FLAWED INFORMATION, FLAWED
DECISIONS:
The Importance of Leadership, Governance,
and Oversight at the Santa Clara County
Housing Authority
2023-24 Santa Clara County
Civil Grand Jury
June 10, 2024
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FLAWED INFORMATION, FLAWED DECISIONS
Table of Contents
GLOSSARY AND ABBREVIATIONS ...................................................................................... 2
SUMMARY ................................................................................................................................... 4
BACKGROUND ........................................................................................................................... 5
County Housing Crisis .................................................................................................................. 5
U.S. Department of Housing and Urban Development Oversight ........................................... 5
Santa Clara County Housing Authority ..................................................................................... 6
Board of Commissioners and the Appointment Process ........................................................... 7
METHODOLOGY ....................................................................................................................... 9
INVESTIGATION ...................................................................................................................... 10
2020: Purchase of the Property ................................................................................................. 10
Change of Plans ........................................................................................................................... 10
How the Decisions Were Made .................................................................................................. 14
Flawed and Incomplete Financial Analysis .............................................................................. 14
Corrected and Restated Financial Analysis ............................................................................. 18
Exploring Other Options ............................................................................................................ 19
Consequences of the Sale ............................................................................................................ 21
Leadership Issues: Executive Management, Board, and BOS ............................................... 22
CONCLUSION ........................................................................................................................... 29
FINDINGS AND RECOMMENDATIONS ............................................................................. 30
REQUIRED RESPONSES ......................................................................................................... 32
APPENDIX 1: Organization, Management And Personnel (OMP) Monitoring Guidebook
(7460.9G) ...................................................................................................................................... 33
APPENDIX 2: Office Space Needs Assessment ....................................................................... 35
APPENDIX 3: Foundations: Roles and Responsibilities ........................................................ 42
APPENDIX 4: Housing Authority Commissioner Handbooks .............................................. 44
APPENDIX 5: Housing Authority Strategic Plan Goals......................................................... 45
REFERENCES ............................................................................................................................ 46
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GLOSSARY AND ABBREVIATIONS
Carrying Costs Ongoing costs associated with owning a property such as
maintenance, insurance, and repairs.
Deferred Maintenance Planned or
unplanned maintenance or repairs that have been
postponed.
Governmental Accounting
Standards Board (GASB)
An accounting standards board that establishes the standards,
rules, and procedures that encompass the details, complexities,
and legalities of governmental accounting. GASB-based
rules are used as the foundation for a
comprehensive set of
approved accounting methods, practices, and financial audits.
HARA Funds Santa Clara County Housing Authority Reserve Account
unrestricted account funds held primarily in the form of
interest-earning financial assets for future operational and
housing development needs.
Housing Choice Voucher
(HCV)
Allows very low-
income families to choose and lease or
purchase safe, decent, and affordable privately-
owned rental
housing.
Housing Choice Voucher
Program (Section 8)
The federal government's major program for assisting very low-
income families, the elderly, and the disabled to afford decent,
safe, and sanitary housing in the private market.
Land Bank Usually a public entity,
but occasionally an independent
nonprofit, created by local jurisdictions, to hold and maintain
vacant, abandoned, and tax-delinquent properties
for future
development.
Public Housing Agency
(PHA) or Authority
P
rovides housing and support services to eligible renters and
landlords within the Federal Housing and Urban Development
program guidelines.
Senate Bill 6 (SB 6) With Assembly Bill 2011, permits residential development on
sites currently zoned and designated for commercial or retail
uses.
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Surplus Land Act California Government Code section 54220-54232, intended to
increase the availability of property for affor
dable housing
development by requiring the prioritization of affordable
housing when selling or leasing public lands that are no longer
necessary for agency use.
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SUMMARY
The 2023-24 Santa Clara County Civil Grand Jury (Civil Grand Jury) investigated a complaint
related to the September 2022 sale of an office building located at 3553 North First Street, San
José (Property) by the Santa Clara County Housing Authority (SCCHA) that resulted in a total
loss of $16.2 million of public funds. The loss of $13.5 million was a direct outcome of the sale.
The balance of the loss (an additional $2.7 million) was incurred due to carrying costs and deferred
maintenance-related repair investments made during the elapsed time between the purchase and
sale of the Property. Investigation of this sale identified several factors that precipitated the loss.
Executive management of the SCCHA presented their Board of Commissioners (Board) with
financially flawed, incomplete, and misleading analyses to support their decision to sell the
Property acquired just 14 months prior. Further, executive management failed to develop and
present analyses of other viable options for the use or repurposing of the Property to their Board.
The Board approved management's recommendation to undertake an immediate sale of the
Property, failing to exercise their fiduciary responsibility to protect the assets and financial stability
of the SCCHA, resulting in a cash loss of approximately one-quarter of their unrestricted Housing
Authority Reserve Account (HARA) funds.
The loss could have been avoided had viable options such as occupying the Property as the new
SCCHA headquarters or converting the Property to low- to moderate-income subsidized housing
been considered by the Board. The Board did not request executive management to analyze and
present other viable options, nor did they recognize the errors and omissions in the analytical
materials provided to them.
While investigating the loss on the sale of the Property, the Civil Grand Jury uncovered
management and Board issues that directly and/or indirectly created the environment and
conditions within which such a costly and avoidable outcome could occur. Several contributing
factors were identified. Executive management does not have a long-term plan with measurable
objectives that would enable the Board to assess the impact of their decisions on SCCHA's
operational, staffing, and space requirement needs. The Board could not articulate its role and
responsibilities as SCCHA Commissioners. The County of Santa Clara Board of Supervisors
(BOS) has no written skills, knowledge, or experience requirements that support their recruitment,
nomination, and appointment of SCCHA Commissioners. The BOS has also been remiss in filling
Board vacancies.
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BACKGROUND
SCCHA is the only source of U.S. Department of Housing and Urban Development (HUD) Section
8 subsidized rent vouchers within Santa Clara County. As such, it plays an important role in
addressing the County’s unfulfilled housing needs, especially given the current housing crisis.
HUD, SCCHA, and the BOS perform interrelated roles in enabling the continuing development of
additional subsidized rental housing units for low- to moderate-income families.
County Housing Crisis
California and Santa Clara County have a shortage of affordable housing and a resulting homeless
crisis. Some striking statistics include the following:
• The County’s latest (January 2023) point-in-time homeless census showed that 9,903
people in Santa Clara County are experiencing homelessness (County of Santa Clara
Office of Supportive Housing, 2023).
