More than two weeks after city officials in San Bernardino resolved to file for bankruptcy protection amid charges of widespread fraud and financial document falsification, the city council has declared a state of fiscal emergency exists at the county seat but no criminal charges against any city employees, current or past, have been filed.
Information that has surfaced in the intensive glare of scrutiny following the announcement that the city would play the bankruptcy card indicates some possible corruption of city procedures and cronyism at City Hall, but on a scale that does not  account for the city’s fiscal collapse, one that is unprecedented in San Bernardino County history.
Rather, the city’s dire economic condition appears to be one that has been building for years as businesses in the once-booming municipality have been steadily leaving, unemployment and poverty among the citizenry has been increasing, and short term fixes with ultimately negative and counterproductive long term implications have been applied.
In recent months, city officials have been particularly stingy with municipal financial information. As San Bernardino County’s other 23 municipalities were finalizing and presenting to the public their 2012-13 budgets, San Bernardino, the county’s largest city in terms of population and oldest municipality, had no budget to offer and would not even release a version of the tentative budget city officials were working on. Likewise, city officials were unwilling to release financial reports, audited or unaudited, despite the public nature of nearly all of those documents. Within several days of the council’s vote to seek bankruptcy protection, the firestorm of controversy and criticism forced the release of the most recently compiled audited financial report, a very unflattering snapshot of the city’s fiscal management.
Whereas into the 1990s, the city of San Bernardino had been sitting on comfortable reserves consisting of surplus revenue that municipal operations had been generating for decades, year after year of deficit spending, much of it hidden from public scrutiny, began to deplete that cushion. As early as the latter years of former city manager Shauna Clark’s tenure in the 1990s, expenditures were sometimes outrunning revenues. Under the subsequent 12-year duration management of Fred Wilson, efforts at fiscal discipline were made, including scaling down the size of city government to  bring operations into line with available income, although inevitably, the city was forced to draw on its reserves. Under Wilson, the city avoided taking money out of restricted funds to shore up operations funded by the city’s general fund, but did tap into reserves.
Upon Wilson’s departure for the city of Huntington Beach in 2008, he was succeeded by interim city manager Mark Weinberg and then Charles McNeely. Weinberg and McNeely made  borrowings from the city’s workers compensation and liability insurance funds to balance the budget.
In 2009, the city council supported a staff proposal to borrow $1.3 million from the city’s economic development agency to balance its books.
In 2007-08, the last full year Wilson was in place, the city’s general fund balance stood at $16.1 million at the end of the fiscal year in June 2008. By June 2009, the end of fiscal 2008-09, the general fund, including reserves, had been depleted to $2.7 million. By June 2010, the close of fiscal 2009-10, the general fund’s balance had dropped to $410,000.
Over the decade-long haul from 2002 to 2012, deficit spending continued apace through all of the city’s accounts – including the general fund, enterprise funds, reserve funds, special funds and redevelopment agency, with unrestricted net assets drawing down yearly to the point that the city had $181 million in unserviced debt by 2010.
With the downturn in the economy and the closure of shops, stores and restaurants throughout San Bernardino, sales tax revenues have declined by $10 million to $16 million per year every year for the last four years. .
Since 2008, the city has shed 20 percent of its workforce, either through layoffs or attrition. Within one week of the July 10 declaration of the intent to file for bankruptcy, fourteen more city workers made their exodus, perhaps to ensure that they would be able to receive full pensions rather than be constrained to future pension reductions if they remained employed by the city.
Though the city did not put its figures in concrete, officials were projecting a $45 million deficit in 2012, a consideration that led to the decision to file for bankruptcy protection.
There were suggestions that the city’s financial officers or those in other positions of responsibility had not acted forthrightly in monitoring the city’s financial condition or informing other officials or the public in a timely manner.
But the San Bernardino-based auditing firm Rogers, Anderson, Malody & Scott LLP, which was hired to carry out regular annual audits of the city’s books and operations, said its employees saw a deteriorating financial circumstance and some cause for alarm but no indication of criminal activity.  Rogers, Anderson, Malody & Scott noted the city’s tendency to log in and process information related to its income and expenditures slowly, but attributed that to the shortage of finance department workers. The most recent audit turned in by the company was for fiscal year 2009-10. The audit for fiscal year 2010-2011 has not been completed. The 2009-10 audit found that the city was operating in accordance with generally accepted accounting principles and that it was projected to remain a going concern at least through 2010-11, which indeed it did.
In the atmosphere of fingerpointing that ensued the council’s declaration on July 10, former city manager McNeely, city treasurer David Kennedy and the firm of Rogers, Anderson, Malody & Scott all maintained they had exercised due care in monitoring and reporting up and down the chain of command with regard to the city’s deteriorating financials. In this regard, an August 23, 2010 city council meeting was referenced.
At that meeting, Kennedy and one of the Rogers, Anderson, Malody & Scott auditors, Terry Shea, were in attendance in response to McNeely’s request. Kennedy and Shea briefed the council on the city’s worsening financial condition, including its mushrooming deficits.
“That pool (of available money) has shrunk by $40 million over the last three years,” Kennedy told the council. “We have been getting by with borrowing money from other funds and other magic accounting tricks.”
That evening, McNeely pointed out that that 13 of the 15 previous years, the council undertook each yearly budget discussion with a projected deficit.
Despite the claims by these high ranking city officials and the auditing firm that the city had made full and adequate disclosure of the city’s financial position all along, on July 10, city attorney James Penman alleged individuals affiliated with the city falsified the city’s financial documents in 13 out of the last 16 years. Those documents were doctored or otherwise altered to indicate the city was functioning in the black when it was actually running deficits, Penman said.
Without being specific, Penman seemed to indicate that he had brought the matter to the attention of the San Bernardino Police Department, the San Bernardino County Sheriff’s Department, the San Bernardino County District Attorney’s office and the California Attorney General. But Rogers, Anderson, Malody & Scott said there was no data to confirm Penman’s charge. The state attorney general’s office would not confirm or deny that any such investigation was ongoing. Nor did the district attorney’s office. Indications from the sheriff’s and police departments were that there were investigations on issues relating to San Bernardino City Hall but that they pertained to matters separate from and predating the bankruptcy filing.
