Just days before it terminated a $1.8 million wetlands restoration grant to Hercules, a state agency praised the city for successfully completing three projects and passing the agency's audits.

On Tuesday, Polly Escovedo, program manager for the California Natural Resources Agency, informed the city the grant had been rescinded in reaction to a scathing audit by the office of state Controller John Chiang. That audit, published May 10, raised serious concerns about "the city's lack of fiscal accountability including insufficient accounting records and documents to identify and support grant expenditures," Escovedo said.

The $1,836,680 grant was supposed to help restore the 12-acre Chelsea Wetlands near San Pablo Bay.

In the audit of Hercules' expenditure of more than $2 million in federal and state funds in the 2009-10 fiscal year, Chiang chastises the city for shoddy record-keeping and failure to fulfill requests for documents in a timely manner.

Mayor Dan Romero and City Manager Steve Duran responded that a thinly stretched city staff was trying diligently to comply with the state, and that the people who created Hercules' financial problems are long gone.

On May 11 -- the day after Chiang published his audit and four days before the grant was canceled -- Cristelle Taillon, project officer for the Natural Resources Agency, wrote three letters to Hercules Recreation Manager Pedro Jimenez informing him that the city had passed audits for each of three project grants, including $40,000 for the Railroad Park Renovation, $14,563 for the Shoreline Playground Safety Surfacing Project, and $56,923 for the Woodfield Park Renovation.

"Congratulations on your project's successful conclusion!" Taillon wrote, in each of the three letters.

On Wednesday, Duran wrote to Escovedo and the agency's deputy assistant secretary, Bryan Cash, urging them to reconsider the cancellation of the Chelsea grant.

"After years of mismanagement here, the citizens of Hercules fired the whole City Council and, in addition to a new City Council, we now have a new city manager, city attorney and finance director working to clean up the messes," Duran wrote. Further down, he added:

"You spoke about 'good faith' in your letter. I challenge you to exercise good faith and come meet with us before you terminate the agreement, which provides a great environmental benefit to San Pablo Bay and the region."

Cash and Escovedo did not respond directly to an email Friday from this newspaper. But agency spokesman Clark Blanchard, in an email, said the three projects were finished in 2009 and that the state Department of Parks and Recreation, part of the Natural Resources Agency, had performed "basic project audits" which had no bearing on his agency's decision to terminate the Chelsea Wetlands Restoration grant.

"When the State Controller raised concerns over the fiscal accountability of the city of Hercules, we took it seriously," Blanchard wrote. "The Natural Resources Agency cannot, in good faith, use taxpayer dollars to continue to fund a grant to a city that the controller says lacks fiscal accountability."

Romero, meanwhile, said he would ask the city's Finance Subcommittee and Ad Hoc Citizens Advisory Finance Committee to scrape together all of the remaining documents the Controller seeks.

Contact Tom Lochner at 510-262-2760.

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