The city of Davis did not make illegal gifts of public funds to members of the former Davis Area Cooperative Housing Association, according to a Yolo County Grand Jury investigation report released Thursday.

The report states, “No inappropriate gift or use of money was made at any time, for any purpose by the city in connection with DACHA.”

The investigation addressed allegations made by David Thompson and Luke Watkins, whose consulting firm Neighborhood Partners helped set up and expand the co-op.

DACHA was made up of 20 homes at locations throughout the city.

Neighborhood Partners sued DACHA for breaking the consulting contract and won an arbitration judgment of $331,872 in July 2009.

Thompson is also president of the Twin Pines Cooperative Foundation, which is suing the former co-op for violating its own bylaws. Twin Pines, a nonprofit that gives loans and grants to co-ops worldwide, had lent start-up money to DACHA.

The Twin Pines legal battle is ongoing and, in March, the foundation filed an additional lawsuit against the Davis Redevelopment Agency, which funds and manages the city’s affordable housing program. Twin Pines alleges the city was complicit in the misdeeds it claims DACHA committed.

Thompson claims DACHA’s board of directors conspired to dissolve the co-op — starting with breaking the Neighborhood Partners contract — so they could buy their homes from the city for lower prices. As a result, he says, they would gain a windfall of several hundred thousand dollars.

He says the city assisted DACHA and, in the process, ended up gifting public funds to private individuals.

In 2008, the city had determined DACHA was financially unstable and refinanced DACHA’s multiple loans, becoming the co-op’s primary lender. DACHA was making monthly payments to the city until October 2009, when Neighborhood Partners drained the co-op’s accounts to collect on the arbitration judgment.

DACHA defaulted on its loan, leading the city to foreclose on the co-op homes and ultimately take ownership of them after holding a public auction that drew no buyers. DACHA is now in the process of dissolution because the co-op no longer exists, but city officials say the homes will remain affordable.

At some point, the City Council will decide how the former DACHA homes fit into the city’s affordable housing program. Until then, residents are paying rent to the city equivalent to their monthly share amounts prior to foreclosure.

The grand jury spent 10 months on the DACHA investigation, foreperson Kathleen Stock said. While the grand jury found the city committed no illegal activity, it concluded that “the city has incurred losses that may not be recovered and may increase in the future. Better initial oversight of DACHA could have prevented this.”

The report further states that over the past 30 years, “the city successfully evolved an affordable housing program that ensures fairness in the selection process and retains homes in the program.”

Thompson said the investigation was incomplete.

“We wished the grand jury had time to look at all the allegations they were presented with, but we understand there are limitations of time and resources,” Thompson said in an email to The Enterprise. He said there are “important factual errors with the grand jury report.”

Thompson, speaking on behalf of Twin Pines, said the foundation is “pleased with the grand jury’s findings, which confirm several issues it has sought to bring to the attention of the city’s elected officials, and looks forward to proving its other allegations which were not addressed by the grand jury.”

According to a news release, the city is “pleased with the overall tenor of the report and findings, which indicate the community’s affordable housing program is achieving its intended purpose of providing housing for low- and moderate-income residents of Davis.”

“We appreciate the Yolo County Grand Jury reviewing the city’s affordable housing program with a focus on the DACHA project,” Mayor Joe Krovoza said in the news release. “This is a matter of very legitimate community concern and the grand jury is to be praised for the role they played.

“The city appreciates and certainly concurs with the conclusion that there was no inappropriate gift of public funds within the DACHA-related transactions.”

Ethan Ireland, who was president of the DACHA board of directors at the time of foreclosure, declined to comment due to the ongoing litigation other than to say, “I believe the grand jury report speaks for itself.”

— Reach Crystal Lee at [email protected] or (530) 747-8057.

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