quickly ruled that he was allowing the city to now be named in the suit. According to one source in attendance, City Attorney Harriet Steiner attempted to object but Judge Reed told her, you’ve been named.
Meanwhile in a letter to the Davis Enterprise former Mayor Ken Wagstaff has added himself to the growing chorus of those calling for an independent investigation into the city’s role and their use of $4.15 million in taxpayer money. Mr. Wagstaff wrote that troubling questions have been raised in the local media and other sources and “The city staff’s op-ed response was not fully responsive.”
He continued, “Having served on the City Council and as mayor, I am proud of the role that our many Davis nonprofits perform for our community. Often, the city has helped by allocating federal grant funds, or with special contracts where the city’s and the nonprofit’s purposes coincide.”
He pointed out, “In this case, the city made an unusually large commitment of funds to a unique housing concept that required responsible stewardship by DACHA and careful oversight by the city staff. There are significant concerns about both parties. Many serious and documented allegations have been made.”
“The 20 DACHA homes are threatened with imminent foreclosure,” he writes. “It is time for an independent investigation to be done, done quickly, and the results made public. Pending such investigation, all actions relative to DACHA should be suspended.”
He concludes, “How $4 million in public funds has been used by DACHA and managed by city staff is a matter of concern for the citizens of Davis.”
In filing for a TRO, lawyers for the Twin Pines Cooperative Foundation of which David Thompson is the President, argued in April of 2008, the City of Davis approved a loan to DACHA which allowed for a comprehensive refinancing that was completed in August 2008 by council action. “The purported purpose of the refinancing was to replace DACHA’s existing debt with a long term loan of more than four million dollars ($4,000,000) granted by the City of Davis though the Redevelopment Agency.”
In order to complete this refinancing, “the City of Davis required that it be designated the charitable beneficiary of DACHA’s assets upon dissolution.” Mr. Thompson through his lawyers now alleges that the “Board members of DACHA who signed the financing with the City of Davis and voted to remove Plaintiff as the charitable beneficiary were ineligible to serve on the Board. These directors were illegally seated because they were in serious delinquencies in their fees in violation of DACHA’s bylaws.”
Furthermore he alleges, “In contravention of California’s Limited Equity Housing Cooperative Law, DACHA’s Board of Directors also returned more than half of the transfer value to the existing Members. As a part of the “comprehensive refinancing” with the City of Davis, DACHA’s loan from the City was used to return funds to current members.” It continues, “In September 2008, DACHA proceeded to use these public funds to provide each member with a distribution of approximately $10,000, all of which was illegally gained by the improperly seated DACHA Board of Directors.”
Mr. Thompson further alleges that “On November 19, 2009, the Agency recorded a Notice of Default and Election to Sell under Deed of Trust to foreclose on the DACHA property,” but “DACHA has loan proceeds of more than $200,000 available to cure the default, but the City is prohibiting DACHA from using those funds.”
He argues that there is a strict procedure for dissolution of a limited equity housing cooperative if the foreclosure sale proceeds. “The law requires, among other things, that DACHA provide notice of dissolution, that the City of Davis hold a public hearing on the dissolution and, most importantly to Plaintiff, that the City provides notice of the dissolution to all other limited equity housing cooperatives and cooperative development organization in the state in an effort to create a merger with an existing housing cooperative.”
Finally the motion argues, “If the foreclosure proceeds and DACHA dissolves, Plaintiff will have lost the $1,000,000 to which it was entitled as the charitable beneficiary, based on the previous value of the units at $5,000,000 and the current City loan of approximately $4,000,000.”
While lawyers were present for both the city and Twin Pines, lawyers for DACHA were not present during yesterday’s hearing. The Vanguard learned of this too late to receive a statement from the city, but will seek one today.
