What happened to $400,000?

The city of Galt has sued the Galt Boys and Girls Club, alleging the club led the city to believe it owned this property at 411 5th St. to secure $400,000 from the city to help build a new clubhouse. The city is contending the club used the $400,000 to buy the 5th Street property, which it has now sold. (Maggie Creamer/News-Sentinel)

What happened to $400,000?

City of Galt sues now-defunct Boys and Girls Club over unbuilt recreation center

By Maggie Creamer
News-Sentinel Staff Writer

Saturday, June 13, 2009 5:56 AM PDT

Comments (28 comment(s))

The city of Galt is suing the now-defunct Boys and Girls Club of Galt for $400,000 it gave the club to build a new recreation center on land that the club supposedly owned.

In a sharply worded lawsuit, the city says the club didn't even own the land — until it got the money from the city, when the club apparently then bought the property.

Now, though, not only is there no new recreation center, but the club has sold the land and is preparing to cease operations, the city contends.

In 2006, the city paid the Boys and Girls Club $400,000 to help with development and construction costs on a lot supposedly owned by the organization at 411 5th Street.

The plan: The club would use the money to build a 15,000-square-foot recreation center that would be used by both the club and the city.

Construction was supposed to be finished in August of this year, according to a 2006 agreement between the city and club.

It hasn't even begun.

City Attorney Steve Rudolph sent a letter to the Boys and Girls Club requesting that the money be returned by May 18. The club did not meet the deadline.

A key section of the lawsuit, filed Friday, reads:

"Instead of using said funds as required under the agreement, the club misappropriated the funds. The city is informed ... that the club used all or part of the public funds to actually purchase property, which it had represented to the city that was already owned by the city. The city has repeatedly asked for an accounting of the entirety of the $400,000 but to date has never received any information whatsoever."

The club's board voted to give up the charter earlier this year because it was $27,000 in debt, said Karen Schauer, who is on the club's board and is superintendent of the Galt Elementary School District.

The board then decided to hire a firm to sell the land to pay off the organization's remaining debt, she said.

There had previously been a club building in Galt, but it had to be closed because of mold. When the agreement was made in 2006, the city and club leaders wanted a building they could both use, she said.

"The club and the city both believed it would be great to re-establish (the club building) on that property, but the economic scene really changed ... The club and the city are working through to understand what that agreement meant," she said.

The city has waited to file suit because up until the property was sold, the agreement still could have been met, Rudolph said.

When the property was sold, he said it became "abundantly clear" that the club did not plan to fulfill its portion of the agreement, Rudolph said. He does not know if the club still has the $400,000 that was supposed to be set aside in a trust for construction costs.

'Responsibility to taxpayers'

The city is suing because Rudolph said it has exhausted options by meeting with the group and sending a letter requesting the money back.

"The City Council has a responsibility to taxpayers of the city to make every effort to recover these funds," he said.

Councilman Darryl Clare said it is important to find out what is going on with the club because it had "detailed commitments" to the city.

"I'm sure we will do whatever we need to do to protect our interests," Clare said.

Finding out what went wrong and why there were no safeguards in place to protect the city's money is the main goal, Councilman Andrew Meredith said.

"We're on a fact-finding mission to make sure what we are being told is accurate from all parties," he said.

The agreement was signed on Sept. 22, 2006. The contract even includes a section on what times the club or city would have priority at the building.

The city was supposed to execute a tax lien on the property after it gave the club the money, according to the agreement. That would have stopped a sale until the city was paid.

But a public records search did not show that the city put any liens on the property.

Rudolph said he is trying to find out why the property did not have a lien. City staff could have never attempted to place the lien, he said, or the club could have refused to sign a deed of trust, which would have been required before the city could have put a lien on the property.

The club began to run into fiscal hardships in 2008. With the economic downturn, donations decreased and there was less grant funding available.

Litigation prevents club comment

The district received a State After School Education and Safety Program grant to pay the salaries of the club's staff. On April 13, the city and the Galt Joint Union Elementary School District took over operating the program with the same club staff members, and continued paying them with the grant.

Thomas Walters, president of the club's board, confirmed that the board voted to sell the property, but said he could not comment further on the sale because there is pending litigation.

"Unfortunately, when there is pending litigation, you've got to be really quiet about it," he said at what was the former club's office Thursday afternoon.

While working in the office, Lisa Ann Thomas, one of the program's two full-time employees, said it was her last day because of summer. She could not comment on the sale of the property.

Next year, the district will continue an after-school program and pay the employees with the grant, but it is unclear whether the club's current staff members will be hired back.

"It is sad that the Boys and Girls Club is not continuing at this time, but it is important to know after-school services will continue in this community. They will just take a different form," Schauer said.

Contact reporter Maggie Creamer at maggiec@lodinews.com or read her blog at www.lodinews.com/blog/citybuzz.

Reader Feedback

edumacation wrote on Jun 19, 2009 10:25 AM:

" ....and the last ten years have taught us that 1) TODAY, is the best time to buy a house 2) That all real estate prices are local and 3) The more debt you have, the wealthier you are.

Do we still believe these fairy tales?

$400,000 could have built a nice building including the lot! "

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