Frustrated Santa Clara leaders to mull $500K in potential convention center over-charges

Frustrated Santa Clara leaders decided Tuesday to meet privately to sort out a recent audit that claims the former Santa Clara Chamber of Commerce owes the city nearly $580,000 for alleged over-billing while running the city’s convention center and the Convention-Visitor’s Bureau, or CVB.

The report, by city-hired consultant TAP International, details about five years of questionable expenses paid by the city as part of the chamber’s contract to manage the convention center, an agreement that had been in place since 1975. That contract ended this year after TAP International found in a separate audit that the publicly owned convention center was not being managed “with appropriate stewardship, accountability and transparency,” according to city documents.

The chamber, which this year rebranded from the Santa Clara Chamber of Commerce to the Silicon Valley Central Chamber of Commerce, says it received the audit last week and can “clear up” some of the issues.

“We have gone through (the report) but we have not had the chance to meet as a full board as of yet,” Chamber President and CEO Nick Kaspar said in a statement to San José Spotlight. “We do have some questions and things that can be cleared up. Our goal is to work with the city to resolve this quickly so we can continue the work we are doing with the city and move forward.”

Chamber leaders will meet with city officials to present new documentation and arguments to push back on some of the findings, Kaspar said, but some city leaders remain skeptical.

“I find it extremely disturbing that this has happened,” Mayor Lisa Gillmor said Tuesday night. “To think that there were 30 years that this possibly was going on and I think of the potential millions of dollars of public funds that were spent incorrectly. This is over half a million (dollars) of which I want to make sure that we’ll be in closed session and we’ll discuss this and that the public is fully reimbursed for all of this.”

Some of the alleged over-billed amounts appear fairly cut-and-dry in the report, but the majority of money — $448,068 worth — comes from a single source and is more nuanced, Denise Callahan, principal consultant with TAP International, told councilmembers Tuesday.

The nuance is in how city officials interpret the chamber’s contract, which offered a maximum payment, or a “not to exceed” amount, to operate the convention center. The city paid the chamber monthly for services up to $1.5 million annually. But the chamber spent considerably less than that to operate the convention center.

TAP International interpreted the contract to mean the unspent funds should be returned to the city because of that “not to exceed” language, which is commonly used in agreements where work is completed and then invoiced up to a maximum dollar amount.

“This is why we said you need to consider whether you want to collect those unspent funds, because typically under a ‘not to exceed’ contract, you don’t have this issue … because billing is done in arrears, or after services are rendered,” Callahan said. “In this case … the city was, on a monthly basis, routinely allocating their installment to the contractor (the chamber).”

Meanwhile, other expenses were a bit more straightforward. For instance, pricey dinners raised red flags because the chamber’s contract allowed only for breakfast and lunch expenses. In other instances, expenses could not be validated because of missing documentation, according to Tap International.

In all, the audit found that out of nearly $312,000 in credit card charges reviewed, $52,940 fell into three categories: Not allowed, questionable, or not verifiable. Of those, $25,263 falls firmly in the “not allowed” category, the report states.

“I am glad we are going to bring this to closed session because I have a lot of concerns about the list of questionable expenses,” Councilmember Kathy Watanabe said. “People ate well, particularly at Piatti’s and Il Fornaio, on the city dime basically.”

In another instance, TAP International recommends the city be reimbursed for $50,267 in trumped up overhead expenses. The chamber had a practice of allocating 80 percent of overhead and administrative costs for operations to the city and covering 20 percent of those costs itself. Using that calculation, the chamber undercharged the city by more than $10,500, the report found.

But that is not a typical way of distributing overhead charges, Callahan said. Using “a standard methodology” for calculating such allocations, the audit found the chamber had overcharged the city by $60,819 for administrative costs.

The report also questioned certain employee salary payments TAP International couldn’t confirm were for work for the convention center and severance payments that Kaspar said were approved by the City Council.

TAP International suggests officials launch a separate investigation into whether the chamber violated state law in certain isolated incidents, specifically related to whether public funds were used to woo a potential chamber member and concerns about the chamber’s generous use of gift cards. City Manager Deanna Santana told the auditor that the issues had already been brought to City Attorney Brian Doyle’s attention.

In March, Spectra Venue Management took over the day-to-day operations of the convention center after city officials opted to end the city’s contract with the chamber.

Santa Clara beefs up staffing for big ‘Related’ project

Santa Clara city officials Tuesday also approved adding a slew of new contractors and staff positions dedicated to pushing forward one of the largest developments in Silicon Valley: the 9.2 million-square-foot Related Santa Clara development. The New York City-based developer is preparing to start submitting “a number of plans and applications” for the first two phases of the massive development.

Santa Clara does’t currently have the staff to work through all those applications, so it has worked out an agreement with the developer.

The 12 new contracts and eight new staff positions will be paid for by The Related Cos. The agreement promises to use those additional contractors and staff members to expedite work on various permits for the first two phases of the mixed-use development set to rise on a onetime landfill and current golf course.

The new staff positions, which would include several engineers and inspectors as well as a deputy fire marshall, would be hired to almost exclusively work on Related Santa Clara projects.

“Time permitting, these staff members may work on other City projects, but when Project plans are submitted or Project-related issues arise, priority will be given to the Related Santa Clara project,” city documents state.

Related will see a reduction in fees for certain administrative costs because the developer is covering the cost the additional consultants and staff members, the documents note.

The 12 contracting companies will be paid a combined maximum of $5 million over the next five years by Related, according to city documents. The company is also expected to pay nearly $2 million for salary and benefits for the eight employees.

Contact Janice Bitters at [email protected] or follow @JaniceBitters on Twitter.