A county watchdog panel is raising new concerns about how San Diego spends and keeps track of the many millions of dollars that developers contribute to help the city pay for parks, libraries, fire stations and other infrastructure projects.
The grand jury says San Diego has chronically violated the California law that allows cities to collect those developer impact fees — including with its longstanding practice of keeping fees beyond a five-year state limit.
In a 43-page report, the grand jury says San Diego should quickly refund $179 million it has kept beyond five years and make it a practice of refunding such fees in the future when it can’t justify holding money beyond that limit.
The report also says the city should be more transparent about how much money it has collected, how much it spends, which projects money is assigned to and how close those projects are to being fully funded.
In a tone that borders on exasperated, the report says city officials have been made aware their practices violate state law several times but have repeatedly ignored those warnings.
“The grand jury hopes that this report serves as the last of the red flags the city needs to prompt action, and the findings and recommendations made herein are finally taken seriously by the city, including the mayor and City Council, and all elected and appointed city officials, including the city attorney, management staff and employees,” the report says.
The report stresses that courts have forced other cities that it says have similarly violated the state’s Mitigation Fee Act to refund millions in developer money.
Because San Diego’s practices have apparently never prompted litigation from developers or other critics, the grand jury titled its report “Never Been Challenged.”
City officials said Wednesday that they are working on a formal response to the report and wouldn’t be making any substantive comment until that response is complete. The formal response is due by Sept. 30.
The grand jury report says San Diego residents should be frustrated by what the report calls the city’s “informed mismanagement” of more than $1 billion in developer impact fees collected since the state law took effect in 1989.
“Failure to appropriately collect and expend millions of dollars in DIF collected by the city, in accordance with the developers’ expectations and the communities’ entitlement to local amenities such as libraries, parks, fire stations, and transportation facilities, runs afoul of the law and injures the residents it is intended to protect,” the report says.
The report, however, doesn’t mention that its recommendation that the city immediately refund $179 million of the $508 million now in project accounts would prevent completion of many long-promised projects.
The report focuses significant attention on a lack of transparency, criticizing the city for filing its annual reports on developers fees many months late, year after year.
It also notes that the city doesn’t update project lists for individual neighborhoods in a timely fashion, despite warnings from the city attorney.
“The city’s community plans and financing plans are outdated — some in excess of 10 years, or more,” the report says. “The city attorney has advised on two separate occasions the requirement for community plans and financing plans to be updated annually.”
Another concern raised is misuse of funds, particularly the city practice of spending developer fees on administrative work.
The report notes that the city spent $720,000 in developer fees coordinating a recent change in how the fees get spent, with money from wealthy neighborhoods getting shifted to projects in low-income areas.
The report says coordinating that change, which the city calls Build Better San Diego, should have been covered by the city’s general fund — not developer fees.
In addition, the report says other administrative fees charged by the city are too high, leaving less money for the actual projects.
The city says 5% to 8% of a project’s budget should be spent on administration, but the report says administrative charges often exceed that amount, including one account that was charged 18%.
The report stresses that city officials have been warned previously about these problems — including in a confidential memo sent to city leaders in 2018 by then-City Auditor Eduardo Luna.
The formerly confidential memo, which the grand jury obtained, says the city’s riskiest practices included collecting money for projects that can’t happen due to land unavailability, breaking the five-year rule and illegally devoting money to existing infrastructure.
State law says developer fees must be devoted to adding new amenities, not renovating or maintaining existing ones.
The confidential memo should have been a major wake-up call that prompted quick and decisive action, but instead, essentially nothing happened, the grand jury contends.
“The grand jury found no evidence that ‘profound changes’ had been recommended or implemented, or even that the Confidential Audit Memorandum had been received and reviewed,” the report says. “The grand jury interviewed city staff from the 2018-2019 timeframe, and all interviewees either did not recall the report, could not remember what actions were recommended or taken by management or were not involved in any actions taken.”