$50 Million in Redevelopment Funds Misspent or Missing in City of Hercules

Thursday, September 13, 2012

What happens when a city’s redevelopment agency has “almost no internal and accounting controls,” makes loans that are “just gifts of public funds,” and hands out credit cards used to pay for trips that “did not serve the public’s interest”?

The answer is it makes $50 million in expenditures between 2005 and 2010 that, in the words of State Controller John Chiang, are “absolutely incredible.”

A pair of audits released by the controller’s office Wednesday outlines “self-dealing, nepotism and other public trust abuses” in the Bay Area city of Hercules, but is thin on specifics in many cases because a “substantial number of documents” were missing.

“The story can't be completely told, and that's problematic,” Chiang said.

The audit points a finger at former Hercules City Manager Nelson Oliva, who quit in 2010 under a cloud of suspicion. The city sued him and three of his daughters for $3 million to recover funds it said were directed to a consulting firm, NEO Consulting, they ran. The FBI and IRS are investigating.

Oliva oversaw city operations and the redevelopment agency, which shared a common interest in many of the projects pursued by the latter. Among the auditor’s findings is $7.1 million in unsupported costs charged by the city to the redevelopment fund’s operating fund. The audit also found questionable property transfers from the agency to the city. 

$1.4 million in redevelopment funds were spent on “administrative costs” that can’t be documented, $200,000 went to four public school principals to pay for ill-defined consulting services, and $254,000 was charged to credit cards by city officials for food and hotels in a two-year period.

Although city officials said they are now getting their house in order, the audit noted a “lack of cooperation unreasonably delayed the completion of our review. . . . Our requests for meetings were not honored and, even after meetings had been scheduled, city/RDA staff often failed to attend the meetings.”

In all, the audit listed 10 findings of noncompliance by the redevelopment agency, but also pointed out the review was mostly for informational purposes because the redevelopment agency ceased to exist February 1. The state pretty much shut down redevelopment agencies across the state this year for budgetary reasons and alleged questionable practices that have dogged them for decades.

–Ken Broder


To Learn More:

Redevelopment Money Was Wasted in Hercules, Says California Controller (by Steven E.F. Brown, San Francisco Business Times)

Hercules Misspent Millions, Audits Find (by Wyatt Buchanan, San Francisco Chronicle)

Hercules Redevelopment Agency Review Report (State Controller’s Office) (pdf)

Hercules Administrative and Internal Accounting and Controls Review (State Controller’s Office) (pdf)

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