• One in four renters in Santa Clara County spends more than 50% of their income on
rent, and one in four renters lives in overcrowded housing (Let’s Talk Housing, n.d.).
• The National Low Income Housing Coalition has calculated that Santa Clara County
needs 54,148 new affordable rental homes, including 40,550 at or below extremely low
income, to meet existing needs (SV@Home, n.d.(a),(California Department of Housing
and Community Development, 2024)).
• SCCHA’s Housing Choice Vouchers (HCV) program is important for keeping rent
affordable and reducing homelessness in Santa Clara County.
U.S. Department of Housing and Urban Development Oversight
The federal government established HUD in 1965. HUD assists low-income families and
individuals to obtain housing. HUD has many programs to assist in purchasing homes and
subsidizing rent to keep housing affordable. The main HUD program providing rental subsidies in
the private sector is the HCV program, formerly known as Section 8 of the Housing Act of 1937
(42 U.S.C. section 1437f).
At the state, county, or city level, Public Housing Agencies (PHAs) administer HUD programs.
PHA operations, including the HCV program, fall under HUD regulations and guidelines. The
common goals and objectives of both agencies are listed in “Monitoring of Public Housing
Agencies (PHAs) Guidebook (7460.7),” Chapter 2:
Both the PHA and HUD have a common goal and responsibility in ensuring that federal
funds are properly spent in an efficient and effective manner. PHAs institute financial
systems and safeguards to prevent loss of funds and ensure that funds are expended for
eligible housing purposes. HUD monitors compliance with requirements through remote
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monitoring and/or onsite reviews. (U.S. Department of Housing and Urban Development,
n.d.)
Santa Clara County Housing Authority
In California, a housing authority is an independent public agency formed under state statutes.
(Cal. Health & Saf. Code section 34200 et. seq.) The powers of a housing authority typically
include the power to acquire, construct, and operate property and expend and repay funds. A
housing authority can also lease, rehabilitate, and sell property. (Cal. Health & Saf. Code section
34310-34334.) In California, the statute provides that housing authorities shall be distinct entities,
not agents of city or county government (Cal. Health & Saf. Code section 34310).
SCCHA is the housing authority for Santa Clara County. The BOS established SCCHA in 1967
as an independent public agency charged with administering HUD’s rental assistance programs
for the unincorporated County and all cities in the County except for San José. In 1976, San José
contracted with SCCHA to administer HUD-subsidized housing programs.
The stated mission of SCCHA is to “provide and inspire housing solutions to enable low-income
people and families in Santa Clara County to achieve financial stability and self-reliance” (Santa
Clara County Housing Authority, Santa Clara County Housing Authority Financial Report, 2024).
SCCHA processes over $442 million of HCVs annually. SCCHA checks HCV program applicants
for eligibility, enlists landlords to participate in the program, and checks on the suitability of
properties participating in the program.
Currently, SCCHA administers approximately 19,000 HCVs and 740 units of local, non-traditional
housing, and it owns or controls approximately 2,500 affordable housing apartments throughout
Santa Clara County. Through SCCHA programs, more than 20,000 individuals and families are
assured of affordable housing and reduced risks of homelessness (U.S. Department of Housing
and Urban Development, 2022; Santa Clara County Housing Authority, SCCHA Leadership and
Mission, 2024).
SCCHA occasionally purchases rental properties to maintain them as affordable housing.
Recently, it has also begun to consider developing new affordable housing projects. SCCHA has
an annual operating budget of $38 million and 170 employees.
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Board of Commissioners and the Appointment Process
By law, PHAs are required to be governed by a board of commissioners. The Board is the
governing body of SCCHA. Commissioners volunteer their service as housing advocates and
provide legally mandated leadership for SCCHA (see Appendix 1).
The SCCHA Board consists of seven members. The BOS is responsible for and obligated to
recruit, select, and appoint all Commissioners. Under California law (Cal. Health & Saf. Code
section 34271), two of the seven commissioners must be current participants in the HCV program.
These two commissioners are known as “tenant commissioners” and are appointed to two-year
terms (section 34271). The other commissioners are appointed to four-year terms.
Figure 1 shows a high-level view of the key relationships and information flows between the
BOS, the Board, HUD, and the SCCHA Executive Director.
Figure 1: SCCHA Leadership Information Flows and Relationships
Figure 2 shows a HUD view of the role of a PHA board (HUD Exchange, 2021). The PHA board
should provide strong governance and sound financial oversight, ensure long-term sustainable
performance, and be accountable to the residents.
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Figure 2: HUD View of The Role of The Board in Leading a PHA (U.S. Department of
Housing and Urban Development, 2021)
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METHODOLOGY
The Civil Grand Jury investigated the facts and circumstances before, during, and after the sale of
the Property. The Civil Grand Jury conducted 29 interviews, which included:
• Persons knowledgeable about SCCHA organization and operation.
• Board members.
• Current and former members of the BOS.
• Third-party experts knowledgeable in regional real estate markets.
• Third-party experts knowledgeable in financial analysis.
The Civil Grand Jury reviewed several thousand emails and documents and listened to numerous
audio recordings of Board meetings. Additional sources of information include:
• Visiting the Property.
• Studying vicinity and transit maps.
• Studying demographic maps.
• Reviewing governmental agency policies and reports.
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INVESTIGATION
2020: Purchase of the Property
In 2019, the Civil Grand Jury learned that SCCHA began looking for a replacement for its currently
owned headquarters building at 505 West Julian Street (West Julian) in downtown San José near
the SAP Arena. Investigation revealed SCCHA had determined that the West Julian building was
old, had inadequate parking for staff and clients, did not have enough space for employees to meet
with clients, and required significant ongoing infrastructure maintenance. SCCHA executive
management evaluated the idea of building a new headquarters on property SCCHA owned on
East Santa Clara Street in San José. A construction cost analysis determined the development cost
to be $90 to $100 million, which executive management considered too expensive. In 2020,
executive management and the Board decided that purchasing an existing property at a lower cost
would be a better strategy.
To support the purchase process, executive management developed a needs assessment document
identifying requirements for the new facility (see Appendix 2). The needs assessment identified
requirements for square footage, proximity to transportation for clients and staff, adequate parking,
expanded meeting space for clients, and room for expansion, among other details.
