(May 10) Based on the city of Chino Hills’ experience with a spate of so-called Chinese maternity hotels, the county board of supervisors this week heard a report from the county’s top planning official relating to its options in preventing their establishment and operation in unincorporated county areas.
Three such birthing centers were operating in Chino Hills in 2012 beneath the city’s land use regulatory radar until their existence became publicly known in the late fall. In the most highly publicized case, Hai Yong Wu and Yi Wang began operating a maternity hotel out of what was originally a seven-bedroom home located at 5250 Woodglen Drive in Chino Hills. After it became known that Wu and Wang were housing pregnant women from China in the final stages of their pregnancy at the home in the upscale neighborhood so that their children could be credited with U.S. Citizenship, a wave of protest ensued. Upon confirming that the house was being advertised as “Los Angeles Hermas Hotel” intended to provide pre-birth and post-birth resting quarters for Chinese women, the city of Chino Hills sent code enforcement personnel to the premises, who found that the home, originally built in 1974 with seven bedrooms and six bathrooms, had been altered to feature 17 bedrooms and 17 bathrooms, many of which were not built to code. The inspectors documented no fewer than 18 code violations and then used citations generated on the basis of those to force operations there to temporarily cease.
As part of a follow-up effort to prevent the Woodglen Drive home from reopening as a maternity hotel, the city had city attorney Mark Hensley seek an injunction barring Wu and Wang from operating the facility. A pre-injunction hearing was scheduled for February 19. Before that hearing took place however, Hensley succeeded in obtaining a stipulated agreement whereby nine of the building code violations were acknowledged and a correction plan was put into place. Under the terms of that agreement, which was confirmed as a court-ordered settlement issued by West Valley Superior Court Judge Keith Davis on February 11, Wang was dismissed as a party and Wu was required to remedy sewage line discharge violations, cover exposed electrical wires on the premises, outfit the single entrance bedrooms with emergency exits, provide ventilation, correct illegal construction of add-on rooms in the house, install smoke and carbon monoxide detectors and alarms, and ensure clearance of flammable materials.
Hensley also reported the stipulated agreement contained a provision that the property cannot be used for commercial purposes, effectively shuttering the house as a birthing facility, he claimed.
Two other smaller but  similar establishments which had set up operation in Chino Hills have quietly ceased operations in the face of rising public opposition.
This week the San Bernardino County Board of Supervisors received a report presented by Tom Hudson, the county’s land use services director, on code compliance and legal issues related to maternity hotels.
“On February 26, 2013, the board of supervisors directed staff to research and evaluate what the county can do to protect public health and safety concerning the operation of maternity hotels,” Hudson said. “The term ‘maternity hotel’ typically applies to a place providing lodging and other services for women who travel to the United States specifically to give birth in this country and establish U.S. citizenship for their children. Women pay sums ranging from $10,000 to $20,000 to travel legally to the United States on tourist visas and stay approximately two months. During their stay, they give birth and receive assistance with documentation of the child’s U.S. citizenship. This practice is also known as ‘birth tourism’ and multiple web sites are devoted to facilitating travel arrangements, accommodations and establishment of the child’s citizenship.”
Hudson’s report continued, “In a recent incident, a large single-family residence in the city of Chino Hills was found to have been operating as a maternity hotel. Unpermitted additions and interior modifications had been made to establish 17 individual bedrooms and bathrooms in the house, resulting in failure and overflow of the home’s septic system. This was an extreme case that attracted attention because of the combined impact of illegal construction, overcrowding, and sewage overflow. Other cases, mostly in Los Angeles County, are discovered through complaints to code enforcement from  neighbors who notice the sudden appearance or continual stream of pregnant foreign tourists occupying the homes.
“An important point regarding the burgeoning birth tourism trend is that travelling to this country on a tourist visa while pregnant is legal,” Hudson said. “The federal government has sole authority to regulate and control immigration in the United States. County staff has studied the issue based on information from other jurisdictions where maternity hotels have been discovered. Three key activities related to establishment of these facilities have been identified and all would be illegal and subject to investigation, fines and other enforcement measures as provided in the San Bernardino County Code:
“First,” Hudson said, “operation of a maternity hotel would fall under the existing defined uses of either a boarding house or a lodging service. Both uses are prohibited in single-family residential districts, and therefore any operation of a maternity hotel in these districts would be illegal.
“Second,” Hudson went on, “construction to expand or modify a house in a single-family residential zone to accommodate a maternity hotel use without obtaining proper permits would be a code violation, subject to enforcement under standard procedures and existing regulations. A permit request for this type of modification would be denied based on the land use requirements outlined in No. 1 above.
“Third, depending on the number of women and infants housed in a facility and the conditions and standard of care provided for the infants, there is a potential for child welfare or public health concerns, such as the septic issues that arose in Chino Hills. Code enforcement staff has protocols in place for calling in other agencies as needed to respond to conditions they may find in the field.
