There are 918 names on "the list."
People from every walk of life are on it, with one thing in common: They all wanted the chance to take advantage of affordable housing offers in Hercules.
Many have been waiting more than five years for a call that would have given them entrée to sparkling new digs in , a $70 million mixed-use housing development in this struggling community of 24,000 residents.
They're still on hold, waiting for a project that looms over a mostly barren downtown, its only occupant a security guard living in a small trailer.
"It's a bummer," says Karla Bernal, a Hercules native who moved back home two years ago and was lured onto the list, looking to buy a condo she and her mother could afford. "It would be amazing, awesome, to be able to live there."
Bernal ended up moving to nearby Pinole, where she rents a home.
Even Hercules has washed its hands of Sycamore North. After dumping $38 million into the project with no hope of raising another $30 million to finish it, the city began maneuvering in August to find some way to salvage it. Negotiations are underway with potential buyers, , and Hercules is asking the state to extend $5 million in loans it made to help with construction.
City Council members are currently debating whether, through a sale, to scrap Sycamore North's 76 affordable housing units and convert the entire residential portion of the project into market-rate condominiums or retail space. Whatever the outcome, city officials say they hope to have the Sycamore North problem resolved within a few weeks.
State auditors and federal investigators now are trying to unravel what went wrong with the Hercules affordable housing program, Sycamore North and other redevelopment projects in the town.
• • • See Patch's Crisis in Hercules • • •
A key question will be how a financially strapped community committed more than $100 million to an affordable housing program and its related infrastructure, spending nearly $50 million before the money ran out – including $30.2 million on the affordable housing segment of Sycamore North and $17.9 million more on other projects and assistance to benefit low-income residents – without producing a single unit of affordable housing.
Another question will be why Hercules' biggest affordable housing advocate, former City Manager Nelson Oliva, embarked in 2005 upon a spree of borrowing, spending and building that has nearly bankrupted the town.
City Hall today is almost as empty as Sycamore North, with the few remaining employees, a new City Council, new city manager and new city attorney left to clean up a mess not of their making.
It will be a daunting task. The Huffington Post and Hercules Patch reviewed thousands of pages of public records in an attempt to follow the trail of taxpayer money spent on affordable housing and other redevelopment in Hercules, but couldn't determine where all the money went.
Affordable housing program records are in disarray or missing, and former city officials and employees who knew what was going on have either been fired, laid off because of budget cuts, hired lawyers or simply refused to talk about Sycamore North.
Even the experts and consultants who advised the city or have strong opinions on what happened in Hercules won't comment publicly, for fear they will be drawn into lawsuits or grilled by who are methodically interviewing current and former city personnel.
"It's easy for me in hindsight to look at this and say it was a poorly conceived project that was poorly managed," says Frank Fox, a Philadelphia developer whom Hercules hired in February to sort out its real estate transactions. "Cities should not be in the development business."
Like hundreds of California cities with good intentions, Hercules embraced the state's public policy goal of providing low-income housing opportunities and other assistance. That policy required affordable residential development to reach a certain proportion, either by creating new subdivisions or lowering housing costs elsewhere in the community.
While many towns operate affordable housing programs themselves, Hercules turned its initiative over to Affordable Housing Solutions Group, a sole proprietorship registered by Oliva in 2003 that later changed its name to NEO Consulting Inc. but continued to conduct business as Affordable Housing Solutions Group.
It is impossible to examine the success or failure of the city's affordable housing program without taking a hard look at Oliva's company, which has been the de facto housing manager for the better part of the past decade.
The company's invoices to Hercules tripled after Oliva was named city manager in 2007. And despite the fact that he claimed to have disavowed himself of any ownership interest in the company when he assumed the city's top management post, public records suggest otherwise.
In 2008, after claiming to have handed the company to his young daughters, Oliva filed corporate statements listing himself as president. The following year, he traveled to Soledad in Monterey County to solicit contracts for NEO. Just last year, he traveled to the Central Coast town of Lompoc, pitching contracts to that city's council as the "founder" of NEO.
