Just Terminated SB Finance Director Questions City Manager’s Bond Issuance Intent

By Mark Gutglueck
The poorly-hidden fracture on the city council that has for months accompanied a simmering dispute over the fate of San Bernardino’s seismically challenged City Hall loomed into stark relief Wednesday, revealing that the city’s finance director, who has been in place for more than three years, had been given her walking papers by the city manager, who has been in place less than a fourth of the time that she has.
Brought home in the contretemps is deep concern that some city officials have had that a dozen years after San Bernardino it was forced by dire fiscal circumstance into Chapter Nine Bankruptcy protection and less than seven years after having made a shaky exit from that status, City Manager Charles Montoya is locking the city into a financing arrangement with a bond company which will leave the city encumbered in debt for a half century to come.
Montoya’s sacking of Barbara Germaine Whitehorne, San Bernardino’s director of finance from February 2021 to July 2022 who has served in the dual capacities of director of finance and management services from July 2022 until this week, was made on the spur of the moment as she confronted him with regard to what she saw as his open-ended commitment to working with the bond underwriting firm of Stifel.
At this point, questions are emerging about Montoya’s past and ongoing relationship with the firm. While previously he had been able to maintain the confidence of a substantial majority of the city council, the precipitous move against Whitehorne has raised the potential of a more thorough examination of questions Montoya had previously dodged, creating a situation that extends to, perhaps, the presumption of his continuing tenure as city manager.
The current issue is rooted in the misfortune San Bernardino has had with its iconic City Hall, designed by the highly accomplished Argentine American architect César Pelli, who emigrated to the United States in 1952. Pelli had been commissioned to design what was to be the centerpiece of the new San Bernardino Civic Center, to include what would be the city’s fourth City Hall in Downtown San Bernardino, on property reclaimed from a longstanding historic section of the city, where nearly a score of buildings had been demolished to undertake an urban renewal effort. Pelli’s plans for the 115 feet tall and 217 feet long by 68 feet wide six-floor structure in the modernist style included an architecturally-striking overhang, a mezzanine and basement that did not count toward the six floors which was to be supported by pilotis, i.e., pillars or columns composed primarily of concrete. Because of the overhang, all five of the upper floors were not to be supported by a ground floor.
As fate would have it, on the early morning of February 9, 1971, the San Fernando earthquake, also known as the Sylmar earthquake, occurred in the west foothills of the San Gabriel Mountains. The unanticipated thrust earthquake had a moment magnitude of 6.5 to 6.7 on the Richter Scale. The quake did damage to the San Fernando Valley and other densely populated areas north of central Los Angeles, causing several buildings to collapse. This demonstrated the inadequacy of the building standards that had been put into place in California following the Long Beach Earthquake of 1933. California lawmakers acted quickly to develop legislation related to seismic safety, tightening construction standards. Already at that point, architects and engineers had introduced the concept of incorporating rollers into the foundation of high rise buildings, which would allow the foundation to roll or shift with a seismic disturbance. Two decades later, rollers would be replaced by massive vertical springs in the foundations of large buildings. But San Bernardino City Hall had neither of those features. San Bernardino officials rushed ahead with initiating the construction project prior to the new standards being put into place, which would have substituted steel pillars for the concrete pilotis. The building, with its curtain walls and an exterior 90 percent clad in glass entailing 6,000 windows with slim aluminum mullions, was erected. It stood, arguably, as one of the more impressive City Halls in California or the United States. On a practical level, it was perfectly functional from the time of its completion in 1972 for 45 years. In September 2017, a succession of minor but recurring earthquakes, referred to as a swarm, were registered near the Salton Sea. Afterward, the California Office of Emergency Services put out a warning that the chances of a magnitude 7.0 or greater earthquake was slightly greater than normal. Upon examining the circumstance, then San Bernardino City Manager Mark Scott looked into a set of seismic integrity calculations that had been applied to San Bernardino City Hall a decade previously. A structural engineer in 2008 who examined telltale signs of instability and aging that were manifesting in various spots around the building came to the conclusion that it would in no case be able to withstand a locally based temblor greater than 7 on the Richter scale and would likely collapse in the face of a 6.5 scale quake. The building’s hopes would be marginal if shaken by a 6.0 event, the engineer prognosticated.
Scott concluded that it would be best to move all of the city’s offices out of City Hall.
Thereafter, the lion’s share of the city’s departments took up residence in the Vanir Tower located next to City Hall, as well as in a number of smaller locations within the downtown area.