“To date,” Hudson said, “county code enforcement has not received any reports of maternity hotels operating in the unincorporated area of the county, but code enforcement staff is ready to respond in the event a complaint is received.”

(May 10) The county’s taxpayers will shell out $172,478,057  prior to August 1 to cover the cost of pensions for retired county employees in the upcoming fiscal year.
This week the board of supervisors authorized auditor-controller/treasurer/tax collector Larry Walker to make an advance payment of the county’s estimated fiscal year 2013-14 annual contribution to the board of retirement within 30 days after the commencement of the county’s fiscal year July 1.
According to Walker, “For fiscal year 2013-14, the total county general fund retirement contribution is estimated to be $179,068,000, discounted by $6,589,943, at a simple interest rate of 3.68% for a prepayment amount of $172,478,057.”
Walker said “Government Code 31582 allows the county to advance pay part or all of the county’s estimated annual retirement contribution, if paid within 30 days after the commencement of the county’s fiscal year. The county has taken advantage of this alternative in the past, prepaying the general fund contribution to the board of retirement for the entire fiscal year. The prepaid amount is discounted by the board of retirement, resulting in savings for the general fund. For fiscal year 2013-14, the county has calculated a 3.68% simple interest discount rate, which results in a discount of $6,589,943 to the general fund.”
Walker said he and the office of county CEO Greg Devereaux had analyzed the financial impact of prepaying the retirement contribution, and “determined that the county will benefit from the transaction. The estimated retirement contribution of $179,068,000 and the related discount amount of $6,589,943 are estimated and may change. Any benefit or loss realized by the board of retirement as a result of the retirement pre-payment will be incorporated into San Bernardino County’s employer’s contribution rates, thus ultimately accruing to the county.”
The county’s retirement costs have been escalating.  In 2011, the county made a $132,263,097 prepayment to the board of retirement to cover the cost of pensions for retired employees during the 2011-12 fiscal year, reflecting a prepayment discount of $5,299,603 from the $137,562,700 owed by the county as its annual contribution to the retirement fund that year. Last year, the county made a $154,626,037 prepayment to the board of retirement to cover the cost of pensions for retired employees during the 2012-13 fiscal year, reflecting a prepayment discount of $5,907,863 from the $160,533,900 owed by the county as its annual contribution to the retirement fund through June 30 of this year.
In this way, county taxpayers have seen an average $20,107,480 per year increase in the cost of paying for pensions over the last two years.

(May 10) More than $10 million worth of improvements will be made to Yates Road to make way for the proposed new design of the Yucca Loma Bridge near the gateway into Apple Valley.
The cost of the project will be footed entirely by the county of San Bernardino and its transportation agency, with no financial participation by the town of Apple Valley in the construction.
This week the county board of supervisors on behalf of the county entered into a cooperative agreement with the San Bernardino County Transportation Authority and the town of Apple Valley in which the county, the authority and Apple Valley will contribute $1,867,635, $8,624,695 and $0, respectively, toward the $10,492,330 estimated cost to make the necessary road improvements along Yates Road, between Fortuna Lane and Park Road to accommodate the proposed new design of the Yucca Loma Bridge in the Apple Valley area.
According to Gerry Newcombe, the director of the county’s department of public works, “Yates Road will be widened from two lanes to four lanes from the westerly terminus of Yucca Loma Bridge (near Fortuna Lane) to Park Road, with the transition from four lanes to two lanes just west of Park Road. The Yates Road Project construction work consists of, but is not limited to, adding soundwalls, reconstructing the pavement, widening the roadway, striping, inverting a dirt median, installing a traffic signal at Park Road and placing embankment fill.”
The entire bridge project will cost $75 million, with more than $40 million of that coming from Measure I Funds, the countywide  sales tax override intended to provide funding for transportation improvements throughout the county.
According to documentation from the county, project design and environmental documents relating to the road improvements will run to $3,134,000. This cost will be principally financed by federal funding ($2,774,000). The local match portion of $360,000 will be funded  with $87,000 from the county and $210,000 from the town of Apple Valley and $63,000 from the city of Victorville.
The project, as part of the Yucca Loma Corridor project, is identified in the Victor Valley Subarea Major Local Highway Program Project List and the San Bernardino Associated Governments Authority Nexus Study.

(May 10) TWENTYNINE PALMS — A fatal traffic collision here on April 30 involving a sheriff’s vehicle moving at a high rate of speed remains under investigation by the California Highway Patrol.
Luc Van Bui was traveling north on Encelia Ave in a Toyota Camry around 7:30 p.m. After stopping at the Encelia intersection with  Twentynine Palms Highway, Bui, 64 of Perris, pulled into the intersection and was broadsided by a sheriff’s vehicle, a 2010 Ford Crown Victoria, driven by deputy Erdem Gorgulu, who was eastbound on the highway en route to a radio call.
Multiple witnesses estimated Gogulu’s speed as at or exceeding 80 miles per hour. Witnesses said the patrol car’s lights and siren were not activated. In addition, Gorgulu’s heading and his moving downhill and out of a setting sun approaching an intersection with visibility problems combined to doom Bui, who was pronounced dead at the scene.