Since January, the San Bernardino police department’s economic crimes task force has been looking into allegations of bid-rigging favoring contractors and kickbacks to city employees in connection with city-sponsored construction projects. The names of two former city employees, Robert Lennox and Chris Evans, surfaced during that investigation. Neither Lennox, the city’s former parks and recreation division’s deputy director, nor Evans, the owner of Evans Construction Management and an independent contractor hired by Lennox to serve as the city’s recreation division’s construction manager, have been arrested or charged in the case. Both have denied any wrongdoing.
An affidavit in furtherance of the investigation signed by San Bernardino police  detective Frank Alvarez alleges “bid fixing… on projects which involved Lennox and Evans.”
The sheriff’s department, likewise, was involved in the inquiry into that matter and others that have come under investigation, with two investigators from the division’s white collar crime detail focusing on several allegations that have been made. Among those issues are preparation for and work done at the Hernandez Community Center and the Verdemont Recreation Facility, as well as business and banking accounts maintained by Lennox and Evans.
The amount of money involved in that portion of the investigation, which is yet ongoing, would not approach even one percent of the money at issue with regard to the bankruptcy.
Ironically, Penman’s reference to financial malfeasance at City Hall has resulted in an examination of a matter by the multi-agency task force in which Penman’s action is a consideration.  The task force has again taken up an inquiry into that circumstance, which was previously examined by the police department without a recommendation for prosecution.
At issue in that investigation were alleged improprieties in public works projects, the contracts for which ran into the millions of dollars.
Last October 11, San Bernardino Public Works Director Nadeem Majaj authored a memo to Penman that was widely distributed in which he said he was confronted and threatened by Penman after Majaj cancelled a $2.5 million city contract with the Matich Corporation.
The Matich Corporation and its owners have contributed thousands of dollars to Penman’s various campaigns for city attorney and San Bernardino mayor.
Majaj said in the memo he feared Penman would use his authority as city attorney to have armed investigators search his home and car to obtain a copy of the police report relating to the investigation of the city contract with Matich.
In the memo, Majaj stated that he was questioned in “an intimidating tone” by Penman during an October 5 meeting “as to why I terminated the Matich contract.” Majaj said Penman called the meeting in an effort to bring about “restoring the contract” and that he believed “it is inappropriate for you or any other elected official to be involved with ‘steering’ city staff toward contracting with one of your major contributors.”
Penman, who last fall was involved in an unsuccessful election campaign for mayor against incumbent Patrick Morris, characterized both the investigation targeting Matich Majaj had called for and the October 11 memo as politically motivated. In a memo to then-city manager McNeely, Penman defended the investigation of Majaj for delaying his provision of the police report to the city attorney’s office.
Majaj was reluctant to turn the report over to Penman because of Matich’s political support of Penman, the pressure he felt Penman was putting him under to restore the Matich contract, and his desire to protect the identity of witnesses.
The police report documented public works employees’ allegations that the public works director who preceded Majaj, Randy Kuettle, accepted gifts in the form of a leather jacket, a truck load of Christmas presents, 200 rib eye steaks and travel accommodations to Hawaii and fishing camps from the Matich Corporation. The report further related accusations that Kuettle then removed an inspector who questioned the quality of road paving done by Matich for the city, and inspected the work himself.
According to his memo, Majaj became suspicious after requests to increase the amount being paid to Matich on a 2009 contract came to his office.
Matich corporate officers maintain the company did not provide steaks, gifts or travel accommodations to Kuettle.
Kuettle, who had served in the position of interim public works director for two years, was replaced by Majaj in November 2010 when he was hired as public works director. Kuettle was then reduced in rank to deputy director, but on Feb.10, 2011, Kuettle was informed by Majaj that he was being terminated as of April 30. Kuettle took leave of that post, but remained employed by the city, working in the city attorney’s office until April 30.
The police department in 2011 determined that there was not enough information to proceed with a case against either Kuettle or Matich, but Penman’s accusation has now revived the matter, putting it under the eyes of the multi-agency task force.

(July 27)  The members of the San Bernardino County Association of African American Employees (SBCAAAE) have elected Diana Alexander to serve as their president for the 2012-13 year.
Formed in 1992, the association’s mission is to promote cultural awareness of the county’s – as well as the nation’s – rich, vibrant African American heritage while fostering interest in county government and employment related opportunities through educational and social outreach activities.
Working closely with members and staff, the elected board ensures coordination of African American observances, acts as advocates on issues, and assists the membership in their service as positive role models for African Americans in the county and the community.
Alexander begin her career in April 1993 as an eligibility worker and continued to progress through the ranks.  She now serves as Assistant Director for the county’s Transitional Assistance Department. She has earned a bachelor’s degree in business administration and is on track to earn her master’s degree  in public administration this year.
“I feel very honored and excited to have this opportunity to lead the association,” said Alexander.  “I look forward to continuing the great tradition of leadership that this association has modeled thus far.  We have amazingly gifted members that are ready to lend their talents towards not only furthering the goals of our association, but in working with our county and community in realizing the countywide vision. Together we can make it happen!”
Alexander replaces CaSonya Thomas, who had served as the SBCAAAE’s President for the past two years. Along with Alexander, the following members were elected to serve on June 28, 2012;
1st vice president: Carolyn Tillman, San Bernardino County Schools;
2nd vice president: Keisha Butler, Human Resources;
Treasurer: Tanya Bratton, Department of Behavioral Health;
Recording secretary: Sharon Chivis, Information Services Department;
Communications secretary: Kenneth Hall, Information Technology Services Division.
2013 represents the hallmark 20th anniversary for SBCAAAE. Dr. Terrence J. Roberts, one of the “Little Rock Nine” who desegregated Central High School in Little Rock, Arkansas in 1957, will be the keynote speaker for the 2013 Black History Month Celebration event. Dr. Roberts is a nationally renowned speaker who takes his audience on a journey through which they reflect on his experience and come to understand how he has used that experience to live a more socially responsible life.
The SBCAAAE meets on the fourth Thursday of each month. The next meeting  is on Thursday, July 26, 2012 from 12:00 PM to 1:00 PM at the San Bernardino Public Employees Association office, located at 433 North Sierra Way, San Bernardino.