SCCHA worked with a commercial property broker and settled on the Property in North San José.
The Board unanimously authorized the purchase, which closed escrow in December 2020.
The Property was purchased for $38 million in cash from SCCHA’s unrestricted HARA funds.
The plan approved by the Board included authorization for issuing bonds to cover the purchase
price plus the costs for planned building upgrades. A bond issue would have enabled SCCHA to
quickly recover the $38 million of HARA funds used to purchase the Property. Because SCCHA
purchased the Property with cash, it was never under financial pressure to make loan payments
during the time the Property was owned. In January 2021, SCCHA’s executive director retired.
Change of Plans
The SCCHA purchased the Property because it met the detailed and specific headquarters
requirement set forth in their pre-purchase needs assessment. Figures 3 and 4 present the SCCHA’s
reasons for seeking a new headquarters office building and why the Property meets the office space
and amenities identified in their needs assessment.
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Figure 3: 2020 SCCHA Board Presentation Explaining The Need for a New Headquarters
Figure 4: 2020 SCCHA Board Presentation Regarding the Merits of the Property
In 2021, the Board appointed a new Executive Director. The Executive Director immediately
stopped all preparations to move to SCCHA’s new headquarters and declared the building
unsuitable for the SCCHA. Incoming executive management gave the Board two primary reasons
for reconsidering the planned move of SCCHA's headquarters to the newly purchased Property.
First, the Property’s location was inconsistent with SCCHA’s mission. Secondly, office work
dynamics had changed because of the COVID-19 pandemic. According to the SCCHA website,
SCCHA’s mission is to “provide and inspire housing solutions to enable low-income people and
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families in Santa Clara County to achieve financial stability and self-reliance.” Nothing in the
mission statement indicates why a North San José location is ill-suited for an organization serving
clients across the County.
To give meaning to a mission statement, an organization needs to have, as specified by HUD
regulations, at minimum, a five-year plan containing measurable objectives and a methodology for
evaluating progress toward accomplishing its goals and objectives. Executive management’s
objection to occupying the Property would have made some sense if it could have shown that such
an action would deflect SCCHA from its strategic plan and would adversely affect its ability to
achieve its objectives. Executive management indicated that the Property was not a good fit for
the agency, its staff, and SCCHA residents, but executive management could not provide any facts
or evidence supporting the claim. The needs assessment developed in 2020, when SCCHA was
preparing to search for a new headquarters, included facts that supported specific requirements for
the size, facilities, and accessibility for staff and clients. In contrast, the contention made by new
management that the Property purchased did not fit the needs of SCCHA was not supported by
any factual evidence. Executive management did not take issues with any SCCHA office
requirements identified in the pre-purchase needs assessment.
Following the decision to stop work on move plans, an Ad Hoc Committee (Committee) composed
of three Board members was created in late 2021 to review options for the Property. In February
2022, the Committee and executive management gave recommendations to the Board. Through its
investigation, the Civil Grand Jury learned that the Board approved the following Committee and
executive management recommendations:
• Declaring the Property as “surplus land.”
• Hiring a listing agent to begin the process to sell the Property.
• Hiring a leasing agent to find an additional 15,000-square-foot temporary office space to
relieve the shortage at the West Julian office.
• Launching a study to reconsider options for building a new headquarters at the East Santa
Clara Street property, which was previously evaluated in 2019 and rejected.
• Evaluating possible expansion of the existing headquarters building.
In less than 14 months, the Board, at executive management’s urging, completely changed course
and approved putting the Property up for sale. Then, on September 20, 2022, the Committee
recommended to the full Board the sale of the Property at a loss of $16.2 million. Figure 5 explains
the loss calculation. SCCHA experienced a net loss of $13.5 million from the sale of the property.
Additional carrying costs and deferred maintenance bring the total loss to $16.2 million.
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Figure 5 below uses information obtained from financial records of the SCCHA to calculate the
full loss created by the sale of the Property including. This calculation takes includes the loss
caused by the Property’s decreased market value and the costs of carrying the property for the
time period between its purchase and its sale.
Loss Calculation for the Sale of the Property
The loss on the sale of the Property is based on public escrow closing documents and information
learned by the Civil Grand Jury during its investigation.
• Purchase price of the Property (December 2020) $37.5 million
• Sale price of the Property (September 2022) $24.0 million
• Net loss on sale of the Property $13.5 million
• Other costs
o Deferred maintenance expenditures $ 1.5 million
o Property carrying costs (insurance, maintenance, etc.) $ 1.2 million
• Total loss over 21 months of SCCHA ownership $16.2 million
Figure 5: Loss Calculation for the Sale of the Property
Figure 6 shows a timeline of the key events between the purchase and the sale of the Property.
SCCHA developed a needs assessment in early 2020 and purchased the Property in December
2020. In May 2021, SCCHA stopped work on moving to the Property. In February 2022 the Board
approved starting the process to sell the Property, and finally, in September 2022, SCCHA sold
the Property.
Figure 6: Timeline of SCCHA’s Purchase and Sale of the Property
Date
Event
Early 2020
December 2020
May 2021
Mid-2021
July 2021
December 2021
February 2022
September 2022
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How the Decisions Were Made
The Board and the Committee had a fiduciary obligation to examine all viable options for using
or repurposing the Property to maximize long-term value to the organization and to further
SCCHA’s mission. Instead, SCCHA executive management presented the Committee, and later
the full Board, with financially flawed analyses, and evaluated only options to sell the Property
without seriously or rigorously considering alternatives, which were known or should have been
known such as:
• Occupying the Property until market prices rebounded, receiving HUD rent/bond
reimbursements during occupancy. SCCHA is not a short-term real estate developer;
rather, it can stay in the community and ride out an economic downturn.
• Occupying the Property until market prices rebounded and sub-leasing extra space,
receiving HUD rent/bond reimbursements during occupancy plus sub-lease revenue.
• Leasing the Property for a period until market prices rebounded, which could have been an
attractive option as SCCHA paid cash for the Property and had no debt payments.
• Rezoning the Property and building affordable housing in support of the SCCHA mission.
• Rezoning the Property for a hybrid development, retaining the existing office building, and
building new affordable housing on part of the six-acre site.
