Hesperia Councilman Doubts EB-5 Viability

HESPERIA—While Victorville failed in establishing a federal visas-for-investments program to boost local development, Hesperia has now taken up the gauntlet. Nevertheless, the prospect for leveraging foreign money into job creation in the High Desert is far-fetched, a member of the Hesperia city council said.
In April 2008, the city of Victorville entered into a relationship with CMB Export, LLC to manage an EB-5 program for Victorville at and around Southern California Logistics Airport, now being built on the grounds of the former George Air Force Base, which was shuttered by the Department of Defense in 1992.
Under its agreement with CMB and the terms of the federal program regulations, that company was supposed to recruit foreign nationals, in this case mainly ones from China and Korea, who were to put up at least $500,000 each in investments pertaining to the base. In exchange, the investors would receive visas, or green cards, for themselves and the members of their immediate families. The city backed out of that arrangement with CMB in June 2008 and proceeded with an EB-5 program of its own, triggering a $33 million lawsuit against the city for breach of contract, fraud, unfair competition and business interference.
Victorville initially succeeded in getting licensing from the federal government for its EB-5 effort, but in May 2010, a month after the city settled the lawsuit with CMB for $200,000, the U.S. Citizenship and Immigration Service tentatively suspended Victorville’s EB-5 program pending review, stating that city officials had misrepresented the projects to be funded by the investment program. In October 2010, the U.S. Citizenship and Immigration Service terminated Victorville’s program, citing “material factual discrepancies” in financial documents.  It was the first time the federal government had moved to terminate an entity’s EB-5 authority.
In response, Victorville filed a lawsuit in Washington, D.C. District Court against the U.S. Citizenship and Immigration Service, the Department of Homeland Security and several senior federal officials. It also filed an appeal of the program cancellation with the U.S. Citizenship and Immigration Service’s Administrative Appeals Office, and temporarily agreed to a stay of the suit pending that appeal.
Last month, the administrative appeals office upheld the decision to terminate Victorville’s program, referencing Victorville’s failure to generate jobs using the foreign investments, misrepresentations or contradictions between what councilman Mike Rothschild and the city’s attorneys said about the program and discrepancies in city representations about the city’s interdepartmental loans and their use. Victorville has refunded the entirety of the $9.5 million in investments it received under the EB-5 program and city officials are now contemplating whether to proceed with the lawsuit.
Last year, a divided Hesperia city council voted to allow a private company, American Franchise Regional Center, to set up an EB-5 visa investor center in Hesperia. In August, American Franchise Regional Center got federal approval for the center and has been courting foreign investors ever since.
The EB-5 program was pushed in large measure by Hesperia councilman Russ Blewett. He was given assurance that even before the program was licensed two Chinese woman stood ready to make $500,000 investments in projects in and around Hesperia and that there were multiple prospects of landing other investors.
One gap in the understanding and representations on both sides, however, was the degree to which a synergy in the effort to develop Hesperia existed. The potential investors were given to understand that their money alone would not be fueling the entire development effort and that other infusions of money, including the application of redevelopment subsidizations, would create successful projects in the area in and around Hesperia.
In California, however, the state legislature last year withdrew cities’ redevelopment authority, foreclosing the ability to issue municipal bonds and have the cities use the proceeds to pay for the creation of infrastructure to spur development. Cities collectively challenged the state’s action, but last week the state Supreme Court ruled the state could close out the cities’ redevelopment agencies. Meanwhile, some city officials in Hesperia were hoping that potential foreign investors might ignore that reality and invest with the American Franchise Regional Center in Hesperia.

Paul Bosacki

Hesperia city councilman Paul Bosacki said that hope is a pipe dream.
“It was never a solid idea to being with,” Bosacki said. “I saw it as a scam. Russ Blewett said he knew these two Chinese women ready to invest here. I voted against it when it came up. They went ahead with it, hoping they could use the money to replace money from our  redevelopment agency. That won’t happen now. Good luck getting those Chinese ladies or anyone else to invest here now that redevelopment is dead. No businesses are interested in coming to the High Desert unless they get some kind of subsidization. Unless there are land swaps or incentives, they won’t come in. We are not going to get businesses to come in or developers to build. The state killed redevelopment and the city of Victorville is on the brink of bankruptcy. When Victorville goes down, it is going to go down hard and that is likely to suck the rest of the High Desert under with it.”
Bosacki added, “Right now, they are trying to hang on, and convince these people from China and everywhere else they can get a green card for 500,000 bucks and claim they are going to create jobs but I haven’t seen any jobs created out of it yet and that was before, when the investors were counting on redevelopment money. It ain’t happening. We were assured they could just set up in the city of Hesperia and that it was all tied into the RDA [redevelopment agency] but it turns out it is just another scam. We’ll see how long it lasts, even on paper. I think it is a non-issue. They were hoping to team up with the RDA, but there is no more city involvement in programs like that.”

