Tucson's Rio Nuevo downtown-redevelopment district was beset by mismanagement and a lack of financial oversight and internal controls that led a majority of its projects to remain incomplete despite more than $230 million being spent, a state-ordered audit released Friday shows.

While the audit conducted by Crowe Horwath of Los Angeles for the state auditor general is not the smoking gun some had expected, the report, more than 75 pages, confirms that much of the Rio Nuevo money has been spent on planning or projects that stalled. Money also went to projects that - while not illegal - were not in the spirit of Rio Nuevo's mission, the audit says. And the city's financial record keeping was disorganized, making tracking the spending nearly impossible.

The audit's findings mirror those made in Arizona Daily Star investigations of Rio Nuevo over the past three years.

Key findings in the audit include:

• Rio Nuevo completed only two of the 15 projects listed on the 1999 ballot - the Fox Theatre and the Presidio wall.

• More than half of Rio Nuevo's projects are incomplete or on hold.

• The city's Rio Nuevo financial data on projects was "abbreviated, incomplete and confusing."

• Money was spent on projects that were not compliant with Rio Nuevo's mission.

• The city reimbursed the University of Arizona expenses related to a proposed science center that were questionable and not allowed by state law.

• The city charged Rio Nuevo excessive interest rates for the district's unpaid loan balances.

• The previous Rio Nuevo board failed in its financial oversight.

"When viewed from a value-added perspective, the current outcomes are unsatisfactory," the audit said. "Only a small number of other projects - two theaters, underpass, roundabout, and the two TCC projects - are tangible, complete and recognized as such."

The city views the audit as "lessons learned," City Manager Mike Letcher said. "It's an opportunity to close this chapter of Rio Nuevo."

Many Rio Nuevo critics hoped the audit would reveal new allegations of malfeasance by Tucson's bureaucrats and elected officials. However, the report doesn't do that or "name names." In fact, there's not one name listed in the audit.

The audit spends many pages criticizing the city and Rio Nuevo for not making the Tucson Convention Center a central focus of the district.

Because the audit is almost uniformly negative, it mostly is a condemnation of how the city and Rio Nuevo operated before 2010, said Alan Willenbrock, a former Rio Nuevo board member who is a chartered financial analyst. The only positive comments are about the new state-appointed Rio Nuevo board and Rio Nuevo's former Citizens Advisory Committee.

"Many of these audits say positive things, outline successes, and have a few areas of concern," Willenbrock said. "This one is almost completely opposite. … As these things go, it's pretty scathing."

Only two completed projects

Of the 15 projects originally listed on the ballot, only two have been completed more than 10 years after voters created the district, the audit found. Those two were Fox Theatre and the Presidio wall.

But the Fox Theatre later had to be taken over by the city to avoid bankruptcy and the city spent nearly triple the original budget of $4.2 million. In addition, the theater still owes the city $7.5 million, which it will unlikely be able to repay.

Because the district spent so much money on an assortment of projects - many with only tenuous ties to the redevelopment - the district "was spread too widely and too thin" and missed the economic leveraging tools to bring more money into the district. "As a result, 10 years later the city is left still without an economic catalyst that is designed to bring in outsiders, in a way to inject the historic core of Tucson with new money," the audit said.

Lax financial control

The audit found the city's Rio Nuevo financial data to be incomplete and confusing. "Other than generally using the same project names, this information does not track one report to the next," it said. This "deficiency of detail and lack of continuity" continued until August 2008, just after the Star published the first installment of its Rio Nuevo investigation, in which more than 100,000 records were scrutinized to create the first detailed account of how Rio Nuevo money was spent.

Noncompliant projects

The audit identified five Rio Nuevo projects it contends were, or could be, noncompliant with state laws. Those projects include three that were outside the district and had tenuous ties to its mission: a roundabout on South Grande Avenue and infrastructure projects in Barrio Viejo and Barrio Sin Nombre.

The report also said two other projects were noncompliant. One was a housing project by developer Don Bourn. It was never built, despite Rio Nuevo spending $900,000 and the razing of a 100-year-old building. The audit said housing was not a purpose of the district under state law.

It also criticized a land purchase made in north downtown, where the Rio Nuevo later built the Presidio wall, so the city could complete a land swap with the Downtown Development Corporation.

UA reimbursement

Reimbursements to the UA for expenses for computers, salaries, iPhones, phone service, travel to Italy, subscriptions, food and conferences were questionable and not allowed by state law, the audit said. These expenses were highlighted by a Star investigation into the spending for a proposed science center project with the UA that was ultimately scrapped.

Excessive interest

The city charged the Rio Nuevo district excessive interest rates on the money it owed the city, the audit found. It estimates the city overcharged Rio Nuevo about $450,000. The audit recommends the city pay back the money.

The amount could be much larger if the excessively low interest rates of the previous decade were used to calculate the interest owed, the audit said.

The city simply charged the interest rate at which it borrowed, City Finance Director Kelly Gottschalk said. Rio Nuevo still owes the city $1.7 million, she added.

Rio Nuevo Board's failures

The strongest criticism from the audit was directed at the Rio Nuevo board that governed the district through 2009.

It found the board's "lack of strategic oversight and management" resulted in a "disjointed use" of Rio Nuevo money for "subordinate projects or for funding non-sustainable major projects only tangentially related to the district's mandates."

The board didn't meet for a year and started meeting again only after the first installment of the Star's Rio Nuevo audit in 2008.

"In essence, the district was treated as an extension or department of the city," the audit said. "The pre-2010 district board lacked essential fiscal and project-specific management reports and relied heavily on oral reports from city staff to oversee and administer funds in which (the) District had fiduciary responsibility."


Contact reporter Rob O'Dell at 573-4346 or rodell@azstarnet.com