Members of the Committee and the Board questioned management about the viability of other
options for using or repurposing the Property. Executive management selectively filtered
information to present only what they thought should be reviewed by the Board. The Civil Grand
Jury learned that executive management informed members of the Committee and the Board that
the only viable option was to sell the Property quickly. Based on management’s conviction that
the only viable option was to sell the Property, the Committee and the Board supported and
approved the sale of the Property, respectively, based on its review of the three financially and
analytically incorrect sale options presented by management.
Flawed and Incomplete Financial Analysis
The Civil Grand Jury reviewed many detailed financial charts prepared by executive management
to support recommendations to the Committee and the Board to sell the Property. Figures 7 and 8
were prepared by executive management and presented to the Board, recommending the
immediate sale of the Property. These two analyses failed to comply with financial reporting and
analysis under State and County-mandated Generally Accepted Accounting Principles for
Governmental Organizations (GASB-based accounting). Executive management also failed to
include within their analysis viable options that existed for repurposing the Property.
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Figure 7: SCCHA Financial Slide Presented September 20, 2022, to Ad Hoc Committee
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Figure 8: SCCHA Financial Slide Presented November 16, 2021, to Ad Hoc Committee
Note: The column headings in Figure 8, “Keep 505”, refer to the current main location of
SCCHA offices at 505 West Julian Street in San José.
The Civil Grand Jury carefully reviewed the structure and content of the financial analysis
presented in Figures 7 and 8 and identified specific issues that make these analyses an incorrect
representation of the projected financial outcomes within the identified options.
• Investment costs and operating expenses are mixed. GASB requires investment costs to
be allocated over the life of the investment while operating expenses are recognized when
incurred. See the difference between operating expenses and capital costs below.
• In financial terms, money over time has value and can be measured. The technical term
for the financial exercise to measure the value of money over time is called Net Present
SCCHA Presentation to Ad Hoc Committee - November 16, 2021
Options 1 2 3
Keep 505 Keep 505 Keep 3553
Description
Cost of Acquisition 38,000,000
Construction/Renovation - excluding Solar 50,000,000 50,000,000 27,000,000
Construction - Solar 3,500,000 3,500,000 7,000,000.0
Soft Costs, including continguences 8,500,000 8,500,000 5,780,000.0
% of hard costs 17%
Gross Total Cost of the Building and Land 62,000,000 62,000,000 77,780,000
Loss on sale of 3553 - estimated 2,000,000 1,000,000
Net Total Cost of the Building and Land 64,000,000 77% 63,000,000 78% 77,780,000 84%
Relocation Costs: $1,000,000 each time 2,000,000 2,000,000 1,000,000
Soft Costs - Designers/Brokers/CM feest, etc. Consultants 1,500,000 1,500,000 3,000,000
Temporary Renovation Costs 1,000,000 3,683,534 -
-
Annual MaintenanceCosts for 5 years 912,412 4,562,060
912,412 4,062,060.0
Temporary Leasing Costs - $@.5M per year/5 years 14,025,000
Other Costs consideration 18,525,000 11,745,594 8,062,060
Sub-Total 82,525,000 74,745,594 85,842,060
Benefit of capital on sale of 3553 2.00% 36,000,000 (3,600,000)
Opportunity Cost of capital - 5 years
3 years 37,000,000 2.00% 740,000 2,220,000
3 years 16,000,000 2.00% 320,000 960,000
5 years - Annual Debt Interest - $62M Gross Total - 2.75% 4,262,500 4,262,500
5 years - Annual Debt Interest - $77.78M Gross Total - 2.75% 5,347,375
Financial Costs consideration 662,500 6,482,500 6,307,375
Total cost (cash equivalent) of the options 83,187,500 81,228,094 92,149,435
Add: Original cost of 505 West Julian Street 6,100,000 6,100,000
Less: PV of the Retail Rental Space - 5,000 sq. ft. ??? ??? NA
Total Cost (all in) of the 3 Options: 89,287,500 87,328,094 92,149,435
Sell 3553 - Relocate
to leased space 5
years & Rebuild
505
Keep and relocate
to 3553 temp 5
years / Rebuild 505
/ Then sell 3553
Renovate 3553 /
then sell 505 /
Relocate to 3553
permanently
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Value (NPV). The analysis prepared by the executive staff for the Board included the
benefit of time-value of money to make the case for the immediate sale of the Property.
However, in their comparative analysis that calculated the costs and benefits of keeping
the building long-term, the executive staff notably omitted the NPV calculation that
would apply when bond funding was secured providing long-term funding for the
Property. The executive staff's omission significantly skewed the comparative analysis,
making it appear that selling the building immediately in a down market was the best
option.
• Key cash flows are omitted, notably HUD reimbursements for facility costs if the
Property was occupied between its purchase and ultimate sale. See the explanation of
HUD reimbursements below.
• Projected long-term (beyond five years) appreciation of the Property is omitted.
• Additional expenses because of selling the building are omitted, as SCCHA currently
needs to lease additional office space.
Operating Expenses Versus Capital Costs. The difference between an expense and a capital cost
lies in their nature, timing, and treatment in financial statements and analytical reports. Expenses
are incurred for day-to-day operations and are recognized immediately. Capital costs are
investments that provide long-term benefits and are recorded as assets on the balance sheet, with
their costs allocated over their useful lives through depreciation or amortization. GASB accounting
principles require that the two types of cash uses should never be mixed. Combining capital costs
with operating expenses distorts the analysis, rendering it meaningless.
HUD Occupancy Cost Reimbursement. HUD reimbursement policies should have played a role
in SCCHA's options when considering what to do with the Property. HUD’s PHA guidelines
clearly identify that office space costs incurred supporting HUD HCV programs are reimbursable
up to the fair market value of the rental costs for the space occupied (U.S. Department of Housing
and Urban Development, 2024). The omission of HUD reimbursements from SCCHA financial
analyses led to a significant error in analyzing the options they considered. The result of the error
materially distorted the financial choices presented to the Committee and the Board. SCCHA
administrative expenses, including building/occupancy expenses, are largely reimbursed by HUD
rules (U.S. Department of Housing and Urban Development, “Monitoring Of Public Housing
Agencies (PHAs) Guidebook (7460.7),” n.d.). SCCHA, and all PHAs, are generally reimbursed at
up to 100% based on specific circumstances established by HUD. If SCCHA had occupied its new
headquarters and issued bonds to cover all the costs of the Property, HUD, over time, would have
paid most of SCCHA's occupancy costs for the new building. SCCHA could have replaced $38
million of unrestricted HARA account funds used to purchase the Property and then re-used the
HARA funds to invest in new housing projects. Over time, HUD reimbursements would have
slowly paid off the cost of the Property, giving SCCHA a valuable, fully owned asset.