The grand edifice that is San Bernardino City Hall remained where it stood, with residents and officials alike torn over what should become of it. A primary question was whether it could undergo a seismic retrofit, one in which the pilatis might be augmented or replaced with pillars, rendering the building stable and able to withstand temblor of the magnitude the San Andreas fault is capable of dishing out. Examinations were made and opinions – expert one – were gathered. The answer seemed to be that the building could be salvaged, but at a cost. An initial estimate was that the pilatis could be reinforced for approximately $8 million. Subsequent examinations found that the cost would prove to be substantially more than that.
Other reinforcement approaches were looked at. The cost escalated with each reexamination. No funding to undertake such a project was available. Still, dismantling such a unique and impressive building was not something city officials could bring themselves to doing. The building remained, empty and unused, its future uncertain. The original $8 million redressment grew to $21 million, then $27 million. Soon it had climbed to in excess of $40 million.
The question became: what was the realistic cost of razing the building and rebuilding it, this time to exacting seismic standards from the outset. Funding for such a project was simply not available.
Word was that spending $65 million on a retrofit would, conceivably, harden the building, moving on to a half century old, to be able to withstand an earthquake on the order of 7 Richter scale. Others warned, though, that no matter how much was invested in a retrofit, no real guarantee would be had, and with an earthquake of intense magnitude centered nearby, the building would very possibly come crashing down.
It would be better and no more expensive, structural engineers said, to raze the building and construct it from scratch, incorporating into the design state-of-the-art stabilization features, such as spring
At the end of October 2023, Montoya was hired. Determined to make a demonstration that his willingness to act outran the procrastination of his predecessors and his political masters, Montoya, without any publicly previewed or clear direction from the city council sent instructions to Public Works Director Lynn Merrill, the city’s finance department and William Lampi, one of the analysts working in the city manager’s office, to look into the task of fully assessing the building’s engineering/structural shortcomings, determine whether they can be redressed and at what cost, make a determination of whether it is financially reasonable to undertake such a project rather than razing it and building a new structure from scratch and prepare the means for financing that undertaking. In doing so, he directed the finance department to work with the bond underwriting firm of Stifel, based primarily on his past dealings with the firm when he was city manager in Watsonville, as well as in Florence and Avondale, both in Arizona, and while he was the finance director and treasurer with the Town of Castle Rock and the chief financial officer for Centennial, both in Colorado.
A calculation made by Sara Oberlies Brown, the managing director for Stifel in its San Francisco Office, and Mark Reader, Stifel’s managing director in its Phoenix office, was that the renovation of City Hall would run from somewhere between $75 million and $82 million. Since the city had been saddled with constant lease costs for the quarters in the Vanir Tower and elsewhere, the city could finance the renovation of City Hall and make arrangement to service that debt over a period of 50 years or thereabouts, move all of its employees back into City Hall and thereby end having to shell out money on a monthly basis for its rented office space. That money not spent on office leases would be what was used to service the debt.
There had already been mention of issuing municipal bonds to effectuate that financing. Conferring with Brown and Reader, Montoya signed a letter of intent with Stifel to have it serve as the underwriter on the issuance of $82 million in bonds.
On January 30, 2024, the city had a strategy session involving the entirety of the city council as well as the city’s finance and management services department personnel. Available to educate the council on its bond financing options were Brown and Reader. Montoya had Lampi and Merrill brief the council on the situation with regard to City Hall.
At that point, with the city council sufficiently angled toward considering carrying out the seismic hardening, Montoya opened the forum to a presentation by Brown, who stated that the city was challenged with regard to its financing options. To enter into any type of indebtedness exceeding annual revenues including bonded indebtedness, the city would need to obtain two-thirds voter approval of a tax or assessment to service that debt, Brown said. She suggested that the city bypass the requirement for a vote of the city’s residents by entering into “long term leases subject to annual appropriation by the city council as part of the budget process,” using a means that “has been leveraged by cities and counties throughout the State of California on a regular basis to provide infrastructure that is considered to have general benefit to the community.
In the case of San Bernardino, Brown said, much could be accomplished by the issuance of “lease-revenue bonds or certificates of participation, both having this common structure of lease-financing.” The strategy would entail, Brown said, “a lease-lease back structure,” one in which the city leases one of its assets to a financing authority – a parallel or ghost entity to city government which would have as its board of directors the city council and Montoya as its chief executive officer – for a nominal amount, such as one dollar. The finance authority would then “rent” the asset back to the city, with the value amortized over a given period of time. The city’s lease payments would then transfer to the trustee, who would use the incoming money to pay down the debt, that is, make payments to the bondholders. This debt servicing would require “use and occupancy” of the leased asset. “The trustee can re-enter and relet the asset if the issuer doesn’t make payments,” Brown said.