(July 27)  Over the last eighteen months, supervisors Janice Rutherford and Neil Derry have developed an oftentimes distant relationship that sometimes flared into an outright hostile political rivalry. Shortly after Rutherford was elected to the board in November 2010 and sworn into office the following month, she formed an alliance with supervisor Josie Gonzales, who like her had formerly served on the Fontana City Council, and supervisor Gary Ovitt, who had for a short time in 2009 and 2010 been aligned with Derry. On practically every issue where there has been a substantial difference among the board’s members, the Rutherford/Gonzales/Ovitt troika has prevailed, leaving the coalition of Derry and supervisor Brad Mitzelfelt politically outmuscled and on the outside looking in.
On a few occasions Rutherford and Derry made pointed verbal note of their differences, trading barbed comments or hurling insults at one another.
But last week, Rutherford and Derry found themselves thrown together, standing out in sharp relief as the targets of an attack by the largest public employee union in San Bernardino County.
The San Bernardino Public Employees Association represents over 18,000 of the county’s employees as well as workers with several of the county’s municipalities. Both Rutherford and Derry earned the union’s enmity by taking public stands calling for substantial public employee pension reform.
On July 18, Derry introduced an initiative he is proposing to place on the November 6 ballot calling for public pension reform to address the mounting costs of county employee retirement obligations.
Noting that pension costs as a percentage of total county expenditures had risen from three percent in 1999 to nearly ten percent of all expenditures in 2011 and that the county is currently shelling out $232 million per year to provide its former employees with pensions, Derry said the burden on the county and its taxpayers to sustain the pension fund will grow if the stock market, in which much of the pension fund has been invested, continues to do poorly.
“Simply put, actuarial and investment return assumptions have not lived up to projections and county taxpayers are subjected to an unabated and underfunded pension obligation that cannot be sustained under present conditions,” Derry, who represents the Third District, stated. The Third District includes Twentynine Palms, Joshua Tree, Yucca Valley, Big Bear, Yucaipa, Highland, Redlands, Loma Linda and a portion of the city of San Bernardino.
A problem with the system, according to Derry, is that the county and its taxpayers have guaranteed county employees a defined pension that will be provided to those retirees, even if the retirement fund through its investments does not perform adequately to make those retirement contributions, necessitating that the county in each of its yearly budgets take up the slack such that the budget for basic government services is reduced to make sure those who have retired receive their pensions.
The ballot measure Derry is proposing would increase the retirement age for new county employees, decrease the amount of money employees could earn each year towards their pension benefit, require all new and current employees to contribute to their pensions, and minimize steep increases in pension amounts, referred to as “spiking,” by averaging annual compensation over the final three years of an employee’s employment rather than the current single highest year, which often includes the addition of payouts for accrued vacation and leave time and educational, cell phone, clothing and travel allowances.
Currently, public safety employees are eligible to retire at the age of 50 and draw a pension equal to three percent of their highest year of pay including all of the add-on allowances used to spike their compensation times the number of years they have worked for the county. Non-safety employees are eligible to retire at the age of 55 and draw a pension equal to two percent of their highest year of pay including all of the add-on allowances used to spike their pay times the number of years they have worked for the county. Derry’s proposal calls for adjusting the retirement formula so that public safety employees would be eligible to receive two percent of their pay upon retirement and non-safety employees would not be able to retire until they reach the age of 62.
Derry’s proposal would also eliminate the obligation that the county guarantee the amount of the pensions provided to retirees when the pension fund’s investments generate less than 7.5 percent earnings calculated to provide full coverage to pensioners.
“It is unrealistic to expect the taxpayers to shoulder all the risk for these risk-free pensions at the same time they are bearing all the risk with respect to their own retirement accounts,” Derry said.
Before it can be submitted to the voters, the board of supervisors must vote to place it on the ballot by August 9.  Supervisor Derry said he will introduce the proposal to the board on July 31.
In a opinion piece published in the Inland Valley Daily Bulletin on July 19, Rutherford, who represents the Second District, which includes the cities of Fontana, Rancho Cucamonga and Upland, San Antonio Heights, Lytle Creek, Devore, and the mountain communities of  Mt. Baldy, Rim of the World, Crestline and Lake Arrowhead, cited what she said was $375 million the county is paying toward pensions for its retired employees in fiscal 2012-13 and future unfunded pension liabilities of $2.25 billion.
“That pension debt will crush our county’s ability to stay competitive when it comes to attracting businesses, and our children will be the ones who suffer most if we do not act now to restructure our pension system,” Rutherford wrote. She pointed out that over the last ten years the county’s pension system has only produced an average 4.8 percent investment return while the pension system’s solvency is relying on the assumption that investment returns will average about 7.75 percent. Rutherford said the debt the county is accruing in keeping the pension system afloat will “push local governments off the financial cliff and straight into bankruptcy court.”
Rutherford said “Communities with mammoth pension liabilities and no plan to rein them in will eventually have to raise taxes or dramatically cut services or both to meet their obligations to retired employees. The system needs an overhaul now.” She then referenced her earlier “proposal to place an initiative on the ballot that would require voter approval of any future increases to county employee retirement benefits” and played some of the same themes Derry explored. “In addition, county employees must contribute more of their own money toward their own retirements,” Rutherford said. “We also need to look at increasing the retirement age, which stands at 50 for safety employees and 55 for general employees. And the practice of “spiking” pensions with unused vacation, compensation time, and other perks to boost monthly payouts must end.”
Fiscal reality is making generous retirement packages for public employees untenable, Rutherford said. “The more taxpayers have to put into the public retirement system, the less is available to pay for the police and fire protection, roads, jails, landfills, parks, courts and other public services we need.”
On its website, the San Bernardino Public Employees Association lumped Derry and Rutherford together, posting in bright red an alert headlined “County Board Of Supervisors Attack (sic) Pensions,” which stated “Some members of the board of supervisors are preparing to launch another attack on the pensions of hard working county employees!”
The alert goes on to state that “Supervisor Janice Rutherford has scheduled the re-introduction of her previous initiative that would require voter approval of any future pension formula increases. Instead of negotiating at the table, Supervisor Rutherford believes the county should jam it down the throats of county employees and fight it out in court! What deficit? The county apparently has millions to spend on legal fees!”