Gorgulu was transported by Morongo Basin Ambulance to Desert Regional Medical Center in Palm Springs with what appeared to be a serious leg injury.
The highway from Lupine Avenue to Encelia Avenue was closed for an extended period of time while an investigation of the scene, which was later extended west to Sunrise Road, remained ongoing. Three roads in the accident perimeter were also blocked to through traffic during the morning of Wednesday, May 1.
Previously, Twentynine Palms officials asked  Caltrans to approve a traffic signal at the Twentynine Palms Highway/Encelia intersection. Caltrans rejected  the request on the basis of insufficient traffic numbers.

(May 3) SAN BERNARDINO—A recently formed group of self-styled political reformers has taken aim at the mayor, city council and city attorney in San Bernardino, targeting all nine for recall.
In recent months, San Bernardino has filed for bankruptcy protection, even as it continues to run a $46 million deficit.
On Tuesday, a coalition of business owners and residents calling themselves San Bernardino Residents for Responsible Government began serving the officials with notices of intent to recall.
The group is led by Scott Beard, a local realtor and San Bernardino resident. Beard said the recall effort is being uniformly pursued against all sitting council members as well as the mayor and the city attorney despite the relatively brief tenures of two of the members of the city council, the sharp political differences between some of those targeted for recall and his own previous support of some of the council members.
“This is about doing what is right for our community and the current council is incapable of doing that,” Beard said.
The city officials have failed collectively and individually in serving the city, Beard said, and for that reason all were being targeted. He said all seven council members had fallen short of the standard his group believes officials in their capacity should achieve, even considering that councilmen Robert Jenkins and John Valdivia have been on the council less than two years.  Jenkins, who was elevated to the council in a special election held in July 2011, and Valdivia, who was elected in November 2011, both share in the responsibility for the city’s dreadful state, Beard said.
Beard acknowledged having supported councilwoman Wendy McCammack in the past, though he said reports that he was currently supporting her in her mayoral bid were erroneous. “Wendy and I have been neighbors and friends for a long time and I did support her but that was prior to the dysfunction we have seen over the last six months. None of them can work together and they all need to be removed from office,” Beard said.
As to the well publicized political rivalry that has long existed between mayor Patrick Morris, a Democrat, and city attorney James Penman, a Republican, who vied against each other for mayor in 2005 and 2009, Beard said their differences over various matters are irrelevant to the pertinent issue of the city’s continued decline.
“That is something between the mayor and the city attorney,” Beard said. “We are a non-partisan group trying to save the city from destruction perpetrated on it by these city officials in each of their capacities.” He said that Penman, as city attorney, needed to be held to account for his failures. “He is absolutely responsible,” Beard said. “He is the only city official who has been in office for over two decades. How can you not include him?” Morris is being targeted for recall as well, though he has indicated he will not seek reelection later this year and will leave office next spring.
“To deal with this we have to remove everyone who is responsible, so symbolically we have to serve them all,” Beard said.
Whether the group will pursue Morris as spiritedly as the others who will remain in office past next year is another question, Beard indicated. “I can tell you we won’t waste our resources where they are not needed,” he said.
Beard responded to charges that he is ill-suited to be leading a political reform movement, given his place near the center of a raging governmental corruption scandal in the late 1990s. The San Bernardino County District Attorney’s Office and the U.S. Attorney heavily focused on a 15-year, $26 million lease approved in a controversial 3-2 vote on  June 23, 1997 by then-supervisors Jerry Eaves, Jon Mikels and Kathy Davis for the former Kmart building in Rialto owned by SHL Associates Ltd., a partnership of Beard, former county chief administrative officer Harry Mays and Lance Goodwin of New York. The building was converted for use by the county’s behavioral services department. The deal was promoted by then-county chief administrative officer, James Hlawek, who had been Harry Mays protégé. Subsequently, Eaves, Mays and Hlawek were indicted by a federal grand jury in connection with bribery and kickback schemes pertaining to several county contracting arrangments. Mays and Hlawek were convicted on federal charges. Eaves eluded being convicted on federal charges after similar charges were filed against him in state court. He eventually pleaded guilty and resigned from office. In his confession to federal prosecutors, Hlawek said that Mays provided him with a briefcase stuffed with about $60,000 in cash as a payoff for securing the county K-Mart building lease with SHL.
Beard, who was a longtime Eaves supporter, this week told the Sentinel that the rehashing of Hlawek’s accusations was an illegitimate attempt to discredit the recall effort. “I was investigated by every law enforcement agency in Southern California, including the FBI,” Beard said. “I was never charged with a single thing. I still own the building and the county is still my tenant. That is a cheap shot that has no merit.”
San Bernardino Residents for Responsible Government will not pursue a recall of city clerk Gigi Hanna and treasurer David Kennedy, the city’s other elected officials, Beard said, because they were not culpable for the city’s condition.
