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
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.