The alert then turns to Derry, who is currently locked in a reelection effort against James Ramos, who has been endorsed by the San Bernardino Public Employees Association in the November election. The alert’s language obliquely states that Derry will not win reelection as supervisor.
“On July 31, 2012 at 10:00 a.m. outgoing Supervisor Neil Derry has agendized a new attack to show the level of his dislike for county employees! He will introduce an initiative that will make the formula for non-safety employees 2% at age 62, and safety employees would be 2% at age 55. If approved by the voters, his initiative would also reduce all county non-safety salaries by 7%, but not his own salary!”
The alert then commends the union’s members to “Prepare for action 7/32/2012!!!”
The union’s alert, approved by San Bernardino Public Employee Association President Paula Ready, while perhaps galvanizing the county’s rank and file, succeeded in forging what previously seemed an implausible alliance between Derry and Rutherford.
In his public announcement of his ballot proposal, Derry said his call for a vote on the matter “follows substantive dialogue by the board of supervisors over the last couple of years and is a natural extension of our recognition that reforms need to be implemented.  I particularly wish to praise supervisor Janice Rutherford for her leadership on this issue.”

(July 27)  SAN BERNARDINO –The San Bernardino County Transportation Agency on July 23 announced that the long-awaited connector road from the east 210 Freeway to the south 215 Freeway has been completed.  The opening of the road came later that day. The connector is part of the $723 million Interstate 215 Widening Project which was initiated in 2007. The transportation agency, known by its acronym, SANBAG, for San Bernardino Associated Governments, said the widening project will be completed by next year.
The project will add a general use lane and a carpool lane in both directions between 10 Freeway and the 210 Freeway and an auxiliary lane from approximately the 210 to just south of University Parkway in San Bernardino.
The project also call for ramps between the 215 and the 210 freeways, new on- and off-ramps and the reconstruction of all bridges and underpasses throughout the 7.5-mile project.
Previously, those travelling east on the 210 who wished to go south on the 215 had to exit at State University Parkway and go north to West Highland Avenue and take that east to Mount Vernon and Avenue south and follow a tortuous route to an onramp to the South 215.

(July 27)  The U.S. Secret Service put the kibosh on a counterfeiting operation active in at least two San Bernardino County cities.
According to federal agents, Paul Hernandez, 32, was arrested on July 22 in Rancho Cucamonga, while members of the Secret Service were serving a search warrant in Big Bear Lake City relating to the printing of 5,000 counterfeit $100 bills.
According to Chris Butler, the resident agent in charge with the U.S. Secret Service’s Riverside field office,  “Paul Hernandez was the main target in an operation called ‘Bear Trap.’ worked by Secret Service agents based in Los Angeles in conjunction with the Los Angeles Police Department and the San Bernardino County Sheriff’s Department. He was arrested without incident at around 10 a.m. Friday July 20 in the parking lot of the Bass Pro Shop in Rancho Cucamonga. Simultaneously, a search warrant was served at his residents in Big Bear, where his counterfeit plant used for the manufacturing of currency was located.”
Butler said that plant consisted of “a digital high quality copier. We did find the images on these particular notes to be of high quality. He did use a very good quality digital copier. What differentiates these notes is that in the place of the face plate number and the quadrant number all they had was a letter. For over $500,000 to have been passed, you know it is a pretty good note. We know there are more out there in circulation. We think he was in operation for two or three years.  We have determined that over $500,000 worth of these notes were passed in the greater Los Angeles area, Canoga Park, Moorpark, the Inland Empire and Nevada.”
Those victimized by Hernandez will be out of luck, Butler said. “If anyone has one of those bills, they will detect that when they try put it into their [bank] account. The bank will not accept it. The merchant will take the loss. If they try to deposit one, they will not slide through and go to the federal reserve. They will be caught at the bank level. They lack face plate numbers and quadrant numbers.”
Hernandez formerly had a counterfit plant set up in the San Fernando Valley, but moved to Big Bear when agents were closing in on him at the Los Angeles County location.
“He relocated to Big Bear and after we located him there we initiated the operation we called Bear Trap,” Butler said. “We  had him under surveillance and were watching him for a while.”
Butler said he could not disclose who Hernandez had been in contact with, but did say “There is the possibility of more arrests in the future.”
It has not yet been determined whether Hernandez will be prosecuted by federal or state authorities, Butler said. Counterfeiting is a federal crime but it can also be prosecuted by state prosecutors.
“He was taken to West Valley Detention Center,” Butler said. “He was interviewed there. He may be going locally. He may go federally. We do not know at this time. It looks like he is going locally at this point but that may change later. Bear Trap was an operation handled out of the Secret Service Los Angeles office.”
No matter who handles the case against Hernandez, Butler said, “He’s looking at some serious time, well over five years.”

(July 20)  All criminal charges have been dismissed against lieutenant William Maddox, the third highest ranking of seven current and former sheriff’s department employees indicted by a grand jury in March 2011 on charges relating to the falsification of training records.
According to documents filed with the Superior Court, theft and perjury charges that were previously lodged against Maddox have been withdrawn “in the interest of justice.”

Bill Maddox

Maddox, who was an executive officer at the Colorado River Station in Needles for the last portion of his 26 years with the department, was never interviewed by investigators and did not appear before the specially impaneled criminal grand jury that indicted him.
In the indictment, sheriff’s corporal David Pichotta, lieutenant Russell Wilke, retired assistant sheriff Michael Stodelle, retired captain Hobart Gray, custody specialist Angela Gray, training specialist Sallyann Christian and Maddox were accused of falsifying records for the Commission on Peace Officer Standards and Training, the state agency which certifies law enforcement officers with regard to skills and specific technique qualifications. By earning certificates, officers can have their pay level increased or otherwise qualify for advancement or promotion. According to the indictment, Angela Gray and Christian added the names of Pichotta, Wilke, Stodelle, Hobart Gray and Maddox to the rosters of training classes they never attended, enabling them to claim higher pay and retirement benefits.
