The new Rio Nuevo board has spent barely a dime on downtown building projects but is closing in on $1 million spent on lawyers in its first 18 months of existence.
Formed in early 2010 to cut wasteful spending downtown, the board spent $870,000 on legal fees through October 2011 - the latest month for which a full accounting was available.
That doesn't include November through this month, as the board negotiates with the Fox and Rialto theaters over rent, mediates with the city over who owns and who owes what, and deals with a suit filed by the developer of a now-defunct hotel proposal. Partial bills for November add $7,000 to the total.
The bills were released as part of a public-records request from the Arizona Daily Star. Although the Star's request three months ago was for "a full accounting of district finances," the Rio Nuevo board has released only legal bills and an 18-month-old financial statement despite its pledge to provide more information on how taxpayers' dollars are being spent.
The Legislature took control of Rio Nuevo away from the city after it spent $230 million with little actual development. State law required the new board to post its spending online so taxpayers could see where the money was going. That hasn't happened.
Although the board agreed in December to hand over reams of financial documents to the public and the media, it has yet to release any additional material.
In November 2010, when the board had spent $350,000 on attorneys, district chairwoman Jodi Bain predicted that the bills would start to taper off fairly quickly because the planned hotel had been scrapped and the board had a preliminary legal agreement with the city over which properties each owned.
But the agreement with the city has since fallen apart, disputes over the hotel linger and legal spending has continued - and recently accelerated.
October 2011 saw nearly $56,000 worth of legal bills, the same as September. The most expensive month was June 2010, when the district spent more than $71,000. The bills tapered off after that.
Board members say they had had to seek legal advice because of the difficulty disentangling the district's assets from the city's - which essentially is what they said a year ago.
The board inherited 10 years "of a troubled Rio Nuevo history" with incomplete projects, nonperforming development agreements, spotty files and a shoddy trail of legal and financial documents, Bain said.
Bain, a lawyer herself, said taxpayers are getting a better deal than it might seem since each of the firms has written off time or given discounts.
The lawyers' work, she contends, has saved taxpayers as much as $3 million. Based on legal advice, the board has stopped spending on projects outside district boundaries such as drainage improvements in nearby barrios. It also stopped spending on non-district projects, such as the Depot Plaza parking garage, where the bills are in the city's name and not Rio Nuevo's. And it halted invoices on the downtown convention hotel because Rio Nuevo contends it had already overpaid.
"A cost-benefit analysis demonstrates significant savings due to the works of various counsel efforts," Bain wrote in a letter to the Star.
"The district board is trying its best to look out for the taxpayers while often being told to shut up and toe the line," she said. "Despite various obstacles and negative public opinion, the district looks forward to trying to work through and resolve many matters within the next four to six weeks."
In the past year the board has worked with four law firms, each on separate issues.
The firm of Lewis and Roca, which provided general legal counsel, was paid the most, at up to $325 an hour. Lewis and Roca was replaced in July.
Gugino & Mortimer received $227,000 at up to $375 per hour, handling real estate until the firm resigned in April.
Gust Rosenfeld came on in February to handle real estate litigation issues and later took over for Gugino & Mortimer. It has collected $200,000 at up to $310 an hour.
Rusing and Lopez worked with the district for two separate time periods, collecting $202,000. The firm, which charges $265 an hour, worked in 2010 on the Convention Center hotel, then followed up in 2011 on the forensic audit of several projects.
Rio Nuevo board member Jonathan Paton said he's convinced the legal costs will go down soon, if the board can resolve its dispute with the city.
Taxpayers are willing to be patient with the board, he said, even if they're soured on Rio Nuevo as a result of the past decade of mismanagement.
"I think they know the whole system has been a mess," he said, noting the spending on attorneys is minuscule compared with the previous spending of $230 million. "The board has basically stopped the hemorrhaging of money that we saw."
Paton, who pushed hard for an online database to be part of the Rio Nuevo reforms when he was at the Legislature in 2009, said it was intended to track major projects, and the board hasn't done any of those.
Still, Paton, who has been on the board for nine months, agreed it should apply to everything, including administrative and daily expenditures. "It's something I've always fought for in general," he said. He made a motion at the Friday meeting, which passed unanimously, that the board's executive director develop a plan to get the information online.
Bain said part of the holdup, aside from the fact the district still doesn't have its accounting ledger in order, is that it's going to be expensive to put the information on the website. In the interim, she said, within the next two weeks all of the board's financial information will be placed in three-ring binders in its attorney's office for the public to go through.
Councilman Steve Kozachik, who has been critical of the district, said taxpayers should be up in arms. "Their website is out of date," he said. "Every time they have a meeting, two-thirds of it is spent in executive session. They're not responsive to public records requests."
"The only people making any money off this board are attorneys," Kozachik said. "A million dollars for attorneys and zero for revitalization. That's a blowout in a sporting event."
John Petrole, a former home builder who owned Cavallino Construction, said he is shocked by the $1 million price tag for lawyers. The city did a terrible job with Rio Nuevo, he said, but the new board "sounds like more of the same to me, just different names and faces. When are we going to see something from Rio Nuevo?"
A YEAR AND A HALF OF LEGAL FEES:
- Lewis and Roca: $248,037
- Gugino & Mortimer: $226,918
- Rusing and Lopez: $202,124
- Gust Rosenfeld: $200,237
Source: Star research
HOW WE GOT THE STORY:
The Arizona Daily Star requested all financial records from new Rio Nuevo board in October.
Rio Nuevo provided only an 18-month-old financial statement and copies of its legal bills for the past year.
Along with the legal bills from the first six months of the new board's existence that the Star acquired in 2010, the newspaper built a database of the new board's legal expenses since it was created in March 2010.
PDFs of legal bills for each firm by month can be found inside the database at: azstarnet.com/rionuevolegal
Contact reporter Rob O'Dell at firstname.lastname@example.org or 807-8465. Contact reporter Rhonda Bodfield at email@example.com or 573-4243.