STOCKTON REDEVELOPMENT
AGENCY
ASSET TRANSFER REVIEW
Review Report
January 1, 2011, through January 31, 2012
JOHN CHIANG
California State Controller
August 2013
ATTACHMENT A
JOHN CHIANG
California State Controller
August 5, 2013
Vanessa Burke, CFO
City of Stockton/Successor Agency
425 North El Dorado
Stockton, CA 95202-1997
Dear Ms. Burke:
Pursuant to Health and Safety (H&S) Code section 34167.5, the State Controller’s Office (SCO) reviewed all asset transfers made by the Stockton Redevelopment Agency to the City of Stockton or any other public agency after January 1, 2011. This statutory provision states, “The Legislature hereby finds that a transfer of assets by a redevelopment agency during the period covered in this section is deemed not to be in furtherance of the Community Redevelopment Law and is thereby unauthorized.” Therefore, our review included an assessment of whether each asset transfer was allowable and whether the asset should be turned over to the Stockton Redevelopment Successor Agency.
Our review applied to all assets including, but not limited to, real and personal property, cash funds, accounts receivable, deeds of trust and mortgages, contract rights, and rights to payment of any kind. We also reviewed and determined whether any unallowable transfers of assets to the City of Stockton or any other public agencies have been reversed.
Our review found $1,426,531 in unallowable asset transfers to the City of Stockton (Schedule 1).
However, the Successor Agency Oversight Board approved Resolution No. OB 2012-10-10-06 on October 10, 2012, declaring $65,000 in assets for a governmental purpose. Therefore, no further action is needed regarding these assets (Finding 2).
The outstanding assets
totaling $1,361,531 must be turned over to the Successor Agency for disposition in accordance with H&S Code sections 34177(d) and (e) and 34181.
If you have any questions, please contact
Steven Mar, Bureau Chief, Local Government Audits
Bureau, at (916) 324-7226.
Sincerely,
Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
JVB/kw
ATTACHMENT A
Vanessa Burke, CFO -2- August 5, 2013
cc: Bob Deis, City Manager
City of Stockton
Laurie Montes, Deputy City Manager
City of Stockton
Kurt Wilson, Deputy City Manager
City of Stockton
Elena Adair, Assistant Director, Administrative Services Department City of Stockton
Jay Wilverding, Auditor-Controller
San Joaquin Count y
Richard J. Chivaro, Chief Legal Counsel
State Controller’s Office
Steven Szalay, Local Government Consultant
California Department of Finance
Steven Mar, Chief, Local Government Audits Bureau
Division of Audits, State Controller’s Office
Scott Freesmeier,
Audit Manager
Division of Audits, State Controller’s Office
Daniela Anechitoae, Auditor-in -Charge
Division of Audits, State Controller’s Office
ATTACHMENT A
Stockton Redevelopment Agency Asset Transfer Review
Contents
Review Report
Summary ............................................................................................................................ 1
Background ........................................................................................................................ 1
Objectives, Scope, and Methodology ............................................................................... 2 Conclusion .......................................................................................................................... 2 Views of Responsible Officials .......................................................................................... 2
Re
stricted Use .................................................................................................................... 3
Findings and Orders of the Controller ................................................................................ 4
Schedule 1—
RDA Assets Transferred to the City of Stockton.......................................... 7
Attachment—City’s Response to Draft Review Report
ATTACHMENT A
Stockton Redevelopment Agency Asset Transfer Review
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Asset Transfer Review Report
The State Controller’s Office ( SCO) reviewed the asset transfers made by the Stockton Redevelopment Agency (RDA) after January 1, 2011.
Our review included, but was not limited to, real and personal property, cash funds, accounts receivable, deeds of trust and mortgages, contract rights, and rights to payments of any kind from any source.
Our review found $1,426,531 in unallowable asset transfers to the City of Stockton (Schedule 1). However, the Successor Agency Oversight Board approved Resolution No. OB 2012-10-10-06 on October 10, 2012, declaring $65,000 in assets for a governmental purpose. Therefore, no further action is needed regarding these assets (Finding 2).
The outstanding assets totaling $1,361,531 must be turned over to the Successor Agency for disposition in accordance with H&S Code sections 34177(d) and (e) and 34181.
In January of 2011, the Governor of the State of California proposed statewide elimination of redevelopment agencies (RDAs) beginning with the fiscal year (FY) 2011-12 State budget. The Governor ’s proposal was incorporated into Assembly Bill 26 (ABX1 26, Chapter 5, Statutes of 2011, First Extraordinary Session), which was passed by the Legislature, and signed into law by the Governor on June 28, 2011.
ABX1 26 prohibited RDAs from engaging in new business, established mechanisms and timelines for dissolution of the RDAs, and created RDA Successor Agencies to oversee dissolution of the RDAs and redistribution of RDA assets.