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The result of all the omissions in the analysis of selling options severely compromised the integrity
and value of the information presented to the Board for consideration and denied the Board the
opportunity to reach a reasoned and responsible decision on management’s recommendation to
sell the Property.
Corrected and Restated Financial Analysis
The Civil Grand Jury’s investigation revealed that executive management selectively developed
and presented assumptions and data that skewed the analysis presented to the Board in favor of the
decision to sell the building immediately. The Civil Grand Jury attempted to account for all the
costs and benefits of keeping and occupying the Property. However, the Civil Grand Jury’s
reconstructed analysis is based on GASB rules and the consideration of HUD reimbursement for
occupancy costs, including bond financing interest and principal repayment costs. The Civil Grand
Jury also assumed that SCCHA could utilize bond financing. This assumption is based on the fact
that SCCHA has used bond financing for investment capital needs in the past and currently shows
bond-based debt on its financial statements. Further, following the original purchase, the SCCHA
was in the process of preparing a bond issuance with the guidance of an investment banker
intending to replace the HARA funds used to purchase the property with bond-sourced long-term
financing. This process was abruptly halted when the new executive director halted all preparation
for occupying the Property.
The Civil Grand Jury’s analysis is shown in Figure 9 below. Figure 9 shows that if executive
management had correctly projected the actual loss at the time of sale and had used a correct
apples-to-apples comparison of costs and benefits as well as used GASB, the best option would
have been to keep the property.
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Civil Grand Jury Analysis of SCCHA Option to Occupy the Property
Assumptions:
• Generally Accepted Accounting Principles for Governmental Organizations (GASB).
• Purchase price: $38 million (from SCCHA).
•
Tenant improvements: $15 million (from SCCHA).
•
Total initial investment: $53 million (from SCCHA).
•
Building appreciation estimated at 3% per year (PennMutual, 2020).
• Bonds are issued to finance the purchase and tenant improvements and to
recover initial HARA funds used for the purchase.
• SCCHA occupies 3553 North First Street as a new headquarters site.
Outcomes:
•
Bond financing costs, including principal and interest payments, are fully
reimbursable by HUD.
•
Bond financing recovers the initial investment of HARA funds, which become
available for housing development use.
•
Annual maintenance costs are fully reimbursed by HUD.
•
Occupancy costs not directly reimbursed by HUD are recovered as part of the HUD
contractual administrative burden/overhead allowance and program management
fees.
•
Based on historical real estate appreciation rates, the building's estimated asset
value would likely be well over $100 million in 30 years.
•
Effectively reduces the SCCHA occupancy cost to near $0 after HUD occupancy costs
and overhead reimbursement.
•
Enables SCCHA to avoid a $16.2 million loss on the sale of 3553 N. First Street,
eliminating the need to lease additional office space and establishing a
headquarters site capable of consolidating all SCCHA operations in one location.
Figure 9: Civil Grand Jury Analysis of SCCHA Option to Occupy the Property
Exploring Other Options
The SCCHA intended to pursue an immediate sale and did not consider other available
alternatives. These included building low-cost housing under the provisions of California Senate
Bill 6 or establishing a Land Bank to hold the Property for future development. Instead, SCCHA
moved forward with the process of selling the property by first listing it to comply with the
provisions of the California Surplus Land Act.
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Surplus Land
When the Board approved moving forward with preparations to sell the Property on February 3,
2022, the first formal act was Board approval declaring the Property as “surplus land.” The
California Surplus Land Act requires that a government agency notify other government and non-
profit public service organizations that a property is available for purchase (California Government
Code section 54220 et seq.). Ninety days after the required notification, if no notice of interest is
filed, the government agency can list a property for sale through commercial brokers.
A 2021 League of California Cities publication states:
The aim of the Surplus Land Act (the “Act”) is to increase the availability of real property
in California for affordable housing development by requiring the prioritization of
affordable housing when selling or leasing public lands no longer necessary for agency
use. Government Code § 54220 et seq. (Lapeyrolerie and Tiedemann, 2021)
SCCHA failed to see the irony of listing the Property under the Surplus Land Act, which is
designed to promote affordable housing, while seemingly ignoring SCCHA’s own core mission.
No other local government agencies showed interest in purchasing the Property, so SCCHA
continued to move forward with its plans to sell the Property at a substantial loss rather than
consider developing it as affordable housing and furthering its mission. An urban village (mixed-
use housing and retail development) across First Street from the Property, along with several
proposed affordable housing projects along the First Street corridor (a designated housing
development growth area), make the Property an attractive option for an affordable housing
project. Indeed, according to a recent San José Mercury News article, a large 700-plus affordable
housing project is being considered nearby, with the developer working in collaboration with the
City of San José, saying, “we aim to build these much-needed homes and spur future developments
in this area” (Avalos, 2024).
Developing Affordable Housing—SB 6 and Land Banking
The Civil Grand Jury learned that the SCCHA did not consider converting the Property to
subsidized housing units because City of San José officials indicated they were opposed to and
most likely would block attempts by SCCHA to develop housing at the Property site. Further
investigation by the Civil Grand Jury, however, revealed that the City of San José had designated
its north corridor—including the Property —as a priority zone for housing development. Currently,
there are several large multi-family housing and mixed-use developments located directly across
from the Property on North First Street, with both light rail and bus transit routes located nearby.
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While SCCHA was debating the future of the Property, the Middle-Class Housing Act of 2022
(Senate Bill 6), allowing residential development on commercial or retail-zoned sites without the
need for rezoning, was working its way through the legislative process. Senate Bill 6 (SB 6) further
expedites the ability of local housing authorities and jurisdictions to build affordable housing and
should have been a critical piece of the Board’s deliberations. The passage of SB 6 and the
subsequent signature of the governor were clearly anticipated by housing advocates throughout
the state. An additional alternative was that SCCHA could have established a Land Bank and
reserved the Property for future housing development (Local Housing Solutions, Land Banks,
n.d.).