In practical terms, what the city would do is issue the bonds, take the proceeds from the sale of the bonds and use them to seismically retrofit City Hall, at which point the city could move all of its departments out of the Vanir Tower and other locations around downtown back into City Hall. The money that the city was otherwise paying to lease the office space to house its departments and employees would then be used to pay back the bondholders.
Brown said the city had set up financing authorities previously, as was the case with the city housing authority and before the State of California in 2012 closed out all municipal and county redevelopment agencies statewide, its redevelopment agency. The city council in all such cases acts as the governing body or board of the financing authority.
The asset to be leased to the financing authority could be any of a number of city assets such as the existing City Hall, a park, the city’s corporate yard, or its police station. Such assets have served as the subject of the lease payments in other cities, Brown said. The bonds issued could be structured to refund the bondholders in as short of a span as 10 years or up to 30 years or more, she said, with the standard or typical time being 30 years.
Without being specific, Brown indicated the city could structure its lease payments on the asset to be entrusted to the finance authority to be roughly equivalent to what the city is paying to lease the existing substitute City Hall facilities in the Vanir Tower and elsewhere.
Brown then somewhat aggressively laid out a schedule by which the city would “kick-off” the concept of doing the lease lease-back financing, draw up the legal documents relating to the bond issuances and educate all of the participants – i.e., the city council and city residents – about what is to occur in January and February of this year, draft credit and marketing materials in March and April and award a construction project contract to whatever company is to do the work on City Hall, present the city’s credit rating to a bond rating agency, post offering document and market the bonds in May and June. In July the city would then use the incoming proceeds from the bond sales to begin construction, that is, the retrofitting of City Hall.
Ultimately, Brown said, the city council would “act as the play caller,” while her suggestion was that it was understood a bond issuance was the city’s best option.
Questions posed by the council, particularly Councilwoman Kimberly Calvin, at that time probed how it was that the city was on a trajectory to make an $82 million expenditure toward retrofitting City Hall, committing the city and its residents to debt service of something approaching $180 million over the next three decades.
To Calvin’s inquiry about Stifel’s role as the city’s bond underwriter and whether they had already been hired for that role and why the city had not sought bids from other companies, Montoya indicated he had already signed a letter of intent with Stifel relating to their hiring. He said Stifel previously “worked with me in several different states,” that typically arrangements between municipalities and bond underwriting companies are “relationship-based” involving “people that we trust, that we know, that we work with.” He sought to discourage the council from dwelling unnecessarily on financing options or involving itself in an interminable debate over which bond underwriter to utilize after staff had already carried out such evaluations. He offered his assurance that Stifel qualified as “one of the top companies in the United States.” He encouraged the city “to start moving ahead.”
San Bernardino City Hall, he said, “is iconic. It is not only iconic to this community but to the state and the United States. It still sits in historic books everywhere This building has not been upkept. It needs to be done. It needs to be retrofitted and brought up to today’s standards but it is still a beautiful building. In the meantime, the city has been paying lease rates in a building next door where we can be paying the bond rates to pay for that building and just get it done and get back in there.”
While the council had not officially embraced the bond issuance strategy as arrived at by Montoya and did not adopt the rapid timetable of orienting the city’s residents and selling them on the concept in January and February, drafting the bonds and marketing prospect in March and April finalize the bonds’ ratings this month and offer them for sale by June to begin the retrofit project in July, Montoya continued to work diligently toward those goals over the last three-and-a-half months. The council had been scheduled to take up the matter at its May 1 meeting, at which it was to see a final presentation on the renovation project and the financing plan to accomplish it and perhaps vote that evening to proceed. Those items were postponed until the May 15 meeting this week. Had the council acted with alacrity regarding those matters, it was possible that the bonds might have been offered for sale by late June or July and that the project might be under way by late July or August or September.
During public comments on Wednesday, however, Barbara Whitehorne addressed the council.
Whitehorne holds a bachelor’s degree from Bryn Mawr College and a Master of Business Administration from the University of Texas at Dallas, began her career in public finance in 2005, working in the finance Department with the City of Corinth, Texas in 2005. She was hired as the controller with the City of Arlington in Texas from July 2010 to November 2013, before moving eastward to take on the role of the chief financial officer with the City of Asheville, North Carolina, remaining in that position from December 2013 until January 2021. She came to San Bernardino in February 2021.
“I am no longer in the employ of the City of San Bernardino, after being threatened today and having information damaging to my career released into the public domain,” Whitehorne told the council.