The district attorney’s office has now acknowledged that Maddox was erroneously included in the indictment. Maddox’s attorney, Michael Scafiddi, proffered documentation and information to the district attorney’s office demonstrating Maddox  completed all of the training certification courses he was credited with completing and that he had followed proper department procedure in earning and claiming those credits. The district attorney’s office independently verified that information.
“For years the sheriff’s department had a program similar to programs of other police departments that allowed its employees to use their practical life experience to get college credits,” Scafiddi told the Sentinel. “For his dispatch class, Bill applied for certification based upon his work opening a dispatch center in the desert. Doing that required him speaking with other agencies throughout the state and researching both technical and procedural issues.  He was told by the sheriff’s academy staff that qualified him to audit the dispatch class. Auditing classes is a common occurrence and what students often do to get credits.  He relied upon the academy staff and never knew or was told there was anything wrong. He was instructed by his captain to apply for the advanced certificate ten months later. The case was mishandled by the sheriff’s department from the beginning. The sheriff’s department had a political agenda. If they had done a competent investigation and looked at the evidence before they took this to the grand jury to get a true bill, he would not have been charged. He was not given the opportunity to testify before the grand jury. There is no way he intended to hurt anyone or steal anything and he certainly did not commit perjury.”
Scafiddi said Maddox “served the public for 26 years with distinction and honesty and for the last 16 months he has been called a criminal and a liar. I am disappointed in the sheriff’s department but I have to give credit to the district attorney’s office. After they found out the truth they did the honorable thing and dismissed the charges. It is a shame a good person had to be put through this because of the unprofessional work of the sheriff’s department. It cost him thousands and thousands of dollars to restore his good name.”
Deputy District Attorney Dan Silverman, who is prosecuting the seven defendants, said that taking the information now available to the prosecutor’s office into consideration, he would no longer be able to prove Maddox had engaged in the actions previously alleged and that his office could not establish criminal intent on Maddox’s part.
The case against the remaining six defendants is still proceeding toward trial. All six have pleaded not guilty. A status hearing on the case is scheduled for September 14. Silverman maintains the information provided to prosecutors by Scafiddi, while vindicating his client, in no way mitigates the actions of the other six.

(July 20)  NEEDLES — Community Healthcare Partners, the newly formed non-profit that is seeking to buy the Colorado River Medical Center, will not insist on over a million dollars worth of repairs being made to the facility before the purchase, that company’s founder said.
Bing Lum, a doctor of pharmacology who grew up in Needles and is the principal of AM Pharmacy, which earlier this year was the runner-up in competition to take over the hospital, is also the principal and founder of Community Healthcare Partners.
Lum this week in an exclusive interview with the Sentinel said an earlier report that AM owns Community Healthcare Partners was in error and he further disputed previous representations that Community Healthcare Partners was insisting on the city undertaking what could run to more than a million dollars worth of repairs to the hospital before his group purchases it.
“Structurally, Community Healthcarer Partners is not related to AM Pharmacy at all,” Lum said. “It is a brand new company, its own company. It is a stand-alone non-profit. Basically, I formed it to be the entity that would own and operate Needles Hospital.
“We will purchase the hospital ‘as is,’” Lum continued. “We have done our due diligence with respect to the land, the building and the equipment. What we are set up to do as a company is operate hospitals. We are in the business of making sure they work and are providing a service and are able to continue as a business entity, make money, so they have long term stability. We know the Needles Hospital has a lot of deferred maintenance issues. It has been challenged operationally and therefore  financially for years. What it needs going forward is capital investments and to provide for the health needs of the community.”
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 Valley View Hospital, another facility it owned in Arizona, roughly 12 miles from Needles.
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 the 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.
In June 2010, Needles voters passed Measure Q, which called for keeping the hospital open and absolving the city of the financial burden of subsidizing the facility by having a non-profit entity selected to run the hospital.
In accordance with Measure Q, Needles Hospital, Inc. and AM Pharmacy, owned by Lum, along with other entities last year submitted competing proposals for the takeover of Colorado River Medical Center. After the other proposals were rejected, the hospital board on January 5 considered both Needles Hospital, Inc.’s and AM Pharmacy’s offers. The board seriously entertained AM’s overture, by which it proposed to buy the hospital and 5.71 acres of surrounding property without the accounts receivable for $3 million, with any debts deducted from the sale price. AM, which is a for-profit entity, had agreed to create a non-profit arm with which to operate Colorado River Medical Center, and have Lum, who was raised in Needles and graduated from Needles High School in 1979, oversee the hospital operation. The board, however, rejected AM’s offer by a vote of 2-4 before ultimately accepting Needles Hospital, Inc.’s offer on a 3-2 vote. On January 10, the city council followed the hospital board’s recommendation, and voted to approve the sale of Colorado River Medical Center and the 5.71 acres it sits upon to Needles Hospital, Inc. for $3,587,002. For that amount, Needles Hospital Inc. was to take possession of most assets and liabilities of the hospital, including accounts receivable, operating inventory in place, outstanding bills and unemployment obligations. Non-assumed debts were to be deducted from the purchase price, but the city was to keep any cash in the hospital’s coffers at the time of sale. Needles Hospital, Inc. was formed and headed by former Needles Councilwoman Rebecca Valentine.
On January 27, the city represented by Mayor Ed Paget, and the board of hospital trustees represented by chairman Jeff Williams, and Needles Hospital, Inc. represented by Valentine, signed a purchase agreement, opening escrow. Needles Hospital, Inc. was given until April 26 to show proof of funding for the purchase of the hospital and until May 25 to close escrow.
Needles Hospital, Inc. sought to arrange an $8.46 million loan through the U.S. Department of Agriculture that would allow the non-profit to purchase the hospital and make necessary repairs to keep it operational, including reroofing the building, structural upgrades,  and putting in new boilers and wiring. The non-profit was not able to produce proof of financing by the April 26 deadline, effectively ending Needles Hospital, Inc.’s chance of acquiring the institution. The city then entered into negotiations with Lum.
Lum’s offer through Community Healthcare Partners for the hospital came in at $500,000 less than the $3 million bid AM made last year. While the city had hoped Community Healthcare Partners, Inc. would offer something close to the $3.6 million figure featured in an appraisal of the hospital and the property it sits on obtained by the city last year, Lum said the $3.6 million figure is unrealistic and inflated, being applicable in a large urban area but not appropriate in an underpopulated rural setting.