All the while, Oliva continued to collect a generous salary as city manager in Hercules under a that specifically prohibited him from engaging in any outside employment, a contract saying the city manager's job was "not a part-time position and will require Oliva to work greater than a customary forty-hour week."
Not only was Oliva forbidden from taking on other work, he was required to "confer with the mayor and/or city council before undertaking any projects for organizations other than the city which may require a substantial time commitment."
News of Oliva's continued participation in a firm that was making millions from the city sparked a public controversy and that the city was shoveling out millions of dollars with scant attention to state laws that require the bidding of public projects.
In the wake of last year's protests, the Hercules city attorney issued a formal opinion on the matter. Patch requested a copy earlier this year, but it was denied on the grounds that the opinion is confidential information protected by attorney-client privilege. That aside, even some City Council members say they were not aware of it until this year.
"I was given conflicting stories," Mayor Myrna de Vera said. "I thought that Nelson had been given permission from the council. I thought that the attorney had opined that it was legal for him to continue with his affordable housing."
A longtime planning commissioner, de Vera was in November 2010. One of her early tasks was to approve a that gave Oliva half of his $225,000 salary in January and the other half in July, plus a five-year extension of his interest-free $250,000 home loan. She says that had she been given the opportunity to read then-City Attorney Mick Cabral's opinion, which she received only after three new council members took office in June, she probably would not have voted to award Oliva the severance package.
Oliva, who has declined repeated requests for interviews over the past year, left behind a career spanning more than 30 years of public service. At 53, he is variously described as a charismatic, intelligent and intense man who accomplished as much through charm as though hard work.
A native of El Salvador, Oliva traveled frequently to Los Angeles County as a child and moved there permanently at age 11 to live with his grandmother, according to published reports in the Long Beach Press-Telegram. In the 1980s, while still a college student, he took work in the recreation department of Bellflower, the sprawling L.A. suburb north of Long Beach that launched his career in city government.
Oliva rose quickly through the ranks. In testimony he gave a few years ago for a lawsuit, he explained that by 1985, when he earned his bachelor's degree from Cal State University-Long Beach, he was working as assistant to the city manager in Bellflower. A year later, he was running the entire public works department, and by the end of the decade he was the deputy city manager.
Oliva's sworn deposition was given in connection with a city lawsuit involving the company that developed , and during those sessions he also said he was awarded a master's degree in public administration from Long Beach in 1988, but a spokesman for the university could find no evidence of that.
While in Bellflower, Oliva met City Manager Jack Simpson and his assistant, Mike Sakamoto – the men who would steer Oliva's career, eventually leading him to Hercules. When Sakamoto left Bellflower to take the top management post in the desert town of Adelanto, Oliva replaced him.
Within a few years, Sakamoto moved north to manage Hercules, and Oliva found himself handling a different sort of challenge in the colorful city of Hawaiian Gardens, an L.A. County town named for the roadside concession that sold fruit drinks spiked with bootleg hooch back in the 1920s.
Ranging less than half a square mile with just 3,300 residents, Hawaiian Gardens was the smallest city in California when it incorporated in 1964. But by the 1990s, when Oliva was running the city, its population was approaching 15,000 and its largest single employer was the Hawaiian Gardens Casino, which also bankrolled the city for the better part of the decade.
In addition to his salary, the top management post afforded Oliva a home loan and free use of a city-owned car, which managed to get him in trouble with the law early one January morning in 1995. A highway patrol officer said he spotted the car swerving along a desert stretch of Interstate 15 just before dawn that morning, according to published reports in the Los Angeles Times. Oliva was arrested and booked on suspicion of drunken driving and felony possession of cocaine, the Times reported.
Later that year, Oliva pleaded no contest to the reduced charge of "alcohol-related reckless driving" and was sentenced to three years of supervised release. What little remains of the official court record makes no mention of any cocaine possession charges, saying the charges were reduced due to a "legal issue." The Times quoted Oliva's attorney at the time as saying that he had never used or even had cocaine.
