Calls emerge to investigate Tri-Cities group after disastrous audit. What comes next?

Some on the Pasco City Council are calling for a criminal investigation into the taxpayer-funded downtown group that used to organize Cinco de Mayo and other popular events.

Control over the Downtown Pasco Development Authority’s (DPDA) programs has been handed over to the city, and the question of what to do with the troubled group has now been presented to the city council.

Monday night, city staff recommended the council dissolve the organization, citing a “significant lack of trust from the public” and findings from a recent state audit that showed widespread financial mismanagement and poor accounting practices between 2020 and 2022.

“I would like to see us criminally prosecute to the fullest extent of the law, wherever applicable, to recover as much of the public’s funds as possible and to safeguard the public’s resources and trust by making sure something like this doesn’t happen again,” Pasco Councilman Charles Grimm said at the meeting.

Councilman Leo Perales said he’s torn about dissolving the organization because of its benefit to the business community, but said it’s probably the right thing to do. He also believes the city should scrutinize the actions of past DPDA board members and executive directors.

“I think it’s probably prudent to go ahead and dissolve this organization, but at the same time we need to hold these people who have done this stuff for a number of years accountable,” he said.

No decision was made Monday night on the issue because it was a workshop session.

The audit did not explicitly mention any details of criminal malfeasance or fraud on the part of the organization’s former board or staff during the three years audited. Washington State Auditor staff reached out to several former and current board members, and all declined the opportunity to respond to the finding.

City Attorney Eric Ferguson said at Monday’s meeting that he would prefer to walk the city council through any legal options in a closed-door executive session.

Mayor Pete Serrano told the Tri-City Herald on Tuesday that there were too many open questions at the moment to say whether or not the city would pursue an investigation or prosecution of any type.

A vote to dissolve the agency could happen in March, but questions about the DPDA’s continued benefit to the city and possible future investigations could complicate that decision.

“Everything is dependent on whatever additional information we’re able to extract,” Serrano said. “We owe answers to the public.”

Troubled DPDA history

The city created the combination Main Street program and development authority in 2010 as a leader to revitalize the downtown area, spearhead development efforts and stimulate commerce to downtown businesses.

The decision to create the DPDA was made in the wake of failures on part of another organization, the now-defunct Pasco Downtown Development Association, to strengthen the city’s core.

The organization’s goal early on was to grow into a self-sustaining and independent organization, and that over time it would diversify its revenues and decrease its reliance on annual contributions from the city.

But serious flaws in the organization’s financial accounting began surfacing in 2015, after the board’s president discovered their con-artist executive director had embezzled $140,000 over a two-year period. Michael Goins spent more than seven months in jail and agreed to pay $262,000 to cover his theft, insurance costs and extra fees.

An audit covering the organization 2017-19 also revealed the extent of the DPDA’s poor financial condition, saying it was at risk of not being able to meet financial obligations and that it lacked internal controls to ensure the proper use of public money.

More troubles arose in 2022, when spending for the 2022 Cinco de Mayo festival ballooned up to $250,000 from its original budget of $30,000. DPDA booked a five-figure loss blamed on a lack of clear financial and managerial oversight.

Among the missteps: DPDA spent $42,000 to re-book performers for the event after erroneously canceling their appearances.

The debacle led to the departure of the interim executive director. Pasco city leaders were optimistic his successor, Jerry Martinez, would turn things around.

In December 2022, the council voted 5-2 to raise its 2023 subsidy for DPDA to $240,000, more than twice the $100,000 it previously received, in a vote of support for Martinez. In the end, half the money was never given because the group didn’t meet the city’s criteria.

Despite the vote of confidence, Martinez resigned a few months later after a year on the job. He was the third executive director in three years to fill the role.

The city announced shortly after that it would take over operational and financial control of the farmers market and specialty kitchen, and eventually took on organizating the Cinco de Mayo and Fiery Foods festival events.

The city also invested $50,000 last year for a consultant to evaluate the structure of the DPDA in anticipation of splitting it into two separate entities: The Main Street program nonprofit and a public development authority. That work ceased following Martinez’s resignation.

Mayor Pro-Tem David Milne — who alongside Serrano voted against raising DPDA’s 2023 subsidy — agrees that a deeper look into the DPDA is warranted.

“I can’t put into words how pissed off I was,” Milne said of his reaction to the audit’s findings.

Audit and dissolve

Despite creating the nonprofit, Pasco has had very little oversight over its day-to-day operations since its inception 14 years ago.

The city council appoints its board members and negotiates an annual financial apportionment. The city benefits from funding the DPDA because it can recoup part of its investment through a public utilities tax credit.

Ferguson said at Monday’s meeting that the city council has an obligation to either make the DPDA operational and continue its work or dissolve it in the next couple months.

DPDA still has $85,000 in pending and unresolved expenses that the city would need to resolve before dissolving it, including $11,350 for property insurance and up to $40,000 for the state audit. The city is allowed to take possession of the organization’s assets and the city is not liable for any of the organization’s liabilities, Ferguson said.

The state audit released Feb. 1 detailed dubious cash withdrawals, unaccounted for equipment, unannounced meetings, illegal votes and more between Jan. 1, 2020, and Dec. 31, 2022.

It exposed:

• Weaknesses in how DPDA handled $630,000 in private grants it received to support people and families affected by the COVID-19 pandemic.

• Meeting violations by the nonprofit’s seven-member board, who reportedly routinely violated the Washington Public Meetings Act and voted on DPDA business in secret meetings.

• Unaccounted for payments totaling $300,000, including $1,000 in “unallowable” payments and nearly $8,900 for assets that couldn’t be tracked.

• An unnamed executive director also used electronic payments and a debit card to spend more than $285,000, which included $80,000 paid to 14 people outside of the U.S. and two outside of the state.

The audit also found that DPDA’s debit card was used to withdraw $2,740 in cash from an ATM, and that there was more than $30,000 in over-the-counter cash withdrawals that lacked supporting documentation.