Officials, Watchdogs At Odds Over RDA Springbacks To Staters In GT

GRAND TERRACE—Four months after Stater Bros. moved its supermarket into new and 72 percent larger quarters at 22201 Barton Road in the Grand Terrace Town Square than it occupied at Mt. Vernon and Barton Road during the previous 37 years, there are sharp differences between city officials and skeptical Grand Terrace residents over whether the $1.2 million in incentives the city offered the grocer to make that transition are justified.
In what would prove to be one of the last major uses of its redevelopment agency, the city in October 2010 entered into an economic development agreement with Stater Bros. to facilitate the transition from the 25,000 square foot location at Barton and Mt. Vernon  to the 44,000-square-foot digs in Grand Terrace Town Square. Under the terms of that agreement, Stater Bros. said it would create around 140 temporary construction jobs and 77 permanent full-time jobs and the city consented to paying Stater Bros. $2,500 per job, or up to $192,500 per year over five years. Another clause in the agreement called for the city utilizing up to 45 parking spaces at Grand Terrace Town Square for local ride-sharers, for which it would pay Stater Bros. $12,500 per quarter, or $50,000 per year.
Thus, the city through its redevelopment agency agreed to spring back to Stater Bros over the five year period, $1,212,500 if the grocer met all of the performance criteria.   Stater Bros. invested $17.5 million to build the 44,000-square-foot market and has acquired property around the site to add up to 80,000 square feet of additional retail space at the Town Square.
The new Stater Bros. had its grand opening on August 24, but a third of a year later, some Grand Terrace residents are questioning the wisdom of providing incentives to the corporation and expressed uncertainty about whether the company is providing the community with the promised improvements and employment.
A continuing point of confusion is whether or not a quarterly compliance audit of Stater Brother’s performance was done. This week the Sentinel received from Grandpa Terrace, a Grand Terrace resident who runs a community interest blog,  a list of questions submitted by his readers, including  “Did they [Stater Bros.] hire 75 employees?  How many of those employees live in Grand Terrace?  How many of those employees are full and part time?  What has been the change in sales tax revenue to the cIty?  In relation to an increase to our local financial stability, what has the net increase of wage earnings earned by Grand Terrace citizens been? Has Stater’s earned their 1.2 million RDA funds?”
Grandpa Terrace closed with the statement, “The public should be assured Staters has earned that money before the public pays for this in taxes as well as in increased prices.”
Mayor Walt Stanckiewitz this week told the Sentinel that the quarterly report on Stater Bros. performance under the economic development agreement was not immediately available but was “about due. As to how many full time jobs and full time equivalent jobs were created, I believe they exceed what they were supposed to do.  They are supposed to employ 70 to 75 full time equivalent workers. I believe there were  65 or 67 part time workers at the old store. How do you convert full time to the part time equivalent? I am confident they are meeting that goal.”
The success of the store is apparent in the level of customer traffic there, the mayor said.
“It is, I think, now one of their most popular stores,” Stanckiewitz said. “It has outpaced my wildest dreams, what Staters has done. I go through the store three or four times a week and I personally see customers from Moreno Valley and Redlands there that never shopped in Grand Terrace before. They are coming here because it is the nicest Stater Bros. around.”
Stanckiewitz said the redevelopment agency’s activity at Grand Terrace Town Center was limited to the incentives to Stater Bros. and was at a level less than what the city council had striven for. The city had wanted to use further incentives to bring in other retailers, he said, but had not done so because of multiple considerations.
“I’m glad that [Stater Bros. chairman] Jack Brown got tired of waiting and said we will buy the land,” Stanckiewitz said. “There will never again be another  75-year anniversary store. The fact is, there is nothing like it. We’ve got a one-of-a-kind.”
Stanckiewitz said that the $1.2 million springback was to take place “over five years, not up front but   retroactively and quarterly. Our redevelopment agency is gone now, so the city will handle it directly.”
In legislation passed last year and just upheld by the state Supreme Court under challenge from hundreds of California’s cities, municipal and county redevelopment agencies have been dissolved in the Golden State.
Stanckiewitz said the money the city will pay out will not impact the general fund, since the payments to Stater Bros. are “performance based.” He said the amount of revenue to be brought into the city by the larger store through increased sales tax revenue will at some future point be greater than the money the city shells out. “The last time I did that calculation was before the store opened,” Stanckiewitz said. “If nothing gets built in that center, and Staters is the only thing there, we will get our money back in the eight to ten year range. But their numbers are way beyond what they forecast and I am hoping they will bring in more business and that we will be paid back in increased property and sales tax before the program is over [i.e., in fewer than five years]. This is a performance-based incentive contract.”
Moreover, Stanckiewitz said, it is increasingly likely that the city will not pay Stater Bros. the full $1,212,500 specified in the agreement, but rather $962,500. That is because the grocer will not be building and reserving the 45 parking spaces in the Grand Terrace Town Square for car-poolers as was proposed under the agreement.
“They are thinking they need those parking spaces for their own customers given how successful the store is,” the mayor said. “There were a certain number of spaces they paved beyond what was normally required for them to open the store. That was built into the incentive package because we   have other business in town or places in town that are having parking issues. The city was going to take possession of those spaces and use them as a Park-and-Ride. In five or so years,  as the center filled out, they would revert back to parking for the commercial customers. But that day has come quicker than we anticipated and they probably will not be used for Park-and-Ride [carpooling parking]. We won’t be paying for that. This was an RDA [redevelopment] project that did not cost us anything.”
One consideration and concern about the springback of sales tax revenue to Stater Bros. is that as a grocery store, only a limited amount of its merchandize is taxable. The quarterly audit of sales tax revenue into the city will also be impacted by the sales tax generated by a new Dollar Tree store in town, which is heavily laden with taxable sales items.
Sylvia Robles was an unsuccessful council candidate in the 2010 Grand Terrace municipal election in which Stanckiewitz was elevated from an incumbent council position to mayor. Both Stanckiewitz and Robles ran on platforms that had as their central themes reform of the city’s redevelopment agency. In a statement to the Sentinel this week, Robles indicated her belief that reliable sales tax income figures could not be had to make any useful comparisons to see if the incentives provided to Stater Bros. were proving cost-effective for the city’s taxpayers.
“I am not aware of any compliance audit,” she said. “If there is one, it would not include sales taxes captured by Stater Bros as a result of its new grocery store. Sales tax revenues are confidential and the Board of Equalization does not release them. There are job subsidies. That is an ancillary feature and not $1.2 million, which is an aggregate number. I recall about $70,000 estimated per month.”
Robles continued, “The only thing I can comment on — without production of any compliance audit document —  is that redevelopment agencies are not required to provide any quantitative data that they actually produce  higher sales taxes or jobs.  The rationale for funding entities with RDA subsidies is to increase sales tax revenues to help support a city’s general fund.  Since sales tax revenues are secret or suppressed by the Board of Equalization, I do not see how one can audit new revenue generation compliance.”
Grand Terrace community development director Joyce Powers, who oversaw the city’s redevelopment agency and the Stater Bros. agreement, this week told the Sentinel, “There are reports that we have given them $1.2 million, but that is inaccurate. They can request it if they meet certain performance standards under the agreement but to date, no such requests have been made and no funds have been paid to Stater Bros.”