The arrest sparked a controversy in the small town as elected officials questioned Oliva's rationale for driving a city-owned car 90 miles outside the city limits in the middle of the night. Then-Mayor Kathleen Navejas called for an internal investigation, but declined to discuss specifics of the incident when reached in Southern California recently.
"Nelson was a hardworking guy," Navejas said. "He was not perfect, but he did a lot of good things for the city."
Later that year, Hawaiian Gardens fired Oliva for reasons that remain unclear. Asked about it under oath a few years ago, Oliva said simply, "New council, new policy."
After a few years of working as a private consultant, Oliva said in a sworn statement, he was hired by Montebello Housing Development Corp., a Los Angeles County nonprofit where he earned $72,000 as executive director in 2001, according to public records. By 2003, Oliva's salary had climbed to $93,000 and Montebello was in the running to manage the affordable housing program in Hercules, which had been suspended following federal indictments of former employees.
Sakamoto, Oliva's former boss in Bellflower, was managing Hercules in 2003, and in May of that year he distributed "informal" requests to eight affordable housing organizations simply asking them to submit information on "experience and representative projects."
Montebello was the only organization to reply, Sakamoto reported to the council. But Montebello's chairman doesn't recall ever bidding on the contract.
Oliva "made some visits to the city (Hercules)," said Robert Monzon, the Pasadena records and information manager and the longtime chairman of Montebello's board. But Monzon said he doesn't recall his organization having actively pursued the Hercules opportunity.
"It is something he may have pursued on his own," Monzon said. "We were pretty much done with his contract at that time."
At the time, Oliva was Montebello's executive director, although he would soon leave the organization. Less than two months after negotiations with Montebello began, Oliva submitted his own proposal for providing affordable housing services under the banner of Affordable Housing Solutions Group.
Oliva soon became the frontrunner. In the fall of 2003, the City Council awarded Affordable Housing Solutions Group a two-year, $225,000 deal – a contract that was subsequently renewed more than two dozen times, each time expanding the company's responsibilities and compensation. At the time, elected officials in Hercules were told Montebello had dropped out due to a change in its board of directors and a shift in the organization's focus away from affordable housing education and counseling. As a result, elected officials were told, Sakamoto had broadened the search and identified an alternative organization, Oliva's Affordable Housing Solutions.
But according to Montebello's federal tax returns, there had been no change in the organization's board of directors, and its program description showed no substantial shift away from education and counseling services.
No one involved in the deal – save for Monzon – is willing to discuss the matter, so it is difficult to determine exactly how Oliva landed in Hercules in 2003. But in sworn statements a few years ago for the lawsuit involving the Victoria by the Bay development, Oliva told attorneys that he learned about the opportunity in Hercules from Simpson, his former boss in Bellflower.
"I ran into him at a professional function and he indicated to me that Mike Sakamoto had conveyed to him that there was some issues that he was having with his affordable housing program that I might want to give him a call to see if he needed any consulting services," Oliva told attorneys in a deposition.
Sakamoto and City Council members who voted to approve the contract did not respond to interview requests.
An Active Hand
At first blush, Oliva appeared to be just the man to breathe new life into the city's moribund affordable housing program and its redevelopment agency. The professional qualifications outlined in his proposal to the city noted that Affordable Housing Solutions Group and its staff had extensive experience in managing affordable housing and other programs for several California cities, Los Angeles County and even the U.S. Department of Housing and Urban Development.
Oliva quickly embraced a community vision of grandiose infrastructure projects and hundreds of new homes, many of them for families of limited means seeking to realize the American dream. He would later be described in a confidential city performance report as somebody who "liked to build things" and a person who "provided creative financial deal-making skills."
Thanks to a California state law requiring 15 percent of new homes in redevelopment areas be made "affordable," the new construction would carry a state mandate for affordable housing. And because 20 percent of tax increment in redevelopment areas is reserved for affordable housing, there was a lot of money to play with.
Since 2004, Hercules has earmarked $14.9 million in property tax revenues for affordable housing and spent $3 million more than that, the difference made up with loans from other city funds, according to city financial records.
