SANDAG, facing federal investigation, OKs $500,000 for outside lawyers to respond

Officials at the San Diego Association of Governments, the regional planning agency that controls 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 an executive board meeting on Friday, more than a month after The San Diego Union-Tribune first reported the U.S. Department of Justice probe.

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

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

Rebecca Jones, an executive committee member due her service as the elected San Marcos mayor, asked if the agency could seek to recover its costs from HNTB and Etan Tolling Technology, the two contractors involved in the flawed tolling system.

“If the DOJ inquiry is deemed to be mostly on the (state Route) 125, is it possible that we get reimbursed?” Jones asked. “I don’t think we should be spending taxpayer dollars on contractors who have failed us.”

Amberlynn Deaton, the agency’s deputy general counsel, said there is language in the agreements that would allow SANDAG to try and recover damages from the companies if they were found to have violated terms of their contracts.

But “we don’t know the scope of the DOJ investigation or whether it involves those contractors,” she said.

The $500,000 expense was approved unanimously.

According to a staff report released in advance of the meeting, the planning agency already has spent at least $150,000 on outside attorneys to represent it before federal investigators.

It expects to need at least $350,000 more, and told the executive committee to prepare to be asked for more money in the future if or when the $500,000 runs out.

“Costs associated with the DOJ inquiry represent an unanticipated need relating to a crucial existing commitment to cooperate with federal authorities,” SANDAG general counsel John Kirk wrote to the committee.

The money will come from reserves from the agency’s Overall Work Program, one of many funds SANDAG relies on to meet its mission.

The contingency portion of the Overall Work Program, which is now valued at just under $9 million, amounts to less than 10 percent of the budget apportionment — a slice of the agency’s annual spending that typically comes from state and federal sources.

Under SANDAG policy, the reserve fund is supposed to be at least 10 percent of the work-program funding.

The reserve is expected to exceed 10 percent in the proposed budget that begins July 1, but only because the Overall Work Program budget is expected to decline from about $99 million to just over $80 million.

Kirk said the expenses were unavoidable, and that any money that is left unspent would be returned to the program budget.

“Pending approval by the executive committee and ratification by the board of directors, staff will continue working with outside counsel in cooperating with inquiries from the DOJ,” the SANDAG attorney told committee members.

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

The probe became visible in late March, after the Union-Tribune obtained copies of correspondence from SANDAG leaders to staff urging them to cooperate with investigators if they are approached with questions.

It may be related to the recent scandal in the toll-collection system along what was formerly known as the South Bay Expressway, the section of state Route 125 that was privately owned before SANDAG acquired it in 2011.

Problems with the system’s accuracy were disclosed publicly in November, when a former finance official sued SANDAG. Lauren Warrem said in the lawsuit that she was fired after raising questions about inaccuracies in the contractor’s data.

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SANDAG board members, who are chosen from among the elected officials who serve San Diego County and its 18 cities, publicly complained that they were not alerted to the problems until October, when the former chief executive officer first briefed them about the failures.

Since then, CEO Hasan Ikhrata resigned, and Chief Financial Officer Andre Douzdjian announced he would retire.

The tolling failures cost the agency millions of dollars in lost revenue and wrongly charged thousands of drivers who used the tollway.

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

But the new vendor will cost the agency about $30 million over the next several years to operate the toll system.

A number of South County residents and even some SANDAG board members urged the agency to ditch the collections altogether and make the road free. But senior staff has insisted the revenue is needed to repay the bonds SANDAG issued to buy the tollway.

Meanwhile, a series of reports issued by the SANDAG 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 has added millions of dollars in costs to various SANDAG projects and denied the staff the opportunity to learn more about the work the agency outsourced, auditors concluded.

It remains unclear when the federal investigation might conclude, or what that conclusion might entail.

The board of directors last month named longtime California Department of Transportation official Mario Orso to take over as the new CEO later this year.