Alhambra’s Procurement Laws Must Change

There is a trust gap at Alhambra City Hall through which one could drive a Mack truck.

By Sean McMorris

The trust gap is the product of decades of power concentrated in the hands of a select few who, through relationships with moneyed interests, have stifled electoral competition and ensured that funds are doled out to favorites with little to no oversight or accountability. And it is all done in the name of “the greater good,” and “enlightened leadership.”

Alhambrans can change all that, at the polls and through civic engagement, both of which are threatening to Alhambra’s power-brokers and establishment politicians who have run the City for the last 30 plus years. References to City Hall in this article are to the decision makers in the City of Alhambra—the City Manager, the Alhambra City Council (City Council) and others who hold the levers of power in City Hall or otherwise.

The time is ripe for change

Alhambra’s 2018 City Council elections were a wake-up call to Alhambra’s old guard. Two non-establishment candidates won City Council seats, while a third candidate was seated unopposed (not an uncommon occurrence in Alhambra elections).

Many believe the old guard still holds a 3-2 majority on the City Council, but for the first time in 15 years, Alhambra has an entirely new City Council because of term limits. Many are waiting and watching to see if the new City Council will begin addressing long-ignored issues such as affordable housing, historic preservation, government transparency, public outreach, more sustainable and equitable development, and a pervasive sense of crony capitalism and pay-to-play politics.

Days before the 2018 Alhambra elections, the L.A. County Registrar informed Alhambra that proponents of a ballot measure had acquired enough resident signatures to require that the initiative be placed on the 2020 ballot. The initiative would impose campaign donor limits and by-district voting. Each of these measures would have the effect of promoting greater representation and reducing the influence of moneyed interests in Alhambra elections.

> This article is a continuation of reporting ColoradoBoulevard.net has already published regarding Alhambra city contracts (see related stories here).

Sweetheart deal for local realtor

In 2011, Governor Jerry Brown disbanded Redevelopment Agencies (RDAs) to help address California’s ballooning budget deficit; the press also cited  RDA waste and local abuse as a reason for disbanding. Eric Sunada, founder of the local think tank, San Gabriel Valley Oversight Group, described Alhambra as a poster child for such waste and abuse, as outlined in his research.

When Alhambra’s RDA dissolved, the City was required to sell tens of millions of dollars worth of property—a commission windfall for any realtor fortunate enough to receive the City contract.

Alhambra severely limited the pool of applicants when it published a 2016 Request For Proposals (RFP) seeking realtors willing and able to sell RDA properties. Some have concluded that City Hall biased the pool by stipulating that preference would be given to Alhambra-based realtors. The AMC does not mandate or encourage local privilege in the contractual process for public projects or consulting and professional services, nor has City Hall applied such criteria to the other City contracts ColoradoBoulevard.net has reviewed over the years.

City Hall received nine applications in response to its RFP. The company chosen was Landz Real Estate, Inc., an Alhambra-based company owned by Leland Lieberg, heir to the former Liebergs Department Stores and an at-large member of the Board of Directors of the Alhambra Chamber of Commerce (Chamber of Commerce).

City Hall was unable to provide any information about the other eight bidders and their proposals, citing the City’s two-year records retention schedule. City Hall also was not able to tell ColoradoBoulevard.net whether or not Landz Real Estate, Inc. had the lowest bid (see email correspondence).

Even though the City laid out a grading criteria for bidders in the RFP, City Hall did not provide the City Council or the public with details on why it was recommending Landz Real Estate, Inc. for the contract (i.e. how it scored on the City’s grading criteria compared to other bidders, why Landz was superior, etc.).

In addition, AMC Chapter 3.38.030(E)(3) states, “The City Manager shall prepare and place in the contract file maintained by the City Clerk’s office a written report, detailing the basis on which the recommendation for award of contract is made.” The Alhambra City Clerk has verified that no such report exists regarding the Landz Real Estate, Inc. contracts with the City (see email correspondence).

Landz Real Estate, Inc. was paid $652,280 as a result of this contract and its amendments.  A lack of transparency, accountability and full adherence to the AMC, as well as preferential treatment towards Alhambra-based realtors, leads one to wonder about the validity and appropriateness of the City’s contract with Landz Real Estate, Inc.

