$10 Million Given Away by City Manager

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The Incomplete Skyborne Story

[Originally published on the Cactus Thorns website 11/23/2011, this subject appears on the agenda for the 3/19/2013 city council meeting. All photos current 3/18/2013]

Roadway coming unglued

Desert Vortex News

The unfinished road has less than 1" of asphalt and the roadway is falling apart. Without the protection of the final lift of asphalt the roadway is fast returning to desert sand.

DESERT HOT SPRINGS, CA – A local real estate developer received a $10 million dollar giveaway thanks to a special relationship with the city manager who helped engineer his release from pricey development bond obligations.

This city manager coached the developer on what to say to the media, guided him on how to influence the city council, and worked behind-the-scenes to ensure city staff took the steps needed to help the developer achieve his objectives.

At the completion of many weeks’ worth of work leading up to a city council vote, two emails sum up the effort. “FYI. It is in your hands now,” wrote DHS City Manager Rick Daniels.

In appreciation for Daniel’s effort, James Kozak of Strategic Land Partners and Skyborne Ventures replied to Daniels on Tuesday, Nov. 3, 2009 at 3:58 p.m, “Thanks Rick for teeing it up for me.”

Sidewalk to nowhere

Desert Vortex News

Sidewalk to nowhere

Those are just two emails in the hundreds of pages of emails obtained by the Desert Star Weekly that reveal an intensive effort in late 2009 showing Rick Daniels receiving information from Jim Kozak on what was needed to seal the deal, and Daniels immediately responding with instructions to city employees from “Get this done immediately,” to “I need this ASAP” to “You need to resolve this now. Understood?!”

That email of thanks for “teeing it up” landed in Rick Daniels’ inbox on the day of the election two years ago that re-elected council members Jan Pye and Scott Matas, and elected Yvonne Parks as Mayor. Jim Kozak has been a strategic campaign contributor to city elections in 2009 and 2011.

In a nutshell, this is what this story involves:

Abandoned chain link fencing

Desert Vortex News

Just past the entrance homeowners suffer the blighted view of chain link fencing abandoned years ago.

When a developer approaches a city to build a new housing development, the developer must agree to put in what are called public improvements. Public improvements are streets, curbs, gutters, sidewalks, perimeter walls, landscaping and utilities.

Cities don’t just accept a developer’s word that those public improvements will be completed. The developer is required to take out an insurance policy to make sure all of the public improvements are completed. That policy is referred to as a bond. Each month a developer must pay a premium on the policy, like a guarantee.

Cities only release bonds once they are sure the public improvements have been completed by the developer, and that everything has been installed to the city’s satisfaction. It is highly unusual for a city to release a subdivision bond before the public improvements have been done.

If the developer does not make the public improvements as promised, the city can “call” the bond and the insurance company then must pay for the public improvements that still need to be completed.

With that explanation, here is how a $10 million gift favoring a certain developer came to be. Here is how the bond the city held was ultimately released; the developer was inexplicably exempted from making premium payments; and the residents of Desert Hot Springs were left with unfinished public improvements at the Skyborne subdivision.

We present you with a peek inside city hall to see what went on behind-the-scenes in late 2009, as city staff, the city attorney and the city manager worked – feverishly at times – to get the deal in place ahead of a Nov. 3, 2009 council vote.

Piles of abandoned tires litter the area.

Desert Vortex News

Piles of abandoned tires litter the area.

Over a period of three months, Jim Kozak, who is president of Strategic Land Partners, the owners of Skyborne, received the full assistance of Daniels while Kozak contributed heavily to political campaigns of council members needed to vote in favor of his deal.

Rick Daniels, working city staff to help Jim Kozak, also gave Kozak advice to on how best to approach each council member to gain approval for his $10 million “sweetheart” deal. Emails from our public records act request provide a sticky evidence trail proving the unusual relationship.

Jim Kozak used City Attorney Ruben Duran and city employees to do his bidding, as the many emails in the public record show. Those emails also demonstrate that Kozak was in constant minute-by-minute contact with Daniels, while Kozak was updating Daniels about the progress he was making with each of the council members.

