09-20 and 09-21-10 Special Called Regular Meeting of Fiscal Affairs Committee

Browse Search

CITY OF LA PORTE, TEXAS Agreed Upon Procedures - Five Points Town Center Project (Continued) September 21, 2010 9. Verify Authorization for Expansion ofProiect Fundim?:: Through interviews with the Citizen, the concern was raised that on the HUD-1 Statement (Exhibit 30), the sale between East A and Wade Cooper involved more than the $150,000 loan approved by the EDC. The amount in question was the $82,218.68 on line 207 as "paid to seller." Upon review of this document, it appears that no additional amount was paid for by (or required the authorization of) the EDC. Line 202 shows the $150,000 loan, as approved by the EDC. Other lines under "amounts paid by or in behalf of borrower" on this form represent either money previously paid by the buyer (East A) or debts or liens assumed by the buyer. We also compared the amount originally budgeted for the Project to the total actual costs associated with the Project. The Project was initially budgeted for Fiscal Year 2008-2009 at $2.7 million dollars. This amount includes property purchases, engineering, and construction related to the Project. The total expenditures on the Project were approximately $3.0 million. It is our understanding that these overruns were related to two change orders on the construction portion of the Project and expenses related to the removal of fuel tanks that exceeded the amount estimated. City projects would normally require council approval of change orders in excess of ten percent of the original contract or $25,000. As noted earlier, however, EDC projects are not subject to these requirements under Local Government Code 252 as they are not considered governmental entities. 10. Review Transactions Between City and Developer: Many concerns were raised about the relatively complicated series of transactions between East A and the City. These transactions included a loan of $150,000 to East A to secure the rights to 109 and 111 San Jacinto, purchase of the Triangle property from East A for $150,000, and the lease of the Alamo Building from East A. Concerns voiced to us included allegations that there was no public purpose behind the loan, that the requirements of the loan were not met, and that the funds received in repayment of the loan did not come from East A. Criteria used for providing loan to Developer Through interviews with City staff and review of the Memorandum of Understanding (Exhibit 7), the loan of $150,000 to East A was to allow them to secure the 109 and 111 San Jacinto properties. In exchange, East A agreed to sell the Triangle property to the EDC. City officials were unable to provide a written record of what criteria was used to evaluate this loan in terms of creditworthiness of the borrower or other objective criteria. However, the loan was secured by a deed oftrust for the property. Review loan documents to determine compliance with the agreement and applicable laws and regulations The $150,000 loan to East A was wired to Stewart Title Company on October 28,2008 for the October 29,2008 closing (Exhibit 31). The loan was secured by a promissory note (Exhibit 32) with an attached deed of trust (Exhibit 33). Again, this loan can be seen on Exhibit 30, line 202. Under the deed of trust, failure to meet the requirements of the trust would have allowed the Corporation to foreclose on the property and sell it at auction to reclaim the funds owed. 18