In addition, Mr. Lieberg’s ties to then members of the City Council, the Successor Agency Board, and the Chamber of Commerce (which also has close ties—many believe unduly so) to City Hall, opens City Hall up to criticisms of cronyism.

City foots the bill while entrepreneur collects revenue

For the last five years, Alhambra has hosted a 5k/10k running event billed as the Pumpkin Run. It is promoted heavily on the City’s website and in the Alhambra Chamber of Commerce’s Around Alhambra newsletter. It is a popular function, but it is not free, nor is it a City event. Rather, it is a private venture that is organized and run by former Chamber of Commerce President and local entrepreneur, Joanna Vargas, through her business, Jayvee Empire, Inc.

City subsidization
of an
individual for-profit
event

There is nothing wrong with City Hall allowing Ms. Vargas to hold the event so long as she procures the proper permits and insurance. Nor is there anything wrong with City Hall promoting the event as healthy and beneficial to the community. What is unusual (and ethically suspect), however, is that City Hall foots the bill for everything from traffic control, security, and neighborhood outreach, to a petting zoo and food truck participation, while Ms. Vargas receives the proceeds from the event. Ultimately, taxpayers end up paying even for the costs that Ms. Vargas is contractually obligated to pay because the City subsidizes the Alhambra Central Business District Association (ACBDA).  The ACBDA essentially is an extension of the Chamber of Commerce (more on this later), and it either foots the bill or reimburses Ms. Vargas for Pumpkin Run-related expenses. This amounts to a straight City subsidization of an individual for-profit event and raises questions about contract cronyism and abuse.

In 2018, the Pumpkin Run advertised that proceeds would go to the Special Olympics, but the truth of the matter is there is no accounting of where the proceeds went (see city correspondence). At the May 13, 2019, City Council meeting, Ms. Vargas claimed that she does not profit from the Pumpkin Run, but provided no supporting documentation. On the other hand, invoices show that the City and City- subsidized organizations are paying the cost of holding the event.

City Hall does not know how much revenue the Pumpkin Run generates or where that money goes because City Hall does not require the permittee to supply financials for the event. The registration fee for the event is $50, but Ms. Vargas also makes money on sponsorships, which are $100 to $425 depending on the type of sponsorship. The event typically has 800-1,200 participants. At $50 each that’s $40,000-$60,000 (more with sponsorships).

Why the
double
standard?

Curiously, in 2015—the first year the City supported the Pumpkin Run—Jayvee Empire, Inc. was required to reimburse the City $15,000 for its services for the event, but never again. The REIMBURSEMENT clause in the contract was replaced with an OBLIGATIONS clause. Even though the City does not require Ms. Vargas to turn over financial documents, the traffic control company contracted by the City for the event is required to do so (see OWNERSHIP OF DOCUMENTS clause). Why the double standard?

It appears there are many double standards with the City’s contracts. Without strict procurement laws, residents must trust that the City always will do the right thing.

Chamber-linked org. entrusted with City funds

ColoradoBoulevard.net has reported extensively on City Hall’s annually renewed no-bid contracts with the  Chamber of Commerce worth hundreds of thousands of dollars. The Chamber of Commerce receives $200,000 each year from the City for promotional services and supervision of the construction of the City’s Rose Parade float (2019 will be the first year that the Alhambra Chamber does not directly receive City funds for the Rose Parade float).  City Hall also pays over $85,000 plus a year to the ACBDA, which is essentially an arm of the Chamber of Commerce (both organizations have the same address, Agent for Service of Process, and Chief Financial officer and Executive Director—Sharon Gibbs).

No-bid contracts
with the
Chamber of Commerce
worth hundreds of thousands
of dollars

The money paid to the ACBDA arises from a 1967 ordinance that levies a parking and improvement tax on businesses in a particular area of Alhambra. The original ordinance stated that the revenues from the tax were to be used solely for the acquisition and improvement of parking in that area (see page 7 of ordinance). The ordinance was amended in 1975 to allow funds to be used for decoration, events, music, and promotion of retail trade in that area (see page 4 of amendment), which is how City Hall justifies transferring 90% of this annual tax to the ACBDA rather than utilizing it for its original purpose—parking.

The ACBDA contract, like the Chamber of Commerce promotional services contract, is annually renewed (non-competitive), and the ACBDA cannot be audited unless a majority of the City Council approves.  It is common—and best practice—to grant a city manager authority to conduct audits on city contractors. Like the contracts with the Chamber of Commerce, however, the City has never audited the ACBDA.

