Rio Nuevo: The history you don’t know

Part II:  The history you are not supposed to know

Last Friday, Arizona House Speaker Andy Tobin appointed Tucson businessman Cody Ritchie to fill the seat vacated by congressional candidate Jonathan Paton. The appointment will be sure to maintain the status quo.

The new Board members want to hire old Board members, possibly Alan Willenbrock, to fill key positions; at high salaries. Expect more hits pieces on old Board members, complaints of limited staff, and new hiring announcements in the Arizona Daily Star, otherwise known Jim Click’s newsletter, until everyone is in place, and the dust can settle.

The operating budget will necessarily grow.

Ritchie’s appointment pleases fellow Board member Mark Irvin, and Tucson’s unelected and elected powers-that-be. The past is certain to become the forgotten in the name of “progress,” and the past bad acts, and bad actors will go the way Irvin, Click and their fellow powers-that-be want it: fading images in our collective rear view mirror. History.

Rio Nuevo’s history began with the first meeting of Rio Nuevo Multipurpose Facilities District Board of Directors meeting in July of 1999. The following history was compiled from news reports and legal filings:

During that meeting the first appointed members of the District Board assembled to organize the District and conduct its initial business, which consisted of adopting an intergovernmental agreement, (IGA), administrative rules, the appointment of officers and call for a special election on November 2, 1999 to be held to approve the use of State transaction privilege taxes to be used to support the creation of the “Rio Nuevo Project”.

The District would, if its establishment was approved by the voters, pay the costs incurred by the City of Tucson in holding the Special Election, and pay the City of South Tucson and the Town of Sahuarita, if their voters passed Proposition 400, $1 million dollars each when the District sold its first bonds and the second from revenues received from developers. The Resolution was duly adopted and passed July 19, 1999.

In September of 1999, with officers appointed and IGA and administrative rules in hand, the Board of Directors reviewed and ratified proposed descriptive language for the Proposition 400 publicity pamphlet, which was to advise the taxpayers about the District and authorize its creation.

The approved language appeared in Proposition 400, which identified 14 projects with a total dollar value of $79.3 Million. Proposition 400 specifically represented to the taxpayers that the “expenditure of money collected will be disbursed and managed by the Rio Nuevo Multipurpose Facilities District Board” and that the District was legally bound by administrative rules and intergovernmental agreements” with the participating municipalities.

Proposition 400 represented to the taxpayers that their “yes” vote authorize the established District “to receive and use a portion of the incremental state transaction privilege tax revenues” for the Rio Nuevo project.

While the actual use of such sales tax revenues would be “dependent upon the District’s Board of Directors approval of certain contracts” the Rio Nuevo Project would recreate the Mission San Augustin Cultural Center & Settlement area; a carefully designed mix of new retail, cultural and mixed construction with improvements being made to the Carnegie Library, the Tucson Museum of Arts La Casa Cordova and the historic Brown house.

The Proposition further provided that enhancements would be made to the Santa Cruz River, including re-vegetation, pedestrian amenities, bike pathways and new linkages under and over I-10. Proposition 400 promised the taxpayers a balance between man and the environment, an education center for families, horse facilities, a charro ring and creative play equipment for children; open air mercados would provide space for Native Americans and other local artisans to display their unique crafts.

The Special Election was held on November 2, 1999 and the results were known by November 12, 1999, when the District re-convened. The Town of Sahuarita had to withdraw from District participation, due to the fact that its voters did not approve Proposition 400.

The District IGA and administrative rules that organized the District, and that were in existence at the time electorates of City of Tucson and the City of South Tucson passed Proposition 400, were reaffirmed by the two remaining municipalities. Resolution 1999-003 reaffirmed the organization of the District and its governing documents, without the Town of Sahuarita.

Under Section 1.2.3 of the IGA executed by the City of Tucson and the City of South Tucson, specific limitations were placed on the District. The District was expressly prohibited from taking any action with regard to any project or expenditure without: (a) the consent of the Mayor and Council of the City within which the project was located, which was effectively Tucson’s Mayor and Council; and (b) the action taken had to be “pursuant to and within the bounds of a development agreement, redevelopment agreement or similar agreement to which the City of Tucson was a party.

The administrative rules established at the time the District was organized were reaffirmed along with the two-municipality IGA. Administrative rules were reaffirmed and clarified the executive duties and responsibilities of the District’s officers and limited their powers:

• The Treasurer had custody of all funds, properties and securities of the District” and “shall establish and maintain at such bank or banks or other depository or depositories as the Board may direct or approve the fund required by A.R.S. Section 48-4231 (“the District Fund”), into which shall be deposited all moneys received by the District, and from which shall be disbursed all monies payable by the District” and the Treasurer “shall maintain a full and accurate account of all moneys and all obligations received and paid or incurred by or for the account of the District.”

