Case of missing S.F. bond money has a suspect By J.K. Dineen Updated 9:49 pm, Thursday, January 29, 2015 Photo: Pete Kiehart / The Chronicle Image 1 of 6 Gerardo Gonzalez works to install an aluminum panel during construction of the One Rincon Hill Phase Two project in San Francisco in 2013. Image 1 of 6 Gerardo Gonzalez works to install an aluminum panel during construction of the One Rincon Hill Phase Two project in San Francisco in 2013. A senior official at the Association of Bay Area Governments is under scrutiny for allegedly orchestrating the theft of $1.3 million in bond money that was meant for public parks and street improvements in the South of Market neighborhood. The office of San Francisco City Attorney Dennis Herrera and law enforcement officials have zeroed in on Clarke Howatt, ABAG’s public finance director and a 20-year veteran of the agency, multiple sources confirm. Howatt, who was scheduled to attend a conference in New York this week, has not returned phone calls or e-mails, said ABAG Executive Director Ezra Rapport. Howatt was slated to return to work Thursday, but did not. “He has been out of communication,” Rapport said. The missing cash was discovered last month during a routine audit of the South of Market Community Stabilization Fund, a pool of bond money and developer contributions used for neighborhood improvements. At that time, staff members in the Mayor’s Office of Housing and Community Development found the account empty. After contacting ABAG, which acted as a fund trustee along with Union Bank, they discovered that just under $1.3 million had been wired to a Citibank account in La Jolla (San Diego County) controlled by an entity called Urban West for Rincon Developers. The investigation seeks to determine if Howatt first used his senior position at ABAG to set up a fake entity purporting to be the developer of the high-profile One Rincon Hill condominium project, and subsequently sought a $1.3 million reimbursement for streetscape improvements that had never actually been made. While it’s not uncommon for private developers to use their own money for public street projects and be paid back, in this case the actual developer of One Rincon Hill — Urban West Associates — neither requested nor received the money. In addition, the official who requested the reimbursement to the La Jolla account — David Kaiser — apparently doesn’t exist. No one by that name was involved with the Rincon Hill project, said attorney Steven Vettel, who represents the actual developer, Mike Kriozere of Urban West Associates. Suspect’s background “The disbursement was made to an entity that none of us are familiar with. It was not an entity that is affiliated with the Kriozere family or anyone associated with the development of One Rincon Hill,” Vettel said. Howatt joined ABAG, a regional government agency that provides planning and public monetary services to Bay Area cities, in 1995 from the San Francisco office of Rauscher Pierce Refsnes, a financial services company. Before coming to San Francisco, he was vice president of the health and education finance group at Kidder, Peabody & Co. in New York. Howatt earns $149,294 a year at ABAG and has a total compensation package of $233,375, including benefits, according to public records. Rapport called him a “highly qualified professional.” Reached in Hawaii on Thursday, Howatt’s father said his son has always been responsible and meticulous in his work and that everything seemed normal when the family last gathered for dinner a few weeks ago. Howatt lived in a town house in Dublin until September, when he sold the property, according to the current owner. When the money was found to be missing, ABAG officials insisted they had simply followed IRS rules in reimbursing the developer. But, as details emerged, they realized that “something was amiss,” Rapport said. Internal investigation “We have done our own internal investigation and come to the same conclusion as the city attorney,” Rapport said. “We are collaborating with the city attorney’s office to recover the funds.” He added that he had been misled by the agency’s finance director. “When I briefed (Howatt) before he left, he said that he was working with the city attorney’s office and that turned out to be false. I take responsibility for that,” he said. Earlier this week, Herrera sent a letter to ABAG demanding “the immediate return” of the $1.3 million that was wired from the account on Aug. 12, 2014. “We want the money back,” Herrera told The Chronicle. “I have every intention of seeking the return of the funds, and we are working with ABAG and our city clients about referring this to the correct authorities for investigation.” Because the case may involve wire fraud, it would most likely be a federal investigation. One Rincon Hill is a two-tower development, one condominium and the other rentals. The first tower — the taller of the two by 10 stories — was completed in 2006. It rises 641 feet but seems taller because it sits on the crest of the hill. Derided by some as resembling an ionic breeze air freshener, it was perhaps the most talked about high-rise built in the city since the Transamerica Pyramid opened in 1972. Chris Daly’s legislation Like all major development in San Francisco, it was controversial. Then-Supervisor Chris Daly passed legislation that imposed an impact fee of $14 per square foot on that and other neighborhood towers. The fees went into several funds to help pay for affordable housing and other public needs in the neighborhood. Altogether, the sponsors of the first One Rincon Hill tower paid $9.8 million in community stabilization fees and special taxes. The release of any money from the community stabilization funds requires city approval. But Howatt is suspected of circumventing that requirement by entering into what’s known as a supplemental indenture of trust, which essentially allowed ABAG to authorize the disbursement without the city signing off. High level of scrutiny Another local developer, Emerald Fund President Oz Erickson, who has been reimbursed out of stabilization funds for providing community benefits, said the level of scrutiny is generally very high. “We submitted a complete total package with all the invoices and all the categorization — it must have been an inch thick,” he said, referring to his most recent project, at 333 Harrison St. “It took hundreds of hours to put together.” Architect Toby Levy, who is leading efforts to renovate South Park, would also like to see the money recovered. She was counting on money from the SoMa stabilization fund to pay for park and traffic improvements. J.K. Dineen is a San Francisco Chronicle staff writer. E-mail: jdineen@sfchronicle.com Twitter: @sfjkdineen