Needles Officials Reconsider Non-Profit Status For Hospital Operator

NEEDLES—The efforts of San Bernardino County’s smallest city to retain its community hospital entered a crucial stage recently as the city council discussed the parameters of the citizen-backed measure that mandates the sale of Colorado River Medical Center to a non-profit organization.
On December 13, the council devoted considerable time to examining Measure Q, which was passed by Needles voters in June 2010. Voters passed the ordinance, which was intended to keep the hospital’s doors open and absolve the city of the financial burden of subsidizing the facility.
The city took on ownership of the Colorado River Medical Center in April 2008 after Brentwood, Tennessee-based Lifepoint Hospitals, a for-profit corporation, embarked on an effort to move the institution’s equipment and personnel to another hospital it owned in Arizona, roughly 12 miles from Needles.
But because of long-running inadequate billing practices, including failures to invoice Medicare and Medi-Cal as well as insurance companies and patients in a timely fashion, the hospital has lost money, representing a financial liability to the city. The city created a board of trustees to oversee the hospital, and that panel, together with the city council, has come to a consensus that spinning the facility off to an independent operator is the best solution for ensuring that the community has adequate medical care without soaking the taxpayers.
There have been competing offers to take over the hospital’s operations, including a few from for-profit corporations. The only credible effort to mount a non-profit organization to take on ownership of the hospital is that of Needles Hospital Inc., which was founded by former Needles councilwoman Rebecca Valentine.
While Needles Hospital, Inc.’s proposal has progressed further than any other, one serious competitor to that proposal emerged from a for-profit company  – Los Angeles-based AM Pharmacy. Though AM does not meet the requirement that it be a non-profit entity, which is stipulated in Measure Q, a consensus of the hospital board and minority of the city council appears to be in favor of at least considering in depth the possibility of letting AM absorb Colorado River Medical Center into its portfolio. The reasoning here is that AM has real world experience in running hospitals.
Valentine, who is the president of Needles Hospital Inc., said her organization meets the objective of having a non-profit operate the hospital and ensuring quality care at an affordable rate to the local populace. According to Valentine, Needles Hospital Inc. has secured financing to make a $3.16 million purchase of the facility and can now  open escrow. Needles Hospital Inc. will contract with Quality Healthcare Solutions to manage the hospital, she said.
AM Pharmacy has said it will use one of its employees, Bing Lum, who was raised in Needles, to oversee the hospital operation if it is given the right to purchase the facility. Lum emphasized that his company has experienced hospital operators on staff who have dealt with start-up and troubled hospitals. He expressed confidence his company could turn Colorado River Medical Center around financially, making it both profitable and an asset to the community. He said AM Pharmacy’s financial solvency puts it into a position of being able to fund operations at the hospital until reforms are in place that will allow it to function on its own without subsidization. He suggested that his company could create a non-profit arm, build a firewall between AM Pharmacy’s for-profit and non-profit operations and that the non-profit could be used to run the hospital. Lum said the management team for the hospital would relocate from Los Angeles to Needles to oversee the hospital’s day-to-day operations. AM has also said it stands ready to form a board of directors for the hospital consisting entirely of local residents.
On December 13, city attorney John Pinkney said the city council must sign off on the sale of the hospital under the terms of Measure Q, but could use its discretion in whether to proceed with a sale or not. “In order to qualify, the purchaser would have to be a nonprofit corporation,” Pinkney said. “The initial board of directors of the nonprofit corporation would have to be approved by the city council and have to be residents of the city of Needles.”
The sale would need to be made at a price equivalent to fair market value, Pinkney said. A portion of property enclosing the hospital that is federal land would not be part of the sale. The hospital’s debt could be subtracted from the fair market value under the terms of the sale, Pinkney said, such that the purchaser would assume all outstanding liabilities at the hospital and be responsible for all accounts payable.
The buyer would have to meet strict licensing guidelines, Pinkney said. As such the purchaser will have to demonstrate licensing in a host of areas to include round-the-clock provision of emergency, intensive care, radiology, outpatient surgery, laboratory, dietary, surgery and anesthesiology services.
Per Measure Q, Pinkney said, if the hospital ceases to operate as a rural general acute care hospital, the nonprofit corporation has the first right of refusal to the city of Needles.
Pinkney said that the hospital board is definitely leaning against allowing Needles Hospital Inc. to assume operation of Colorado River Medical Center and had voted to cease negotiations with the non-profit. Instead, the board has called for brokering a deal with AM Pharmacy.
While city council members Linda Kidd and Jim Lopez as well as Mayor Ed Paget have in the past sought to be excused from any decisions relating to the hospital because of potential conflicts of interest, the council as a whole seems to be at odds with the hospital board and would appear to favor Needles Hospital Inc.’s overture.
An ad-hoc committee has been formed to hash out the differences. The ad-hoc committee has suggested that an evaluation of the relative merits of the competing offers could be better made if both entities were to submit proposed contracts.
The city council previously expressed concern that neither Needles Hospital Inc. nor AM Pharmacy had offered to purchase the facility for the $3.6 million specified in the original appraisal done for the hospital. Needles Hospital Inc. offered $3.16 million for the hospital. AM Pharmacy offered $3 million.
Pinkney said neither offer meets the requirements of Measure Q that fair market value as determined by an independent appraiser be paid. Pinkney did indicate, however that the appraisal the city obtained by the city is stale and it did not include the accounts receivable. Those would need to be determined and added to the appraisal.
Given that neither party met the specifications with regard to all criteria in Measure Q, Pinkney said the council could use its own discretion in making a determination. The council could legally, if it makes certain findings, allow the board to make a non-binding decision to sell to either bidder. The council could also negotiate different terms or entertain a bid or bids from another entity or entities.
Rebecca Valentine asked the council to abide by the language of Measure Q.
Tony Frazier appeared to be the member of the council most strongly in step with the hospital board in its desire to sell the facility to AM.
Pinkney suggested that the council allow the board to make its recommendation and then use its own discretion and judgment in confirming or vetoing the board.
On November 22, the council gave both Needles Hospital Inc and AM Pharmacy until January 10 to submit revamped offers.