From the start our concern has been to find out exactly what the city has done with roughly $4.15 million in taxpayer money. Now we want to know why the city has found that foreclosure is the only possible solution for this quagmire that the city has placed itself into. Unfortunately for the taxpayers of Davis, the City Council refused to ask for an independent investigation into these matters, denying it by a 3-2 vote with Mayor Pro Tem Don Saylor joining Councilmember Lamar Heystek in supporting the investigation. In so doing, they have taken the word of city staff members, who themselves were parties to initial arrangements and agreement. In other words, these were interested parties, not independent analysts.
To compound that problem, they have moved for foreclosure by utilizing closed door meetings, held in secret, outside of the public view. As former Mayor Ken Wagstaff concludes, “How $4 million in public funds has been used by DACHA and managed by city staff is a matter of concern for the citizens of Davis.”
He precisely right. Unfortunately, it appears that the only way that the public will learn of this could be through discovery in costly litigation against the city and a Grand Jury investigation. I am very disappointed in the council majority for withholding from public view a public accounting of what occurred.
—David M. Greenwald reporting
It appears that the city rightly concluded that they would ultimately be a party to a lawsuit. Staff’s primary obligation is to protect the city’s(our)assets and they, with the help of their legal counsel, have evidently concluded that the course of action that they have chosen has the best chance of doing so. It is TOTALLY inappropriate for the city to offer an open investigation of itself in this situation. Calls for “transparency” are naive and ill-conceived. There will be ample time, if public interest calls for it, to delve further into this issue once the legal battle has concluded.
itself int this situation.
Couldn’t disagree with you more. The legal battle will go on for a number of years, by then there will be little attention on the issue and the taxpayers will never know whether staff acted inappropriately or whether taxpayer funds were misused. And it is completely false to say that the lawsuit was inevitable.
What needs to be added to the call for a transparent investigation,after the legal battle is over, is the apparent stranglehold that David Thompson had on this DACHA process, i.e., as President of Twin Pines,as mandatory counsel for DACHA under an agreement that was made by a previous non-member DACHA board(reportedly appointed by David Thompson) and a contract,signed by this same previous non-member DACHA board, that obliged DACHA to pay Neighborhood Partners for work on future DACHA expansion, whether the expansion occurred or not.
“Although I would add, city actions here both in terms of lack of transparency and THEIR DECISION TO FORECLOSE DID MAKE SUCH AN ACTION INVETIABLE.’
So….David.. you essentially AGREE with my comment. If “the
action was inevitable”,given their decision to foreclose, then the city investigating itself in the face of a lawsuit would be totally inappropriate.
“What needs to be added to the call for a transparent investigation,after the legal battle is over, is the apparent stranglehold that David Thompson had on this DACHA process, i.e., as President of Twin Pines,as mandatory counsel for DACHA under an agreement that was made by a previous non-member DACHA board(reportedly appointed by David Thompson) and a contract,signed by this same previous non-member DACHA board, that obliged DACHA to pay Neighborhood Partners for work on future DACHA expansion, whether the expansion occurred or not.”
Good points. It appears DACHA was ill conceived from its inception.
DACHA may have been ill conceived from its inception and there may be problems as you have cited. But my chief concern is whether the city did not break the law and misuse taxpayer money. I think the city has a primary duty to transparency not to cover its arse from potential legal liability that its actions may have brought on.
Davisite, in September when the call was made for an investigation, there was no foreclosure, therefore at that time legal action was not necessary. Why did the city need to foreclose now? They were the lender on the property, I understand the need to safeguard the money, but that calculus would still be there in say June if it needed to occur then.
DMG: ” I think the city has a primary duty to transparency not to cover its arse from potential legal liability that its actions may have brought on.”
When the city protects itself from legal liability, it is protecting the taxpayer from legal liability, no?
DMG: “Davisite, in September when the call was made for an investigation, there was no foreclosure, therefore at that time legal action was not necessary. Why did the city need to foreclose now? They were the lender on the property, I understand the need to safeguard the money, but that calculus would still be there in say June if it needed to occur then.”