Though Community Healthcare Partners is an entity legally distinct from AM Pharmacy, Lum said his experience with AM Pharmacy as a provider of  “outsourced” pharmacy services to existing for-profit hospitals gives him and his non-profit an advantage over Valentine and Needles Hospital, Inc.
“We have been operating for years as a successful company,” Lum said. “We have access to resources as a start up because of our access to our existing company’s capital. We can do that. That was a challenge for Mrs. Valentine. Her non-profit had never done business. It is very challenging to get financing or do something of that nature when you have not had any history.”
The city council is scheduled next week, on July 24, to consider entering into the purchase agreement with Community Healthcare Partners. If the hospital board, which has already approved the purchase agreement then acts quickly to ratify the management agreement for the hospital, Lum said he believes “We could conceivably be in there and working in one week.”
At present, the hospital has one doctor on staff, Ed Paget, who is also Needles mayor. Lum said he will enlarge the hospital staff.
“I am going to bring in doctors,” he said. “That is one of the big pieces of the operation that is missing. There is no specific number, but I will bring in whatever we need, whether it is one or ten specialists. Specialists are what the hospital has lacked for years and years. We are not looking to get rid of anybody. We will continue to employ the existing people and will be hiring new people.”
There will be capital investments as well, Lum said.
“There certainly are some stories about how Lifepoint took all the equipment to its new facility in Arizona,” Lum said. “The hospital was able to get some pieces back. For sure, they lost some stuff but did get some stuff back. One of the big things to replace is the CT scanner. Most likely, I would be taking on that project as soon as I walk through the door. Once we get into place and are up and running, we will start on making repairs to the HVAC [heating, ventilation and air conditioning] system, the boilers and the roof. We will need to apply to the Office of Statewide Health Planning and Development, which is the regulatory body that has 100 percent authority on anything a hospital does. We will need their approval, so I anticipate you will measure our progress in months rather than days.”

(July 20)  Members of the Upland city council emerged from a specially called closed-session at the Upland Carnegie Library on July 17 without taking any reportable action.
The meeting was convened for the council to interview representatives of six law firms that are being considered to replace Bill Curley and his firm, Richards Watson & Gershon, as Upland city attorney.
The council in April went out to bid for a new contract for city attorney services, receiving in response sixteen separate proposals from lawyers and firms. After a review of those applications by city clerk Stephanie Mendenhall, who also serves as the city’s director of human resources and risk management, as well as administrative services director Jeff Zwack, ten applicants were eliminated, leaving six potential candidates – the law firms of Aleshire & Wynder; Burke, Williams & Sorenson; Gutierrez, Fierro & Erickson; Jones & Mayer; Liebold McCendon & Mann; and Robbins & Holdaway.
According to Mendenhall, the applicants were vetted and given preliminary ratings based on a host of criteria, including experience in the field of municipal law, ability to handle specialized cases in-house and their respective litigative track records.
The inclusion of the Gutierrez, Fierro & Erickson law firm among the six was something of a surprise in that the firm’s principal partner, Jimmy Gutierrez, was recently hired as a temporary replacement for Curley and it was announced at that time that Gutierrez’s firm would not vie to become city attorney on a permanent basis.
Among the six firms whose representatives were interviewed Tuesday night, Jones & Mayer and Robbins & Hodaway were the most highly rated in the initial analysis completed by Mendenhall and Zwack, the Sentinel has learned.
The Jones & Mayer firm serves as city attorney in Blyth, South Pasadena, Costa Mesa, Fullerton, Grand Terrace, Maywood, La Habra, Westminster and Stanton.
Robbins & Holdaway currently represent the cities of Loma Linda and Montclair. Richard Holdaway one of the partners in Robbins and Holdaway, has the further advantage of having worked in the law firm of Donald Maroney, a previous Upland city attorney.
The final selection process is to be a democratic and mathematical one, according to Mendenhall. Each member of the city council and city manager Steve Dunn, who participated in the interview session Tuesday night, will rate the firms. At that point, those ratings and the earlier ratings made by Mendenhall and Zwack will be tallied to winnow down the field of competition further or derive a victor if one clearly emerges as top dog. Based upon further negotiations over salary and terms, that firm will be selected.
While all of those associated with the firms under consideration are looking forward to the possibility that their law office will be selected for the Upland job, upon actually occupying that position the winner may soon find it has waltzed into a buzz saw.
A significant case the city is involved in which in part brought about the decision to severe its contract with Richards Watson & Gershon is a lawsuit brought by the county of San Bernardino against the city, the state Department of Transportation (Caltrans) and the county’s transportation agency, San Bernardino Associated Governments, known as SANBAG. That lawsuit relates to Upland’s approval of the Colonies at San Antonio residential and Colonies Crossroads commercial developments and the $102 million settlement cost the county sustained when the developer, the Colonies Partners, sued the county over flood control issues after the county built the 20th Street storm drain at Upland’s behest in conjunction with Caltrans’ extension of the 210 Freeway across property owned by the Colonies Partners. More than four years ago, the county offered to settle the case with Upland for $2 million. Richards, Watson & Gershon, on hehalf of the city, declined that offer. The city has paid $4.9 million in legal fees to Richards Watson & Gershon to defend against the suit, nearly two-and-a-half times the amount of the settlement offer. What some council members have characterized as excessive billings has been cited as the reason for terminating Upland’s contract with Richars, Watson & Gershon.
The city has potential liability in the scores of millions of dollars because it had requested that the county flood control district build the 20th Street storm drain. Further, it was the city of Upland that had given approval to the Colonies projects, which were built on property once owned by the San Antonio Water Company and which were criss-crossed with flood control easements recorded in the 1930s. It was the county’s action in constructing the terminus of the 20th Street storm drain so that it vectored water into a flood control basin covered by one of those easements which led to the Colonies Partners’ suit against the county. At issue in the county’s suit against Upland is the city’s negligence in approving the Colonies projects without clearly demarking responsibility for the provision of infrastructure, such as flood control basins and channels, to accommodate the project.