Inexplicably, SCCHA executive management did not consider the options of converting the
Property to affordable housing under either the San José Housing Element or the upcoming SB 6
legislation. The Board was told by executive management there was no guarantee that the Property
would be approved for housing development. SCCHA claimed they were told that City of San José
officials would never approve of developing housing on that site. The Civil Grand Jury learned
that SCCHA had never formally approached them about the option to develop housing on the
Property. The Civil Grand Jury also learned that the City of San José had, in fact, already
designated their north corridor as a priority area for housing development.
Consequences of the Sale
With an absence of options presented and in the middle of a downturn in commercial real estate,
the Board unanimously voted to accept a sale price of $24 million in September 2022. This was
the same SCCHA Board that had unanimously approved the purchase of the Property for $37.5
million in December 2020. According to records reviewed by the Civil Grand Jury, the sale of the
Property impacted the financial and operational condition of SCCHA as follows:
• SCCHA incurred a $16.2 million cash loss of unrestricted HARA funds.
• SCCHA stayed at its West Julian Street headquarters in a crowded, aging building that
requires ongoing infrastructure investments to keep it operational.
• SCCHA is forced to lease additional office space offsite to accommodate two operations
departments because the existing headquarters building has inadequate parking access
and meeting spaces and no expansion capability.
• SCCHA has no definitive plans to acquire an alternative new headquarters office
building.
• SCCHA is still considering building a headquarters building. The contractor estimated
the cost of an approximately 65,000 square foot office building is $70 million. This
estimated cost is more than $20 million higher than the purchase price and pre-
occupancy improvement cost of the Property (SCCHA estimated pre-occupancy
improvements at $10-15 million).
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In a county as large as Santa Clara County, a six-mile difference in headquarters location between
downtown San José and the Property was inconsequential. In fact, the Property addressed SCCHA-
identified office space needs to a much greater extent than the West Julian Street office location.
Additionally, Civil Grand Jury research has shown that SCCHA is implementing a new enterprise
information system that will strengthen its web portal and increase the already significant use of
online tenant applications and landlord requests for certification of their properties. Statistical
analysis and information gathered by Civil Grand Jury interviews show that the volume of in-
person visits to SCCHA offices by applicants, tenants, and landlords continues to decline.
The Civil Grand Jury also learned that executive management was concerned at the time of the
sale about the negative press exposure SCCHA would receive regarding the sale of the Property
and the significant loss of SCCHA funds. A public relations firm was contracted to create a
palatable message for the public, and to give the BOS and the Board talking points and instructions
should they be contacted with questions regarding the loss. The professionally crafted message
diverted attention away from the loss by focusing on SCCHA’s intent to quickly redeploy those
funds for housing development purposes.
Executive management was quoted in the San José Mercury News as saying, “We will be quickly
redeploying these funds back into the community to support affordable housing developments and
resident-focused projects in our expansive pipeline” (Avalos, 2022). The sale proceeds were
deposited back into the HARA account. However, the SCCHA 2023 and 2024 approved budgets
show no evidence of HARA account funds being withdrawn, committed, or invested in new
housing development in the County (Santa Clara County Housing Authority, “Financial Reports”,
2024).
Leadership Issues: Executive Management, Board, and BOS
The Civil Grand Jury’s investigation determined that management and leadership issues were
contributing factors leading to the $16.2 million loss on the sale of the Property. This section of
the report identifies several specific leadership issues which were contributing factors to the loss,
and which need to be addressed to reduce the risk of future adverse outcomes.
Management Planning and Measurable Objectives
SCCHA’s five-year Strategic Plan Goals for 2020-2025 (see Appendix 5) do not specify any
measurable objectives that could have guided the Board’s decision-making process in determining
the outcome of the Property. The search for a new headquarters in 2020 and the decision to sell
the Property a mere 14 months later clearly illustrate the need to establish measurable objectives
to help avoid the type of flip-flop decision-making and, ultimately, the financial loss incurred.
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HUD requires measurable strategic long-term goals (see Figure 10). Had SCCHA implemented a
long-term plan that included a space needs component, with projected size requirements for the
headquarters, location quadrants, and a rationale for bringing all operations together at one site,
the regrettable chain of events described in this report could have been prevented. Today, three
and a half years after it purchased a headquarters building and quickly turned around and sold the
Property, SCCHA continues to operate without a specific plan to address the agency's long-term
space needs. There is no mechanism in place to prevent a similar decision error from happening in
the future.
Figure 10: PHA’s Mission, Goals, and Plan. Source: U.S. Department of Housing and
Urban Development, 2021
Board of Commissioners – Lack of Accountability
The structure of the Board is unique. SCCHA is an independent agency and there are no direct
reporting or oversight requirements between the BOS and Board. None of the SCCHA Board
decisions require approval by the BOS or any other governing body. Commissioners are appointed
by the BOS and volunteer to serve on the Board, and it is their responsibility to provide governance
and oversight of SCCHA operations and investments. This includes a fiduciary responsibility for
hundreds of millions of dollars of operating cash flows, and decision-making over the purchase
and sale of valuable property for housing investments. Normally, an elected member of a
governing body in any jurisdiction is accountable to the voters. However, since Commissioners
serving on the Board are not elected, and the BOS cannot support or veto any of their decisions,
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costly decision errors, such as the one described in this report, can occur with little scrutiny or
accountability.
HUD’s online guidelines and training materials for PHAs identify key roles and responsibilities
vested in the Board that are directly relevant to their ability to exercise effective governance and
oversight and are well delineated in many PHA commissioner handbooks (see Figure 11 and
Appendix 4). However, the Civil Grand Jury learned that most SCCHA Commissioners did not
fully understand their roles and responsibilities (see Appendix 3). The HUD Board of
Commissioners Training Program also identifies the range of knowledge that commissioners
should possess to be effective (see Figure 12). HUD offers a webinar training series for new
commissioners. However, the Civil Grand Jury learned that none of the Board had received any
training from HUD.
Figure 11: Who Makes Up the Board of Commissioners? (U.S. Department of Housing and
Urban Development, 2021)
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Figure 12: What PHA Commissioners Should Know (U.S. Department of Housing and
Urban Development, 2021)
The Board should have been cognizant that their approval to sell the Property only 14 months after
its purchase failed in their obligations to protect federal, state, and local dollars intended for
housing low-income families. They also missed a good opportunity to meet their SCCHA Strategic
Plan Goals to provide affordable housing solutions.