Beard said his group has collected enough donations to see the recall petition gathering process through “within the statutory time line” required to put the recall questions before voters next November, at which point councilwoman Virginia Marquez, Fred Shorett and Robert Jenkins must stand for reelection in their wards and an election for mayor is scheduled as well. Petitioners must gather the signatures of 15 percent of registered voters to recall Morris and Penman and 25 percent of the voters in the ward of each of the council members to qualify the recall question for the ballot against the officeholders

(May 3) Chino City Attorney Jimmy Gutierrez was illegally involved in drafting his own firm’s professional services contract with the city, according to an open government group now threatening legal action over the matter.
The Inland Oversight Committee has issued a demand that Gutierrez and his law firm, Gutierrez, Fierro & Erickson, return hundreds of thousands of dollars in legal fees the city has paid to Gutierrez and the firm. The Inland Oversight Committee’s lawyer, Cory Briggs, maintains Gutierrez ran afoul of the state of California’s conflict-of-interest law when he assisted in preparing agreements for city attorney services between the city of Chino and the Gutierrez, Fierro & Erickson law firm.
In an April 23 letter to Gutierrez, Briggs wrote, “On behalf of my client, The Inland Oversight Committee, I am writing to inform you of my client’s intent to bring a lawsuit against you for having a financial interest in contracts to which you are a party, and in which you have a financial interest, in direct violation of Government Code Section 1090. Section 1090 states members of the legislature, state, county, district, judicial district, and city officers or employees shall not be financially interested in any contract made by them in their official capacity, or by any body or board of which they are members. Nor shall state, county, district, judicial district, and city officers or employees be purchasers at any sale or vendors at any purchase made by them in their official capacity. As an initial matter, city attorneys are considered city officers/employees within the meaning of Section 1090. In this case, you are an employee of the city of Chino. Consequently, your participation in the making of the July 5, 2005 agreement for city attorney services and the October 3, 2006 agreement for city attorney services – both with the city – were made in direct violation of Section 1090.”
Briggs referenced “the well-established notion that ‘the defining characteristic of a prohibited financial interest is whether it has the potential to divide an official’s loyalties and compromise the undivided representation of the public interests the official is charged with protecting.’“ Briggs then went on to point out that “In 1975, the city began employing you, in your individual capacity, as city attorney. That 1975 agreement did not secure work for anyone other than you. In other words, your law firm Gutierrez, Fierro and Erickson–including its predecessors and attorneys–were never employed by the city prior to 2005. Yet you participated in the making of the 2005 agreement between the city – whose city council you influence and for which you were working and receiving compensation – and your law firm and its partners, Arturo Fierro and James E. Erickson. Your financial interest in the economic well-being of your firm at the time you entered the 2005 agreement resulted in a straight-forward violation of Section 1090, which was repeated again in the making of the 2006 agreement.”
In his letter to Gutierrez, Briggs states, “Common sense tells us that the type of negotiation that occurred between you and the city violates Section 1090. In fact, the California Attorney General’s Guide on Conflicts of Interest states: ‘In the case of an employee, a contract may be renegotiated, so long as the employee totally disqualifies himself or herself from any participation in his or her public capacity, in the making of the contract.’ There is no indication on the face of the agreements that they were negotiated and approved as to form by anyone other than you. Similarly, my client has no reason to believe that the pay raises in the agreements were negotiated by anyone other than yourself. Further, even if you were an independent contractor (which you are not), the negotiating process resulting in the agreements violated Section 1090. As stated by the Attorney General, ‘[w]hen a contractor serves as a public official (e.g., a city attorney) and renegotiates a contract, this office recommends that such contractors retain another individual to conduct all negotiations. In so doing, the official would minimize the possibility of a misunderstanding about whether the contractor’s statements were made in the performance of the contractor’s public duties or in the course of the contractual negotiations.’”
Briggs then delivered an ultimatum to Gutierrez and his firm, telling him to return the money or the Inland Oversight Committee will sue him.
“This letter is simply intended to put you on notice that you have violated Section 1090, and to give you an opportunity to return all monies unlawfully received by you, your firm(s), and partners of the firm(s) as a result of your Section 1090 violations,” Briggs wrote. “Should you refuse to return all money you have unlawfully received in violation of Section 1090 back to the city’s general fund, my client will bring suit and request that the court force you, your firm(s), and the partners of your firm(s) to do so.”
Briggs followed his letter to Gutierrez up with a letter to the city of Chino in which he informed municipal officials of his intent to sue Gutierrez.
“My client hopes that it will not be necessary to file suit against him, his law firm, or his partners in order to obtain full repayment of the money that was illegally paid out to them,” Briggs wrote in the letter to the city. “In case it becomes necessary to sue, however, my client would like to give the city the opportunity to join my client, or even take the lead, in the lawsuit.”
In both the letters, Briggs provided a deadline of today, Friday, May 3, 2013, for a response, indicating he will move ahead with a lawsuit at that point if his demands of Gutierrez are not met. Briggs told Chino officials, “If I do not hear from you in writing by that time, I will assume that the city does not object to my client pursuing recovery of the money for the benefit of the city and its taxpayers.”
