Rio Nuevo: The ugly history continues

money,money laundering

According to an article in this week’s Inside Tucson Business, “An audit already has shown the city squandered $230 million with little to show for it and another audit the board just released confirmed the same.” A performance audit is now statutorily required every 3 years because of the City of Tucson’s past poor performance. According to the Rio Nuevo District Board Treasurer, Jeff Hill, the District is broke and may be unable to even cover its debt service payments.

In an effort to find the $230 million plus, plans have been discussed by members of the District’s Board to now use the Rio Nuevo Forensic Auditor to assist the City in finding receipts that might show that the money was not all misspent.

In other words, the broke will be paying for the nearly broke to prove that they are legitimately broke. The Rio Nuevo Board will pay to try to exonerate the City of Tucson.

The reasoning is that if they can prove that some more of the $230 million may have been spent somewhere, other than having disappeared into thin air or deep pockets, they have a fighting chance to convince the public and the Governor that more money should be spent from somewhere.

In the Old Pueblo’s grills and clubs, and in one small corner of Prescott, Senator Steve Pierce’s home to be exact, that sort of reasoning makes sense. In nearly every other part and parcel of the city and state, the City of Tucson’s Rio Nuevo debacle is the perfect example of desperate people, doing desperate things, and the desperate people who enable them.

From legal documents and news stories:

By February of 2008 City of Tucson was struggling to cover a projected $12 Million budget deficit.

The Rio Nuevo District Board did not meet from after an August 2007 meeting, until July 2008, by which time new District Board Members appointed by City of Tucson had been seated.

The 2008 new members included Anne-Marie Russell (elected Chair); Roman Soltaro, Secretary and Jeff Di Gregorio and Dan Eckstrom, Members. Mr. Suarez, Ms. Hardy and other District Board Members knowledgeable about the District’s past approvals were gone. The District’s former Treasurer, Mr. Douthitt of the City of Tucson, was also no longer a COT staffer and a new Treasurer, David Cormier, the City of Tucson’s then “Interim Finance Director” became the Treasurer.

At this first July 2008 meeting of the new board, Mr. Shelko, who was an employed staffer for City of Tucson, explained that City of Tucson’s Finance Director served as Treasurer of the District and City of Tucson’s Manager served as the District’s Executive Director. After this explanation was offered, new Board Member Jeff DiGregorio moved to appoint City of Tucson executive team staffer, David Cormier, as Interim Finance Director and Mike Rein as Executive Director of the Rio Nuevo District; which motion was seconded by Anne-Marie Russell and passed unanimously.

On August 27, 2008 the Arizona Daily Star reported that City of Tucson pulled $11.8 Million from its reserves to cover a deficit for the 2008 budget year that ended June 30, 2008.

The new Board convened its second meeting on or about August 27, 2008; again attending were Di Gregorio, Russell and Soltero; Eckstrom was absent.

During this second meeting of the new appointed board, Mr. Shelko led a discussion regarding TIF revenues and the debt capacity of the District. Mr. Shelko also discussed City of Tucson’s staff returning to the District to request authorizations to borrow funds for construction of a variety projects. No action was taken.

On October 18, 2008 the Arizona Daily Star reported that City of Tucson’s projected deficit for the current year had reached $51 Million.

On December 4, 2008 the Arizona Daily Star reported that City of Tucson’s projected budget deficit for the current year had reached $82 Million and was working to reduce the deficit with transfers. The article noted City of Tucson’s Manager Mike Hein had ordered departmental cuts and one-time transfers and the “the City had saved $10 million by restructuring its debt and dipped into Rio Nuevo funds for $6.8 million, which will have to be repaid … but Hein said another $31 million was needed.”

The fourth and last 2008 meeting of the District occurred on December 2, 2008 just two days prior to the article’s appearance; with Mr. Di Gregorio, Chair Russell and Mr. Soltero attending; Mr. Eckstrom absent. Here, City of Tucson staff member Mr. Shelko stated that the District board had just been given some 300 pages of bond documents before the meeting in substantially complete form to be reviewed and approved today.

Mr. Shelko advised that the bonds had to be issued, as the rates were constantly changing, and the sooner the bonds were issued the better. Chairman Russell asked when the bond issue would be coming back to the District for final approval; Mr. Shelko advised it would not.

The City’s bond counsel, then Bill Hicks, described the bond process, and authorization for the District to take on $80 Million of debt which was voted upon which became Resolution No. 2008-01.

Resolution No. 2008-01, the only one adopted and issued by the Board in 2008, approved the issuance by the District of up to $80 Million in debt (“the Series 2008 Bonds”) naming specific projects totaling approximately $65 Million which included the District paying the City of Tucson $6,800,000 for an alleged loan RND received from the City of Tucson and capital fund proceeds of some $57,500,000 for the fund 155 delineated projects.

Section 3 of Resolution No. 2008-01 confirms that the bonds are to be secured by COT pursuant to statute and the terms of the District’s and City of Tucson’s IGA, as amended.