The Colonies Settlement case must go to trial by October. In addition to the $2 million settlement offer made by the county, there have been intensive backroom negotiations between the city, its emissaries and county officials and representatives aimed at forming a settlement short of trial. According to reliable sources, an accommodation that would have brought an end to the litigation without any monetary burden on Upland tentatively endorsed by both of the county supervisors whose districts cover Upland – Second District Supervisor Janice Rutherford and Fourth District Supervisor Gary Ovitt – as well as county chief executive officer Greg Devereaux has been forged by intermediaries. The terms of that settlement would have required that Upland consent to some of its officials – most importantly city councilman Ken Willis – submit to an intensive round of questioning, including being submitted to a deposition, that is, questioning under oath. Willis was part of the city council that endorsed the Colonies projects. He was also a political ally of former Upland mayor John Pomierski. The Colonies Partners were major Pomierski backers, having made considerable monetary donations to his electioneering fund. Pomierski in return was highly supportive of the Colonies at San Antonio and Colonies Crossroads projects. In 2011 Pomierski was indicted by a federal grand jury on bribery, extortion and conspiracy charges. He pleaded guilty to bribery earlier this year.  Like Pomierski, Willis received hefty campaign contributions from the  Colonies Partners. In 2010, former county supervisor Bill Postmus was indicted by a specially-impaneled state/county grand jury on bribery and extortion charges related to his vote in 2006 to approve the county’s $102 million settlement with the Colonies Partners. In 2011 he pleaded guilty to those charges. Subsequently, Jeff Burum, one of the managing principals in the Colonies Partners, and former county supervisor Paul Biane, who voted with Postmus in 2006 to approve the $102 million settlement, were indicted by another specially-impaneled criminal grand jury and charged with involvement in the same bribery, extortion and conspiracy scheme that involved Postmus. That indictment alleged that $100,000 donations made by Burum to political action committees formed or controlled by Postmus and Biane were actually bribes made to reward them for their votes to approve the $102 million settlement. For nearly three years beginning in 2004, Bill Postmus was the chairman of the San Bernardino County Republican Central Committee. In 2007, he was succeeded by Biane as chairman of the GOP in San Bernardino County. Biane was succeeded, eventually, by Willis as chairman of the San Bernardino County Republican Central Committee. Burum was a major contributor to the San Bernardino County Republican Central Committee. Both Burum and Biane have pleaded not guilty to the charges against them contained in the indictment.
Ironically, though Curley is no longer Upland’s city attorney, his firm – Richards Watson & Gershon – remains Upland’s legal representative with regard to the Colonies Settlement lawsuit, as the city is reluctant to bring in another firm, given the investment the city made in having lawyers with that firm familiarize themselves with the issues involved in the litigation.
Richards Watson & Gershon, which rejected the county’s $2 million settlement offer on the Colonies Settlement litigation more than four years ago, again rejected the more recent informal county offer to settle the suit conditional upon an agreement to have Willis subjected to questioning. Instead, the law firm made a motion to prevent a deposition of Willis from proceeding.
With the October trial date approaching and the potential for an outcome that would include a substantial judgment against the city, whoever the new city attorney will be faces the prospect of having to make a series of no-win judgment calls. One of those  will entail deciding whether to seek to protect the city’s taxpayers or instead accede to the wishes of the city’s elected leadership and shield at least one of those leaders from a round of hard-edged, embarrassing and even painful questioning. That decision parallels a decision to either contradict the pattern of pricey advice the city has received so far from Richards Watson & Gershon or stay the course with a risky strategy to forge ahead to trial.
Moreover, by not accepting the county’s terms for settlement nor making an accompanying motion for a good faith settlement that would apportion and limit any judgments against the city sought by other parties, the city remains open to further settlement costs as a consequence of cross-complaints filed against Upland by Caltrans and SANBAG, the county’s transportation agency. Such an outcome on the watch of the new city attorney could greatly diminish that firm’s prestige and hurt its ability to obtain municipal law work in the future.

(July 20)  RIALTO—With little fanfare, the city of Rialto has terminated its relationship with New Jersey-based American Water Works Company, Incorporated.
The never consummated marriage between American Water Works and Rialto was a rocky two-year affair that began when former city manager Henry Garcia was overseeing the city and came to a close during current city manager Mike Story’s stewardship of Rialto.
It was Garcia, while he was wrestling with an aging and decaying municipal water system, who originally courted American Water Works. Pursuant to negotiations Garcia carried out with the New Jersey-based for-profit company, American Water Operations and Maintenance, Inc., a division of American Water Works that was to function as a local company known as Rialto Water Services, would take over operation and maintenance of the water district. The city was to retain the district’s water rights.
The company was to further take on all aspects of operations, maintenance and billing, effectively running both the water and sewer utilities for three decades.
Water and wastewater division employees were to be allowed to transfer into the city’s engineering or public works divisions if they wished, remaining as city employees with their public pension plans intact or were to be allowed to go to work with American Water, which would have been required to guarantee those employees would remain employed for at least 18 months with salary and benefits equal to those offered by the city. That guarantee was to sunset after a year-and-a-half.
Before Garcia departed as Rialto city manager to become city manager in Moreno Valley in January 2011, he had arranged for American Water to make $45 million in upgrades to the water system and  assume all debt owed by the city’s water utility division and fund all needed infrastructure improvements to the system.
In return, city officials agreed to allow American water to significantly increase the water service and sewer service rates to be charged to customers.
Roughly half of the city of Rialto’s of 99,171 residents receive their water from the municipal water system. The other half are customers of Western Water, a private company.
During his tenure, Garcia was unable to close the deal with American Water, but the city inched ever closer to it. When Garcia left for Moreno Valley in 2011, he was succeeded by police chief Mark Kling, who stayed in place as interim city manager for six months, functioning merely as a caretaker. During Kling’s run as city manager, no progress toward handing the management of the city’s water system to American Water was made.