You answered your own question – “the need to safeguard the money”.
Then it really gets into a tricky area where they justify covering up wrongdoing in order to protect themselves from facing the consequences of their wrongdoing. Is that really what we want our government to be about?
[quote]Then it really gets into a tricky area where they justify covering up wrongdoing in order to protect themselves from facing the consequences of their wrongdoing. Is that really what we want our government to be about?—David Greenwald[/quote]David Greenwald is assuming that the city has done something wrong. The city has done nothing wrong. The city explained it’s position clearly in the op-ed piece. David Greenwald is yet again on another witch hunt.
David Greenwald is not assuming the city has done something wrong. David Greenwald would like to see what the city did do and whether it is legal. He finds it very strange that Sue Greenwald is not leading the charge on this.
I would add that what I am calling for here is transparency. I wonder what the other witch hunt that the Councilmember is refering to.
“Davisite, in September when the call was made for an investigation, there was no foreclosure, therefore at that time legal action was not necessary.”
Most likely, the city was holding the threat of foreclosure “in its quiver” back in September and if it had launched an independent investigation of its internal workings, the possibility of publicly uncovering something/anything that would help David Thompson’s case, when he would undoubtedly attempt to sue a the city for a foreclosure decision, was a distinct possibility. This possibility would have neutralized the city’s threat- of- foreclosure gambit that it was holding against the interests of Neighborhood Partners to force an acceptable settlement.
Davisite: I just have a problem here when you say, “the possibility of publicly uncovering something/anything that would help David Thompson’s case.” The city is a public entity. If they did wrong, we the public needs to know. I just don’t understand why you of all people who have criticized city staff as much as I have would be defending the intentional withholding of information. If the city did nothing wrong, then it has nothing to hide. if the city did wrong, then we need to know about it. If this is simply a witchhunt, then release the info to show it for what it is. Right now, I don’t know if the city did something wrong, but it’s acting guilty.
David… The city was rightly anticipating that they would be in a legal adversarial battle with David Thompson. Any lawyer would instruct its client to not publicly discuss the details(could there be any greater violation of this instruction than the city launching a public independent investigation of itself?) of something that was likely to end up in a court battle. That’s it in a nut shell. You are searching for principles and morality here which, in the real world, are not really in-play once you walk through the doors of a courtroom in a civil action.
davisite2: “David… The city was rightly anticipating that they would be in a legal adversarial battle with David Thompson. Any lawyer would instruct its client to not publicly discuss the details(could there be any greater violation of this instruction than the city launching a public independent investigation of itself?) of something that was likely to end up in a court battle.”
Exactly. And in anticipating there would be legal action by NP, the city is protecting the taxpayers’ interests…
“I just don’t understand why you of all people who have criticized city staff as much as I have would be defending the intentional withholding of information.”
While I support the voter’s right to have all the information on city staff blunders AT THE APPROPRIATE TIME, publicly “pilloring” staff,while under threat of legal action, at the expense of potentially increasing the cost to Davis taxpayers of their hard-earned tax dollars in city liability pay-outs is not a choice that I would make. That’s the reason why issues that have serious potential legal ramifications are rightly discussed by the Council with their legal counsel in closed session.
David Greenwald (no relation): Sue Greenwald is not “leading the charge” because I reviewed the facts, and I am satisfied that the city’s actions have been reasonable. [quote]How $4 million in public funds has been used by DACHA and managed by city staff is a matter of concern for the citizens of Davis[/quote]Of course it is, and we explained it. We had an audit conducted by a reputable firm–the same firm that has been the longtime auditor of the Davis Food Coop and the Davis Joint Unified School District. The audit said that DACHA was in financial and organizational trouble.
In order to attempt to stabilize DACHA, we provided DACHA with a long-term loan from our Redevelopment Agency fund which is dedicated for affordable housing. This was just a loan, but there is some subsidy involved, in that the rate of interest is low, as is often the case for affordable housing.