With this contract—and others—City Hall has essentially outsourced the departmental duties of Community Development and Parks and Recreation to the ACBDA—a nonprofit 501(c)(4). Even then, rather than bid out such services to a certified professional/contractor, City Hall has entrusted the ACBDA with these duties under a loose contract that eschews cost and quality control. City Hall has entered into contracts of trust with the ACBDA and Chamber of Commerce rather than contracts of verification and accountability. Such contracts invite mismanagement, waste, and abuse.

Case in point: invoices show that a significant amount allocated to the ACBDA is diverted to the Chamber of Commerce. For example, the ACBDA pays the Chamber of Commerce $600-$1,200 a month for advertising and anywhere from $800 to $15,000 a month for “management services.” From 2014 to 2018, invoices show that a minimum of, $100,000, or roughly 20% of City funds allocated to the ACBDA, went to the Chamber of Commerce.

The ACBDA also utilizes City funds to have its taxes done, and to pay Franchise Tax Board fees, liquor liability insurance, signs and business cards to advertise itself, lunch buffets, P.O. Box fees, ACBDA monthly meetings, a yearly pub crawl, and a table at the Chamber of Commerce’s Installation Dinner—the location of which is not within the boundaries in which ACBDA funds are supposed to be used.

A significant amount
allocated to ACBDA
is diverted to
the Chamber of Commerce

In one instance, the ACBDA charged the City for a write-up about Big-T Mini Mart, which is the business of Trent Yamauchi, son of former 12-year Alhambra City Councilman, Gary Yamauchi. Other Invoices show that ACBDA charged the City and City Hall approved a $600 fee for an Alhambra Education Foundation Gala.  Although perhaps a worthy cause, such a payment is not permitted under the parameters of the City’s contract with ACBDA.

In addition, there is an invoice for $35,000 to the Alhambra Education Foundation (AEF) for management of the annual Taste of Alhambra festival. In the past, proceeds from the festival often went to the AEF to support student programs, but it is unclear why the ACBDA would give the fundraising wing of the Alhambra Unified School District such a sizable lump sum of money to manage the event. ABCDA did not provide City Hall with documentation as to how the AEF used the $35,000.

Then there are the losses.

In addition to City Hall subsidizing former Chamber of Commerce President Joanna Vargas’ Pumpkin Run (for profit) event through the ACBDA, the ACBDA paid Ms. Vargas $9,500 in 2017 for a canceled Main Fest event and in total, the City (through the ABCDA) paid out over $50,000 for the canceled (for-profit) 2017 Main Fest event. According to invoices, ABCDA never reimbursed the City for these losses, which accounted for over 40% of the taxpayer funds the ACBDA received that fiscal year. At the May 6, 2019 City Council meeting, Ms. Vargas claimed that she personally lost over $300,000 for the failed event, but she did not address the $50,000 plus in City funds she received through ACBDA.

Any city contract worth the paper it is written on has safeguards against losses. The ACDBA contract does not.

ACBDA
and Chamber of Commerce
should exist
without taxpayer
subsidization

Further, it appears that the Chamber of Commerce and the ACBDA keep any profits from events for which they utilize City funds through contracts with the City, although some members of the ACBDA and the Chamber have publicly claimed that they do not keep such profits.  None of the Chamber of Commerce, the ACDBA or City records substantiate these claims.  Nor do these claims address the fact that the Chamber of Commerce and the ACBDA use City funds for that which the Chamber of Commerce typically does anyway–without City subsidization.

The City’s contract with the ACBDA, and the City’s contracts with the Chamber of Commerce, amount to slush funds for and the subsidization of activities of a handful of Alhambra power brokers and business interests.

The ACBDA and Chamber of Commerce can and should exist without taxpayer subsidization. At a minimum, such contracts should be subject to a formal competitive bidding process and mandate a modicum of accountability and oversight.

Alhambra’s flawed procurement process

There is no other way to put it. Alhambra’s procurement process is a sham.

In 2008, the City Council amended the Alhambra Municipal Code (AMC) to add Chapter 3.38: Contracts for Consulting and Professional Services. The chapter allows City Hall to ignore formal competitive bidding procedures (i.e. selecting the lowest responsive bidder) for “any contract that is not a public project or a contract for the purchase of supplies and equipment.”  It also allows the City Manager to forego City Council approval if the contract is less than $50,000.

