Thursday, Nov. 01 2012 5:18PM
By Russ Pulley
A Lake Lotawana neighborhood was disappointed this week by the results of a state audit of a community improvement district where they live.
The Missouri State Auditor’s office on Oct. 30 released its audit of the Lake Lotawana Community Improvement District which contains Foxberry Estate and acres of undeveloped land from a bankrupt housing project.
Homeowners wanted to know if embezzlement or other criminal behavior led to the district’s bankruptcy in 2010.
The district was created under auspices of the city, but is a separate and independent board.
Harry Otto, deputy state auditor, said while the district was mismanaged and there were apparent conflicts of interest, the many problems didn’t rise to the level of a crime in the department’s opinion.
The department can’t do more than give the audit to the Missouri Attorney General or Missouri Highway Patrol.
“We don’t carry guns, we don’t have badges, we don’t enforce,” Otto said.
Owners of about 25 residences had petitioned the state for the audit which was delivered at a meeting in their clubhouse. The district, created in 2005, was to include 352 houses. The project went bankrupt, and so did the district in 2010.
Residents question loans totaling $160,000 made by the district to two development companies involved in the project, just before it declared bankruptcy and while the owners of those companies sat on the district board.
The audit pointed out other quirks.
Those loans did not include a date by which they were to be repaid. The developers remained on the board for months after losing eligibility.
The board also failed to collect special assessments for land owned by the development companies, while it did collect the assessments from homeowners. It used borrowed money, set aside in a bank account, to make only interest payments on $8.8 million bonds it had borrowed.
Part of which was used to repay a $600,000 “bridge loan” from the development companies, and also a second loan of $125,000. About $4.7 million was used for construction of a sewer plant and lines.
The bonds were supposed to be replaced by other financing, but that fell through.
Otto said the loans and other decisions of the district directors were made publicly, if badly.
“It’s not like they took $600,000 in darkness,” Otto said.
The audit did criticize the district’s board for Sunshine Law violations regarding meeting notices and keeping minutes, and for the apparent conflicts for interest.
Homeowners worry what will happen because $8.8 million still has to be repaid by 2016.
The district is now being managed by its directors, but under supervision of the bankruptcy court.
Homeowners wonder if they will be hit with large assessments or will the sewer plant shut down.
“We can’t hide our heads and run here,” said Karamel McCoy, a homeowner.
Homeowners at the meeting said the audit should have used stronger language to condemn the district’s directors.
Lake Lotawana Mayor Howard Chamberlin assured residents that the sewer plant would stay open. But he said the city has no authority over the district.
Otto said he would ask his supervisor about adding stronger language to the audit and promised to deliver a copy to the attorney general’s office.
State Senator Will Kraus, who attended the meeting, said he also would take the issue to the attorney general and look at tightening legislation regarding community improvement districts.