We also reduced the membership share cost for the DACHA members. This is because the share costs had been set too high to attract members. If a housing cooperative can’t get new members when members leave, it collapses.
David Thompson himself suggested, in a letter which was included in the audit material, that the City apply for a (tax-payer funded) grant for “forgivable loans” for membership shares. He also suggested obtaining funds to allow members to allow members to take out $5,000 to $10,000 equity, over and above their share prices. The share stabilization which the city did was similar to mitigations that David Thompson himself had suggested.
Of his suggestions to obtain subsidies to allow members realize real equity or have a portion their member shares costs reimbursed, David Thompson wrote:[quote]“Were any of them to have been adopted, it would have been funds in the pockets of DACHA members and a lower monthly housing cost.”[/quote]Clearly, David Thompson did not seem to find share cost reductions to be scandalous, but rather to be part of a program to make the organization viable and to help low income families.
Again, I think it is quite clear what the city did with the $4 million and why, and I think it was reasonable.
“…denying it by a 3-2 vote with Mayor Pro Tem Don Saylor joining Councilmember Lamar Heystek in supporting the investigation.”
Don Saylor voted to support an investigation. This is the most interesting factoid in the article.Councilman Don Saylor, in the past, has been consistent in defending the interest of the city. Evidently, now that he is a “short-timer” on his way to his seat on the Board of Superivisors, he is not at all reluctant to put the city at risk by calling for a public independent investigation contrary to the wishes of staff, city legal counsel and his cohorts(Asmundson and Souza). He IS being true to form in supporting developer interests.
Below is the law that a limited equity housing cooperative has to follow for dissolution. Except for the public transparency part the law was the same as before. DACHA is not following the law nor the Attorney General’s process for dissolution. However, foreclosure brings an end to the co-op and the co-op will no longer have a purpose and need to dissolve. Once the application for dissolution gets to the Attorney General’s Office it will arrive in a folder already filled with letters opposing the dissolution from the National Cooperative Business Association, National Cooperative Bank, ROC USA, Dos Pinos, Twin Pines Cooperative Foundation and a number of others. The AG’s office will then open an investigation into what happened with the public’s money and the charitable remainder and was their any private gain. The boards of Directors of DACHA will be held responsible for complying with the law.
It would have been so easy to follow the state law on dissolution. Dissolution would have been the easiest method for saving DACHA as a co-op with good results for the members and minimal harm to the city. Why did DACHA not follow the law? And why did the City ignore the law. Senator Wolk added the part in were the City would hold the public hearing for that part of the public process.
817.2. The procedure for the dissolution of a limited-equity housing cooperative or workforce housing cooperative trust that receives or has received a public subsidy shall be as follows:
(a) The city, or the county for any unincorporated area, in which the limited-equity housing cooperative or workforce housing cooperative trust is located, shall hold a public hearing. The cooperative or trust shall pay for all costs associated with the public hearing.
(b) The city or county shall provide notice to all interested parties. The notice shall be given at least 120 days prior to the date of the hearing. The city or county shall obtain a list of all other limited-equity housing cooperatives and cooperative development organizations in the state from
the California Center for Cooperative Development, if the list exists, and provide notice to all of the entities on the list in an effort to create a merger with an existing limited-equity housing cooperative or workforce housing cooperative trust. The notice shall be mailed first class, postage prepaid, in
the United States mail.
(c) If the dissolving limited-equity housing cooperative or workforce housing cooperative trust merges with an existing cooperative or trust, to the extent possible, the merger shall be with the geographically closest cooperative or trust.