Whitehorne said she had come to loggerheads with Montoya over his commitment to carrying out the City Hall retrofit project and determination to use bond financing to accomplish it.
She said she indicated her unwillingness to offer her support for the City Hall salvaging effort, telling Montoya he would have to fire her to prevent her from opposing it as a city employee.
She quoted him as responding, “Oh, then I’ll just fire you without cause.”
Accordingly, she said, “So, I was fired today, as your finance director. Tonight, I come to you as a whistleblower. Most of you already know this. You have a budget coming before you, which is reasonably balanced, but you also have two items coming before you with the City Hall project that… has expanded from approximately $80 million to $120 million, and that number is nowhere to be seen on this agenda. That amount also comes into play quite quickly. I was told that about $12 million is needed within the next 12 months and that $10 million annually will be needed at a minimum starting Fiscal 2025-26 for the next thirty years for the debt service. This city does not have that money.”
Her confrontation with Montoya had been brewing for a while, Whitehorn said.
“I gave that information to the team in charge of that capital project the week of May 1, before I left on vacation,” she said. “I came back from vacation today and was fired today. So, I come to you, council, with that information today and I come to you with that because I care about this city more than I care about my job, more than I care about anything else today. I love this city. I live in this city, and you all know that.”
Gesturing toward Montoya, she said, contemptuously, “He does not care about this city and he lives in Riverside. Thank you for listening to me and thank you for allowing me to serve this city proudly for more than three years.”
The crowd became unsettled, at which point shouts were heard. The precise sense of some of the expressions of unrest were indiscernible. Others were attempts to prompt council reaction to Whitehorne.
This prompted City Attorney Sonia Carvalho to state, “We would decline to speak about personnel matters in public.”
The council was scheduled, later that evening to consider authorizing “the city manager to move forward with Step 1 of the San Bernardino City Hall Renovation Project” and adopt a resolution authorizing the creation of the City of San Bernardino Financing Authority and certain other matters
pertaining thereto.”
Prior to that occurring, during the discussion of the upcoming 2024-25 budget, Councilman Juan Figueroa referenced what Whitehorn had said,
“I went from having questions to now having concerns, especially given the events of today. I don’t even know if I’m prepared to approve this [i.e., Montoya’s prepared budget] at this point, considering all the information that we’ve been provided today. I’m at a loss for words here.”
Councilwoman Calvin said, “In light of what has been mentioned to us, aside from this employee relation and how whatever took place, my questions are regard the City Hall and I just don’t remember when we gave City Manager Montoya direction to speak with…” At that point, she was interrupted by Mayor Helen Tran, who asked her to hold off on discussing issues relating to the City Hall renovation and issuance of bonds until that specific item was to be discussed.
Calvin assented to doing so.
When the time for the renovation and bonding issue discussion arrived, however, Montoya pulled the item, postponing a possible discussion on it until a later date.
Today, Montoya managed to weigh in on Whitehorne’s assertions, doing so in a press release put out by the city’s spokesman, Jeff Kraus.
“The remodeling of our City Hall is a complicated project with complicated financing, and many details,” Kraus was directly quoted as saying in the press release. He then asserted that Montoya and the remainder of staff had not been dissuaded by Whitehorne’s statement that night from pushing ahead with the bond issuance discussion but delayed it because of time constraints.
“Council meeting rules require the adjournment of the meeting by 10:00 pm, and under certain circumstances, by 10:30 pm,” Kraus asserted. “It was determined that there was not enough time for the council and members of the public to view the presentation, hear public comment, ask questions, and fully deliberate the issue in the time remaining.”
According to Kraus, whose role as city spokesman involves his serving as well as Montoya’s mouthpiece, “The city council was to hear a report on the initial steps of the City Hall renovation project, and possibly authorizing city staff to further explore the project, laying the groundwork for subsequent council discussions. There were no funding or financing decisions being proposed by city staff.”
Kraus then took aim at Whitehorn.
“During the public comment portion of the city council meeting, Barbara Whitehorn, the former San Bernardino director of finance and management services, stated that she was terminated earlier that day for stating in a memo that the cost of the City Hall renovation was beyond what the city could afford,” Kraus wrote. “However, contrary to Whitehorn’s claims, the renovation project has yet to be designed, and construction costs have yet to be determined. Construction cost estimates and project financing options will be presented to the council during future meetings. The City of San Bernardino has confirmed that Whitehorn was an at-will employee and was terminated for cause involving financial issues that were unrelated to the City Hall project.”


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