Ruben S. Ayala, Once Dominant In Local And State Politics, Dead At 89

Ruben Samuel Ayala, one of the most prominent politicians to arise out of Chino, passed away Wednesday, January 4, at the age of 89.
The grandson of a Mexican immigrant, he was born on March 6, 1922 to Mauricio and Ermina Martinez Ayala. He lived with his family on Chino’s Second Street and graduated from Chino High School in 1941 and attended Pomona Junior college in 1941 and 1942. From 1942 until 1946,  Ayala served in the U.S. Marine Corps, participating in the Battle of Tarawa in the Pacific.
Following extension courses at UCLA, he graduated from the National Electronic Institute in Los Angeles in 1948. For three years he worked as a field engineer for the Admiral Television Company in Los Angeles. From 1951 to 1954, he was assistant branch sales manager for the Homelite Corporation, manufacturers of small industrial construction equipment. From 1954 to 1964, he was an agent for the Farmers Insurance Group in Chino.

Ruben Ayala

Ayala was member of the Chino School Board from 1955 until 1962, at which point he was elected to the Chino City Council. In 1964, he ran to  become Chino’s first elected mayor.  In November 1966, he was elected to the San Bernardino County Board of Supervisors from the Fourth District and  served as chairman from 1968 to 1972.  As a supervisor he championed flood control projects throughout the county, including channels in Chino, San Timoteo Canyon, Mission-Zanja, Cable, Wildwood, Wilson and Carbon Creek, Live Oak Canyon, Plunge and Elder creeks and the South Rialto, Reche Canyon and Cypress channels, facilities along the Santa Ana River, the City Creek and Mill Creek levees and the highly controversial Mentone Dam.
Re-elected to the board of supervisors in 1970, Ayala resigned in January 1974 when he was elected in a special election to the California State Senate representing the 32nd Senatorial District. He was subsequently reelected to the Senate six times, leaving in 1998 when he was forced out of office due to term limits.
A  Democrat, Ayala in 1980 authored SB 200, legislation to expand the State Water Project by constructing a peripheral canal to transport water around the Sacramento-San Joaquin Delta. The measure was signed into law by Governor Jerry Brown but voters blocked it in a 1982 referendum.
In the Chino Unified School District, a high school is named after him.  The city of Chino’s largest park is also named in his honor.  The city of Rialto named a street after him in 1981.
His wife, Irene neé Morales, to whom he was married since 1945,  predeceased him in 2008. He is survived by three sons; Maurice; Ruben, also known as  “Buddy”; and Gary.
Assemblywoman Norma Torres, who now represents the Chino area, said the Ayala was an inspiration to the community.
“If you ever had the chance to meet and speak to the senator, you would’ve seen his passion for his family and the community he served,” Torres said.

