In May of 2015, from the findings of an independent audit the new council ordered immediately after taking office, we learned the city’s reserves were gone. Were they stolen, embezzled, misappropriated, or all of the above? The city’s financial director, William Aylward, resigned days before the independent audit was to be released to the public. In December 2017, he was one of the 6 Beaumont officials to have plead guilty to committing a felony. Aylward had not been following sound accounting policies and his records would be incomplete at best. Our problem was that many of the records he and Kapanicas would have kept were in the hands of the DA. We feared we would soon be facing bankruptcy.
The mismanagement by previous councils and Kapanicas resulted in awarding lucrative, non-competitive contracts to Urban Logic Consultants whose principals are also now admitted felons. Decisions made by Kapanicas, with direction from the City Council, were putting the interests of Kapanicas and ULC ahead of the citizens of Beaumont. While other cities were cutting staff and services during the 2008 recession, Kapanicas was boasting that City of Beaumont was the only city not laying off employees. He convinced council to spend more than a quarter of a million dollars year after year for summer concerts even though reserves were being used to hide deficit spending. Annual deficits were in the millions during Kapanicas’ final years.
There have been repeated claims by Elizabeth Libi Uremovic of hundreds of millions of dollars stolen from the citizens of Beaumont, this is not true. I addressed this in a post on my OurFocusOurKids.com blog $400 MIL MISSING - $350 MIL EMBEZZLED FROM CFD BONDS. Claims have also been made that the principals of Urban Logic, Dillon, Eggers, and Moorjani, along with help from Kapanicas, stole $42 million from the citizens of Beaumont. Some would have you believe they took the $42 million in TUMF monies loaded it in a truck and drove it out of town. This perception is inaccurate, it arises from a misconception about the basis for the criminal charges that resulted in conviction of the former principals of Urban Logic Consultants.
The main thrust of the charges filed by the DA against Dillon, Egger and Moorjani were as follows:
The city was a voluntary member of WRCOG (Western Riverside Council of Government) which with the passage of Measure A, voters had authorized to establish a TUMF (Transportation Uniform Mitigation Fee) program to address the need for regional transportation infrastructure. This was a voluntary program but a city had to join in order to receive the Measure A 1/2 cent sales tax revenue. Beaumont's council decided to participate and adopted a TUMF ordinance requiring TUMF funds to be collected from developers and remitted to WRCOG to pay for regional transportation projects. ULC principals knew the TUMF program would result in other engineering firms competitively bidding for design and management of regional projects. if the city retained control of the projects, ULC's contract with Beaumont guaranteed they would earn up to 9% of the project costs. ULC principals used their positions as city officials to influence the city to divert TUMF money away from WRCOG to local city projects and their firm received millions.
Influencing decisions where ULC had a financial interest, violated govt code section 1090, this is what the ULC principals were convicted of. The criminal defendants have been ordered to collectively pay about $11.2 million in restitution. In addition, the city has pending lawsuits against Urban Logic Consultants and also the former City Attorney. We also have a $15 million claim against the city's theft and dishonest insurance policy and are working on additional possible claims against other parties that we cannot discuss at this time.
Our agreement with WRCOG requires the first $9 million we receive in loss recovery from the criminal defendants, lawsuits and other claims, be submitted to WRCOG and credited towards settling our debt. After that amount was reached, we began sharing in future loss recovery dollars. However, if we had not been able to meet the minimum $9 million requirement within 5 years, we would have to begin paying a guaranteed amount.
Some have criticized the DA and the City for settling for too little. The DA recognizes no criminal trial presented to a jury is a sure thing. Even if you prevail, it could be years before the city or WRCOG would see any of the funds. The plea deals reached between the DA and the convicted felons resulted in their restitution coming from cash and assets already frozen by the court, meaning a shorter recovery time. As a result of the plea bargains, the guarantee of the first $9 million of loss recovery has been met and nothing will be paid out of Beaumont's general fund. Protecting the general fund was a primary goal of the city council.
Now, almost three years after we discovered the true financial position of the city, there still is no clear answer to what happened to all of the money. We know much of it found its way into Urban Logic's profits through non-competitive contracts and inflated fees. We know ULC principals used their positions as city officials to influence the city to divert TUMF money away from WRCOG to local city projects and their firm received millions because they admitted to it in their statements to the court. We know Aylward and Kapanicas helped by misappropriating and embezzling the funds to ULC because the admitted to it in their statements as part of their plea deals. Can we quantify the amount misappropriated? No.
Every time the council makes decisions resulting in significant costs, decisions other cities make on a routine basis, we realize we are going to hear, "Why don't you go get more of the funds stolen by Kapanicas and the gang before asking more from the tax payers?". I want to assure our citizens we are doing everything we can to recoup our losses but we will never be able to make the city completely whole, even if we were able to quantify the financial damage caused by our predecessors.
We will do our best to continue to move our city forward which means making necessary, and often unpopular, decisions. Each of us made a commitment when we volunteered to serve our community to always put the interest of our city above the interests of all others. This Beaumont City Council is honoring its commitment.