Karen Park

The $1.2 million Karen Park is still a pile of rubble with a water well drilled in the wrong location.

The result was a council vote letting Jim Kozak and his company off the hook for $10 million in development bonds Kozak is now no longer obligated to pay.

“Go to the story on this in The Desert Sun and come prepared tomorrow night to rebut the report and commentators on the article and educate the Council and the community on this issue. The burden to convince them that this is an appropriate safeguard lies with you and your company,” writes Rick Daniels to Kozak on Nov. 2, 2009.

That email included four detailed bullet points of what city staff intended to state at the council meeting, as well as ten bullet points instructing Jim Kozak on what to say in response to each one.

Skyborne Building

Desert Vortex News

Boarded up community building with broken windows and bird's nest in architectural detail on top wall.

“This is a community that has been abused by flim-flam developers in the past and is justifiable very skeptical,” Rick Daniels warns Kozak. “I am asking City staff to also be prepared to answer these questions in the event that Council turns to us.”

In one email exchange on Nov. 2, Jim Kozak informs Daniels he has talked with council members to get council member Jan Pye’s approval in advance, writing, “She told me that I answered all her questions to her satisfaction.” Kozak writes he had also spoken with Baker and won his approval. “He was fine with what we were proposing to do.”

Then city engineer Jonathan Hoy and the then-engineer for the Mission Springs Water District (MSWD), Dan Patneaude, warned of some of issues of concern regarding the bonds being released from the developer with the expense transferred to the city.

“The Maintenance Bonds ensure that the roads, curbs, gutters, etc stay in good shape until acceptable by the City. We have hydrants leaning, cracked foundations, caused by sinking curb and gutter (compaction failures) that can possibly be a serious problem for us to repair in the future. We also have manholes and water valves not raised to the appropriate grade based on the street completion,” writes Patneaude to Hoy, Daniels and Arden Wallum, general manager of the Water District.

Bird's nest on building

Desert Vortex News

Bird's nest on building, detail from above pic.

A flurry of emails were exchanged. Rick Daniels instructs Pateneaude and Hoy with four words, “Get resolved by tomorrow.” On Nov. 2, 2009 the emails read a minute-by-minute account with Daniels and Kozak emailing back and forth with just seconds between emails. Kozak also had to fix matters with the city attorney.

More emails flew back and forth as Jim Kozak was coordinating his push with city attorney Rubin Duran just a few days earlier on Oct. 27, 2009, with Duran dutifully editing the lien contract for Kozak.

Part of the strategy was to show that releasing the bonds and accepting a lien in their place was normal. In private, Ruben Duran did not agree.

“It is actually pretty rare to use a lien agreement in place of a bond, for the reasons I’ve explained before” writes Ruben Duran on Nov. 2. “If the Council approves this, they will be on the cutting edge of these issues in the state.” In other words, it was a highly unusual arrangement.

Ultimately, Ruben Duran cautions that it was not a good deal for the city did not make it into the public discussion during the council meeting. Duran did not raise during the meeting the cautions he expressed in no uncertain terms in his behind the scenes emails. The council did not have the benefit of Duran’s review, even though Daniels did.

Those were not details Rick Daniels wanted in the realm of public information, as Daniels’ email exchanges clearly show. Daniels’ instructions put Jim Kozak’s deal in a favorable light at the meeting but not to bring up any of the risks to the city.

According to the land-use planning experts we contacted while researching this story, a bond is as good as cash in hand. With a bond, you are guaranteed to get the promised improvements done. Only if the bond insurer fails financially are bonds at risk. A lien on the other hand can be easily manipulated, its security lost in a number of ways. Even city attorney Ruben Duran spelled that out – in private.

“Money guy and attorney are OK now,” Rick Daniels wrote in late 2009 and ahead of the vote.

The money guy and the attorney are “OK,” but the Skyborne residential development in DHS still remains incomplete two years after the favor was done.