County Board of Supervisors
SCCHA is a separate legal entity that was created by the County pursuant to state law. The
responsibility for the selection and appointment of SCCHA Board members lies directly with the
County BOS. (Cal. Health & Saf. Code section 34271.) As a consequence, the SCCHA Board
members are not directly accountable to the voters, and concerns regarding the SCCHA Board’s
governance are addressed by the BOS. (Cal. Health & Saf. Code section 34282.) In this manner,
the entity that can meaningfully supervise the SCCHA Board is the BOS, but they do not exercise
any form of oversight.
In the case of the SCCHA Board, the establishment of a housing board is prescribed by state law,
which provides some legal parameters for its governance. The BOS has also published a handbook
for its Boards and Commissions, which serves as a guide about the County processes, legal
parameters, and protocols that affect the commissions’ business, as well as information on how to
be a Commissioner in Santa Clara County (County of Santa Clara, 2016). The handbook covers
many important topics, like the appointment process, orientation, training, responsibilities, and
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conflicts of interest. The handbook material is generic in that it does not cover items specific to
certain types of board or Commissioner appointments, and the County has indicated it does not
apply to the SCCHA because it is an independent agency.
The Civil Grand Jury was surprised to learn that some County Supervisors were unaware the
SCCHA had lost millions on the Property, and others were indifferent to SCCHA’s financial loss
because the loss did not come from County funds. This laissez-faire attitude is concerning to the
Civil Grand Jury because the BOS must be acutely aware that any significant loss of public funds
for housing is a lost opportunity for the County to address the overwhelming need for affordable
housing opportunities. Since there is little public accountability for decisions made by the SCCHA
Board, it is incumbent upon the BOS to take an active interest in appointing Commissioners who
are as firmly committed to safeguarding public funds as they are to being passionate housing
advocates. In this regard, the Civil Grand Jury found the BOS lacks appropriate protocols to ensure
that SCCHA Board members are qualified and trained to serve in the complex role of a housing
Commissioner. Further, the BOS has not addressed Commissioner vacancies in a timely manner.
The BOS qualification standards for appointing SCCHA Board members are inadequate. The
Civil Grand Jury could not identify any BOS skills or background requirements for SCCHA
Commissioner appointments beyond their being strong advocates for housing. HUD provides
extensive criteria for the expected skills and capabilities for Commissioner appointments (see
Figures 11 and 12.) The BOS has not adopted these standards and has not created any standards
specific to the appointment of housing Commissioners.
The BOS has not mandated formal training for their SCCHA appointees. Unlike most other
County Board and Commissioner appointments, the role and responsibility of SCCHA
Commissioners involve making decisions that are both technical and complex, yet there is no
evidence that the Commissioners have participated in any formal training, such as the HUD
Exchange. The HUD Exchange is an online platform for providing program information,
guidance, services, and tools to HUD community partners and provides webinar training for
housing commissioners. It is designed for board members to understand their roles and
responsibilities both to the PHA and the residents (see Figures 11 and 12) (U.S. Department of
Housing and Urban Development, 2021). Many states and counties have developed Housing
Authority Commissioners Handbooks (see Appendix 4), which define the responsibilities of
SCCHA Commissioners consistent with the job. Although Santa Clara County has a County of
Santa Clara Boards and Commissions Handbook, it does not apply to the SCCHA Board and the
contents of the handbook do not address the level of responsibility, technical acumen, and
analytical skill set required by appointees for scrutinizing complex financial and real estate
transactions (County of Santa Clara, 2016).
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The BOS has been indifferent to its responsibility for appointing Commissioners to serve on the
SCCHA Board, filling vacancies, and completing the legal paperwork related to the appointments.
By law, the responsibility for appointing members of the SCCHA Board falls to the entire BOS.
Figure 13 shows the appointment terms of individual Commissioners and the nominating
supervisorial districts.
Santa Clara County Housing Authority Board of Commissioners
Supervisory
District
Commissioner
First
Appointed
End of
Current
Term
1 Bill Anderson 2004 2026
1
Marilyn Russell, Resident
Commissioner
2019 2026
2 Denis G. O’Neal, Vice Chair 2011 2026
2
Ericka Mendieta, Resident
Commissioner
2020 2026
3 Adrienne Lawton 2013 2025
4 Jennifer Loving, Chair 2016 2027
5
Kristina Loquist
(position was vacant 2020-2024)
2024 2028
Figure 13: SCCHA Commissioner Districts and Terms (Santa Clara County Housing
Authority, Board of Commissioners, 2024)
In constructing Figure 13, the Civil Grand Jury used the Board appointment terms shown on the
SCCHA website. A review of actual BOS appointment documents highlighted several areas of
concern regarding the documentation practices of the County. Some of the official appointment
documents were missing. By law, a certificate of the appointment or reappointment of any
commissioner is required to be filed with the County Clerk of the Board, and the certificate is
considered to be the conclusive evidence of the due and proper appointment of the commissioner
(Cal. Health & Saf. Code section 34273). Based on documents provided by the County, the Civil
Grand Jury observed that the oath of office for the SCCHA Commissioners is embedded into the
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certificate of appointment; in several cases, however, the required oath of office for appointees
was either not signed or not available for Civil Grand Jury review. The most current Board and
Commissioners Report (MADDY Report, May 1, 2024) issued by the Clerk of the BOS for some
Board appointments differs from the official appointment records. Taken together, these issues
raise concerns about the BOS adherence to their documented appointment process and guidelines
and the degree of importance they place in ensuring the timely appointment of SCCHA
Commissioners.
Given the high importance of the analytical decision-making required of SCCHA Commissioners,
the anomaly that no reporting requirements to the BOS, and no proactive oversight by the BOS
exists, the inattention to Commissioner appointments is especially troublesome and could have
factored into the Property loss. Recognizing the magnitude of this loss, the BOS should undertake
a concerted effort to recruit qualified applicants and promote training for new appointees. Contrary
to their own publicly articulated priorities on the urgency of creating, identifying, building, and
generating more affordable and accessible housing opportunities for County residents, it’s hard to
understand why no BOS Supervisor took any responsibility for, nor discussed with their
Commissioners, the loss of millions of dollars of housing funds due to the SCCHA’s short-sighted
decision to sell the Property. Without some revision in the selection and training process, the
SCCHA remains at risk for financial mistakes and losses similar to what occurred with the loss of
the Property.
