The Petitioners respond

 

This is their response to City Attorney Albano’s staff report about the Burbank Hospitality Association’s political giveaway of $50,000 of its collected tax revenues:

I. RESPONSE TO STAFF ANALYSIS

The City Attorney presents the issue as a violation of the Brown Act, when in fact the transfer of public funds to the “Yes on B” committee represents a significant breach of trust, with wide-ranging legal implications.

The TBID was formed by a resolution of the City Council. The Property and Business Improvement District Law of 1994 (Sts. & Hy. Code, § 36600 et seq.) authorizes cities to establish property and business improvement districts in order to levy assessments for certain purposes. A prerequisite to the creation of such a district is a petition filed by property owners who will pay more than 50 percent of the total amount of assessments to be levied. (Streets. & Highway Code, § 36621(a)). Thus, formation of the district does not depend on the consent of every business within the proposed district, but once formed, each business within the district is taxed.

The BHA’s activities are funded entirely with public money
As part of the TBID management plan, the BHA was formed to develop and implement the programs to be funded by the TBID revenues. Although the legislature may have declared organizations such as the BHA to be private entities, the TBID revenues are still assessed by City of Burbank, and enforced through the City’s power to tax.

As we all learned in school “taxation without representation is tyranny.” In other words, if the government is going to assess a tax, an elected official needs to be accountable to the voter on matters related to the tax. This is why our courts have held “a public body may only delegate the performance of its administrative functions to a private entity if it retains ultimate control over administration so that it may safeguard the public interest.” County of Los Angeles v. Nesvig, 231 Cal. App. 2d 603, 616 (1965).

The City of Burbank has delegated the administration of TBID revenues to the BHA, but the City still retains ultimate control of BHA activities. This is why the City requires periodic reports from the BHA; it’s why minutes of BHA board meetings are sent to members of the City Council; and it’s why members of City staff sit on the BHA board of directors.

The legal implications of the transfer of public funds go well beyond a violation of the Brown Act or FPPC regulations. The City Attorney presents the issue as nothing more than violations of the Brown Act and the City’s agreement with the BHA. In fact it was both of these, but a single act can violate more then one law, and such is the case here.

For example, the City Attorney cites Gov’t Code §54964.5 as the “relevant statute”. It is relevant, but it’s not the only statute that applies to this situation. In fact, this case is also governed by Penal Code §424, which provides, in part:
“Each officer of this state, or of any county, city, town, or district of this state, and every other person charged with the receipt, safekeeping, transfer, or disbursement of public moneys, who either (1) without authority of law, appropriates the same, or any portion thereof, to his or her own use, or to the use of another; or, (2) loans the same or any portion thereof, makes any profit out of, or uses the same for any purpose not authorized by law . . . [i]s punishable by imprisonment in the state prison for two, three, or four years, and is disqualified from holding any office in this state.”

Some of the elements of §424 deserve special attention. §424 applies to “every officer . . . of any county, city, town, or district of this state”. Moreover, §424 applies to “every other person charged with the receipt, safekeeping, transfer, or disbursement of public moneys”.

The Burbank TBID is certainly a “district of this state” (the “D” in TBID stands for “District”). While the City Attorney may argue a legal distinction between the TBID and the BHA, it would be a distinction without a difference, because the statute also applies to “every other person” entrusted with the disbursement of “public monies”. People v. Groat, 19 Cal. App. 4th 1228, (1993) (statute is not limited to public officers, but includes “every other person” with some control over public funds). See also People v. Schoeller, 96 Cal. App. 2d 61 (1950) (appointed secretary of an irrigation district is an officer within the meaning of §424).

Penal Code §424 specifically applies to the “receipt, safekeeping, transfer, or disbursement of public moneys”. While the City Attorney was unable to decide whether TBID assessments are in fact “public monies”, the question is well settled in law. Cal Penal Code § 426 provides: “‘public moneys’, as used in Sections 424 and 425, includes all bonds and evidence of indebtedness, and all moneys belonging to the state, or any city, county, town, district, or public agency therein, and all moneys, bonds, and evidences of indebtedness received or held by state, county, district, city, town, or public agency officers in their official capacity.”

The courts have been equally clear in defining “public moneys”. While the City Attorney might have cited a 1960 case in which the funds of a public corporation were held not to be “public moneys” for the purposes of §424, People v. Holtzendorff, 177 Cal. App. 2d 788 (1960), Holtzendorff was criticized in a 2012 case that held that such moneys do not necessarily lose their “public” status when turned over to a private entity, if a public agency continues to exercise supervision and regulatory control over the use of the funds. Rather, it is the official nature in which the funds were received that determines their public character. People v. Johnson, 209 Cal. App. 4th 800 (2012) (in determining whether funds are public moneys within the meaning of Pen. Code, § 424, the proper criterion is the official character in which the moneys are received or held. Ultimate ownership is not a proper criterion). See also People v. Crosby, 141 Cal. App. 2d 172 (1956) (noting it is the official character in which the moneys are received, and not the ultimate ownership of the money, which, under the last clause of Cal. Penal Code § 426, makes them public moneys (citing People v. Hamilton, 32 P. 526 (1893))).