Many affordable housing projects were already completed or sprouting in Hercules by the time Oliva arrived, including The Arbors, a 60-unit senior complex behind City Hall, and Victoria Green, a 132-unit apartment complex that satisfied affordability requirements created by the upscale Victoria by the Bay subdivision. Pre-construction work was already underway for another senior facility near City Hall, the 51-unit Samara development.
Initially, Affordable Housing Solutions Group was involved in evaluating and defining, and later implementing, the city's approach to providing homeowner and other financial assistance to lower-income residents. Many of the two dozen-plus amendments that expanded its scope – and price – during Oliva's seven-year relationship with the city were presented to the City Council for approval by Oliva himself, a fact that raises significant questions about his ability to function as an impartial public official.
"The issue here is the public trust," said Don Blubaugh, executive director of the Contra Costa Mayors' Conference and a former public official with 50 years of experience. "If you are somehow involved, you abstain and explain why you are abstaining. Our whole profession is built on ethics, and how can one be ethical while retaining a financial interest?"
In Oliva's case, he continued to have an active hand in managing his business interests well after being appointed to the city's top management post, a job that had him recommending and approving contracts with his own firm. Moreover, he continued to travel elsewhere in California, soliciting contract work for the company while collecting his salary as manager in Hercules, a city that was edging closer and closer to the brink of financial insolvency in recent years.
Oliva incorporated NEO Consulting Inc. in 2005 after he obtained a contract to provide professional services for development of what was then known as the Sycamore Main Street Project – today a vacant lot known as Sycamore Crossing and the half-built Sycamore North high-rise.
Over the next six years, the company's management structure changed. In April 2007, just a week before he would become city manager, Oliva's teenage daughter, Taylor, became NEO's sole officer and director, according to state records. A year later, city financial reports would disclose that two of Oliva's daughters were the company's only stockholders. And in 2009, a filing with the state would identify Taylor and Oliva's other daughters, Gabrielle and Adrianna, as the company's officers. At that time, Walter McKinney, a former Hawaiian Gardens police chief, and city employee Eguzki Olano appeared as directors.
In February 2010, McKinney became the sole officer and one of two directors, along with Olano. Oliva's name did not appear on state records as an officer of NEO after he became city manager.
But a document filed in San Bernardino County in May 2008 seems to contradict both state records and city reports. On May 7, in a filing registering Affordable Housing Solutions Group as a fictitious business name used by NEO, Oliva listed himself as president of NEO and certified the company's addresses as his home in Apple Valley and his residence in Hercules.
The filing came as a surprise to Hercules Mayor de Vera. When coupled with Oliva's appearances for NEO in other California cities, she says it could be "evidence" that he was still an active participant in the company.
The ethical questions might well be resolved in court in the months to come. , alleging a breach of fiduciary duty, a violation of state conflict laws and fraud in the operation of the affordable housing program. Oliva's attorney, Richard Ewaniszyk, did not respond to an email or calls to his office seeking comment. Oliva's daughters could not be reached by phone and have not responded to repeated interview requests.
NEO, now represented by McKinney's Los Angeles attorney, has asked a judge to move the case outside Contra Costa County, saying that the company cannot receive a fair trial locally. But whatever the outcome of that case, the fact remains that millions of dollars have been spent on affordable housing under the leadership of NEO-Affordable Housing Solutions Group and there is very little in the way of brick and mortar or sustainable cash flow to show for it.
An examination of city and state financial records show that under the stewardship of NEO, affordable housing in Hercules quickly became a top-heavy endeavor with far more money spent for oversight and administration than on actually creating low- and moderate-income housing.
For seven years, NEO enjoyed an exclusive franchise to manage affordable housing programs, and municipal disbursement records show the company received a total of $4.2 million – $3.1 million for managing affordable housing programs and the rest for other services. All this money was disbursed to pay it is difficult, if not impossible, to determine precisely what the company did for the payments.
Payments to NEO-Affordable Housing Solutions Group
City records further show housing funds were used to pay for expenses such as $35,800 in lobbying fees and $375,000 for about 900 locking largely installed in neighborhoods – many of them upscale developments – where none of the city's 261 affordable housing units existed.