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CONCLUSION
The Board approved the sale of the Property, a six-acre parcel in north San José, merely 14 months
following the purchase of the Property, incurring a total loss of $16.2 million. SCCHA executive
management persuaded the Board to approve the sale of the Property based on incomplete and
financially incorrect information. Significant factors, such as knowing the passage of SB 6 was
imminent (easily enabling zoning changes for affordable housing), the site’s location on a transit
hub, the opportunity to establish a presence in the future growth area for North San José, and the
increasing demand for low- to -moderate income housing, could have led to a decision to land-
bank the Property for future housing development needs. SCCHA executive management and the
Board deliberately chose to eschew the value of owning (without material cost to SCCHA) such a
unique asset. Instead, the Board’s decision to sell lost considerable public funds, and to date, they
remain without an adequate headquarters to meet the needs of both staff and clients.
Additionally, this investigation identified many fundamental SCCHA management and leadership
issues that contributed to the loss. These issues, which span SCCHA executive management, the
Board, and the BOS, need to be addressed. Flawed analysis and the inability to recognize the errors
and omissions within it increases the risk of flawed, potentially costly decisions such as the one
documented in this report. The SCCHA is a valuable asset and a key player in the County’s efforts
to reduce homelessness and the burden of high housing costs. The Findings and Recommendations
on the next two pages are intended to help SCCHA remain a strong, well-governed, and effective
contributor to county residents’ housing needs.
.
FLAWED INFORMATION
, FLAWED DECISIONS
FINDINGS AND RECOMMENDATIONS
Finding 1
SCCHA executive management presented incomplete and financially incorrect analytical
documents about the Property to the Board, omitting viable options for occupying, using, or selling
the Property.
Recommendation 1
The Board should establish a standard operating procedure requiring executive management to use
either internal or external experts to validate that financial analytical documents prepared for Board
review, are accurate, complete, and present an unbiased evaluation of the matter under
consideration. This recommendation should be implemented by December 31, 2024.
Finding 2
SCCHA’s current five-year plan does not establish measurable objectives, goals, or
accomplishments that would enable a comprehensive review of its programs and progress.
Recommendation 2
SCCHA should amend its current five-year plan to include actionable performance targets and
measurable objectives. These performance targets should be incorporated into annual reviews for
the SCCHA Executive Director and staff. This recommendation should be implemented by
December 31, 2024.
Finding 3
SCCHA’s existing five-year term plan does not identify specific SCCHA space needs and a
funding plan to support them.
Recommendation 3
SCCHA should include an assessment of space needs and the associated funding requirements as
part of their five-year plans. The assessment should include the financial impact of expected
program growth, staffing, services, accessibility, and operating performance requirements on
future office space needs. This recommendation should be implemented by December 31, 2024.
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Finding 4
The BOS does not have established qualifications for selecting SCCHA Board of Commissioners.
Recommendation 4a
The BOS should use established HUD guidelines to develop County-specific guidelines for the
selection and appointment of SCCHA Board members. This recommendation should be
implemented by December 31, 2024.
Recommendation 4b
The BOS should develop a collaborative process that ensures the SCCHA Board, in total, contains
a balance of skills, knowledge, and experience required to perform their assigned roles and
responsibilities. This recommendation should be implemented by December 31, 2024.
Finding 5
The BOS does not have an established training program for its SCCHA Board appointees specific
to the roles and responsibilities of a housing Commissioner.
Recommendation 5
The BOS should use established HUD guidelines to develop County-specific training programs
for its housing Commissioners. This recommendation should be implemented by December 31,
2024 .
Finding 6
The BOS has multiple deficiencies in its SCCHA Commissioner appointment process, including
long vacancies and incomplete documentation.
Recommendation 6
The BOS should develop processes to ensure that the appointment process and related
documentation requirements are completed in a timely manner. This recommendation should be
implemented by December 31, 2024.
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REQUIRED RESPONSES
Pursuant to California Penal Code section 933(b) et seq. and California Penal Code section 933.05,
the 2023-24 Santa Clara County Civil Grand Jury requests responses from the following governing
body:
Responding Agency
Findings
Recommendations
Santa Clara County Housing Authority
1, 2, 3
1, 2, 3
The County of Santa Clara
4, 5, 6
4a, 4b, 5, 6
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APPENDIX 1: Organization, Management And Personnel
(OMP) Monitoring Guidebook (7460.9G)
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APPENDIX 2: Office Space Needs Assessment
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APPENDIX 3: Foundations: Roles and Responsibilities
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APPENDIX 4: Housing Authority Commissioner Handbooks
Alabama: Alabama Commissioner’s Handbook published by Alabama Association of Housing
and Redevelopment Authorities
https://static1.squarespace.com/static/6319db9e5dae0606e43b2cc1/t/6334c24d311f0d48da7cf1ae
/1664401997413/Commissioner+Handbook.pdf
California: Housing Authority County of Merced, California Handbook for Commissioners
https://www.merced-pha.com/board/2022/HACM%20Commissioner%20Handbook.pdf
Minnesota: Roles and Responsibilities Quick Reference Guide: Board of Commissioners
https://brainerdhra.org/wp-lib/wp-content/uploads/2018/10/LTW-Roles-Responsibilities-Quick-
Reference.pdf
New Jersey: New Jersey Housing Authority Commissioners Handbook
https://static1.1.sqspcdn.com/static/f/813726/24961418/1401322870513/NJAHRACommHandb
ook2014.pdf?token=7MIWG7D2BOEi8vMJVumNP4FjjtU%3D
West Virginia: West Virginia Association of Housing Agencies Commissioner’s Handbook 101
https://www.serc-nahro.org/wp-
content/uploads/Documents/2017_Annual/Commissioners/Commissioners%20Track%20-
%20Commissioner'sHandbook101.pdf
Wisconsin: A Handbook for Housing Authority Commissioners
https://www.wahaonline.org/wp-
content/uploads/2017/09/WAHA_COMMISSIONERS_HANDBOOK_REVISION__FINAL__p
age_numbers_9_16__002__for_the_web.pdf
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APPENDIX 5: Housing Authority Strategic Plan Goals
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REFERENCES
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This report was ADOPTED by the 2023-24 Santa Clara County Civil Grand Jury on this 10
th
day
of June, 2024.
______________________________
Karen Enzensperger
Foreperson