The Bond Transcript includes a Tax Certificate and Agreement that “establishes the expectations of the District as to future events regarding the Series 2008 Bonds and the use of the Proceeds of the Series 2008 Bonds.”

The Tax Certificate and Agreement, states that $64,027,184 will be deposited into the 2008 Project Account, which is held by Wells Fargo as Trustee, to pay costs of 2008 Projects.

The Tax Certificate and Agreement, titled “2008 Projects List,” contains detailed project descriptions and clarifies that the District will own the Civic Center New Arena project, the Tucson Origins Heritage Park, Mission, Convento, historic structures, gardens, archeological features, riverfront improvements and public spaces.

Declarations of Official Intent, which were necessary to authorize the reimbursements on such projects, total well in excess of the $13,820,252.

Each of the Declarations of Official Intent are made “on behalf of the City of Tucson” and provide that “the City intends that and reasonably expects that the original expenditures made by the City” for each of the named projects “will be reimbursed by the proceeds of bonds, certificates of participation or other obligations to be issued by or for the benefit of the City” for the project named in each Declaration; and each are signed by the “City of Tucson.”

None of the Declarations of Intent were made by or on behalf of the District.

The Declarations of Intent did not call for reimbursement for the Depot Plaza Public Improvement, Downtown Infrastructure Improvement, Civic Center I New Arena, Tucson Children’s Museum or UA Science Center projects.

On or about January 26, 2009, within 30 days of the sale of the $80 Million bond sale, the press reported that the City of Tucson was projecting an additional $26 Million decline in revenues for the next fiscal year.

Within days of that report, Frank Abeyta, City of Tucson ‘s Finance Director and District Treasurer who was instrumental in the issuance of the Series 2008 $80 Million bond sale documents, abruptly resigned. Abeyta’s resignation was reported to be effective January 30, 2009 and was given “amid a huge city budget crisis causing deficits of $80 million.”

By March of 2009, the City of Tucson Manager Mike Letcher reported that the City planned to use about $20 Million of reserves to help offset the City’s budget deficit. It was reported that that move might push the City’s self-insurance deficit to $42 Million, potentially triggering an outside audit.

By November of 2009, City of Tucson’s budget deficit was $32 Million deeper than previously reported.

By December 13, 2009 it was being reported that City of Tucson would lay off hundreds to close the $32 Million deficit.

Records disclose in fall 2009 that the City of Tucson restated its financials and reclassified approximately $29 Million of Rio Nuevo District assets and claimed that they now belonged to City of Tucson.

In March of 2010, the Governor and Legislature created a new Board. The new Board was tasked to do the following:

1. Perform a Performance Audit of the financial records of the Rio Nuevo District since its inception, in order to determine where almost a quarter of a billion dollars that the city had identified as under the umbrella of Rio Nuevo was spent.

2. To review and investigate the proposed business venture of a convention hotel and a new convention center project. One of the driving goals behind the effort was to protect and save the Gem Show.

3. To baseline the District and determine:

• What the District owned (or was supposed to own).
• The cash position (restricted and unrestricted).
• What the District owned; and
• How much money, if any, was available to use after debt service is paid.

The District and City of Tucson entered into a Temporary Parking Agreement on October 5, 2010, with regard to the Depot Plaza Garage.

In December, 2010, the District and the City of Tucson entered into the Term Sheet that was a memorandum of understanding which, in part, detailed how the District would come to take legal title, or that the City would continue to maintain and manage legally a number of properties in which the District held an equitable interest but which were then held in the name of the City of Tucson.

Jodi Bain was the Chair of the Board of the Reconstituted Rio Nuevo Multipurpose Facilities District charged with base lining the defunct Rio Nuevo so it could potentially move forward. During her tenure as Chair of the District Board, the District knew that it had, at a minimum, an equitable interest in the properties which are the subject matter of the two Complaints against the City of Tucson.

During the Term Sheet negotiations with the City of Tucson, it was never the District’s position that the result of the Term Sheet process would be creating any new interests, but rather changing title to reflect at a minimum the equitable interests that the District held in property.

To the extent any properties were yet titled in the name of the City of Tucson in which the District had an equitable interest, it was the District’s position that the City of Tucson was holding the property for the District’s benefit. Documents confirm that position.

The Term Sheet was not to result in a binding agreement unless and until the City of Tucson provided the District with substantive information on the state of title of the various properties; the City never provided the required information.

It was not until the Term Sheet lapsed in the summer of 2011, and as the fall of 2011 approached, that it was evident that the City of Tucson then began denying that the District had equitable interests in the properties.

The City of Tucson is now denying the District’s interests in these properties.

Richard Grinnell was appointed to the Board in 2010, and served as unofficial Treasurer between the then-current Treasurer Allan Willenbrock’s resignation and the spring of 2011. Grinnell was made and then served as official acting Treasurer of the District from early 2011 through August 2011.

