Consultant's contract cannot be paid back

The $133,875 paid to economic development consultant Mark Mayuga cannot be reimbursed through future increases in tax increments because the contract was not with the city's Redevelopment Agency.

"This is a consultant agreement between the City of Colusa and Urban Ideation," a letter from the state Department of Finance states, referring to Mayuga's firm.

"Since the former Redevelopment Agency is not a party to the agreement, this line item is not an enforceable obligation" under the recognized obligation payment schedule.

But according to city documents, that position is different than an earlier ruling by the state, and Colusa officials intend to meet with the Department of Finance to discuss that change and to show through documentation that it was always the intention that the Redevelopment Agency would pay the funds back.

Councilwoman Donna Critchfield and Mayor Pat Landreth each said they have no recollection of any discussion with then-City Manager Jan McClintock or the city attorney about whether the contract should be executed directly with the Redevelopment Agency.

What they do remember is the city expected to be paid back.

Critchfield admits the City Council members were very new to the redevelopment world, and perhaps were "unschooled or unsophisticated" about the details and procedures.

"And who knew the state would pull this stunt," said Critchfield, adding that she still views the $134,000 as an investment that will pay off, just not through tax increments.

Landreth concedes the council depends on its administration and staff a great deal, particularly with regard to contracts.

"We get the material ... and we rely heavily on our city attorney and city manager, and I recall the city manager was OK with this," Landreth said.

The letter actually sets the number at $189,000, but that figure had been submitted to the state for review prior to the city terminating the contract with Mayuga, said Toni Benson, the city's finance officer, who also works with the oversight committee on the post-redevelopment accounting. The remaining $419,303 of redevelopment expenses, including $14,450 for administrative costs for the post-redevelopment accounting, is eligible for reimbursement through future tax increments generated within the redevelopment area.

Acting City Manager Randy Dunn is hopeful that the state will amend the ruling and the city will get at least part of the funds back, but is uncertain how much.

Dunn originally said Wednesday the council chose not to challenge the findings, but clarified that position Thursday.

He said the direction was not to take any legal action, and meeting with the state officials is simply administrative.

The council discussed the topic when it met in closed session Tuesday under the Brown Act exemption of "initiation of litigation."

Colusa, like any of the other 400-plus municipalities that had redevelopment agencies, operated under the understanding they were legal.

The agency was funded by a loan from the city's general fund reserves.

The idea is the agency then works to improve blighted properties and improve the business environment. As those property values increase, the added tax value above the base line is used to pay back the city with interest.

The city used part of the funds to complete a study on blighted properties. It also chose to pay Mayuga to recruit potential businesses.

And while there were already discussions about the state raiding the funding when the Mayuga contract was approved on March 1, 2011, McClintock assured the council that the state informed her the city's investment was safe.

However, when the state Supreme Court ruled redevelopment agencies were actually illegal, the result of a legal challenge to the state's attempt to take redevelopment funding, the agencies became defunct.

Then a system was set up to help cities and counties recoup expenses incurred through redevelopment efforts.

How long it will take Colusa to recoup its costs depends on development improvements in the redevelopment area, but officials admit it could be decades.

The redevelopment area comprised nearly the entire city limits.

Mayuga was tasked with bringing new commercial and industrial contacts to the city with the hopes of generating that new tax revenue — and specifically to find larger, job- and value-rich firms that would become the economic salvation of the city.

At the center of that was the Calmetha methanol plant — a project that on the positive side would have redefined the wealth of the city, but is viewed widely as a phantom now.

It also was part of the reason to hire Mayuga on an urgency basis rather than to ask for proposals from other consulting firms. City officials at the time said they did not want to miss out on that opportunity.

A project like that would certainly need to be built in an area currently outside the city limits, and outside the defined redevelopment area, and would not have produced any new tax increments anyway.

But the scope of Mayuga's contract is not at issue with the state's ruling, said H.D. Palmer, deputy director of the state Department of Finance.

The principal issue is that the contract with Mayuga is constructed as an agreement between his firm and the city rather than the Redevelopment Agency.

The council also sits as the Redevelopment Agency directors, but the Mayuga contract clearly states it is with the city.

If that contract had been executed with the Redevelopment Agency, those costs could be reimbursed by future tax increments, Palmer said.

But Dunn said the state audit investigators, who reviewed more than 400 agencies statewide, made the scope and duties a very real issue when they were doing their audit of the city's redevelopment agency.

That is one of the issues Dunn said the city wants to discuss to clarify any future state action.

In other words, did Mayuga's duties fit into what the state defines as acceptable redevelopment activities? And if not, because no actual project was ever brought to the city, can Colusa get at least part of the $133,800 back?

Mayuga's contract was terminated on Aug. 21, which was also the last official day for City Manager Jan McClintock, who brought Mayuga to the city.