Financial Challenges Deepen As Victorville Defaults On Two Bonds

VICTORVILLE—In what some observers are saying represents a major progression in  Victorville’s inevitable slide  toward bankruptcy, the city has defaulted on two bond issuances with a total value of $173 million.
The city was unable to cover $7.5 million of a $10.6 million payment due on December 1 after Bank of New York Mellon balked at the city seeking to utilize restricted funds for a $535,000 principal payment.
The default could trigger action by bondholders that would complicate Victorville’s already bleak financial picture. The city’s options in reversing the default also carry implications that will reduce the amount of investment, reserve and operating capital available to it.
At issue in the latest instance is the city’s propensity for interfund borrowing, a practice that always carries with it some degree of long term financial risk and in some cases entails skirting the law or bending financial protocols.
In 2007 and 2008, Victorville issued $173 million in bonds to cover the cost of a number of municipal programs, including $90 million to be used toward the escalating cost of the Foxborough power plant. Because the Foxborough plant was not completed, city officials were unable to repay the bondholders with proceeds generated from the Foxborough enterprise. Moreover, the staggering local economy has also impacted property values, decreasing property tax revenue to the city in recent years. To meet its bond debt obligations, the city instead rerouted money from the redevelopment agency and other funds to make those interest payments.  The city was unable this year to use redevelopment money for debt service because the California legislature sharply curtailed the charters of county and municipal redevelopment agencies up and down the state.
On December 1 a $10.6 million interest and principal payment on eight separate bond issuances made between 2005 and 2008 came due. In November,the finance department had scraped together $3.1 million to be used toward that payment, but was yet $7.5 million short. When they moved to tap into $7.5 million in reserves on deposit with the Bank of New York Mellon to cover the gap, the bank, which serves as a trustee on those funds for the city and does so in accordance with strictly defined guidelines laid out in federally regulated security filings, declined to make the transfer. Instead, it issued a notice to the city, dated December 16, informing city officials the reserve funds cannot be used to cover principal payments. When the payment to the bond holders was not received, Victorville was declared to be in default.
At press time, neither the bondholders, the underwriters nor the city had determined which of their options they would pursue.
The bondholders could sue for immediate payment of the money and attempt to have such a suit fast-tracked through the courts. They could also adjust the terms of the bond issuance to allow the city to use reserve funds to make a principal payment. They could also hold a forum and demand payment in full of the outstanding $173 million in bonds and/or seize whatever assets the city has in terms of collateral worth that amount used to secure the bonds.
The city has the option of sequestering its payment, that is, utilizing the $3.1 million that did not come from its reserves toward making that portion of the $10.6 million remittance which pertains to principal on the bonds and routing the $7.5 million toward payment on the interest. The city could also borrow money from some other source – perhaps by again issuing bonds – to raise the capital to make the payment. That would entail further debt down the road.
Questions about the fiscal health of Victorville have existed for some time, together with suggestions of mis- and malfeasance on the part of city officials and consultants and contractors working with the city.
An audit of city finances by Mayer Hoffman McCann released in March of this year indicated those problems have worsened, and its authors expressed “substantial doubt about the city’s ability to continue as a going concern.”
The audit uncovered tens of millions of dollars in internal loans that were never approved, three funds that were $180 million in the hole and dwindling cash reserves. As of March, according to the audit, the city’s utility fund was $78 million upside down, while cash in the water district had dropped from $15 million in 2009 to $8 million as of June 30, 2010 despite a $20 million loan made to the district from the Southern California Logistics Airport Authority, the agency devoted to converting the former George Air Force Base into a civilian airport.
That red ink, major losses approaching $200 million in the city’s effort to establish electricity generating plants, and apparent diversions of other funding intended for the development of the airport or infrastructure there to uses elsewhere in the city have captured the interest of the county grand jury, as well as the FBI.
Another federal oversight agency, the Securities and Exchange Commission, is probing Victorville’s questionable use of bond funding. The Securities and Exchange Commission more than 15 months ago subpoenaed documentation from the city relating to its bond issuances and expenditures. The commission has yet to release a report on its findings. The city’s attempt to breach protocol by using its reserves to make the December 1 payment could fall within the Securities and Exchange Commission’s scrutiny, as well.
City officials this week did not return calls from the Sentinel seeking comment on New York Mellon’s action or the default.
A number of Victorville residents, including longtime City Hall critic Ed Nemechek, suggested the default represents either a major step toward, or an indication of, the city’s insolvency.

Granlund Ducking Colonies Case Subpoena

As of earlier this week, former state assemblyman Brett Granlund had actively avoided several attempts to serve him with a subpoena relating to the Colonies Settlement case.

Brett Granlund

Well informed sources have told the Sentinel that lawyers for the defendants in the Colonies case want to question Granlund with regard to his knowledge about several aspects of the criminal prosecution of former county supervisor Paul Biane, former Fourth Supervisorial District chief-of-staff Mark Kirk, former sheriff’s deputy union president Jim Erwin and Rancho Cucamonga-based developer Jeff Burum.

In May, Biane, Erwin, Kirk and Burum were named in a 29-count indictment charging them with conspiracy, bribery and extortion related to what prosecutors allege was an effort to improperly settle for a $102 million payout a lawsuit Burum’s company, Colonies Partners, had brought against the county over flood control issues at its development project in northeast Upland. In November 2006, Biane, who was then the county’s Second District supervisor, Fourth District supervisor Gary Ovitt and then-First District supervisor Bill Postmus voted to approve that settlement in a 3-2 vote opposed by then-supervisor Dennis Hansberger and supervisor Josie Gonzales.

Postmus, who along with Erwin was previously charged with conspiracy and bribery in conjunction with his vote on the $102 million settlement, in March pleaded guilty to soliciting and receiving bribes, conspiracy and conflict of interest, and agreed to turn state’s evidence. In April, he was the star witness before the grand jury that indicted Biane, Burum and Kirk and reindicted Erwin.

Prosecutors’ allege Burum, together with Erwin, who was once the president of the county’s sheriff’s deputies’ union and was then working as a consultant to the Colonies Partners, prior to the November 2006 vote threatened to carry out an informational campaign involving mailers revealing Postmus’ homosexuality and use of illegal drugs and Biane’s insolvency, but ultimately refrained from the distribution of the information. These “threatening, menacing, commanding or coercing” acts, constituted extortion, the prosecution alleges. After the vote, Burum provided two political action committees controlled by former supervisor Bill Postmus with separate $50,000 checks, a political action committee controlled by Erwin with a $100,000 check, a political action committee created by Kirk with a $100,000 check, and a political action committee founded by Biane’s chief-of-staff Matt Brown, but which prosecutors claim was secretly controlled by Biane, with a check for $100,000. Those checks constituted bribes, prosecutors maintain. Prosecutors allege that Kirk influenced Ovitt’s vote. Kirk at that time was Ovitt’s chief of staff.

Defense attorneys, who are now seeking to obtain information to compromise the credibility of Postmus, are interested in obtaining from Granlund documents related to his communication with individuals close to the district attorney as well as the district attorney directly or indirectly and information bearing upon the motivation driving the prosecution. Granlund was once a powerful player in Republican politics in San Bernardino County, as was Postmus. Granlund has close ties to former supervisor Dennis Hansberger, Hansberger’s one-time chief of staff Jim Rissmiller, district attorney Mike Ramos and others within Ramos’s political circle. Reportedly, Granlund served as a go-between in discussions involving the district attorney’s office and Postmus in the months leading up to Postmus’ decision to turn state’s evidence. Both Hansberger and Rissmiller testified before the grand jury that indicted Biane, Burum, Erwin and Kirk.

