AIRPORT GRANTS FINANCIAL REVIEW.
 
       City Manager Bludau stated that on July 9, 2002, the City Council directed staff to complete
       a compliance review to determine whether the grant expenditures to the Airport Working
       Group (AWG) and Citizens for Jobs and the Economy (CJE) conformed to the terms and
       conditions expressed in the written grant agreements.  He stated that the firm of Vavrinek,
       Trine, Day & Company (VTD) was hired to perform the agreed upon procedures.
 
       Joe Aguilar, Principal, VTD, stated that his firm performed an agreed upon procedures
       engagement, which assists the City in ascertaining the existence and nature of expenditures
       related to the educational grants provided to AWG and CJE.  He clarified that an agreed
       upon procedures engagement is not an audit.  Although samplings and inquiries are
       performed, an opinion on the financial records is not given.  Mr. Aguilar stated that the
       purpose of the AWG grant was to inform the public of issues regarding the future air
       transportation demand in Orange County.  The grant with CJE was in regard to lobbying and
       legislative activities related to the furtherance of City policies in regard to future air
       transportation issues in Orange County.  Mr. Aguilar stated that VTD’s report summarizes
       the findings and the procedures that were performed.  He stated that both AWG and CJE
       were cooperative and forthright in providing information, and kept good records.
 
       Mr. Aguilar stated that the records were reviewed to determine if the groups could
       substantiate whether the media deliverables met the requirements.  He stated that good
       records were kept in regard to the signoffs by the attorneys.  He stated that VTD also
       reviewed how the money was spent in regard to commissions.  He stated that agreements
       were entered into and good records were kept on how the money was paid to the
       consultants who ran the administrative part of the grants.
 
       Mr. Aguilar stated that VTD also sampled over 74% of the expenditures, and felt satisfied
       with the groups’ controls and how they documented their spending.  He stated that any
       obvious discrepancies are noted on Page 6 of their report, and total approximately $82,000.
       He stated that this doesn’t mean that the money wasn’t properly spent, it just means that
       the documentation that was provided was not conclusive enough.  He stated that VTD also
       questioned some commissions that were paid on a project that was cancelled.  He noted that
       this doesn’t mean that the consultants didn’t work on the projects, but money was provided
       for a media spot or publication that wasn’t completed.  Mr. Aguilar stated that funds
       provided to a law firm were also questioned because the nature or the magnitude of the
       litigation couldn’t be ascertained.  He noted that VTD doesn’t have attorney/client
       privileges, however.  He also noted that of the $250,000 provided, $207,000 is unspent and in
       a trust fund at the law firm.
 
       Mr. Aguilar stated that VTD also reviewed the spending that occurred after February 12,
       2002, and summarized these findings on Page 7 of the report.  He stated that AWG spent
       approximately $482,000 after that date and CJE spent approximately $31,000.  Mr. Aguilar
       stated that a review of the publications, media spots and any other deliverables was also
       done.  The attorneys determined whether the deliverables were in compliance with
       educational purposes and all of the documentation provided ascertained that.  He stated
       that VTD also sampled and confirmed services provided by the vendors, as well as the
       existence of any related party expenditures.  He stated that only one item was found and it
       was in regard to money provided for legal services.  He explained that the AWG executive
       director is a partner at the law firm that was retained to provide the legal services.
 
       Council Member Heffernan asked why the February 12, 2002, date was selected when the
       election didn’t occur until March.  City Manager Bludau stated that it was the date selected
       by Council Member Glover as the date when no further expenditures should occur.
 
       Council Member Glover confirmed this and stated that those working on the John Wayne
       Settlement Agreement told other communities that the City would not be spending money
       on lawsuits or items concerning Measure W.
 
       Council Member Heffernan asked if the balance of funds in the AWG account, $51,887, and
       the $207,000 in the trust fund would be reimbursed to the City.  Mr. Aguilar stated that they
       were noted as discrepancies only.  Council Member Heffernan asked if anything in the grant
       agreement required that the funds be paid back to the City.  Mr. Aguilar stated that the grant
       agreement allows the groups to spend the money until it’s gone.  Council Member
       Heffernan asked if the money in the trust fund for litigation falls within what is allowed in
       the grant agreement.  Mr. Aguilar stated the nature of the litigation would need to be known
       to answer the question.  Council Member Heffernan asked if litigation is a permitted
       educational component permitted by the terms of the grant.  Mr. Aguilar stated that it would
       be expected that the litigation is consistent with the deliverables, the formation of those
       deliverables, defending their use and determining legality.
 
       Barbara Lichman, AWG Executive Director, stated that the agreement allows the grant to be
       used for other activity relevant to the manner and means of accommodating the current and
       future air transportation demand in Orange County.  She stated that the $207,000 in the
       client trust account is administered by the State Bar of California and cannot be taken until it
       is billed for.  She stated that the amounts billed to date have been for the settlement
       agreement.  Ms. Lichman noted, however, that despite the feelings of some of the council
       members, the settlement agreement alone will not protect Newport Beach and other efforts
       should be supported.
 