(d) If the dissolving limited-equity housing cooperative or workforce housing cooperative trust does not merge with an existing cooperative or trust, both of the following shall occur:
(1) Upon completion of the public hearing required pursuant to subdivision (a), the city or county shall adopt a resolution approving of the dissolution and make a finding that the dissolution plan meets the
requirements of state and federal law, meets the donative intent standards of the United States Internal Revenue Service, and is free of private inurement, which includes, but is not limited to, a prohibition on any member receiving any payment in excess of the transfer value to which he or she is
entitled pursuant to subdivision (b) of Section 817.
(2) The city or county shall forward all of the information and written testimony from the hearing to the Office of the Attorney General for the Attorney General to consider as part of his or her ruling on the dissolution.
817.3. Each entity named as a sponsor organization of a workforce housing cooperative trust formed pursuant to Section 817 shall have the legal standing of a member unless it revokes, in writing, its sponsorship. 817.4. (a) In any action instituted on or after January 1, 2010, against a board of directors and its members based upon a breach of corporate or fiduciary duties or a failure to comply with the requirements of this chapter, a prevailing plaintiff may recover reasonable attorney’s fees and costs.
(b) If an organization formed under this chapter uses public funds, it shall not use any corporate funds to avoid compliance with this chapter or to pursue dissolution if the intent or outcome is for some or all of the members to receive any payment in excess of the transfer value to which he or she is entitled pursuant to subdivision (b) of Section 817.
David Thompson, Twin Pines Cooperative Foundation
I have to say that davisite2 appears to be possibly someone intentionally leaking the strategy agreed to by the council majority in its closed sessions concerning this DACHA issue. In a way, I am appreciative of this willingness to be honest about what the city leaders are really up to.
But I do think that it is very short sighted for the city to hide the truth in order to avoid financial liability for actions that they should not have taken. The truth will eventually come out. It always does. And in the mean time, the city’s legal bills continue to mount.
In the case of the DACHA issue, the city’s legal bills have reached the point that they have far exceeded the amount that it would have cost to simply settle the matter. In 2008, Neighborhood Partners offered to settle for $120,000. The city and DACHA refused. Now, they each have spent about $150,000 in public funds – in total about $300,000 on legal fees. What a wise use of public funds. What a brilliant legal strategy.
At the last council meeting it was time for the annual allocation of federal CDBG funds to local social services agencies. One organization made a big effort to show the human impact of not funding their $15,000 request. At-risk young kids would no longer get valuable after-school tutors. Their funding needs could possibly have been met for 20 years with the resources so far wasted by the city on DACHA legal bills.
Wasting public resources to help a group of people illegally dissolve a cooperative, so that they can all reap the benefits of single family homeownership equity growth is a very poor use of public funds.
David Thompson is fighting foreclosure. However, in a staff report in 2006 that includes the audit and attached letters from concerned parties, a communication from David Thompson is included in which he reassures the City that foreclosure is always an option. He writes: [quote]The City investment is not at risk. If the worst case scenario happens the banks foreclose, the city restrictions are lifted and the homes get sold at market value. All the lenders including the city get their funds back (attachment 4, handwritten page 63) — communication from David Thompson[/quote]David Thompson reassures the city that foreclosure is an option if the worst happens. In fact, the city had to refinance the cooperative, Neighborhood Partners put a levy on DACHA’s account for somewhere around $300,000, some members are walking from the cooperative or not paying rent, and new members are not joining. DACHA is out of money. The worst case scenario has happened; the City’s investment IS at risk, the City is foreclosing.
I should add that the City has always been hopeful that Neighborhood Partners and DACHA could reach a settlement that would allow a sustainable future for the cooperative as presently structured, but this has not occurred, and the shortfalls are mounting daily.
Luke Watkins accuses the council of [quote]“Wasting public resources to help a group of people illegally dissolve a cooperative, so that they can all reap the benefits of single family homeownership equity growth”.[/quote]
He calls it a “poor use of public funds”. Yet the non-member DACHA board appointed by Neighborhood Partners prepared an application for a grant to turn DACHA into a form of home ownership sometime around 2004. David Thompson and Luke Watkins are listed among the applicants, and David Thompson was the contact for the proposal.
