Audit probes land deal: Report says GBIC transaction skirted rules
Feb. 28—The shakeup at the Greater Brownsville Incentives Corporation — the entire board of directors removed by the Brownsville City Commission on Dec. 1 and this month's departure of GBIC executive director Mario Lozoya — is largely due to a land transaction that a city audit commission concluded was conducted improperly, and which may now be under investigation by law enforcement authorities.
That's according to John Cowen Jr., At-Large "A" City Commissioner and interim GBIC board chairman, who said the economic development organization's purchase of three unimproved tracts totaling 142 acres is the subject of a city auditor's report released in October.
GBIC paid more than $2.7 million for the land, located between I-69E and S.H. 550/I-169 and adjacent to 350 acres already in GBIC's possession. Cowen, who chaired the city audit committee that looked into the matter, said there were several problems with the deal.
"That transaction wasn't properly vetted and executed in my opinion," he said. "They did not get an appraisal. They received the seller's appraisal I think a couple of days before closing. They didn't get their own appraisal on the transaction. That's not normal."
The land is in a part of town where Lozoya, hired by GBIC in 2018, was attempting to assemble parcels for a steel manufacturing company that had expressed interest in building a mill in Brownsville, a project that did not come to pass. According to the audit report, GBIC bought the property from Provest Equity Holdings LLC, headquartered in Delaware, with the deal closing on April 19, 2019.
The three tracts comprising the parcel had been conveyed to Provest by Orestes Investments LP and Shades of Earth LP, with company addresses in Edinburg and McAllen respectively, only the month before.
The audit report concluded that the deal met the "arm's length" standard — that the buyer seller weren't acquainted and were each trying to get the best deal for themselves — and that the nearly $2.7 million GBIC paid was close to market value.
However, the auditors could find no evidence that the transaction was approved by GBIC's board of directors as required, and GBIC was unable to say which meeting any approval might have taken place or provide the minutes. GBIC did provide minutes for a special meeting in which an unrelated land purchase was discussed during executive session (GBIC's unsuccessful attempt to buy 200 acres from the Community Development Corporation of Brownsville). That meeting was held at GBIC's Young House headquarters rather than at City Hall as required by the organization's bylaws, according to the report.
After requesting from GBIC a video recording of the special meeting executive session, or any meeting during which the board had approved the Shades/Orestes transaction, the auditor received an email from an attorney apparently representing GBIC, who wrote that state law prohibited the auditor from viewing such material, an interpretation of the law the auditor said doesn't stand up to scrutiny, and despite the fact that the city commission created and oversees GBIC.
All of it "does raise the question why GBIC felt compelled to have their attorney become involved with our inquiry," states the audit report. Cowen said another key finding is that "no one can tell us who negotiated the price on behalf of GBIC."
"The GBIC board never properly noted that transaction on their agenda and their minutes, so there was no way to tell whether that transaction was even approved by GBIC," he said. "Things weren't done properly. It's an exposure for the city from a (Texas Open Meetings Act) perspective. They didn't follow procedures at all. That's the reason we made the changes that we made."
Neither was the Shades/Orestes deal approved by the city commission, because GBIC never presented it, Cowen said.
"Those types of things raised are big red flags in terms of the expectations that we have as a commission," he said. "We want things done right, and that transaction never came to the commission either for approval. That's law. We need to approve those. Whenever GBIC expends funds, the commission has to approve it. We approved their budget and that transaction was not in their budget. It needed to come to the commission."
Cowen said he referred the matter to the Cameron County District Attorney and federal law enforcement. The city of Brownsville and Lozoya came to terms on a compromise agreement for the termination of Lozoya's five-year contract, Cowen said, though he couldn't offer specifics.
City commissioners have taken on the role of GBIC board members until new ones can be appointed, he said, noting that some board members who were removed were not on GBIC's board at the time of the Shades/Orestes transaction.
"The intent is for this to be a temporary deal," Cowen said. "I think sometime this year there will be a new board installed."
GBIC is a nonprofit organization established in 1992 as a "Type A" economic development entity focused on manufacturing and industry and associated job creation and retention. The organization's board members are appointed by the city commission and may be removed at any time. As a result of the Shades/Orestes matter, the commission has tightened oversight of GBIC and made changes to the organization's bylaws.
Read the auditor's entire report and recommendations to the city commission here: cob.us/DocumentCenter/View/10822/GBIC-Review-report
