Audit raises concerns on city-developer agreement policy

Four companies secure the majority of city/owner development agreements, and the city has never reviewed developers’ books for construction estimates, despite having the authority to do so. Two of Killeen’s agreements with developers were paid from the city’s operations fund.

The findings are among those in the management audit of Killeen’s finances conducted over a five-month period and released Sept. 5.

Among the audit’s significant findings were that the Goodnight Ranch subdivision in 2011 and the Landing at Clear Creek in 2013 were paid out of the city’s general fund that is designated for city operations. Auditors McConnell & Jones of Houston said that appears to be a clear misuse of taxpayer money in the use of operational funds for capital improvement projects. The rest of the agreements were funded by bond proceeds.

The Landing at Clear Creek is being developed by Bruce Whitis’ WB Development, and Goodnight Ranch is being developed by Reeces Creek Development Ltd.

Another finding showed that four city/owner agreements appeared to have been executed prior to City Council approval, although the city contended no agreements were formally signed by the city manager until they were approved by the council.

Auditors said they were unable to determine whether the differing execution dates were solely due to a clerical error.

UNAUDITED BOOKS

Auditors also found the city reserves the right by ordinance to audit developers’ books to determine if developers accurately estimated construction costs — but has never done so.

“The City has never exercised its option to audit the owner’s records to verify that the original estimated costs for oversizing were the actual costs owners incurred,” the report said.

Without doing so, the city never once formally questioned developers’ construction costs. Public money is used to expand — or oversize — infrastructure to meet city needs.

Killeen City Manager Ron Olson recently acknowledged the city needed to work on improving its cost/benefit analysis of the agreements and be more diligent in its oversight. Part of that increased oversight could include an audit recommendation to set a mandatory “trigger” for auditing developers’ books if an agreement reaches a specific dollar threshold.

RECORDS SHREDDED

Finally, the firm could not independently confirm payments to developers were made with council approval for agreements signed before October 2010 due to the city’s policy of shredding those documents after a five-year retention schedule. The city’s policy, however, is out of compliance with state record retention policies, which state any records “concerning the planning, design, construction, conversion, or modernization of local government-owned facilities, structures, infrastructure should retained permanently.”

Despite that clear disparity, the report did not say the city violated state policy.

The city currently utilizes an ordinance to govern the use of those agreements, which stipulates, among other things, the percentage amount the city can dedicate to oversizing, or increasing infrastructure beyond what developers are willing to pay. The ordinance also stipulates the council approval checklist and the specific requirements for a development company to meet and uphold its end of the covenant.

With a history of lax oversight, instances of apparent misappropriation of taxpayer money from the city’s general fund and the overwhelming frequency of certain developers securing agreements, the city faces a significant investigation of its developer agreement policies if it heeds the audit’s recommendations.

MAJOR FINDINGS

Using 12 sampled city/owner agreements from a total of 61 between fiscal years 2002-16 to draft its findings, audit firm McConnell & Jones said there was no evidence that any agreement violated city ordinance, that the city spent more funds than specifically outlined in any agreement or that the city spent on anything other than oversizing infrastructure.

According to the firm’s findings, the city of Killeen has executed 61 city/owner agreements in the span of fiscal years 2002-2017, averaging around four per year.

Of those 61 agreements, the audit identified four major developers that constituted 60 percent of the more than $14 million in agreements and have been directly and financially involved in area government: WB Development, headed by frequent local campaign donor Whitis; “the Purser family;” which the audit results leave unspecified; Reeces Creek Development Ltd., the company headed by Steve Shepherd and Bill Hickman responsible for the Goodnight Ranch subdivision on Bunny Trail and RBSP Developers, of which Gary “Bubba” Purser Jr. is president.

It is unclear how the audit firm delineated “the Purser family” from RSBP Developers in its report.

In a management response specifically targeting that high percentage dedicated to four parties, the city said it did not play favorites but promoted agreements that required oversized infrastructure as laid out in various transportation, water/sewer and drainage master plans.

“Management would clarify that developers are not chosen for City/Owner agreements based on preference or anything other than the fact that they own the property being developed that is subject to master plans requiring oversizing,” the report said.

The audit firm added an unusually defensive comment when discussing the four firms’ shares of the agreements, sharing an economic analysis outside the scope of its investigation.

“These developers are members of the Killeen community and Chamber of Commerce and are responsible for a large portion of development in the City,” the report said. “Ultimately, they are contributors to the economic development of the City.”