On assuming the unofficial duties of treasurer in 2010, Grinnell learned that the District had none of its own financial records, and that all of the financial records of the District were provided by and in the possession of the City of Tucson finance, or accounting, or procurement or other departments.

From the beginning, the City of Tucson Finance departments handled all financial matters for the District until the District took those functions over in the fall of 2011.

Based on the absence of financial records, it was impossible to make any determination independent of the City of Tucson’s reports what the assets of the District were, what and where expenditures had been made, what had been acquired by the District, and even how much cash the District had on hand.

During Grinnell’s tenure as Treasurer for the Reconstituted Board, the District began requesting all financial records from the City departments, but they were slow to be produced, if they ever were produced; those records that were obtained from the City of Tucson often were summaries or narrative reports of the District financial affairs and assets, but they were unsupported and not the source documents.

The District found that much of the supporting documentation received from the City of Tucson often contradicted the information previously provided.

In late 2011 the District began reviewing newly uncovered key financial records, closely scrutinizing expenditures and the allocations of funds, noting additional new documents continued to arrive for review in 2012.

In early 2012, after much legal wrangling by the Board, key Wells Fargo documentation arrived. For the first time, the District was allowed to review the left over amounts of the 2008 bonds if any. Those bond documents were to be at the now cancelled June 18, 2012 retreat prior to Bain and Grinnell’s removal by Senator Pierce at the request of Tucson’s powers-that-be.

Back in 2009, it was publicly known and acknowledged by the City of Tucson that the City of Tucson’s finances was a mess, unclear, and concealed a number of transactions.

In the late summer/FALL of 2011, special legal counsel supporting the forensic audit efforts of the District, Rusing Lopez & Lizardi, requested all supporting documentation from the City of Tucson for numerous City projects. Audits were performed by Regier, Carr, and Monroe, LLC, commissioned by the new Rio Nuevo District Board.

“Based on the results of this forensic examination, we find that there is sufficient evidence to support the conclusion that approximately $2,319,366 of District expenditures should be considered to be questioned costs. In addition, $2,223,530 of expenditures lacked evidence of District authorization and approval. The findings result in a total of $4,542,896 of questioned costs,” according to the audit. The audit defined “questioned cost” as a cost not “supported by adequate documentation, a cost that is unnecessary or unreasonable, or a cost that is in violation of the law, regulation or contract.”

The second audit completed was related to select West Side Projects: Plaza del Centro, Gadsden Development, Barrio Viejo, Barrio Sin Nombre, Mission Site/Origins Park, Science Center & Historical Museums, Mercado Avenue, Arizona History Museum, Mission Landfill, Origins Infrastructure, Mission Gardens, Mission Complex Drainage Swale, and any other related projects.

“Based upon the procedures performed,” auditors identified ‘$33,849,702 of questioned costs. This amount is comprised of $1,547,564 of questioned costs based upon our analysis of documents and $32,302,138 of questioned costs resulting from expenditures for which no supporting documents were located.”

Both of the forensic examinations and the preliminary forensic examinations have uncovered, for the first time, a number of transactions involving the disposition of property of the District by the City and of the expenditure of District funds by the City of Tucson through City Staff.

These forensic audits were completed to demonstrate that Rio Nuevo did not owe the City of Tucson. They seem to have accomplished that goal.

Almost $1 million dollars was spent trying to unravel where $230 million plus had gone and to prevent the city of squandering away the remaining left over $10 million in unrestricted funds! Not to mention, countless hours of volunteer time by new state-appointed Reconstructed Rio Nuevo District Board.

In March of 2012, two Rio Nuevo Board members reported intervention efforts by car dealer Jim Click. According to one Board member, Click, in a telephone call, told the Board member to “back off.”

Still, the District has been unable to locate or otherwise discover many of the documents for the approval of expenditures and property transfers involving the District and the City of Tucson.

Tucson’s powers-that-be want progress. They want ignore the general public, forget the past, and make sure a new Board is in place that is willing to forget it.

Over a year ago, Rob O’Dell, a “reporter” from the Arizona Daily Star told a group of Tucson residents that he had been threatened by a City of Tucson official, and that the District would, in the future, barely have enough money to cover its debt service payments.

This week, the Arizona Daily Star, otherwise known as Jim Click’s newsletter, has published volumes from those who seek to cast doubt on the watchdog members of the Board, and promote “progress.”

The Arizona Daily Star has since then had to layoff over 50 staff, and is greatly reduced in print inches.

The public’s trust has been broken by many.

The woman who first asked for an FBI investigation into Rio Nuevo, Ally Miller, spoke for many Tucsonans when she called for tighter financial controls in the City of Tucson. “Dwelling on the past will keep us from moving forward, however moving forward with the same level of incompetence and lack of financial controls is a disgrace and will result in more of the same,” said Miller.

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Related article:

Rio Nuevo: The history you don’t know

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