Just a few blocks from Ron Roy’s Beaumont home, heavy machinery last week moved earth for a new phase of the Fairway Canyon development.
The houses about to go up may be similar to those already part of this planned community, but the future owners will carry about half the special tax burden that Roy and his neighbors now pay.
“It is such a ripoff,” Roy said of the $4,254 annual special tax levied on his nine year old home – ostensibly to pay for his share of sidewalks, streets, gutters, and the other public works needed for the development.
“People are going to go crazy and go medieval,” said Roy, who also is a candidate for Beaumont City Council. “People are going to be carrying torches.”
Such tax inequities appear to be a legacy of former City Manager Alan Kapanicas.
For 20 years, Kapanicas was the top administrator for this small Riverside County city situated just below scenic Mount San Gorgonio.
Kapanicas, 64, left his position last year under the cloud of a corruption probe that involved law enforcement raids on City Hall and his Palm Desert home. He is one of seven former Beaumont city officials who collectively face 94 felony charges, including multiple counts of embezzlement and misappropriation of public funds.
Kapanicas and the others all have entered not-guilty pleas to the charges.
Kapanicas and several of the co-defendants had shepherded the town through a development boom, quadrupling Beaumont’s population to more than 40,000 as tract homes with ceramic tile roofs went up by the hundreds.
Through it all, Kapanicas also played another, more obscure role in the city.
He was Beaumont’s “special tax consultant,” a job that entailed calculating the special taxes, also called Mello Roos taxes, used mostly to finance bond debts for streets, water works, parks, and other public works projects to accommodate new development.
Those taxes are in addition to property taxes levied on all properties.
Kapanicas has described these special levies as each new homeowner’s “fair share” of the cost of adding growth to the city.
In Beaumont, those taxes are assessed on 23,215 properties and they provided the city with $24.1 million during the past fiscal year, according to county tax records.
An attorney representing Kapanicas said tax rates determined by his client were based on city’s need to accommodate growth, and were approved by the City Council, which has the final say.
Yet some are questioning the tax rates set during Kapanicas’ long tenure.
Consider:
• Special taxes for new homes set by the city since Kapanicas left are at much lower rates for similar properties.
• City spending records show that bonds financed with these special taxes paid for many expenses that appear unrelated to public amenities needed by new homes.
• City and state audits found that some of these funds were apparently used to fill spending deficits in the city’s general fund.
• And the Riverside County District Attorney’s office alleges that Kapanicas and other city officials embezzled funds from city bonds financed with these special taxes.
TELLING EXAMPLE
The tax differences in the Fairway Canyon development in particular raise questions.
In 2004, the developer was preparing to build 515 homes on about a hundred acres west of Interstate 10 dubbed by the city as Improvement Area 19B within the larger Fairway Canyon development.
The city determined that future homeowners would pay between $2,290 to $3,600 a year in special taxes, with an increase of 2 percent a year, according to a tax document signed by Kapanicas in his capacity as city manager.
That same year, the city made a similar call in a neighboring improvement area, where Roy bought his house. Roy and his neighbors would pay between $2,770 to $3,640 annually, also with a 2 percent increase each year.
But unlike Roy’s area, homes in the 19B area were never built. And this year, Irvine based developers SDC Fairway Canyon and Woodside O5S asked for tax rates there to be reduced, saying they were too high for the estimated sales prices.
So this spring a new crop of city officials, working with new consultants, set the taxes at an annual range of $1,440 to $2,150 per house without yearly increases. The City Council approved the reductions in May.
These means Roy will be paying almost twice as much as new residents.
Councilman Lloyd White said that a city-commissioned review of special tax rates found them to be legal because Kapanicas followed tax rate formulas required by state law.
Kapanicas was able to calculate rates at higher, maximum levels by saying the funds would be used not only for streets and other public works needed when houses were built, but also for public works projects that might be built many years later, White said.
Doing so gave the city a higher cash flow, allowing it to return to the bond market years later to issue more debt for various projects – without voter approval, White said.
The new rates approved this year for area 19B are sufficient to finance bonds for $16 million in projects, says a city report. The higher rates set in 2004 under Kapanicas for the same area were for public facilities valued at $40 million, according to the tax lien recorded by the city.
For years, Kapanicas made money when the city issued bonds.
Through most his time in Beaumont, Kapanicas was a contract city manager, and he also earned fees as special tax consultant until 2011 when he became a city employee.
General Government Management Services, a company created and owned by Kapanicas and his wife, Diana, billed the bond funds for at least $1.2 million between 1996 and 2009, for bond preparation and fund management services. As city manager, he repeatedly signed off on payments to his own company.
Gregory Kassel, a San Benardino attorney representing Kapanicas in the criminal case, defended his client’s work as a tax consultant. Kassel said the tax rates Kapanicas determined were based on the revenues needed to finance public works projects. Those rates were approved by the City Council, which also also approved the work Kapanicas did as a consultant.
Kassel said it’s not fair to compare rates set this year with those set years ago under Kapanicas.
“It is not an exact science,” Kassel said. “It is significantly affected by market conditions. You can get things done today for a lot less money.”
INHERITED MESS
Beaumont Treasurer Nancy Carroll and Councilwoman Della Condon both said in an interview that they believe the special taxes are too high and the city is working to get clarity on the situation.
“We are trying to do a reconciliation of the past and we are putting in place the best practices for the future. We are doing both things at the same time,” said Carroll, who also is running for City Council.
Condon is seeking another term.
Beaumont has two council seats on the November ballot. Other candidates include City Clerk Julio Martinez, Victor Dominguez, who has run previously, Redlands Police Officer Daniel Marmolejo and Roy.
Beaumont has new consultants, bond trustees, and new processes to track revenues and expenditures. But getting a handle on the city’s financial situation is no easy task.
The bond debts financed with special taxes were issued through a community facilities district created in 1993 that encompassed nearly all city undeveloped lands.
This district was divided into 24 improvement areas, each divided into even smaller areas for tract-house protects. And special taxes from individual projects were used to finance more than 30 bonds that totaled more than $300 million.
Beaumont bond funds were kept in multiple accounts, and the money was spent throughout the city using a Byzantine process of loans and paybacks between accounts.
The records left behind are so complex, incomplete and opaque, that city officials have had to drive around the city to determine whether public works projects that were supposed be paid for with the bond funds were ever completed, Condon said.
City officials, meanwhile, may be able to reduce taxpayer costs by refinancing debts that are now about $219 million, Carroll said.
Roy says he is certain that he and his neighbors are paying special taxes for projects, including a fire station, that were never built.
Inflating special tax rates leaves “a lot of room for corruption,” Roy said.
Theses taxes “should be for the infrastructure needed for a development, period. Nothing else.”
Contact the writer: 951-368-9471 or dd*******@sc**.com