When viewed according to these criteria, the funds transferred from the BHA to the “Yes on B” committee are clearly public monies that come under the purview of §424.

Section 424 prohibits the use of public monies for “any purpose not authorized by law”. The law is also quite clear in its prohibition of the use of public resources (to include public funds) to promote a partisan position in an election campaign. Stanson v. Mott, 17 Cal. 3d 206, 209–10 (1976). Moreover, the purposes for which TBID funds may be expended is narrowly defined in the TBID agreement, and more generally defined in the Property and Business Improvement District Law of 1994, neither of which allow for the expenditure of TBID funds for campaign contributions.

Therefore, while Gov’t Code §54964.5 may be relevant to this matter, the provisions of Penal Code §424 most certainly apply, because a person charged with the receipt, safekeeping, transfer, or disbursement of public moneys used those monies for a purpose not authorized by law. It should be noted that one unfortunate consequence of the transfer of TBID funds is that someone could end up facing serious criminal charges.

II. RESPONSE TO STAFF RECOMMENDATIONS

The remedies proposed by the City Attorney are at best contradictory, and at worst, counterproductive. City Attorney has enumerated 4 recommendations for the council (in addition to recommending that the Council not move to disestablish the TBID). Unfortunately, recommendation nos. 1 and 3 are merely superfluous, while the other two do little to prevent a reoccurrence of the current situation (indeed, recommendation no. 4 would make a reoccurrence more likely, as discussed infra).

Staff recommendation: consider disestablishing the TBID
Turning first to the question of whether the TBID should be disestablished, it should be apparent that such an option is not the “nuclear” remedy described by the City Attorney. In fact disestablishing the TBID would protect the City from becoming embroiled in unnecessary disputes such as the one now before the Council, while at the same time allowing the hoteliers more discretion in conducting their own business.

As noted in the foregoing discussion, the use of public moneys implicates severe legal restrictions on the use of those funds, even though the funds originate from private sources. This is because the funds are collected from the businesses belonging to the TBID through the City’s power to levy taxes. Upon disestablishment of the TBID, the members of the BHA would be free to form an independent association, which could then collect contributions from its members in a manner determined by the members themselves.

Indeed, were it not for the BHA’s receipt and use of public money, the transfer of funds to the “Yes on B” committee would be correctly viewed as a matter for the FPPC, rather than a serious criminal allegation.

Streets and Highways Code §36670(a)(1) provides:
“If the city council finds there has been misappropriation of funds, malfeasance, or a violation of law in connection with the management of the district, it shall notice a hearing on disestablishment.” Given the clear and convincing evidence presented in the forgoing discussion, it is difficult to see how any reasonable member of the Council would not join in calling for a hearing on this matter.

Staff recommendation: Reduce the TBID’s FY 2016/2017 budget by $50,000

The City Attorney’s recommendation to reduce the TBID’s budget by the same amount misappropriated to the “Yes on B” committee is indicative of a lack of understanding of the issue, because it implies the only aggrieved party is the collection of businesses which comprise the TBID. Unfortunately, the City Attorney overlooks the offense committed upon the people of the City of Burbank.

When the people of Burbank (through their elected representatives on the Council) authorized the use of the City’s power to levy a tax upon the businesses comprising the TBID, it was with the understanding that the benefits of a TBID would accrue to the City Of Burbank (presumably through the realization of increased tax revenues).

The City of Burbank lost the benefit of its assessment when $50,000 was diverted to the “Yes on B” committee, and the City Attorney’s proposed solution will do nothing to make up for the loss. As troublesome as it may be, the Council has a fiduciary obligation to recover the loss brought about by the illegal transfer of public funds to the “Yes on B” committee. Moreover, it should be noted the City Attorney has failed to properly advise the Council of its legal obligations in this regard.

Staff recommendation: “Negotiate” amendments to the City/BHA agreement to distance the City from BHA activities

First, this bears repeating: because the BHA is funded entirely with public money, the City retains plenary decision-making authority over the Association’s activities. To put it another way, the City Council need not “negotiate” anything with the BHA, because the Council sets policy for the BHA.

Moreover, this recommendation does nothing to prevent similar misappropriations in the future. On the contrary, it would make such events more likely by decreasing the Councils oversight of BHA activities. Given the Council’s fiduciary role in supervising the BHA’s administration of public funds, it’s difficult to see how any reasonable member of the Council would endorse this recommendation.

Staff recommendation: amend the TBID agreement to prohibit assessment funds from being used for political campaigns

The City Attorney’s recommendation on this point is completely superfluous, as it’s no different than telling staff not to appropriate funds for personal use. In making this recommendation, the City Attorney is suggesting staff did not have reason to know the transfer of public funds to a political campaign was illegal, when in fact this is common knowledge among those who work in city government.