Sources tell the Sentinel that a private investigator and process server working for one defendant’s legal team has sought to make contact with Granlund to serve him with a subpoena. As of early this week, that effort has not succeeded and in recent days, Granlund has gone to ever more extreme effort to avoid being served, refusing to answer knocks upon his door and using other tactics to evade the process server. Efforts to locate him at Platinum Advisors, the Sacramento-based lobbying firm that employs him, were thwarted when employees claimed that Granlund does not work out of that office.

In conversations he assumed to be confidential with friends and associates in San Bernardino County and the state capitol, Granlund has expressed anger with the defense’s efforts to “drag” him into the matter and he expressed concern that the questions he might be subjected to could raise issues problematic to him personally and professionally.

Pomierski Demanding Taxpayers Pay For His Legal Defense

UPLAND—The lawyer for former Upland mayor John Pomierski is threatening legal action against the city if it does not provide him with representation in defense of a civil suit filed against Pomierski, other former city officials and the city by the ownership of the now-shuttered Chronic Cantina restaurant and bar.

John Pomierski

Ontario-based attorney Robert Schauer this week lodged a claim against the city at the city clerk’s office on Pomierski’s behalf calling for the city to underwrite the cost of the former mayor’s defense against the suit. If the city refuses, Schauer intimated he will represent Pomierski in legal action to force the city to pay the now disgraced ex-mayor’s attorney’s fees and other damages.

The owners of the Chronic Cantina, Robert Mills, Scott Schaller, Thomas Smith, Keith Scheinberg and Dan Biello, collectively known as KSDB, Incorporated, filed a lawsuit against the city and several city officials including Pomierski in April in West Valley Superior Court in Rancho Cucamonga. The suit maintains that Pomierski, Upland contractor John Hennes and former Upland police chief Steve Adams extorted them by withholding and then withdrawing their operating permits.

While Pomierski denies all elements of the Chronic Cantina’s lawsuit, the issue is much more complicated than that. In March, Pomierski was indicted by a federal grand jury which criminally charged him with engaging in the same activity – conspiracy, extortion and bribery – which is at the center of the Chronic Cantina’s lawsuit. What is more, the federal indictment specifies the Chronic Cantina’s ownership and management as one of two entities extorted by Pomierski; his appointee to the city of Upland’s housing appeals board, John Hennes; and two others linked to Pomierski, Jason Crebs and Anthony Orlando Sanchez. Pomierski is maintaining his innocence in the face of the charges against him. Sanchez has fled and is now considered a fugitive from justice. Both Hennes and Crebs have entered guilty pleas and are cooperating with prosecutors.

In this way, the city is being asked to utilize taxpayer money to propound a defense of an individual facing accusations that he broke trust with the very people – Upland’s residents – Pomierski is asking for financial assistance from.

Schauer, nonetheless, maintains that state law requires that Upland’s taxpayers shell out money to defend his client. In the claim he filed for Pomierski, he cites California Government Code 995, which holds that “a public entity shall provide for the defense of any civil action or proceeding brought against him, in his official or individual capacity or both, on account of an act or omission in the scope of his employment as an employee of the public entity.” Schauer said he has consistently requested the city to indemnify Pomierski and that the city has an obligation to do so.

Schauer is something of a controversial figure, himself. He was an appointee to the Upland Planning Commission, a panel which Pomierski dominated during his tenure as mayor and which was involved in a number of the abuses of governmental authority under the Pomierski regime. As a member of the planning commission, Schauer once openly supported converting Old St. Mark’s Church on 18th Street in the midst of an upscale residential neighborhood immediately adjacent to a junior high school, into a tavern. Behind the scenes, Pomierski had pushed for the conversion of St. Mark’s Church, to provide him with a forum for carousing that was off the beaten track, out of the public lime light and relatively close to his own home.

After Pomierski was indicted and KSDB filed its suit, Schauer resigned his position on the planning commission.

No date for KSDB’s civil suit has been set. Pomierski’s trial date on the criminal charges has been set for April 24 in federal court.

Upland mayor Ray Musser, who was long the sole voice of dissent on the council led by Pomierski and twice opposed him in the 2004 and 2008 elections, said the city had yet to formulate a response to the claim.

“The city manager wanted to review it and delegate it out to key people, but he is on vacation at the moment. We will get it in its proper timetable. I don’t want to make any comment because if it turns up in litigation, it will be used against me and the city no matter what I say,” Musser said.

Supreme Court Rejects Chino Hills Appeal; Fate Now Rests With PUC

CHINO HILLS—The city of Chino Hills’ options for legal recourse in blocking the Tehachapi Line have been exhausted with the state Supreme Court’s refusal last week to review the city’s failed lawsuit against the installation of high-voltage power wires through the city.

The city’s lone hope in averting the permanent imposition of 200-foot high transmission towers through a significant portion of the city now rests with the state Public Utilities Commission, the same entity that three years ago gave go-ahead to the project but which is now reviewing that decision.

In seeking to meet state-mandated renewable energy goals, Southern California Edison has undertaken the Tehachapi Renewable Transmission Project, which is intended to generate at least 1,500 megawatts of power from new windmills to be erected within a 50-square mile windfield in the Tehachapi area, an undertaking three times the size of any existing wind farm in the United States.

To convey that power to the urbanized population centers of the Southland, Southern California Edison is utilizing its existing power corridors and easements, including a long-extant but less intensely used corridor through upscale Chino Hills.

