Tuesday, August 23, 2011

The Housing Commission’s ‘Trojan Horse’

The Housing Commission’s ‘Trojan Horse’
Aug 23, 2011
by Will Carless

In late 2008, as foreclosures flooded the local housing market and the nation's economy hovered on the brink of meltdown, the San Diego City Council scrambled for ideas to tackle the crisis here...

The San Diego Housing Commission responded with a plan: It could buy foreclosures and tackle the city's epidemic head-on. But the commission, which is overseen by a board of unelected appointees, first wanted to be set free.

The agency wanted to buy properties without the City Council's approval. Waiting as long as 90 days for the council to approve the bids would unnecessarily delay highly competitive deals that had to be done quickly, the commission argued.

The City Council agreed. At a March 2009 public meeting, it approved a new policy for the agency, handing it the power to spend public money buying property with radically reduced oversight. Given that this was about fighting the foreclosure crisis, Councilmen Tony Young and Ben Hueso reasoned that cutting down on bureaucracy made sense...

In the two and a half years since that meeting, however, the Housing Commission has rarely used its new power to buy foreclosures.

The agency has bought just eight foreclosed single-family homes and one foreclosed apartment building in that time. That's 45 units out of 756 units the commission has bought or built since then.

Rather than mopping up after the foreclosure crisis, the agency has instead used its new freedom to spend more than $70 million buying non-foreclosed apartment buildings and lending developers tens of millions of dollars to build new affordable apartments.

The commission has been able to make those deals while bypassing the City Council, avoiding the public scrutiny it once would've faced.

Three of the City Council members who approved the Housing Commission's new rules now say they had no idea the power would be used for anything but tackling the foreclosure crisis.

Former Councilwoman Donna Frye called the policy a "Trojan horse" that has allowed the commission almost free reign to build a huge affordable housing portfolio using public money, while facing little public oversight.

Commission officials and the policy's chief proponent, Councilman Todd Gloria, say they made every effort to communicate the far-reaching effect of the agency's new power when the policy was approved...

But the stated motivation for the new freedom, the public hearing in which it was approved and even the report to the City Council all came under the banner of addressing foreclosures. The need for the new power was never fully explained to the City Council or the public. Nor did the agency ever explain how the policy was actually supposed to help it fight foreclosures.

The freedom was also granted at the same time the commission prepared to enter a new era as a heavyweight property investor and developer, an endeavor that was far riskier than simply buying up foreclosures.

The commission's expanding role gave it all the more reason to properly explain the implications of the new rule, said Councilman Kevin Faulconer, one of the three council members who say they were duped.

"The focus of that policy change was clearly on the issue of foreclosures," Faulconer said. "If, in fact, the Housing Commission wanted to go and do something different, what I expect is for them to come and get permission to do so, and then to follow the rules."

In early 2009, few political buzzwords had greater cachet than "foreclosure." Across the city, the wreckage of the busted housing market had created neighborhood eyesores and destroyed family dreams.

At the same time, the Housing Commission was on the move. It had just hired a new CEO, replacing the agency's former leader, Betsy Morris, who had led the agency for 14 years.

New chief Rick Gentry was a veteran of the affordable housing industry and had taken the reins at an exciting time. A massive real estate deal was about to flood the commission's coffers with almost $100 million to spend exclusively on acquiring new property.

That move had been in motion long before the City Council asked the commission for help on foreclosures. Before leaving the agency in 2008, Morris had signed off on a deal to transfer more than 1,300 properties from the federal Department of Housing and Urban Development's public housing program to the commission.

The plan was to take out loans against those properties, giving the agency the cash to spring onto the local affordable housing development scene in a big way...

But the commission wanted to make those deals without first discussing them at public City Council meetings. Gentry and Gloria, a former housing commissioner, said that would reduce bureaucracy, allowing the agency to quickly take advantage of the slumping market by bidding on deals.

Being able to make deals unilaterally represented a significant change in how the commission did business. Since the agency‘s creation in 1979, it had been required to bring each of its acquisitions to the City Council for approval.

Changing that requirement faced one crucial hurdle: The City Council had to be convinced that devolving such far-reaching power to the commission was necessary.

Commission officials presented the sea change to the City Council as a minor element of their broader plan to tackle foreclosures...

Spirits were high when the City Council met on March 24, 2009. The Housing Commission had a plan to tackle the foreclosure epidemic, the council was relieved, and the platitudes were flowing...

How would the policy actually address the foreclosure crisis? Nobody asked. And nobody explained it.

In the absence of any explanation, Frye, Faulconer and Councilman Carl DeMaio thought they understood the plan: The commission would buy foreclosed single-family homes that would otherwise fall into disrepair — the boarded-up homes Young had talked about...

