County assessor invested in companies that own and manage properties under his jurisdiction

April 16--Three months after being sworn in as the official in charge of setting property taxes across San Diego County, Ernest Dronenburg bought up to $100,000 worth of stock in the financial-services firm BGC Partners.

Later in 2011, weeks after the company announced it would acquire the commercial real estate giant Newmark Knight Frank, which manages millions of square feet of San Diego County office space and other property, Dronenburg boosted his investment by up to $100,000 more.

By the end of 2012, the assessor-recorder-county clerk owned as much as $400,000 worth of BGC Partners stock, according to the state-mandated financial disclosure Dronenburg filed in 2013. By 2017, he owned up to $1 million in shares of the company.

Many assessors in California have policies on how to value an official's personal property such as a house -- for instance, handing the job off to counterparts in other counties to avoid a conflict of interest. But investments like those Dronenburg has in companies with real estate holdings are a gray area.

Professional groups say there is no specific standard for elected assessors when it comes to such investments.

"I contacted two staff members who used to work in assessment offices and they concurred that they were not aware that any IAAO standard addresses this situation," said Mike Ardis, a spokesman for the International Association of Assessing Officers.

Charles Leonhardt, the Plumas County assessor and president of the California Assessors' Association, said the organization has no guidelines on personal investing although members tend to work diligently to avoid competing loyalties.

"Assessors are typically very aware of situations that could create the perception of conflict of interest," he said by email.

Dronenburg said there is nothing improper about investing in a real estate firm that manages property subject to his assessment because BGC Partners is not the landowner.

"There cannot be a conflict of interest with property taxes if they don't own the property," he wrote in response to questions.

The county assessor noted his investments amount to a fraction of the value of the multibillion-dollar companies and said his finances are publicly disclosed and regularly audited by outside agencies, including the state Board of Equalization, the Fair Political Practices Commission and San Diego County.

"In all my years in office and with regular review by multiple oversight agencies, my investments and personal finances have been found to be in full compliance without any issue," he wrote.

Determining a precise value of investments disclosed by public officials is tricky because California Form 700 provides only four ranges: $2,000 to $10,000; $10,001 to $100,000; $100,001 to $1 million; and over $1 million.

In 2014, Dronenburg invested in Gilead Sciences, the Northern California pharmaceutical giant. He purchased up to $1 million worth of that company's stock while it owned a 65,000-square-foot manufacturing plant in Oceanside.

The tax assessment on the plant has doubled in the past four years -- from $421,000 to $859,000 -- but so has the property value, which was just under $40 million in 2014 and now tops $77 million.

Two months after the Gilead investment, Dronenburg purchased up to $100,000 worth of shares in Community Health Systems, which then operated Fallbrook Hospital and more than 100 other medical centers across the country.

Dronenburg, who lives and owns a family flower farm near the Fallbrook property, said the investment made financial sense and posed no conflict because, again, the company was a tenant not an owner.

Community Health Systems "owns no real estate holdings in San Diego County," he wrote. "The reasons I buy these Fortune 500 companies, like every other average investor, is because they are safer and offer capital appreciation and/or dividends."

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Dronenburg was already a wealthy man when he announced his candidacy for San Diego County assessor-recorder-clerk in 2010.

A career tax professional who served on the state Board of Equalization in the 1990s, Dronenburg approached his investments with the same surety and predictability he applied to his consulting work and to his flower farm.

According to the financial disclosure he filed as a candidate, most of Dronenburg's assets were held in mutual funds and bonds.

He reported accounts with Vanguard and Franklin Funds worth up to $1 million each, and up to $1 million in Bank of America bonds. The candidate also disclosed an interest in the Finish Line shoe chain valued up to $100,000 and assets from his tax-consultancy and flower farm worth up to $1 million.

In his first year as county assessor, Dronenburg amended his investment portfolio, disposing of the bank bonds and investing in BGC Partners along with shares of Dow Chemical and AT&T, the disclosures show.

Over the next several years, Dronenburg acquired interests in oil production, medical device makers, robotics, computer software, optical technology and pharmaceutical research.

He said there was no deliberate change in his approach to investing, and he still keeps most of his personal wealth in mutual funds that are not required to be disclosed.

"No average person would consider me to be an active trader," Dronenburg wrote. "My investment strategy, with a strong emphasis on mutual funds, has not changed in 15 years."

Under state law, county assessors are to report their interests in real estate and corporate stock to the Board of Equalization, which is responsible for monitoring the investments to prevent any conflicts of interest.

Additionally, state regulators audit practices exercised by individual county assessors and issue public reports of their findings.

The latest assessment in San Diego County, issued in July 2016, found that Dronenburg "was properly managing all of his administrative programs" and offered nine recommendations for technical aspects of the office's operations, none of which regarded his investments.

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Matthew Strabone, the San Diego lawyer challenging Dronenburg on the June 5 ballot, said it is not appropriate for an elected assessor to buy and sell shares in companies that own property subject to their assessment.

"My opponent can have a directly beneficial impact on these companies and he stands to benefit himself from that potentially beneficial impact," he said. "This is the very definition of a conflict of interest."

Strabone said assessors should be prohibited from investing in companies that own property within their jurisdiction.

"Sometimes holding public office requires sacrifice, and this is a reasonable and necessary sacrifice for the County Assessor/Recorder/Clerk to make," he said.

Dronenburg said he complies with every rule and reports all of his investments.

"Transparency to taxpayers is of the utmost importance to me and I am being transparent now as I have always been," he wrote.

[email protected] (619) 293-1708 @sdutMcDonald

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