       Tom Naughton, 1700 Port Margate Place, AWG President, stated that he is pleased with the
       audit report.  He pointed out, however, that AWG was never made aware of the February 12,
       2002, date to cease spending and there is no record of it in the minutes of the City Council
       meetings that occurred on that date.  Mr. Naughton stated that AWG will continue to
       pursue an airport at El Toro because it is believed that service for an additional 30 million air
       passengers in the County will be needed in the future, and the pressure to expand John
       Wayne Airport will be too great for Newport Beach to fight alone.
 
       Mayor Ridgeway informed Mr. Naughton that the first reconvened meeting of the Aviation
       Taskforce for the Southern California Association of Governments (SCAG) would be taking
       place the following day.  Mayor Ridgeway stated that he would be attending the meeting
       and that they’d be discussing the entire regional airport issue as it relates to the regional
       transportation plan.  He asked Mr. Naughton to let him know if AWG would like to be
       represented on the Taskforce.
 
       Marianne Zippi, 420 E. Bay Avenue, stated that the grant was originally awarded to AWG
       and CJE together.  She asked why this wasn’t the grant that was reviewed by the auditors.
       She also asked why it was decided to do a review that was significantly reduced in scope,
       instead of an audit.  Lastly,
       Ms. Zippi asked if the items in the lawsuit against the City for the inappropriate use of
       public funds by El Toro Re-Use Planning Authority (ETRPA) were included in the samples
       reviewed by VTD.
 
       City Manager Bludau stated that the scope of the compliance review was for the $3.6
       million.  City Attorney Burnham added that the March 2001 grant had several different
       components, which included public information, a carryover grant and a lobbying grant.
       They were later separated into the two grants.  Ms. Zippi expressed her concern for the
       $246,000 spent by CJE prior to the separation.  City Attorney Burnham stated that he’d be
       happy to go over the documents with Ms. Zippi.
 
       Mayor Ridgeway noted that VTD reviewed 74% of the material, which is extraordinary.
 
       Mr. Aguilar noted that Exhibit C of the report lists all of the deliverables that were reviewed
       by VTD, and it does include the items included in the lawsuit.  He stated that all of the
       documentation was consistent and in compliance with the educational component.  City
       Manager Bludau added that the compliance review provided more information that an audit
       would have.  Mr. Aguilar agreed and stated that an audit would not have sampled 74%, nor
       done the compliance work or other procedures requested by City staff.  He stated that it
       allowed VTD to focus more substantially on the goal of the grants.
 
       Charles Griffin stated that he knows the history of AWG and feels that they have the welfare
       of the citizens of Newport Beach at heart and have served the City well.  He stated that they
       deserve the continued support of the City because the fight is not over.  Mr. Griffin stated
       that El Toro needs to be kept in the transportation plan.  Additionally, he stated that an
       unanticipated consequence of Measure W and the closure of El Toro has been a different
       use of the airspace.  He requested that the remaining funds be used by AWG and CJE to
       help the City to continue working on a solution.
 
       Motion by Council Member Proctor to accept the Airport Grants Financial Review Report
       for the Airport Working Group (AWG) and Citizens for Jobs and the Economy (CJE) dated
       September 16, 2002.
 
       Council Member Proctor stated that one-and-one-half years ago, it was decided that an
       educational effort was needed, as well as an extension to the settlement agreement.  He
       stated that there was support for both efforts and when the grant was issued on May 22,
       2001, the best possible people were hired.  He stated that it’s unfair to conduct an audit after
       an unsuccessful election without looking at the success of the extension of the settlement
       agreement.
 
       Council Member Heffernan stated that he requested the audit due to the process.  He added
       that he never felt that the budget and work plan were detailed enough.  Council Member
       Heffernan stated that when the City is spending this type of money for a public outreach
       program, two vendors who are competing for the work would have resulted in a more
       detailed work plan.  Secondly, he stated that any conflicts of interest, or even appearances
       of one, need to be disclosed upfront.  Council Member Heffernan specifically brought up
       the issue of Dave Ellis who was a representative of AWG and was also paid by several
       council members, which represents an appearance of a conflict.  He stated that Mr. Ellis
       received $458,000 of the grant.  Council Member Heffernan stated that he is trying to avoid
       potential mistakes in the future on vendor contracts paid for with public money.
 
       Mayor Pro Tem Bromberg stated that many council members were involved with community
       activities long before they were on the City Council.  He stated that it would be difficult to
       do business if he couldn’t work with people he knew or had worked with before.  Mayor Pro
       Tem Bromberg stated that the review that was conducted was complete and clean.  He
       added that AWG deserves everyone’s appreciation for what they’ve done for the City in
       regard to airport related matters.
 
       Mayor Ridgeway stated that Mr. Ellis received $189,000 from the grant.
 
       Council Member Heffernan stated that the correct total is $458,000.
 
       The motion carried by the following roll call vote:
 
       Ayes:       O’Neil, Bromberg, Glover, Adams, Proctor, Mayor Ridgeway
       Noes:       Heffernan
       Abstain:   None
       Absent:    None