Hueso, Young and Gloria were on board, too. They'd met privately with Gentry in the run-up to the meeting. They later said they fully understood what was going on, and knew the change would allow the agency to make any acquisitions without prior City Council approval.

A spokeswoman said Councilwoman Sherri Lightner also knew the policy didn't only apply to foreclosures.

The council's decision to sharply reduce public oversight over the spending of tens of millions of dollars took 27 minutes.

It was approved unanimously.

Now the Housing Commission had more power and more freedom.

Gloria and Gentry said the commission originally planned to use its new power to buy foreclosed apartment buildings to convert into affordable housing. That was part of the agency's plan to address the foreclosure crisis, they said.

But the commission only bought one foreclosed apartment complex and was outbid on another.

Even if the commission had bought more than one foreclosed apartment building, it wouldn't have done anything to fight the foreclosure crisis.

Unlike foreclosed single-family homes being boarded up, foreclosed apartment buildings were hot properties in 2009. They still are today. In San Diego, so-called "vulture investors" have been snapping up foreclosed apartment buildings as soon as they go on sale. That's one way investors have taken advantage of the slumping real estate market.

The commission had really gotten permission to become one of those investors: It wanted the freedom to snap up distressed bargains that lots of other people also wanted to buy.

Someone would've bought those foreclosed apartment buildings anyway. Whether it was the Housing Commission or some other investor made no difference to the city's foreclosure epidemic.

Local housing market expert Gary London said taking advantage of the foreclosure crisis is fundamentally different than helping stabilize the market or aiding struggling homeowners.

"The Housing Commission perverted the foreclosure crisis for reasons of their own profit," London said. "Call it what it is, it has nothing to do with helping foreclosures and to suggest it does is either felony stupidity or downright lying."

Since the 2009 meeting, the Housing Commission has been on a development tear, investing almost $30 million of the public's money to develop six apartment projects from Nestor to Torrey Highlands.

Those deals weren't about boarded-up homes or foreclosures. And they were far more complicated and risky than the simple property purchases half the City Council expected.

Those development deals most concern Frye, DeMaio and Faulconer. They're furious the projects weren't brought to the City Council for a final discussion and vote.

Development projects have a far greater risk of going wrong than straightforward property purchases. Construction can go awry, costs can shoot up and financing can go sour. The commission is largely beholden to the private developer it chooses as a partner, because the developer oversees construction and selects the company that manages the building once it's built.

That developer also receives a fee, paid out of public dollars. On most of the development deals put together by the commission, that fee was $1.4 million...

Monday, August 22, 2011

Washington Post condemns Darrell Issa’s “overreach on oversight”

Washington Post condemns Darrell Issa’s “overreach on oversight”

Lucas O'Conner
Courage Campaign
August 22, 2011

There are plenty of folks who have been wary of the NLRB investigation into Boeing, including the Washington Post editorial board. They've expressed concern in the past that the case could end up going too far by focusing too much on the specific labor questions involved.

But even with that concern, Darrell Issa has gone way too far for them. In an editorial yesterday, The Post editorial board called out Darrell Issa for overreach and risking the integrity of the ongoing case:

But Mr. Issa and his committee have gone beyond questioning the NLRB’s policy to threatening to interfere with a legitimate — even if misguided — legal proceeding. This month, the panel issued a subpoena demanding a slew of documents involving the NLRB action against Boeing. The committee wants to know how the NLRB’s Office of General Counsel decided to target Boeing and whether it did so in cahoots with the White House or a union. The agency has resisted turning over certain documents it says could jeopardize its ability to pursue its case. Lafe Solomon, the NLRB’s acting general counsel, testified before the committee this summer; the board has also turned over more than 1,500 pages related to the Boeing matter.

As the Post goes on to remind us, many of the documents that Issa's fishing expedition is seeking have also been unsuccessfully sought by Boeing. Issa's wide-ranging subpoena would make those same records public, serving as an end run around the legal decision that Boeing should not have access to those records while the case is ongoing. Not only would Issa's subpoena overrule the court, it would undermine the integrity of the procedings while aiding a specific party in the case. As the Post says, that's "overreach on oversight."

But this is specifically Issa's plan -- to undermine and ultimately close the courthouse doors to workers...

SDUT's Jeff McDonald defends Darrell Issa against "most serious allegations"

It turns out that the New York Times was given faulty information by the Assessor's Office, and that there was faulty information in an Issa tax filing. Here are three corrections by the New York Times.

Correction: August 16, 2011http://www.blogger.com/img/blank.gif

An article on Monday about the business empire of Representative Darrell Issa, Republican of California, misstated the worth of the companies involved in his splitting up of a holding company. The split entailed separate multimillion-dollar companies, not multibillion-dollar ones.