When Mike Story was hired as city manager last summer, he aggressively addressed the city’s infrastructure and service needs, concluding as had Garcia, that the city did not have the financial wherewithal to undertake the water system upgrades on its own. He recommitted to making the deal with American Water. In March, the city council approved by a 4-1 vote entering into the 30-year lease of the municipal water system with American Water Works Co. As part of that deal, the city agreed to a 114.8 percent increase in water and wastewater rates by 2016, such that the average water bill of Rialto households utilizing 17,000 gallons per month will jump from the current rate of $26.27 per month to $64.14 monthly and increase the wastewater treatment fee from $25.97 to $61.46 as of January 1, 2016.
That move immediately provoked a response in the form of a petition drive by members of the Utility Workers of America, the union representing city water division employees, to force a city-wide referendum on the takeover. In less than seven weeks, over 6,400 signatures were gathered to meet the threshold of 3,800 valid signatures of registered voters needed to force the matter to a vote. The petitions created an opportunity for city residents to reject the takeover by means of a mail vote to be conducted by the city. If more than 50 percent of the ratepayers returned the mail-in ballots rejecting the takeover, it would not go into effect.
But in a crafty piece of sleight-of-hand, Rialto officials short-circuited that challenge when they quietly took action to find another company to manage Rialto’s water operations. With two swipes of a pen, the city of Rialto substituted American Water out of the picture  and entered into a contract with San Francisco-based Table Rock Capitol to take on the role of water service operator.
Table Rock, doing business as Rialto Water Services LP, will supplant American Water Works Co. Inc. as the city’s water and wastewater service provider, and will itself farm out the operation to entities expert at water and sewer operations. At present, Table Rock is in negotiations with West Valley running the water division and Veolia North American about running the city’s wastewater plant.
The city will need to get all parties to agree to terms stipulated in a 1,600-page concession agreement to actuate the takeover.
City manager Mike Story said, the takeover, management and improvements to the water system envisioned under American Water will now be carried out “unchanged” under the guidance of Table Rock. The 114.8 percent increased in water and sewer rates by 2016 will proceed as well.

(July 20) TWENTYNINE PALMS — Fifty-four years after it assumed responsibility for fire protection in this desert community, the Twentynine Palms Water District has elected to spin the Twentynine Palms Fire Department off to the  San Bernardino County Fire Division.
In 1958, when the California Department of Forestry ceased providing local fire service, the Twentynine Palms Water District extended its responsibilities to include fire protection.
When the city of Twentynine Palms incorporated in 1987, the city did not create its own fire department and the water district’s fire department subdivision has continued to provide fire protection to all areas within Twentynine Palms’ city limits. The Twentynine Palms Fire Department now counts among its capital possessions two fire stations, Station 421 in downtown Twentynine Palms and Station 422 in the unincorporated Desert Heights area. The fire department’s service area is not coterminous with the 29 Palms City Limits, and in addition to providing fire protection service to the 59-square-mile city also serves 29 square miles of the surrounding unincorporated county area.
The city does not contribute to, participate in or subsidize the fire department’s operational budget. Theoretically, fire department finances are independent of the water district, with water rates totally devoted to the provision of water to customers. Fire department operations are defrayed entirely by a special tax on properties throughout the service area of the district.
In 2007, the city and the district began earnest discussion of annexing the fire department to the city, and formed a Joint Agency Fire Department Committee to look into the matter. On June 9, 2009, then-city manager Michael Tree told the council that if the transfer were to be made it would be best to do it totally and in one fell swoop rather than in stages. But because of complications with regard to the authority for the special tax and the formula for the distribution of tax revenues, as well as the discrepancy between the city limits and the district’s service area, the city elected to forego the takeover.
The Local Agency Formation Commission (LAFCO), which oversees jurisdictional issues throughout the county, in its five-year service review of Twentynine Palms delivered on May 7, 2012 stated that the demands of operating the fire district are now outrunning the water district’s funding ability. The report, authored by LAFCO executive officer Kathleen Rollings-McDonald, assistant executive officer Samuel Martinez and project manager Michael Tuerpe, said LAFCO’s review of the water district’s financial books “identifies a significant deficiency in funding” such that “the water district’s fire operations are unsustainable as presently financed.”
Rollings-McDonald on May 24 told the water district’s board members that the district would have to overcome the financial challenges facing the fire department, or cede control of the department to another entity by July 1, 2013. She said the water district could either hand the downtown station over to the city of Twentynine Palms and the Lear Avenue station to the county fire division and thereby surrender the special tax to both of those entities or in the alternative invite the county fire division to expand its sphere of influence and annex the water district’s territory for the purpose of providing fire service, complete with an arrangement to have the county inherit the special tax.
On June 27, with director Nicholas “Bo” Bourikas not present but voting in absentia in writing, the water board moved to pursue filing an application, at a processing cost of $15,400, with the San Bernardino County Local Agency Formation Commission to sever fire service from the district. Undetermined at that time was whether the county or the California Division of Forestry and Fire Protection, the entity known as Cal Fire which relinquished firefighting responsibility in the area more than five decades ago, would be the successor agency.
On July 12, at a joint meeting of the Twentynine Palms Water District, including its legal counsel and staff, Twentynine Palms Fire Chief Jim Thompson, the Twentynine Palms City Council and its legal counsel, county fire chief Mark Hartwig and Rollings-McDonald, a decision was made to have the county’s fire department subsume the fire department.
Assessing operational costs for the department, Hartwig said the county could support one chief and one firefighter/paramedic at Station 421 in downtown Twentynine Palms and two firefighters/paramedics at Station 422 on Lear Avenue in the unincorporated Desert Heights area for $1 million to $1.3 million annually.
At present, the department consists of seven permanent/professional firefighting personnel: the fire chief, two fire captains, and four engineers. The department also employs an administrative assistant. The department boasts 30 volunteers, who work one shift per week.
The proposal is for the county’s fire division to annex the 87 square miles of the fire protection area currently under the jurisdiction of the water district.
As the fire department is currently being operated, the water district anticipates revenues throughout fiscal 2012-13 of $1,241,000 and expenditures running to $1,480,202. Without some further infusion of revenue into the fire service’s budget, with the continuation of current staffing and operational levels, by the end of the 2013-14 fiscal year all of the fire division’s funds, operational and reserve, will be exhausted.
LAFCO will charge the water district $15,400 to process its divestment application, which will include the conducting of public hearings. The submission of the final application together with all necessary documentation is to be made by October 1. Hearings will be held thereafter.