SANDAG faces federal investigation and approves $500,000 for lawyers

Officials at the San Diego Association of Governments, the regional planning agency that has a $1.3 billion budget, received approval Friday to spend $500,000 to respond to a federal investigation into the organization’s business practices.

The funding request was approved at a board meeting Friday, more than a month after the San Diego Union-Tribune first reported on the U.S. Department of Justice investigation.

It remains unclear what federal investigators are investigating within the agency known as SANDAG.

The organization has come under fire in recent months for its failed management of the toll system that governs a 10-mile stretch of state Route 125.

Rebecca Jones, a member of the executive committee through her service as mayor-elect of San Marcos, asked whether the agency could seek to recover its costs from HNTB and Etan Tolling Technology, the two contractors involved in the flawed tolling system.

“If it is assumed that the DOJ investigation is taking place primarily on (state Route) 125, is it possible that we could receive reimbursement?” Jones asked. “I don’t think we should be spending taxpayer dollars on contractors who have failed us.”

Coleen Clementson, interim chief executive, said the agreements contained language that would allow SANDAG to seek damages from the companies if they were found to have breached contract terms.

But “we don’t know the scope of the DOJ investigation or whether these contractors are involved,” she said.

The $500,000 cost was unanimously approved.

The Planning Board has already spent at least $150,000 on outside lawyers to represent it before federal investigators, according to a staff report released ahead of the meeting.

It believes at least $350,000 more will be needed and urged the executive committee to prepare to be asked for more money in the future if the $500,000 is used up.

“The costs associated with the DOJ investigation represent an unexpected need in the context of an important existing obligation to cooperate with federal authorities,” SANDAG General Counsel John Kirk wrote to the committee.

The money comes from reserves in the agency’s overall work program, one of many funds SANDAG relies on to fulfill its mission.

The contingency portion of the overall work program, currently estimated at nearly $9 million, amounts to less than 10 percent of the budget – a portion of the agency’s annual spending that typically comes from state and federal sources.

According to SANDAG policy, the reserve fund should constitute at least 10 percent of the work program resources.

The reserve is expected to exceed 10 percent in the proposed budget starting July 1, but only because the overall work program budget is expected to fall from about $99 million to just over $80 million.

Kirk said the spending was unavoidable and any unspent funds would be returned to the program budget.

“Subject to Executive Committee approval and Board ratification, staff will continue to work with outside counsel to cooperate with DOJ requests,” SANDAG counsel told committee members.

Justice Department officials have not disclosed the subject of their investigation. It’s not even clear whether this is a criminal or civil review.

The investigation came to light in late March after the Union-Tribune obtained copies of correspondence from SANDAG leaders to employees asking them to cooperate with investigators if questions were brought to their attention.

This may be related to the recent scandal in the toll system along the former South Bay Expressway, the section of State Route 125 that was privately owned before SANDAG took over in 2011.

Problems with the system’s accuracy became public knowledge in November when a former Treasury official sued SANDAG. Lauren Warrem said in the lawsuit that she was fired after raising questions about inaccuracies in the contractor’s data.

SANDAG board members, who are chosen from the elected officials of San Diego County and its 18 cities, publicly complained that they were not made aware of the problems until October, when the former board chairman first informed them of the failings.

Since then, CEO Hasan Ikhrata has resigned and CFO Andre Douzdjian announced his resignation.

The toll failures cost the agency millions of dollars in lost revenue and unfairly charged thousands of drivers who used the toll road.

SANDAG officials said they have resolved the account discrepancies and have already hired a new vendor to run the collections system.

But the new provider will cost the authority about $30 million to operate the toll system over the next few years.

A number of South County residents and even some SANDAG board members called on the agency to stop collecting altogether and clear the road. But senior staff insisted that the proceeds would be needed to repay the bonds SANDAG had issued to purchase the toll road.

Meanwhile, a series of reports from SANDAG’s Office of the Independent Performance Auditor found the agency has a long history of failing to properly monitor contractors – or even the oversight contractors hired to monitor outside vendors.

The practice cost millions of dollars on various SANDAG projects and denied employees the opportunity to learn more about the work the agency outsourced, auditors concluded.

It remains unclear when the federal investigation might be completed and what that conclusion might mean.

The board last month named longtime California Department of Transportation official Mario Orso as its new CEO later this year.