Deal brokered between SMMC, Department of Finance

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After a state audit revealed the Santa Monica Mountains Conservancy misused bond money, the Department of Finance stripped $21 million from the SMMC’s budget. Deal restores money, with conditions.

By Anthony York/Political Pulse

A running feud between the Department of Finance and the Santa Monica Mountains Conservancy has been ironed out in the closing days of budget negotiations, sources on both sides said.

Sen. Sheila Kuehl, D-Santa Monica, served as chief arbiter between the two sides. Under the deal reached between the two sides, the administration agreed to restore $21 million in bond funds it had previously stripped from the conservancy’s budget. In exchange, the conservancy will have to open its books to state auditors on a more regular basis, and have spending requests approved by the attorney general.

Kuehl said the deal was hashed out on June 21, during a four-hour meeting that included representatives from the conservancy, the DOF, the Resources Agency, the governor’s cabinet secretary, Assemblymember Fran Pavley, D-Santa Monica, and Kuehl.

In the governor’s May Revision, the DOF withheld the bond money after a state audit revealed the conservancy was using bond money for non-capital projects. “We want to ensure bond money gets used for capital projects, and not other things like litigation,” said DOF spokesman H.D. Palmer. “It was clear we need a lot tighter fiscal controls on the conservancy.”

Conservancy officials dismissed the major audit findings. Among them was the moving of bond money back and forth between the conservancy and the Mountains Recreation and Conservation Authority. The audit found a “lack of operational independence” between the two entities. As the audit stated, “There’s the appearance that the conservancy is, in effect, awarding grants to itself, and that the authority’s project managers are monitoring themselves.”

“The two had essentially morphed into one entity,” Palmer said.

MRCA chairman Michael Berger took issue with that characterization in his official response to the state audit findings. “The management letter discusses at great length issues involving alleged overlaps in the responsibilities of the Executive Officer and Staff Counsel, but almost completely ignores the fact that the MRCA is governed by a body of independent, accountable public officials,” Berger wrote.

“The Management Letter simply does not address the fact that it is the Authority Governing Board that sets policy, provides general oversight of all Authority operations, and makes the operative decisions. This failure to address the fundamental governance structure of the Authority creates a distorted picture of our agency and calls into question the validity of [the audit’s] conclusions.”

Kuehl said the deal hashed out this week ensures “there will be a clearer separation between [the] conservancy and [the] MRCA.” In exchange, she said, she expects the full $21 million the Legislature allocated for the conservancy’s budget to survive the governor’s blue pencil.

In all, the audit found the conservancy has misused $7 million in bond funds, including using $4.2 million for planning, renovation and education instead of actual land acquisition. It also found the conservancy used bond money to pay for litigation costs and loans and “to co-mingle bond funds into a general operations account.”

The Department of Finance responded by taking the dramatic step of withholding all the bond money from the conservancy’s budget. The Legislature replaced the money in the budget conference committee. But the governor had threatened to blue pencil that money unless the conservancy was subject to more executive oversight.

Under the deal brokered by Kuehl between the conservancy and department negotiators, the attorney general is expected to play a roll in overseeing the conservancy’s spending of bond money.

A May 21 Department of Finance memo outlined some of the changes proposed by the Legislature, but indicated they did not go far enough in solving the problems outlined in the audit.

The budget conference committee inserted language that the conservancy will provide services of the executive director and other conservancy staff to MRCA “only to the extent such sharing of services is permitted by law, as determined by the Attorney General.”

The Legislature also required the agency to provide an update to the Legislature on the changes made by the conservancy no later than Jan. 10. The DOF will also conduct another audit of the conservancy, to be completed by April 1 to update the status of the conservancy’s compliance with the new controls.

But the memo indicated the proposal by Kuehl and Pavley did not go far enough. “We feel [the change] does not address the individual issues and concerns raised in the audit,” the memo states.

As talks come to a close, it looks as if the conservancy will get its $21 million back, and the state will keep closer watch on the relationship between the MRCA and the conservancy. But it’s entirely possible that both sides will go through this dance all over again next year, when the Department of Finance comes back with its next set of audit findings.