Both the city and Gutierrez have not fared particularly well when they previously locked horns with Briggs.  Three years ago, Briggs represented an environmental group, Citizens for Responsible Equitable Environmental Development, which challenged the city in court over what were alleged to be deficiencies in the city’s general plan. As a consequence of that suit, the city amended the general plan on terms consistent with the Citizens for Responsible Equitable Environmental Development’s assertions, and the city paid  Briggs $215,000 for his legal billings to the group for representing it.
The spokeswoman for the city of Chino, Michelle Van Der Linden told the Sentinel, “We are in receipt of the letter and are reviewing several points in it,”
She would not venture a prediction as to whether the city will join with Briggs and the Inland Oversight Committee in an effort to recover money the city paid to its own attorney. “We are obviously in the process of researching those points and are still reviewing and analyzing. To make further comment at this time would not be appropriate,” Van Der Linden said.
Gutierrez did not deign to comment.

(May 3) Los Angeles—The Securities and Exchange Commission on April 29 charged the city of Victorville, the Southern California Logistics Airport Authority, assistant city manager and former director of economic development Keith C. Metzler, the airport authority’s bond underwriter and the bond underwriter’s owner and vice president with defrauding investors by inflating valuations of property securing an April 2008 $13.3 million municipal bond offering.
Metzler, the Carlsbad-based bond underwriting firm of  Kinsell, Newcomb & DeDios, the firm’s owner J. Jeffrey Kinsell, and the firm’s vice president Janees L. Williams were responsible for false and misleading statements made in the airport authority’s 2008 bond offering, the SEC alleged. It also charged that the bond underwriting firm, working through a related party, misused more than $2.7 million of bond proceeds to keep itself afloat.
“Financing redevelopment projects by selling municipal bonds based on inflated valuations violates the public trust as well as the antifraud provisions of the federal securities laws,” said George S. Canellos, co-director of the Securities & Exchange Commission’s Division of Enforcement. “Public officials have the same obligation as corporate officials to tell the truth to their investors.”
Elaine C. Greenberg, chief of the SEC’s Municipal Securities and Public Pensions Unit, said, “Investors are entitled to full disclosure of material financial arrangements entered into by related parties. Underwriters who secretly line their own pockets by taking unauthorized fees will be held accountable.”
The Securities & Exchange Commission (SEC) alleges the airport authority, which is controlled by the city of Victorville, undertook a variety of redevelopment projects, including the construction of four airplane hangars at the former George Air Force Base, which was being converted to civilian use as Southern California Logistics Airport. The airport authority financed the projects by issuing tax increment bonds, which are solely secured by and repaid from property-tax increases attributable to increases in the assessed value of property in the redevelopment project area.
According to the SEC’s complaint filed in U.S. District Court for the Central District of California in Los Angeles, by April 2008, the airport authority was forced to refinance part of the debt incurred to construct the hangars, and other projects, by issuing additional bonds. The principal amount of the new bond issue was partly based on Metzler, Williams, and Kinsell using a $65 million valuation for the airplane hangars even though they knew the county assessor valued the hangars at less than half that amount, according to the SEC.
“The authority used tax increment bond offerings to finance a number of ill-conceived redevelopment projects, including the construction of a power plant and four new airplane hangars on the former Air Force base,” according to the SEC complaint. “By late 2007, it needed $50 million to pay a deposit on a turbine for the power plant, and planned to finance that payment with a new $68 million tax increment bond offering. However, given the tightening credit market and the subordinate nature of the bonds, prospective bond purchasers demanded that the debt service ratio for this offering be increased to 1.25 (from the 1.10 ratio governing prior bond offerings). As a result, the authority was forced to downsize its December 2007 bond offering from $68 million to $42 million. This left the authority with few resources to continue its redevelopment activities. Indeed, by this time, nearly all of the tax increment available to the authority had been used to secure its prior bond issuances.
“In February 2008, in an effort to escape from this financial constraint, the authority borrowed $35 million in short-term financing,” the complaint continues. “It then publicly offered $13.3 million of subordinate tax increment bonds in April 2008 to repay part of that short-term debt. This April 2008 financing was premised, in part, on an assessed value of $65 million for the four hangars. This $65 million valuation was used to determine the all-important tax increment for the April 2008 bond offering, and allowed the authority to satisfy the minimum 1.25 annual debt service ratio for the offering. However, the hangars’ $65 million assessed value was vastly inflated, resulting in the disclosure of false tax increment and debt service ratios in the official statement provided to investors in the April 2008 bond offering. Defendant Keith Metzler, the director of economic development for the city and an agent for the authority, and the two KND [Kinsell, Newcomb & DeDios] investment bankers —defendant Jeffrey Kinsell, the owner of KND, and defendant Janees Williams — all knew that the assessed value of the hangars was inflated, and, as a result, that the tax increment and debt service ratios disclosed to investors were false. Yet they each withheld this information, resulting in materially misleading disclosures and a substantially oversized bond offering.”