(Note: and so it remains today, March 18, 2013 with bonds expired and project work still incomplete)

copyright retained by author as first published on Cactus Thorns website


6 thoughts on “$10 Million Given Away by City Manager

  1. They released public improvement bonds without the work being done. Unheard of favor. Tell me this is being investigated.

  2. This story is misleading, bondholders have first dibs on their money, not the city. If the project fails, bondholders call their own bonds first. These bonds are NOT insurance policies, they are bonds. If a developer fails the bond contract can be voided. You cannot force anyone to “finish the improvements” when a project FAILS. These matters can head to court if they are not worked out. City sued and lost based on this very thing. It was another waste of $76,000 in legal fees, something the city of Desert Hot Springs does best.

  3. I. Mprovement, Your post qualifies as wildly uniformed or purposely deceptive. The city was the bond holder. If the public improvements associated with a development are not installed as required by the city, the city exercises the bonds IT HOLDS to get the work done. You are correct the city can’t force a failed developer to finish the improvements but with the bonds in hand the city can force the surety that issued the bonds to pay for them and thereby make sure the public improvements are completed.

    Bonds should only be released once the public improvements the bonds guarantee have been completed. In the case of Skyborne, had the city exercised its rights and used the bonds to complete all of the public improvements those improvements would now be installed. Instead there is an unfinished mess that city residents and visitors to the city get to look at every day – for years. Had the city council acted in the public’s interest instead of the developer’s, all the public improvements at Skyborne would be completed. All that would remain to be done is construction of the homes to be built on the finish grade pads.

    The city council should have looked out after the interests of the public instead of doing this giant favor for the developer. But when does that ever happen in Desert Hot Springs? Then some nit comes along to make excuses for it all. If your intent is to deceive people by posting such ridiculous tripe, shame on you. If you are that uniformed, go get yourself an education before pretending to know what you are talking about.

    Desert Hot Springs can be a great place once it gets a decent city council. I could not wait around any longer for that to happen as I watched the value of my home lag behind every other nearby community. I miss the desert but it was the smart financial decision for me and my family to escape that city’s ingrained corruption.

  4. A bond is a form of loan or IOU, the holder of the bond is the lender (creditor). The creditors have first dibs on their money if a project fails. Bondholders are the creditors, they put up the money, or promise to provide the money. In the case of a development as is described in the article here, the creditors made a promise to finance the streets and such, usually in phases as a development progresses, but the contract is based on a project that goes to completion. In the case where a project fails and is not complete, and goes bankrupt or just ceases to build out, the creditors aka bondholders have the right to go to court (if it goes that far which it did in this case) and make their case that they do not have to fulfill their contract as the development was never finished. Let’s take a more extreme example, creditors post a bond for a development and the developer builds not one house after grading, does anyone expect the bond for the roads and sewers to be exercised? No. The creditors keep their money rather than spending it on roads to nowhere. The bond for streets and such is based on the completion, or at minimum, the ongoing health of a project. They cannot force creditors to finance infrastructure when there is no chance of return on their investment. If the city is the original issuer of the bond, acting as creditor as you claim, how exactly are they going to “call the bonds” when they are the one financing it? That makes no sense. You already described that a “surety” issued the bonds, that means that other creditors money is behind it, not the city’s. The surety has legal rights to not be forced into spending the creditors monies on projects that were never finished. Thus, that is why the city never “exercised” those bonds in the first place, and when certain council members pressured the city to take it to court, the city lost the case and had to pay almost $80k in legal fees of taxpayer money, covering the defendant’s costs!

  5. OH my God. This city is whacky for keeping this city manager on the job after all this mess. Why argue over the details? Enough is enough. My mind is already made up for the November election.

  6. Indio just faced a similar thing with Terra Lago. Developer never finished all phases, and homeowners wanted city to force a change in the bond agreement to lower their Mello Roos taxes since the development is unfinished. City just abandoned efforts to force a change in the bond agreement as the city would’ve had to obtain approval from a majority of the bond owners who would never have gone for the change.

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