Chino Hills, where homes typically list in the $400,000 range even in the currently down real estate market, is the most densely populated area through which the transmission lines will span. Chino Hills residents, convinced the power lines represent a negative impact on both their quality of life and property values, resisted the imposition of the corridor. For some time, through the auspices of City Hall and with the assistance of other champions, such as state Assemblyman Kurt Hagman, Chino Hills officials importuned Sacramento to do something to deliver them from the burden of the transmission lines traversing their community. While the environmental assessment for the transmission lines was being done, city officials floated a proposal to reroute a span of the power transmission line through Chino Hills State Park to keep it from passing through the city. That concept was shot down and the public utilities commission approved the line in most respects as Edison proposed it. Hagman, who was formerly Chino Hills mayor, introduced legislation, AB 2662, a bill that would have prohibited an electrical corporation from constructing substantially larger transmission towers in an easement intended for smaller transmission towers when the easement runs through an occupied residential area. That bill died at the committee stage.

The city of Chino Hills then sued Edison last year, claiming the company had “overburdened” the easements. That effort failed when West Valley Superior Court Judge Keith D. Davis ruled the California Public Utilities Commission has exclusive jurisdiction regarding the route used by Edison and that the matter fell entirely out of the Superior Court’s purview. Davis threw the suit out.

Chino Hills appealed Davis’s ruling to the 4th District Court of Appeal, asserting the city has the right to have the case heard by a jury because the Public Utilities Commission did not employ a standard set of guidelines in approving the placement of the Tehachapi line project. Rather, according to the city, the PUC allowed the imperative of completing the transmission line to facilitate the wind power project to take precedence over policy and safety and aesthetic guidelines, which should have been considered and adhered to as part of the approval process.

On June 29 Chino Hills assistant city attorney Elizabeth Calciano sought to convince a three-judge that Davis had erred when he ruled the California Public Utilities Commission possessed the authority to permit Southern California Edison to erect the towers.

But on September 12, the 4th District Court of Appeal panel, consisting of associate justices Betty Richli, Carol Dodrington and Jeff King, turned back the city of Chino Hills’ challenge and affirmed Davis’ 2010 Superior Court decision, ruling that the California Public Utilities Commission has exclusive jurisdiction over property rights issues between the city and Edison.

The city then petitioned the state Supreme Court to examine the issue and both Davis’s and the 4th District Court of Appeal’s findings.

Chino Hills assistant city attorney Elizabeth Calciano was informed December 21 that the Supreme Court declined to review the appellate court’s decision.

Michael Peevey

To date, the city of Chino Hills has expended $2.4 million in the effort to prevent the towers from being erected in its jurisdiction. Several of the towers are now in place. Even as the towers were being erected in October, mayor Ed Graham and city manager Mike Fleager escorted the president of the California Public Utilities Commission, Michael Peevey, around town, giving him a visual demonstration of the ominous nature of the towers and importuning him to have the commission reconsider its permitting of the line. In the presence of Chino Hills officials, Peevey was polite and indulgent, but restrained in his response, offering hope, but no promises. In email correspondences with some Chino Hills residents, Peevey indicated his visit to Chino Hills where he was actually able to see the 200-foot towers, had given him a new perspective. Since then, four of his utilities commission colleagues have sojourned to Chino Hills to see the towers. Since the permits were given by the commission, three of those members have left and been replaced by others who did not participate in the original vote.

In November the commission temporarily halted Edison’s construction and ordered the company to produce by January 10 an explanation/justification for continuing with the above ground route that is in progress. City officials and residents are pressing for a rerouting through Chino Hills State Park, a reduction in the height of the towers or undergrounding of the lines.

Feds Sustain Suspension of Victorville’s Investment For Visas Program

VICTORVILLE—The administrative appeals office of the U.S. Citizenship and Immigration Service has sustained the termination of Victorville’s EB-5 visas-for-investments program.

The EB-5 program is a federal one that allows entities such as cities or redevelopment agencies to arrange for the provision of visas for foreigners who invest at least $500,000 in projects pre-qualified by the federal government, in particular ones aimed at the civilian-use conversion of former military bases. In April 2008, the city entered into a relationship with CMB Export, LLC to manage an EB-5 program for Victorville at and around Southern California Logistics Airport, now being built on the grounds of the former George Air Force Base, which was shuttered by the Department of Defense in 1992.

Under its agreement with CMB, that company was supposed to recruit foreign nationals, in this case mainly ones from China and Korea, who were to put up at least $500,000 each in investments pertaining to the base. In exchange, the investors would receive visas, or green cards, for themselves and the members of their immediate families. The city, however, abrogated its contract with CMB in June 2008. In December 2008 CMB filed a $33 million lawsuit against the city, claiming breach of contract, fraud, unfair competition and business interference. CMB refiled the claim in February 2009, including charges of misrepresentation and fraud by former city manager Jon Roberts and former mayor Terry Caldwell.

Despite the lawsuit, U.S. Citizenship and Immigration Services approved Victorville’s application to participate in the EB-5 Program in 2009, allowing foreign nationals to supply at-risk loans to the city, with the proviso that the loans underwrite efforts to convert the former air base to civilian use and simultaneously create local employment opportunities. Investors were to be paid back with interest within five years. Nineteen Asian investors put up $500,000 each under the program. The city then committed to utilizing the money to refund a restricted municipal water department account from which money had been used to construct a wastewater plant at Southern California Logistics Airport.

In April 2010, the city of Victorville settled the lawsuit brought by CMB for $200,000. The following month, however, the U.S. Citizenship and Immigration Service suspended Victorville’s EB-5 program pending review, stating that city officials had misrepresented the projects to be funded by the investment program. In October 2010, the U.S. Citizenship and Immigration Service terminated Victorville’s program, citing “material factual discrepancies” in financial documents. It was the first time the federal government had moved to terminate an entity’s EB-5 authority.