These records also chronicle how NEO used direct homeowner financial assistance programs to channel some loans to city employees, their family members and friends, allowing them to make down payments, rehabilitate their homes and in some cases avoid foreclosure.
When the real estate market collapsed, the city frequently threw good money after bad, using public funds to pay off delinquent first mortgage loans from commercial lenders to protect the property from foreclosure and prevent the loss of smaller loans the city had previously made to the property owners.
NEO would then renegotiate the loans with the homeowner, and the city would become both the first and second mortgage lender. In several of these cases the city would spend hundreds of thousands of dollars bailing out troubled homeowners to save smaller amounts.
Overall, nearly 100 people, many in the low- to moderate-income brackets, did receive some form of financial assistance, but they were only a fraction of those still waiting for affordable housing that is unlikely to be delivered. City reports to the California Department of Housing and Community Development show that not one new affordable housing unit was produced in Hercules during the years Oliva or NEO ran the program.
Taxpayers didn't get their first inkling of the magnitude of payments to NEO until late 2008 when the city's financial statements first disclosed that NEO, then owned by Oliva's daughters, had received $595,000 for managing the affordable housing program and the Sycamore North project during the fiscal year ended June 30. What wasn't disclosed: The company had already been paid $1 million before Oliva took the reins at City Hall, the bulk of that for administering the city's affordable housing program.
State officials had no idea how much Hercules was paying for the direct administration of its affordable housing program. State law specifies that municipal spending for planning and administration should "not be disproportionate to the amount actually spent" on affordable housing. An examination of annual reports filed with state housing and community development officials shows little, if any, expenses for direct administration of the Hercules program. Instead, much of what was paid to NEO was identified as "other."
During the three years immediately after Oliva became city manager, and payments to NEO began increasing, the city's annual reports indicated a total of only $104,000 had been spent on "administration costs" while the city's own disbursement records showed NEO being paid $1.8 million for administrative activities billed to the affordable housing fund.
A study conducted last year by the California State Senate Office of Oversight and Outcomes found that "oversight mechanisms in local housing programs are few and flawed" and state laws limiting planning and administrative costs give local agencies so much discretion "that it effectively shields them from lawsuits by citizens who believe the costs to be too high."
The study found local agencies "frequently submit wrong or incomplete information about their finances and activities to the [Department of Housing and Community Development], which does not verify the information. Policymakers, citizens, housing advocates, and others generally – but wrongly – assume the data is reliable."
NEO's own annual reports to the City Council (see PDFs attached to this article) did not contain details of what the program was costing, instead merely providing glowing descriptions of NEO accomplishments – the number and amount of loans to homeowners, charts tallying thousands of phone calls and visitors being received at the company's offices in a portable trailer next to City Hall, and projections of affordable housing units soon to be constructed. But year after year, the reports lacked an important number: affordable housing units actually delivered. City Council minutes indicate the reports were accepted without discussion or debate.
Gloria Leon, the city's former finance director, told state Senate analysts in 2010 these reports were produced primarily to keep the auditors happy. Leon, who resigned last year, was , a small town in the Napa Valley wine country.
"When auditors are here they require a report from the affordable housing unit to fulfill the [state] requirement," Leon said in an email to a Senate analyst. "The report is basically a report that details all of the annual activities."
Courts matters and ethical questions aside, the numbers speak for themselves:
When Oliva's company was hired to manage affordable housing in Hercules in 2004, there were 253 units completed or soon to be ready for occupancy, and the housing fund in this small city was running a $1.5 million surplus.
In February 2011, when the NEO contract was canceled, Hercules had 265 affordable housing units available – none having been constructed by the city – and had committed or spent nearly $100 million, a third of which was squandered on what's since been deemed a "failed" project – Sycamore North.
NEO-Affordable Housing Solutions Group earned $4.2 million, and the housing fund in this financially strapped city has been left with a deficit of $5 million.
Hercules Patch Editor contributed to this report.