Staff recommendation: urge BHA to provide Brown Act training to its board and staff

This recommendation is also superfluous, in that it too goes without saying. However, it is worth noting that the City Attorney should have been providing Brown Act training all along. Moreover, as with the previous recommendation, the City Attorney is disingenuously suggesting BHA board members should be excused for blatantly violating the Brown Act when they took action on an item not properly noticed on the Association’s agenda.

Submitted to the Burbank City Council on December 20, 2016

/s/

Gregory R. Sousa, J.D., LL.M (Taxation).

 

The potential future in jail isn’t going to happen, but Albano also wants to somehow partially “disestablish” the BHA from the city, as if that would do anything relevant to the problem or would somehow get the city off any kind of future hook.

Forget this evasive ‘make them leave city hall and go somewhere else’ option. The council should instead kick them out of the place entirely and hand this clan of innkeepers over to Ashley Erickson & Co. Or, that booster “Leadership Burbank” crowd that’s housed at Woodbury and whose members mostly live outside of Burbank.

Then they can give its money away to their hearts’ content.

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36 Comments

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36 responses to “The Petitioners respond

  1. Carlos

    MERRY CHRISTMAS BURBANK

  2. Anonymous

    I still have no idea what y’all want to see done. Should somebody go to prison? Who? And not Albano, obviously, she had no prior knowledge of what was going on.

  3. Anonymous

    I assume nobody else is going to give Rogers credit for his mea culpa, so I thought I would.

    • semichorus

      Now that they got caught, yes. Before this he let it slide with a chuckle.

      Any consequences being planned?

      • Anonymous

        What consequence do you envisage? The BHA does good work getting more tourists to come here and spend money. So it is not going to be demolished. You got anything else?

        • semichorus

          Yeah, all those four-color brochures that just lure everybody in.

          $800,000 a year to do exactly what? We’re always being told too that Burbank has such a huge NEED for hotel rooms that we have to build more and more.

          So why any need to “promote”? The boosters can’t have it both ways:

          We need to promote travel!

          Vs.

          We need to make more room!

          So which is it?

    • Doug

      Give Rogers credit ? For what ? Maybe an award for being great at looking in the rear view mirror ? He gets the award for being pointless.

  4. Tim

    Wow the city gave 50,000 to the vote yes on that Measure B. Ok so the city council people should get questioned because they are responsible and I saw the names of Frutoes and Puffer Fish and Rogers all had their names on what I got in the mail, and that 50,000 paid for that so you are responsible.

    • semichorus

      That was a different “informational” mailer.

      • Dan

        Informational only is their idea of listing names of who says vote yes ? No way list of endorsements on a mailer is not fact based it is trying to influence a yes vote.

        • semichorus

          Unfortunately, the law allows great leeway when it comes to the definition of “informational”; although an interesting case could have been made (still?) if they didn’t insert any “no” names onto the list– for the same “informational” purposes.

          Perhaps another FPPC complaint is in order about the city’s official “informational” mailout as well? No or few “no” names could be seen as starkly promotional, especially in light of this other probable violation. By now there’s an obvious pattern of official promotion.

  5. Peggy

    Ok sorry but , watching this we have a problem Burbank. If I am getting this right, Burbank allows an extra tax on people who stay overnight in Burbank but then they used that soecial tax to buy an election. Mr Frutis seriously, you allowed the airport to pay for the election to get it how and when they wanted it, and now acts surprised that this other group of Council approved crooks would illegally spend tax money to control the election. Frutis should not act surprised. Frutis you are exposed and have done nothing to protect the community and I will not vote for you again.

    • semichorus

      I would loved to have tendered the legitimacy of that particular “donation” acceptance in court. They bought their own election.

  6. Tim

    All I know is that this is real crooked. I liked the guy who said change and cleaning house starts here in Burbank in February. I am ready to vote to start cleaning out city corrupt people. Only Dr Gordon keeps his eye on protecting us, the rest of them it’s time for them to go away.

  7. PTA Member

    Watching this discussion of the theft of tax money, what disappoints me is former School Board Member Dave Kemp was part of this theft because he was a board member on Yes on B Campaign. Shame on Kemp taking and misusing this money.

  8. Ed

    Bob Frutos is doing everything he can to protect this tourism group from any punishment

  9. Anonymous

    Consequences? Pfft. Let’s hold the vote again? As if that could even happen.

    • semichorus

      They can get rid of the BHA. And then Ms. CA “Brown Act.”

    • Anonymous

      Why is Rogers the Unbrella man such a psych case ?

    • Ray

      Rogers thinks he is smart but he is just a SmartASS. Trumpland really ? He better get used to it, Trump is President and it is because of people like Rogers and corruption like this tourist tax that made that possible. Russia did not do it, corrupt smart ASSES like Rogers and his Tourism Board buddies did. It does not escape me that the chamber of corruption, oops commerce is involved as well as part of the corrupt council.

  10. chad

    Man, can you say shinanigans? Can you spell it?

  11. RB

    Mr Rogers makes an appearance at a Burbank City Council Meeting. The man loves his umbrella

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