According to the SEC complaint, “On January 18, 2008, Metzler forwarded an email he received from the assessor’s office to Williams showing it had assessed the values of hangar Nos. 1 and 2 at an aggregate value of only $8,779,000 for the 2007-2008 fiscal year, and $8,955,000 for the 2008-2009 fiscal year. The assessor’s office also informed Williams that it had not yet assessed the value of Hangar Nos. 3 and 4. These assessment figures undermined the $65 million estimate for all four hangars. Under this assessment, the remaining two hangars (Nos. 3 and 4) would have to be valued at approximately $56 million alone for the previously provided estimate for all four hangars of $65 million to have any validity. But the remaining two hangars could not be assessed at over $56 million. The four hangars were too similar for such a disparate valuation to be possible. Nevertheless, Williams and Metzler used the $65 million assessed value for all four hangars. Metzler included the $65 million value in a draft of the spreadsheet he prepared in advance of a conference call with the bank, Williams, the authority’s counsel and others. Williams emailed the Metzler spreadsheet to the meeting participants, as well as to Kinsell. The Metzler spreadsheet reflected: (1) the estimated $65 million assessed value for all four hangars for the 2008-2009 fiscal year; and (2) the $56,221,000 hangar valuation available for bonding in 2008-2009 (i.e., the $65 million estimated assessed value for the hangars in 2008-2009 minus the $8.779 million assessed value for Hangars No. 1 and 2 in 2007-2008 ).  The consultant relied on the $65 million estimated assessed value  Metzler provided for the hangars when it conducted its tax increment analysis.”
The inflated figure allowed the airport authority to issue substantially more bonds and raise more money than it otherwise would have, the SEC maintains, such that  a consequence of the city’s inflated valuation of the hangars was that  investors were given false information about the value of the security available to repay them.
In addition, the SEC’s investigation found that Kinsell and another of his companies misappropriated more than $2.7 million in bond proceeds that were supposed to be used to build airplane hangars for the airport authority. According to the SEC’s complaint, the scheme began when Kinsell learned of allegations that the contractor building the hangars had likely diverted bond proceeds for his own personal use. When the contractor was removed, Kinsell stepped in to oversee the hangar project through another company he owned, KND Affiliates, LLC, even though Kinsell had no construction experience.
The SEC alleges that the airport authority loaned KND Affiliates more than $60 million in bond proceeds for the hangar project and agreed that as compensation for the project, KND Affiliates would receive a construction management fee of two percent of the remaining cost of construction. However, Kinsell and KND Affiliates took an additional $450,000 in unauthorized fees to oversee the construction and took $2.3 million in fees that the airport authority was unaware of and never agreed to, purportedly as compensation to “manage” the hangars, the SEC alleges.
“By mid-2006, the authority and Kinsell learned of allegations that the developer for the hangars project had not been paying the subcontractors and that the developer’s principal had likely diverted some of the bond proceeds from the project for his own personal use,” the complaint states. “Kinsell reached a ‘handshake deal’ in June or July 2006 with the executive director of the authority whereby Kinsell, through Affiliates, would oversee the project.  Although that “handshake deal” was never reduced to a written contract, all of the parties understood that it was a ‘cost plus 10% construction management fee’ arrangement. In July 2006, the authority approved Affiliates’ new role, and, over the next two years, made five separate loans totaling $60.38 million to Affiliates.
These loans included $22.2 million lent in August 2006, which was used: (1) to immediately pay over $12 million to disgruntled subcontractors and $6 million to the original developer to resolve various claims; and (2) to pay a portion of the remaining costs necessary to complete the hangars.”
The SEC complaint continues, “Periodically throughout the construction of the hangars, Affiliates paid the new contractor the 10% construction management fee that had been earned as of that date. The contractor retained its 8% share of the fee and “rebated” back to Affiliates the 2% fee owed to Affiliates, totaling not more than $865,990 from October 2006 through October 2010. However, Affiliates actually took at least $1,316,524 as the 2% construction management fee, or at least $450,534 more than the amount that was ‘rebated’ back to it by the contractor. Affiliates simply took this excess – and unauthorized – construction management fee directly from the bond proceeds the authority loaned Affiliates to construct the hangars. Affiliates collected the unauthorized 2% construction management fee based on expenses incurred in August 2006 that had nothing to do with the remaining costs of construction, such as the payments to subcontractors for prior work and the payment to the original developer to settle claims. Thus, before KND underwrote bonds for the authority in November 2006, Kinsell and KND knew, or were reckless in not knowing, that Affiliates planned to charge more than the authorized 2% construction management fee and did not disclose this information to investors.”
The SEC alleges that Kinsell and KND Affiliates hid these fees from the airport authority representatives and from the auditors who reviewed KND Affiliates’ books and records.
