Board approves custodial accounts for development projects; officials stress accounts do not equal project approval

The Board of Estimate and Contract approved an ordinance Feb. 18 establishing custodial accounts for property-development projects (listed in the meeting as 22 West First Street and a Boys & Girls Club project). Staff and elected officials used the discussion to explain how custodial accounts function and why the city has been formalizing them.

Comptroller Morton explained that custodial accounts (formerly handled as trust and agency accounts) were changed to be recorded within the city’s accounts under accounting standards and that the city requires project proponents to place funds in these accounts to cover upfront soft costs. "These types of accounts would be deemed trust and agency accounts. There has since been changes ... and now they have to be accounted for within the city fund," he said.

Council President Brown emphasized that establishing a custodial account does not signal approval of a project. "Because there's a custodial account does not mean that the project's been approved," Brown said, stressing that escrow is simply a way to ensure applicants pay the soft costs associated with review, legal counsel or technical studies so taxpayers do not absorb those expenses.

Board members said the accounts provide transparency — custodial activity is included in quarterly reports — and allow the city to charge the applicant for consultant work, planning reviews and legal expenses associated with proposed projects. Staff described the typical information required to open an account: project title, account manager, and a project description.

The board approved the ordinance by roll call. Officials said project approvals (zoning, lead agency determinations, and any IDA incentives) remain separate processes and will continue to follow their normal review and public-notice procedures.