Consequently, Alhambra eschews formal competitive bidding for service contracts (non-construction and supply contracts).  Instead, City Hall purports to use a “competitive proposal” process for service contracts over $50,000. City Hall is allowed to and does, however, ignore the competitive proposal process as well. This must change if Alhambra is to end cronyism and waste.

Alhambra’s Municipal Code provisions permit abuses

A “competitive proposal” process with opaque guidelines and subjective application grading criteria is much more open to abuse than competitive bidding, especially within the AMC.

The AMC allows cost of service to be part of the criteria for service contracts, but not the determining factor, within the pool of applicants who have met the requirements of the City’s Request for Proposals.  If cost is not determinant, selection among multiple applicants is open to favoritism and fiscal imprudence.

Equally problematic is the City’s subjective and inconsistent grading criteria for contract proposals. Granting preference to applicants who live within in a certain zip code unduly biases the applicant pool and is counter to the competitive bidding/proposal process. In addition, the City’s use of grading criteria based on a subjective percentage rather than objective compliance to the RFP further injects bias into the process.

A similar chapter in the City of Montebello municipal code was cited in a 2018 state audit as detrimental to Montebello’s solvency and the city’s ability to prevent fraud and abuse.

The State Auditor of California recommended that the City of Montebello amend its municipal code to require formal competitive bidding (i.e. lowest responsive bidder) and city council approval for all contracts, including services “with few exceptions—such as for very small purchases or legitimate emergencies.”  This is not unreasonable given that the State of California requires that all cities competitively bid out contracts for public works projects (construction and maintenance of public property) that are over $5,000.

Exclusivity = Cronyism

There is no excuse for the granting of exclusive contracts and open-ended contract renewals, such as Alhambra’s contracts with the Chamber of Commerce, ABCDA and Al’s Towing. It is cause for concern that the City has so many of these contracts.

Discretion = Irrelevance

Finally, safeguards within the law are irrelevant if they are permissive rather than required. No municipal code chapter on procurement should be discretionary, as is the case with the AMC’s chapter, Contracts for Consulting and Professional Services (Chapter 3.38), which states:

§ 3.38.050  DISCRETIONARY PROCESS. Except where it would conflict with state or federal laws or regulations, the City Council or City Manager, as applicable, may dispense with any or all of this chapter’s procedures when, at their discretion, they deem it would be advantageous to the city to do so [emphasis supplied].

The AMC does not define “Advantageous.”

Alhambra City Manager, Jessica Binnquist, confirmed that the City can forego the entire competitive proposal process outlined in the AMC for service contracts (Section 3.38.030) specifically because of the discretionary clause included in Chapter 3.38 of the AMC. Indeed, this clause is the City’s justification for not sending the Chamber of Commerce and ACBDA contracts out to bid.

This “Discretionary” clause also appears to be why the City Manager forgoes required reports that are meant to provide transparency into the city procurement process, as was the case for the Landz Real Estate, Inc. city contract to broker tens of millions of dollars in city assets.

What other abuses has the City justified because of the Discretionary Process provisions in the AMC?

Accountability is as important as transparency. Neither should be optional nor should the exploitation of the AMC be condoned. At a minimum, the AMC should be amended immediately to remove all Discretionary Process clauses pertaining to procurement. Until it does do, Alhambra will continue to be an example of how cities should not engage in the contractual process.

Doing what is right vs. doing what is politically advantageous

Doing what is right never seems to be easy when politics are involved, but it should be. Politicians are elected to do what is best for their constituents, not a handful of wealthy campaign donors and power brokers. There is no justification for lax procurement laws, which are magnets for waste and corruption. No one will argue that competitive bidding and strict oversight and accountability are bad for the City except for the City contractors and campaign donors who benefit from such poorly written laws—and the politicians who accept their large campaign donations.

Alhambra should adopt amendments to the AMC similar to those recommended by the State Auditor for Montebello if the City wants to protect against waste, fraud and abuse. It really is a no-brainer; the only question is if the political will exists to make it happen. Let’s hope so. The integrity of Alhambra’s government is at stake.

If the current City Council does not properly amend the AMC and clean up the City contracting process, perhaps voter approval of the initiative on the 2020 ballot ultimately will produce that result. Alhambrans should not have to wait that long.