In response, Victorville filed a lawsuit in Washington, D.C. District Court against the U.S. Citizenship and Immigration Service, the Department of Homeland Security and several senior federal officials. It also filed an appeal of the program cancellation with the U.S. Citizenship and Immigration Service’s Administrative Appeals Office, and temporarily agreed to a stay of the suit pending that appeal.

In a letter dated December 21, the administrative appeals office of the U.S. Citizenship and Immigration Service upheld the decision to terminate Victorville’s program, referencing Victorville’s failure to meet several EB-5 criteria. The appeals office determined Victorville had fallen short in generating jobs using the foreign investments. “At issue is whether the alien investors can be credited with job creation when, in actuality, they are merely preserving jobs,” according to the letter. The appeals office found examples of misrepresentation or contradiction between what councilman Mike Rothschild and the city’s attorneys said about the program and discrepancies in city representations about the city’s interdepartmental loans and their use. The wastewater plant, which is already running, is operating without an infusion of EB-5 money, though the city had declared its intent to pay the interfund loans with the EB-5 money.

Victorville has refunded the entirety of the $9.5 million in investments it received under the EB-5 program. At present, it is looking to sell the wastewater treatment plant to the regional Victor Valley Wastewater Reclamation Authority.

The city council is now scheduled to discuss on January 17 whether to proceed with its lawsuit against the U.S. Citizenship and Immigration Service and the Department of Homeland Security. That issue is problematic for several reasons. One is that public representations by Rothschild are at issue in the federal agency’s action. Another is a conflict involving city attorney Andre DeBortnowski, whose firm stands to make money if the city proceeds with the suit. DeBortnowski and his firm’s representations in documents have been cited as inconsistent with Rothschild’s statements. Bortnowki’s firm also failed to monitor the EB-5 program adequately in the past to ensure that it maintained federal certification. Pursuing the lawsuit in federal court will likely prove very costly.

SEBA Accepts Benefit Cutbacks

In the face of San Bernardino County’s imminent imposition of labor terms on them that would have included a 14 percent pay and benefit reduction, the county’s county’s probation corrections officers, deputy coroner’s investigators and welfare fraud investigators accepted terms they had previously rejected.

The probation officers, coroner’s investigators and welfare fraud investigators are represented by the same union that does the contract negotiating for the county’s sheriff’s deputies and district attorney’s office investigators, the Safety Employees Benefit Association, known by its acronym, SEBA.

SEBA and its president, Laren Lecihleiter, have proven resistant to the declared intention of county chief executive officer Greg Devereaux to make across-the-board reductions to the county’s personnel costs, including reducing salaries, pensions and benefits to all county employees in an effort to redress what Devereaux has termed the county’s structural deficit, which will manifest in a deficit of more than $120 million over the next five years if current spending patterns are not changed.

The county initiated negotiations with SEBA ten months ago with a mind toward Devereaux’s goal, but was unable to get the union to accept the cuts the county calculates it needs to put in place to make ends meet over the next several years.

There are different units within SEBA, including one that represents sheriff’s deputies, corporals, detectives, sergeants and lieutenants, another that represents the district attorney’s office investigators, and the one that represents the probation officers, coroner’s investigators and welfare fraud investigators. The unit representing the probation officers, coroner’s investigators and welfare fraud investigators is known as the special peace officers bargaining unit.

The special peace officers bargaining unit has the least clout among SEBA’s differing units. Nevertheless, the way in which negotiations between the county and the special peace officers unit fared was considered a bellwether for how negotiations will go between the county and the other units.

In June, the county made a last, best and final offer” calling for a 14 percent cut in pay and benefits. Normally, a last, best and final offer provides an employer with the legal authority to submit those terms to an arbitrator, who can then impose those terms on union workers if the employer can demonstrate the economic necessity of doing so. In October, an arbitrator made a determination that the county would be justified in imposing a 7 percent reduction on the special peace officers, but SEBA refused to accept those terms.

On December 13, the board of supervisors, in a show of impatience with SEBA, voted 3-2 to deliver an ultimatum that the bargaining unit accept what the arbitrator offered in October or that the county would otherwise impose its last, best and final offer. Supervisors Neil Derry and Brad Mitzelfelt dissented in the vote of the board of supervisors to impose the terms, but they were outmuscled politically by supervisors Josie Gonzales, Gary Ovitt and Janice Rutherford.

In short order, SEBA conducted a vote of its special peace officers bargaining unit, in which 72 percent of the unit’s members participated. In that polling, all who cast ballots voted unanimously to accept the arbitrator’s October terms, i.e., the elimination of the county’s 7 percent pickup of the employees’ share of retirement contributions, a reduction in annual merit raises from 5 percent to 2.5 percent, and the union’s agreement to the dismissal of a lawsuit challenging the county’s refusal to grant the employees a 3 percent at 50 retirement benefits package, which the union maintains is a standard benefit for sworn law-enforcement officers throughout the state.

The county began negotiations this month with SEBA representatives with regard to labor terms for the union’s safety unit, which includes sheriff’s deputies, sheriff’s detectives and district attorney’s investigators. Unspoken at this point is the county’s desire to have the deputies give back the 3 percent at 50 retirement benefit package the county has been providing to the safety unit since 2003.

While Leichleiter and SEBA are intent on maintaining the retirement benefit as it is, SEBA’s concession in withdrawing the lawsuit pertaining to extending the benefit to the special peace officer’s unit, the consideration that the Colton Police Officers Association recently agreed to withdraw that benefit from any new-hires to the Colton police department, and the county’s increasingly dire financial circumstance augers against the union.