The SEC’s complaint alleges that the airport authority, Kinsell, KND, and KND Affiliates violated the antifraud provisions of U.S. securities laws and various Exchange Act and Municipal Securities Board rules. The complaint also alleges that Victorville, Metzler, KND, Kinsell, and Williams aided and abetted various violations. The SEC is seeking the return of ill-gotten gains with prejudgment interest, financial penalties, and permanent injunctions against all of the defendants, as well as the return of ill-gotten gains from relief defendant KND Holdings, the parent company of KND.
Terree Bowers, the attorney representing Victorville, this week told the Sentinel, “It is our position that there are both legal and factual issues [in the complaint] that need to evaluated to put the city’s actions  in proper context to determine if the action described  was actually material.”
Bowers would not comment on whether the actions of Kinsell, Newcomb & DeDios or any of its agents or principals were improper and had victimized the city.
“We’re not going to comment on their conduct,” Bowers said. “We are devoting ourselves to showing the city and its employees did nothing wrong.  We are now evaluating whether we will file a moton for dismissal. I cannot give you anything more substantive  until such time as we file a motion  to dismiss or for summary judgment.
The SEC’s investigation was conducted by Robert H. Conrrad and Theresa M. Melson in the Municipal Securities and Public Pensions Unit, and Lorraine B. Echavarria, Todd S. Brilliant, and Dora M. Zaldivar of the Los Angeles Regional Office. Sam S. Puathasnanon will lead the SEC’s litigation.

(May 3) TWENTYNINE PALMS — The city of Twentynine Palms has settled on bringing in Joe Guzzetta, the former city manager of Desert Hot Springs and the current general manager of the Joshua Basin Water District, to replace recently departed city manager Richard Warne.
Guzzetta will officially begin with the city June 1.
After a short but intensive search for Warne’s replacement, the city council at a specially scheduled meeting on April 30 voted unanimously to hire Guzzetta, providing him with a $184,000 salary and a $6,000 per year contribution to his retirement fund.
Under the contract extended to Guzzetta, who currently lives in Riverside, he will be required to take up residence in Twentynine Palms by March 1, 2014.
For the last nine years Guzzetta has been the general manager of The Joshua Basin Water District, while that entity has carried out capital improvements, infrastructure replacement, a groundwater recharge program and the facilitation of a wastewater treatment plant partnership with the Hi-Desert Medical Center in Joshua Tree.
In addition to managing Desert Hot Springs, Guzzetta was the city manager for periods in both Hemet and Corte Madera.

(May 3) In 2012, then-incumbent 43rd Congressional District Congressman Joe Baca chose to seek reelection in California’s newly redrawn 35th Congressional District, which had been formed pursuant to the state redistricting that took place after the 2010 Census.  Baca actually lived within the confines of the newly drawn 31st Congressional District, but was not required to run there as the residency requirements for members of Congress specify that they must merely be a resident of the state in which the district they represent is located.
While voter registration in both the 31st and 35th districts favored Democrats, Baca calculated he had a far better chance of maintaining his incumbency in the 35th District. In the 35th, registered Democrats overwhelmingly outnumbered registered Republicans 114,641 to 65,521. In the 31st, the margin was 119,964 Democrats to 103,904 Republicans. A factor that influenced his decision to run in the 35th was that another incumbent, Republican Gary Miller, who had represented California’s 42nd District, was purposed to seek election in the 31st District as a consequence of redistricting.
Given Republicans’ greater voter turnout propensity and Miller’s strong fundraising capability, Baca elected to run in the 35th.  In 2012, California put into place open primary elections. In the 35th, Baca faced a challenge by Gloria Negrete-McLeod, who had been a member of the California Senate since 2006, having previously served in the Assembly from 2000 to 2006. Of note, in winning her state senate seat for the first time in 2006, Negrete-McLeod had defeated Joe Baca’s son, Joe Baca, Jr.
Given his incumbency and perceived fundraising advantage over all other challengers, including Negrete-McLeod, Baca in 2012 appeared to have a leg up on the competition. And indeed, in the June open primary polling, Baca bested Negrete-McLeod by what seemed a more-than-comfortable margin, 12,619 votes or 47.7 percent to 9,078 or 33.93 percent. A third candidate in the race, Anthony Vieyra polled 5,058 votes or 18.9 percent. Thus, Baca and Negrete-McLeod, both Democrats, qualified for a head-to-head battle in the November general election, one Baca seemed destined to win handily.
In the final weeks before the general election on November 6, Negrete-McLeod’s campaign was infused with $3.8 million in donations from a political action committee controlled by Republican New York Mayor Michael Bloomberg, which paid for a $2.3 million television advertising blitz during the last week of the campaign. Baca, who throughout most of the campaign had been complacent, was caught flatfooted and saw the election slip away, with Negrete-McLeod capturing 61,065 votes or 54.35 percent to his 51,281 votes or 45.65 percent.
Baca, now 66, is unwilling to accept political retirement. He indicated relatively early on that he intended to run for Congress yet again. He hinted, and most of those listening assumed, he had his sights set on a rematch with Negrete-McLeod, who will not be able to rely upon Bloomberg’s largesse in 2014, and whom Baca will no longer take lightly.