Correction: August 26, 2011

An article on Aug. 15 about Representative Darrell Issa’s business dealings, using erroneous information that Mr. Issa’s family foundation filed with the Internal Revenue Service, referred incorrectly to his sale of an AIM mutual fund in 2008. A spokesman for the California Republican now says that the I.R.S. filing is “an incorrect document.” The spokesman, Frederick R. Hill, said that based on Mr. Issa’s private brokerage account records, which he made public with redactions, the purchase of the mutual fund resulted in a $125,000 loss, not a $357,000 gain.

And the article, using incorrect information from the San Diego county assessor’s office, misstated the purchase price for a medical office plaza Mr. Issa’s company bought in Vista, Calif., in 2008. It cost $16.3 million, the assessor’s office now says — not $10.3 million — because the assessor mistakenly omitted in public records a $6 million loan Mr. Issa’s company assumed in the acquisition. Therefore the value of the property remained essentially unchanged, and did not rise 60 percent after Mr. Issa secured federal funding to widen a road alongside the plaza.

The San Diego Union-Tribune has not published the New York Times' accusations about Darrell Issa's use of his position as US congressman to increase his wealth. The SDUT has, however, launched a vigorous defense of Issa regarding four cherry-picked "most serious allegations."

Jeff McDonald's picks of "most serious allegations":

1) Jeff McDonald accuses the NYT of incorrectly describing the area in which Issa's office is located.

The New York Times writes, "Here on the third floor of a gleaming office building overlooking a golf course in the rugged foothills north of San Diego, Darrell Issa, the entrepreneur, oversees the hub of a growing financial empire worth hundreds of millions of dollars."

McDonald says that even though the Shadowridge Country Club golf course is a "1.5 mile drive from Issa's office," it's wrong to say that the building is "overlooking" the golf course because not enough of the golf course is visible from Issa's particular window. That was sneaky, Jeff. You imply that the New York Times said the gold course was visible form Issa's window. Would you have preferred that the NYT give the exact mileage to the golf course, using decimal points? No, Jeff, that would be focusing on the wrong facts.

McDonald next disputes the statement that the area is "in the rugged foothills north of San Diego." I went to Google maps and saw two areas of rugged foothills very near to Issa's office, to the east and west. When I zoom out a bit, I see huge areas of rugged foothills to the north, east, and south. It looks to me like the NYT got it right.

2) The SDUT admits that Issa's electronics company may be a supplier for Toyota dealers, but tries to make the point that Issa didn't have a conflict of interest when he went easy on Toyota during his investigation of sudden acceleration problems in Toyota vehicles. Does the SDUT believe that Toyota has no interest in or influence over the products that its dealers offer to customers.

The NYT wrote, "But perhaps his clearest statement on the issue [of Issa's attitude about recusing himself] came last year amid Toyota’s recalls of millions of automobiles with dangerous acceleration problems. Then, Mr. Issa brushed aside suggestions that his electronics company’s role as a major supplier of alarms to Toyota made him go easy on the automaker as he led an investigation into the recalls."

3) The New York Times writes, "In one case, more than $800,000 in earmarks he arranged will help widen a busy thoroughfare in front of a medical plaza he bought for $10.3 million."

The SDUT argues that obtaining earmarks for traffic improvements in front of his building actually hurt Issa financially by raising the price of the property before he bought it, and that the NYT was wrong about the sales price. Obviously, the building will continue to have its value enhanced by the traffic improvements. And I'd like to see more information about the history of the building and its changing sales price. It's interesting that the SDUT relies on Ernie Dronenburg, who has been known to falsify his credentials. Why doesn't the SDUT tell us about the $10.3 million figure used by the Times? Where did that figure come from? Clearly, the SDUT doesn't want to do an investigation, it simply wants to make claims without telling the whole story. In my experience, this is typical of the SDUT. Editor

4) "1900 percent profit"
Does Issa's Family Foundation produce "sharp profits"? The NYT says yes. The SDUT implies that this is not true by quoting Issa's spokesman regarding a single transaction. We need more information about this to know for sure. And the SDUT isn't exploring the issue; it's simply quoting Issa's spokesman. Not much investigation going on at the SDUT.

REPORT: Rep. Issa's Ongoing Ethics Problem

Media Matters Action Network
May 20, 2011

This week, it was revealed that DEI Holdings Inc., the car-alarm company founded by Rep. Darrell Issa (R-CA) and on whose board he sits, had for years underpaid tariffs on parts imported from China. This is only the latest ethical scandal to taint Issa since he became the chairman of the House Oversight Committee.
Issa Firm Underpaid Tariffs For Years

Issa Sits On Board Of Company That Just Paid $2.5 Million In Back Tariffs. From The San Diego Union-Tribune:

The Vista car-alarm company once owned by Congressman Darrell Issa was paying about half the required tariffs on certain parts it imported from China for years and paid an estimated $2.5 million in back duties earlier this year to rectify the situation.