• The Executive Director of the District “shall have primary responsibility for coordinating, scheduling and supervising on a day-to-day basis, the normal activities, operations and administration of the District” and the “the acquisition by the District of any interest in real or personal property for District purposes or otherwise.”

• Section 9 sets forth limitations on District officers and clearly prohibits any an officer from binding the District to any contract or delivering any instrument in the District’s name without a resolution authorizing the specific action in question and a majority vote of the Board approving the action.

• Under Article 11 of the IGA’s administrative rules, all decisions regarding the planning of any facilities or sites located within the District had to first be approved by the vote of the governing body of the municipality within which the facility or site was located; this meant almost exclusively the City of Tucson.

An additional IGA was executed in February of 2000 that further clarified District staffing and the reimbursement of expenditures. This additional IGA specified that City of Tucson’s City Manager would be the District’s Executive Director; and City of Tucson’s Finance Director would be the District’s Treasurer. The IGA specifically named John Jones as City of Tucson’s liaison for operations and administration and Kay Gray as City of Tucson’s financial liaison.

Under the additional IGA, the City of Tucson made “the services of its financial consultant and bond counsel available to the District on the same terms and conditions as they were available to the City of Tucson” and clarified that their advisor and bond counsel would be paid out of District TIF funds, or proceeds of District bonds.

The City of Tucson did make its bond counsel available to the District and the City of Tucson’s bond counsel did act as the District’s counsel; this is the counsel that the City of Tucson refers to now as “independent counsel.”

The controls and limits on the District’s powers established in 1999 were unchanged. The District’s Executive Director and Treasurer posts remained filled by City of Tucson’s Manager and Finance Director; the District administration and operations remained staffed by City of Tucson (COT) employees; and the City of Tucson’s bond counsel continued on as “independent” counsel to the District, all as described in the September 15, 1999 minutes.

During the Rio Nuevo District meeting of September 12, 2001, the District passed Resolution No. 2001-001 which generally approved sale of lease revenue bonds for the purpose of purchasing the Tucson Convention Center (the “TCC”) from the Business Development & Finance Corporation, an Arizona nonprofit corporation (“BDFC”). The City of Tucson’s bond counsel acted as the District’s bond counsel for this transaction.

The Purchase Agreement relating to the TCC (the District’s multipurpose facility) describes the District’s acquisition of the TCC and certain real property (“FKA Parcel Group IV, Tucson Convention Center”). Parcel Group IV is now commonly referred to as Fire Station No. 1.

To date, there is no Rio Nuevo District resolution and/or accompanying meeting minutes showing a majority vote of the Rio Nuevo Board approving the conveyance, sale or other disposition of the Fire Station No. 1 from the District to City of Tucson.

From February of 2002 to May of 2002, the District had various meetings where their City of Tucson staff addressed a variety of projects ranging from family housing to the Sonoran Seaquarium and the re-platting of what became known as Rio Nuevo blocks 1- 15.

According to the District’s May 2002 meeting minutes, the District approved funding the acquisition of “Lots 9 and 10 in Alvernon Corners at a price not to exceed $820,000” to facilitate the relocation of Citizens Auto Stage. Lots 9 and 10 form what is now commonly referred to as the I-10 or the “Arena Parcel.” To date, no District resolution approving a development agreement, redevelopment agreement, or similar agreement to which City of Tucson and the District were parties has, to date, been discovered or encountered.

In October of 2002, at the recommendation of City of Tucson staff, the City of Tucson’s Mayor and Council approved a re-plat of the majority of the Rio Nuevo Project properties Rio Nuevo blocks 1 to 15, common areas A, B and C and corresponding Covenants, Conditions and Restrictions (“CC&Rs”).

Under the CC&Rs recorded by the City of Tucson for RND, the District is identified as the Declarant and the CC&R’s are executed by City of Tucson, on behalf of the District. The City of Tucson Mayor and Council Communication of October 7, 2002 relating to the plat specifically recites that the “owner is Rio Nuevo Multipurpose facilities District.”

At the June 9, 2004 meeting, Karen Thoreson, a member of the City of Tucson executive staff assigned to the District as project executive, discussed a variety of projects. Ms. Thoresen reviewed the District’s 2005 budget which included an operating budget of $1.15 Million and a capital budget of $6.61 million. Ms. Thoreson advised, that although the “projects could change slightly; Rio Nuevo will spend no more than their budgeted amount.”

At the June 9, 2004 meeting Ms. Thoresen also advised the District that the COT would not have to contribute any funds for the coming year and that the District’s fiscal year 2005 budget would be covered by TIF revenues. Former City of Tucson Finance Director and current then Chairman of the District, Ruben Suarez, asked if the District was paying the City of Tucson interest for the money it had received to date. According to the minutes, “Karen Thoresen responded yes. The District pays about $100,000 per year. The City could ask the District pay back the money used to date, or it could be used by the city of the match.”

At the August of 2004 District meeting, the IGA between City of Tucson, the District and the University of Arizona Science Center (“UA IGA”) was voted upon and passed.