More recently, however, Baca rethought his future political strategy and concluded that he will run in the 31st District, challenging Miller.
Already, however, Baca’s road back to Capitol Hill has complexified. Ideally,  the 13-year veteran of Congress had hoped to engineer his political comeback by simply standing up to challenge Miller in the 31st District, which sprawls across San Bernardino County from Rancho Cucamonga to Redlands, covering all or parts of Fontana, Rialto, Colton, San Bernardino, and Redlands and consists of a population that is  29.7% White, 11.0% Black, 7.2% Asian, and 49.4% Hispanic. Given the district’s current 119,964 to 103,904 registered voter advantage of Democrats over Republicans, Baca was looking for an uneventful primary battle that would result in a match-up against the Republican Miller, the same battle he had avoided last year when he chose to run in the 35th.
It is a painful irony to Baca, a Democrat who has never lost to a Republican, that those who have vanquished him have been Democrats. And as the election of 2014 looms closer, it appears that Baca’s toughest opponents, the ones who may prevent him from returning to Washington, D.C. or prevent him even from getting into a one-on-one contest with Miller, are his fellow Democrats.
Already, three stalwart Democrats have declared their candidacies in the 31st in 2014.
Pete Aguilar, the mayor of Redlands, who ran unsuccessfully in the primary in the 31st last year, is making a return engagement.  Also running is Eloise Gomez Reyes, a first-time candidate who has been active in supporting other Democratic candidates in the past, and San Bernardino School Board Member Danny Tillman. And the field is by no means closed, as other potential Democrats have more than a year-and-a-half to declare their candidacies. Nevertheless, the troika of Aguilar, Reyes and Tillman are in themselves troubling enough for Baca.
Aguilar has made clear he is ready to undercut Baca with members of their party. He recently sought to capture the Democratic Party base in the 31st, launching a broadside against Baca by reminding voters that Baca had endorsed the Republican Miller in his election bid last year. Upon her announcement, Reyes picked up the endorsements of a number of prominent Democrats, including that of Colton Mayor Sarah Zamora. And Tillman’s presence in the field is particularly galling to Baca. Tillman is a political ally of former Rialto mayor, assemblyman and county supervisor Jerry Eaves. Eaves, likewise a Democrat, was Baca’s major nemesis at the beginning of his political career. Baca lost three straight election campaigns for Assembly against Eaves in 1986, 1988 and 1990. It was not until Eaves voluntarily left the Assembly in favor of a successful bid for county supervisor in 1992 and sought unsuccessfully to have his place in Sacramento assumed by another of his allies, John Longville, that Baca was finally able to get elected to state office.
Now, to achieve the match-up with Miller, Baca must endure what could be a bruising internecine struggle within his own party. And Aguilar, as the most serious of the Democratic contenders against Miller last year, has already secured crucial Democratic Party backing for his 2014 run. Thus, Baca’s desired strategy of engaging in energetic fundraising and building a substantial political war chest and simply entering the race a year-and-a-half hence, while surviving the primary and husbanding his financial resources to heavily engage Miller in the November 2014  General Election does not appear viable. He will need to spend a considerable amount of money in the June 2014 Primary to ensure that he can outdistance Aguilar, thus weakening his campaigning capability against Miller for November 2014.
Indeed, the well-financed Miller has already proven that he can exploit the Democrats’ tendency to field an abundance of candidates during the primaries.
Last year, Aguilar was joined by three other Democrats  –  Justin Kim, Rita Ramirez-Dean,  and Renea Wickman in the primary. Another Republican – former California Senate Republican Leader Bob Dutton – was in the race along with Miller. Despite the Democrats’ registration advantage in the district, the splitting of the Democratic vote among twice as many candidates as the Republicans offered resulted in Miller and Dutton being the top vote-getters in June. Thus, no Democrats qualified for the November run-off. Miller and Dutton stood against each other in November and Miller proved victorious.

(May 3) VICTORVILLE—The San Bernardino County Sheriff’s Department has begun arresting panhandlers in this city of 115,903.
On April 27, deputies with the Victorville station took to the commercial districts and most heavily travelled streets of Victorville  to arrest those who both passively and more aggressively begged passersby and motorists for money.
In some of the cases, those holding signs at street corners or  entrances to or exits from the freeway or shopping centers were arrested and cited. Others who approached cars while on foot or sent their children to cars to receive money were taken into custody.
The action comes after numerous complaints by citizens relating to panhandling have been registered with authorities. Officials say they have concern with regard to public safety and the traffic hazards of pedestrians moving into the roadway.
Under California  Penal Code § 647c, which pertains to “disorderly conduct” anyone “Who accosts other persons in any public place or in any place open to the public for the purpose of begging or soliciting alms” is “guilty of a misdemeanor.”
Penal Code § 647c is rarely enforced.
Fifteen such arrests were made on Saturday in Victorville.