Issa no longer owns DEI Holdings Inc., although he is still on the board of the company, which is being sold to Boston-based Charlesbank Capital Partners for $285 million in cash. [San Diego Union-Tribune, 5/18/11]

"Issa Said He Was Aware Of The Misclassifications And Participated In Efforts To Resolve Them." From The San Diego Union-Tribune:

In a prepared response to questions from The Watchdog, Issa said he was aware of the misclassifications and participated in efforts to resolve them.

"Once these issues came to the attention of the board of directors, we called for an independent review by expert counsel," he wrote. "My understanding is the company has made appropriate tariff adjustments and disclosures both to Customs and our independent auditors." [San Diego Union-Tribune, 5/18/11]

DEI Did Not Repay Back Duties Until After Whistleblower Filed Complaint. From The San Diego Union-Tribune: "Former DEI executive Mike Wilhelm noted that the disclosure was made a year after the fact, and only after he filed a whistle-blower complaint with Customs on March 14 of this year. 'They weren't going to do it unless I forced them to,' said Wilhelm, a DEI vice president who resigned over the issue in March after 10 years with the company. "Frankly, I became ashamed to work there.'" [San Diego Union-Tribune, 5/18/11, emphasis added]

Whistleblower: DEI "Hired A Consultant" Who Told Them Not To Pay Back Import Duties. From Wilhelm's complaint to U.S. Customs and Border Protection: "Company rejected the advice to legal counsel to file required notice and pay back import duties of ~ $3m (difference between 1.3% and 2.5%) because they hired a consultant who told them that unless there was a whistle blower, they could get away without paying." [Wilhelm complaint to CBP, 3/14/11, via San Diego Union-Tribune]

Expert: "This Company Has Not Been Meeting That Reasonable Care Standard." From The San Diego Union-Tribune:

Minnesota trade consultant John Goodrich said importers played a cat-and-mouse game with regulators to minimize their tariffs until 1993, when Congress passed the Customs Modernization Act. That law placed new responsibilities on companies bringing goods into the United States.

"Importers are now held to a hyper due-diligence level known as reasonable care," Goodrich said.

"This company has not been meeting that reasonable care standard," Goodrich said after reviewing the whistle-blower complaint and the company's financial disclosure statements divulging the problem.

He noted that every duty form states the importer "will immediately furnish to the appropriate CBP officer any information showing a different statement of facts" than those reported on the shipping records.

Goodrich said, "It is difficult to justify that waiting six to eight months to make corrections and to disclose constitutes 'immediately.'" [San Diego Union-Tribune, 5/18/11, emphasis added]

Sunday, August 21, 2011

A Businessman in Congress Helps His District and Himself

A Businessman in Congress Helps His District and Himself
Darrell Issa has been a forceful advocate for business while his own companies thrive.
New York Times
August 14, 2011

VISTA, Calif. — Here on the third floor of a gleaming office building overlooking a golf course in the rugged foothills north of San Diego, Darrell Issa, the entrepreneur, oversees the hub of a growing financial empire worth hundreds of millions of dollars.

Just a few steps down the hall, Representative Darrell Issa, the powerful Republican congressman, runs the local district office where his constituents come for help.

The proximity of the two offices reflects Mr. Issa’s dual careers, a meshing of public and private interests rarely seen in government.

Most wealthy members of Congress push their financial activities to the side, with many even placing them in blind trusts to avoid appearances of conflicts of interest. But Mr. Issa (pronounced EYE-suh), one of Washington’s richest lawmakers, may be alone in the hands-on role he has played in overseeing a remarkable array of outside business interests since his election in 2000.

Even as he has built a reputation as a forceful Congressional advocate for business, Mr. Issa has bought up office buildings, split a holding company into separate multimillion-dollar businesses, started an insurance company, traded hundreds of millions of dollars in securities, invested in overseas funds, retained an interest in his auto-alarm company and built up a family foundation.

As his private wealth and public power have grown, so too has the overlap between his private and business lives, with at least some of the congressman’s government actions helping to make a rich man even richer and raising the potential for conflicts.

He has secured millions of dollars in Congressional earmarks for road work and public works projects that promise improved traffic and other benefits to the many commercial properties he owns here north of San Diego. In one case, more than $800,000 in earmarks he arranged will help widen a busy thoroughfare in front of a medical plaza he bought for $10.3 million.