Under the UA IGA (Section 1.2), the District was to own the property upon which the Science Center would be constructed, and lease such property to the University of Arizona; and the District would make a monetary contribution to be used for those purposes authorized under the RND statutes and were to be paid at the time that UA issued debt for the construction of the UA Science Center, currently projected to occur in April 2006. It did not occur.

On or about October 13, 2004, the District passed Resolution No. 2004-00220 reaffirming Ruben Suarez as the Chairman of the District, Margaret Hardy as Secretary and Scott Douthitt, who was then Finance Director for the City of Tucson, as its Treasurer. The resolution did not authorize any of these individuals to independently execute documents, IGAs, development agreements, deeds, and instruments of conveyance or other matters to bind the District, on behalf of the District.

The District met again on November 10, 2004. During this meeting, Board Secretary Hardy asked about repayment of funds advanced to the District by the City of Tucson. In reply to her question, Mr. Shelko, who was an employed staffer for City of Tucson, reported that the City of Tucson was not looking for the District to make any immediate repayment “and that it is possible for those advanced funds to be considered as part of City’s matching fund contribution” and, therefore, would not need to be repaid.

During the District’s December 8, 2004 Board Meeting, the Civic, Cultural Plaza and Arena projects were discussed and the “Arena Team” was introduced to the District by the City of Tucson. District Secretary Hardy asked if the District would have to go back to the voters to fund the new arena. City of Tucson staff reported it changed its October position and now stated that District funds might be required for the Arena project and advised that “while the current arena had a negative effect on the city’s general fund, the new arena would not” and that “the only time the District would need to go back to the voters would be if there were a need for money to remodel the convention center.”

At the February 9, 2005 RND meeting, a financial update of the District was given by the City of Tucson staff. The District asked again about the loan from City of Tucson’s general fund. City of Tucson’s Finance Director, Scott Douthitt, represented that the loan was about $14 to $15 million but there was no demand for repayment from City of Tucson and that the loan would “end up of the match somewhere down the road.”

At the April 13, 2005 Rio Nuevo District meeting, during which City of Tucson staffer Mr. Shelko advised the board that as projects were starting to pick up, it made sense to formally delegate some of the day-to-day business the City of Tucson was already providing to the Rio Nuevo District whereby Mr. Shelko proposed that the Rio Nuevo District adopt Resolution No. 2005-04; the Delegation of Administrative Responsibilities.

Resolution No. 2005-04 granted a “Director” limited authority to execute leases of less than one year and, execute contracts not to exceed $25,000 after a solicitation process was followed, unless sole source was deemed appropriate by the City of Tucson’s policies.

The District’s final 2005 meeting occurred on November 9, 2005. Here, Mr. Shelko had a conversation with Chairman Suarez about the perception that Rio Nuevo is not doing what the voters approved. Mr. Shelko represented to Chairman Suarez that he, Mr. Shelko, had “actually pulled out the original ballot and found that with the exception of the Sonoran Sea aquarium, Rio Nuevo contemplates doing all that was approved by the voters.” Mr. Shelko advised “the reality is that we are doing what the voters approved and so much more.”

The District was assured that City of Tucson staff would put together “something” that “showed the voters approved and where the District was now with implementing what they approved” and further, “Mr. Shelko agreed and reiterated that Rio Nuevo funds can only be used for public-sector purpose and the money is supposed to leverage private sector investments like these.”

On or about January 11, 2006, the District Board had a meeting at which Board Member Hardy “asked if Scott Douthitt, the District’s Financial Officer, could provide a reconciliation of the $14 million the City is asking the District to pay back” as “according to the November 30 report, the District only owes them $6,556,418.”

The January 11, 2006 minutes do not explain the discrepancy about the alleged City of Tucson’s loan, how it went from a ‘match’ items to a loan to be repaid nor do the minutes include a copy of the referenced November 30, 2005 report.

No explanation of City of Tucson’s loan calculation from this time period has, as yet been located.

The Depot Plaza Garage IGA (“Depot IGA”) approved by Resolution No. 2006-12 provides that the “District and/or City shall construct” a garage. The Depot IGA does not expressly obligate the District to pay for the garage and it provides that City of Tucson is relieved of its obligation if funds “are not appropriated and actually provided to the City.”

The Depot IGA, the meaning of which is currently disputed, is not clarified by the minutes which indicate that the District might be paying up to $4.9 Million of the cost and acquiring an equity interest.

According to available records, during 2007, the District only met in February 2007, and again in August 2007, with little action being taken; then in 2008 the City of Tucson’s fiscal crisis hit.

Check back tomorrow for Part III, Rio Nuevo: The ugly history continues

Related articles:

The history of Rio Nuevo: Koz’s sour grapes

Rio Nuevo audit “res ipsa loquitur”

Moore and Hill reveal the truth about Rio Nuevo