They proposed to turn DACHA into the home ownership Community Land Trust (CLT)model back when the 2004/2005 block grants were being prepared. (CLT’s are a form of home ownership similar Aggie Village).
They wrote: “When we first proposed taking over the homes on Tufts we proposed looking at a limited equity housing cooperative (LEHC) or a community land trust (CLT). In a LEHC the co-op owns the land and the homes, in the CLT the home owner owns the home and leases the land from the CLT. In the short period we had we could not do a CLT so we did a LEHC.”
Further, they wrote: [quote]NP’s (Neighborhood Partners) study for the DACHA board and for the Center for Cooperatives shows that a CLT (ownership model) provides more effective tools and flexibility at a lower cost for single family homes than a LEHC (cooperative model). The need is therefore to transform DACHA into a CLT to meet the needs of low/mod income households in Davis. [/quote]Among the benefits of the home ownership model compared to the cooperative model, they assert that the home ownership model “would substantially reduce its organizational operating costs per home”.
If Luke and Neighborhood Partners submitted a study to the DACHA board claiming that this home ownership model was superior to a cooperative model, how can Luke Watkins speak disparagingly of low and moderate income citizens who might want to “reap the benefits of single family homeownership equity growth”, and how can he assert that a home ownership model is “a very poor use of public funds”?
P.S. I should add that the DACHA members, during the few short talks I had with them, were simply concerned concerned that carrying costs had become higher than market rate rents, and hence they were afraid that they would lose their membership shares which ran as high as $20,000 at the time, and which I suspect represented their life savings in many cases.
“….have to say that davisite2 appears to be possibly someone intentionally leaking the strategy agreed to by the council majority in its closed sessions concerning this DACHA issue.”
Mr. Watkins.. let me assure you that I am not privy to the Council’s strategy concerning this issue. My comments are pure speculation based upon what I believe our Council representatives SHOULD have considered to protect the city’s(Davis voters)interests. My read is,much like the Wall St. banking interests and the subprime mortgage fiasco, David Thompson and Neighborhood Partner’s strategy is to get a bail-out from the city for the losses that their DACHA “creation” is bringing them.
Dear Sue:
At the time, DACHA applied for funds to look at becoming a CLT it was clear that city staff did not want to provide to DACHA the funds it provides to others. Yes, we did look at doing a CLT but then realized it was not possibly legally or structurally. You should remember that the City Council voted no on doing a CLT. The City did eventually fund a CLT that after six years of public fund support the City concluded it did not work. How much has that cost the City, $500,000 $600,000 or more? One short two page document from NP would have saved you all that time and money. Seems like if NP proposes a CLT the City won’t do it but if someones else proposed it you will?
Luke Watkins: “At the last council meeting it was time for the annual allocation of federal CDBG funds to local social services agencies. One organization made a big effort to show the human impact of not funding their $15,000 request. At-risk young kids would no longer get valuable after-school tutors. Their funding needs could possibly have been met for 20 years with the resources so far wasted by the city on DACHA legal bills.”
Correct me if I am wrong, but doesn’t money for DACHA legal bills come from a different pot of money than CDBG funding to pay for social services like BRIDGE?
David Thompson and Luke Watkin’s drumbeat about their “outrage” about “wasted” Davis taxpayer monies rings hollow(should we substitute “outrage” for “patriotism” in the saying,”……… is often the refuge of scoundrels”?). If they are so concerned about taxpayer dollars, why don’t they waive the award that DACHA’s empty coffers cannot pay and not press for continuation of the contract that pays them for work not done? After all, DACHA WAS their creation.
Davisite2:
“Outrage” is not the last refuge of a scoundrel. Brutally attacking other people in print, while not being courageous enough to attach your own name to the attack is the first and last refuge of a scoundrel.
If you are so sure of your opinions, then why not use your own name?