Response to Recall Notice of Intention

By Donald L. "Don" Kuehne

This document explains my position on issues raised by the recall proponents. It was prepared in response to the Notice of Intention to Circulate Recall Petition served on January 11, 2011.

I share your anger and frustration for what has happened to our dynamic city over the past year. I, too, am deeply concerned about financial mismanagement, conflict of interest, nepotism, and lack of transparency and trustworthiness in our city government. I have raised these concerns in Council closed sessions beginning in October 2009. However, until recently, I was the lone voice on the Council and there was no reportable action out of these closed sessions. Due to the confidentiality of these discussions, I was strongly discouraged from making any public statements.

The Friends of Hercules, a community advocacy group with whom I have been affiliated, sent a letter to the Council in December 2009 and followed up with a second letter in March 2010. These letters contained the following resolution:

"Given what has been in the media, clarity is needed regarding NEO's functioning in connection with the City's Redevelopment Agency and the Affordable Housing program. The Friends of Hercules maintain it is a necessity at this time to hire an independent outside investigator/auditor to assess the situation and make their findings public."

Again, the Council majority decided to take no action and did not even respond to these letters.

This pattern continued until September 2010 when City Manager Oliva was stricken with severe health problems. Faced with this crisis the Council finally agreed that decisive action was necessary. We placed Mr. Oliva on medical leave for three months and after a brief search brought in Mr. Long as Interim City Manager. The Council gave Mr. Long five priorities to work on. He immediately reorganized City staff, uncovered some serious financial problems, and took steps to reduce expenditures. While the Council was shocked at some of Long's findings, such as the shortfall in financing for Sycamore North, there was no intent to cover up or hide this information from the public. The Council was concerned, however, that Mr. Long's financial analysis was much different from the projections of the 2010-11 budget prepared a few months earlier. The Council recommended an independent financial audit because we did not know which figures to believe.

Mr. Long's contract as Interim City Manager was terminated in closed session on December 7. I reluctantly agreed to bring Mr. Oliva back from medical leave temporarily because I did not have time to consider other options. Looking back, I agree that this was a bad decision. I immediately started to correct the damage that was done and issued a press release about Long's termination, the short-term return of Oliva, and the need for an independent financial audit. Following Lisa Hammon's dramatic public resignation on December 14, I realized that the crisis in City Hall was much bigger than I even imagined. I offered to meet with each of the senior managers on Friday, December 17, to hear how they felt about the crisis and discuss possible solutions. These confidential meetings were very enlightening and helped me to better understand what was going on in City Hall.

Now, I will address some of the false accusations in the Recall Notice of Intention. The financial crisis in Hercules is not a direct result of my actions or inaction. As most people know, there was a financial meltdown in the fall of 2008 that swept across our state and country. This occurred while I was campaigning for City Council. During my first year on the Council, Mr. Oliva assured me that Hercules was in better financial shape than most cities because our revenue sources remained strong. This changed in 2010 with the steep de-valuation of real estate and the resulting reduction in property taxes. In preparing the 2010-11 General Fund budget, we reduced the projected deficit from about $5 million to $2 million through cost-cutting measures. In these efforts, we avoided involuntary layoffs of City staff and reduction of vital City services. The severity of our current financial situation will not be clear until the independent financial audit is completed within the next few weeks. However, cost-cutting measures are already being implemented to reduce the deficit. We are also looking into new revenue sources that would further improve the bottom line.

When Mr. Oliva was appointed City Manager in April 2007, the previous Council required that he divest his interest in NEO Consulting/AHSG. The fact that he did not do this properly did not come to light until 2 ½ years later. Meanwhile, he negotiated a lucrative five-year contract with the Council in 2008 that included generous severance terms. The questionable loans issued by NEO Consulting did not come before the Council for approval. Furthermore, I did not approve the $12 million RDA project fund for Red Barn or "sweetheart" deals with any developers. I was not aware of the excessive Red Barn invoices that were disclosed recently.

Interim City Manager Long was not terminated because he was the bearer of bad news or because we wanted to bring Mr. Oliva back. A letter from the City of Hercules dated December 14, 2010, states that "the City Council has terminated your Agreement for cause as of December 7, 2010 for what the City Council deemed to be an insubordinate failure to carry out its instructions."

I do recognize the need for change and led the effort to complete the severance with Mr. Oliva and then to appoint Mr. Deltorchio as Acting City Manager. With these critical leadership changes, we can begin the New Year going in the right direction. I am also committed to working with the new Council members.

The contracts with AHSG have been terminated and the affordable housing work is being transferred in-house. Proposals have been received for the independent financial audit which will begin very soon. Staff is considering options for Sycamore North construction funding including sale of the property. The ITC and Bayfront projects are also a top priority and I am hopeful that these projects will move forward despite the economic downturn.

In summary, I am anxious to begin the New Year on a positive note with the new leadership team. Mr. Deltorchio is an outstanding leader and I am confident that he will be successful in his new position. I am committed to providing whatever support he needs to address all the complex issues in our community. I believe that it is premature to start a recall before this new Council has had a chance to work together. I am optimistic that we can solve our city's problems and will become stronger and better through this experience. I ask that you join me and this Council in being part of the solution.

Thank you,

Don Kuehne, Hercules Council Member

January 11, 2011