A California Supreme Court decision on December 28, 2011 ( California Redevelopment Association et al. v. Matosantos ), upheld ABX1 26 and the Legislature’s constitutional authority to dissolve the RDAs.
ABX1 26 was codified in the Health and Safety Code (H&S Code ) beginning with section 34161.
In accordance with the requirements of H&S Code section 34167.5, the State Controller is required to review the activities of RDA s, “to determine whether an asset transfer has occurred after January 1, 2011, between the city or county, or city and county that created a redevelopment agency, or any other public agency, and the redevelopment agency,” and the date on which the RDA ceases to operate, or January 31, 2012, whichever is earlier.
Summary
Background
ATTACHMENT A
Stockton Redevelopment Agency Asset Transfer Review
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The SCO has identified transfers of assets that occurred after January 1, 2011, between the Stockton Redevelopment Agency, the City of Stockton, and/or other public agencies. By law, the SCO is required to order that such assets, except those that already had been committed to a third party prior to June 28, 2011, the effective date of ABX1 26, be turned over to the Successor Agency. In addition, the SCO may file a legal order to ensure compliance with this order.
Our review objective was to determine whether asset transfers that occurred after January 1, 2011, and the date upon which the RDA ceased to operate, or January 31, 2012, whichever was earlier, between the city or county, or city and county that created an RDA, or any other public agency, and the RDA, were appropriate.
We performed the following procedures:
Interviewed Successor Agency personnel to gain an understanding of the Successor Agency operations and procedures.
Reviewed meeting minutes, resolutions, and ordinances of the Stockton Redevelopment Agency and the City of Stockton. Reviewed accounting records relating to the recording of assets. Verified the accuracy of the Asset Transfer Assessment Form. This form was sent to all former RDAs to provide a list of all assets transferred between January 1, 2011, and January 31, 2012. Reviewed applicable financial reports to verify assets (capital, cash, property, etc.).
Our review found $1,426,531 in unallowable asset transfers to the City of Stockton (Schedule 1). However, the Successor Agency Oversight Board approved Resolution No. OB 2012-10-10-06 on October 10, 2012, declaring $65,000 in assets for a governmental purpose. Therefore, no further action is needed regarding these assets (Finding 2).
The outstanding assets totaling $1,361,531 must be turned over to the Successor Agency for disposition in accordance with H&S Code sections 34177(d) and (e) and 34181.
Details of our findings are in the Findings and Orders of the Controller section of this report.
We issued a draft report on June 24, 2013. Vanessa Burke, Chief Financial Officer, responded by a letter dated July 12, 2013, disagreeing with Finding 1 and agreeing with Finding 2. The City’s response is included in this final review report as an attachment.
Objectives, Scope,
and Methodology
Views of
Responsible
Officials
Conclusion
ATTACHMENT A
Stockton Redevelopment Agency Asset Transfer Review
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This report is solely for the information and use of the City of Stockton as the Successor Agency to the Stockton Redevelopment Agency, the Oversight Board of the Successor Agency, the City of Stockton, and the SCO; it is not intended to be and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record when issued final.
Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
August 5, 2013
Restricted Use
ATTACHMENT A
Stockton Redevelopment Agency Asset Transfer Review
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Findings and Orders of the Controller
On February 8, 2011, by Resolution No. R11-003, the Stockton Redevelopment Agency (RDA) transferred $1,361,531 in low and moderate income housing funds to the City of Stockton (City). The City then used the transferred funds to repay two loans to the California Housing Finance Agency (CalHFA). The City entered into the loans with the CalHFA in January 24, 2002, and April
4, 2003.
Because the RDA is not a party to the original agreements with CalHFA, the RDA is not obligated to make the loan payments on behalf of the City; therefore, this is merely a cash transfer from the RDA to the City.
Pursuant to Health and Safety (H&S) Code section 34167.5, any asset transfers by the RDA to a city, county, city and county, or any public agency after January 1, 2011 must be turned over to the Successor Agency for disposition in accordance with H&S Code sections 34117(d).
H&S Code section 34177(d) states that the Successor Agency should forward unencumbered balances of RDA funds to the county auditor- controller, including, but not limited to, the unencumbered balance of the Low and Moderate Income Housing Fund of a former RDA, for distribution to the taxing entities for allocation and distribution in accordance with H&S Code section 34188.
Order of the Controller
Based on H&S Code section 64167.5, the City is ordered to turn over the assets described above to the Successor Agency. The Successor Agency is directed to properly dispose of these assets in accordance with H&S Code sections 34177(d).
City of Stockton’s Management Response
Management disagrees with this finding. SCO auditors were onsite and held an exit conference for the RDA Asset Transfer Review on December 20, 2012. This item was not an issue and did not result in a finding during the original review. As a result of SCO staff turnover, a second review was conducte d and City staff was required to resubmit documentation several months after the initial review was completed.
We were not aware this transaction was in question and would have submitted supporting documentation had it been brought to our attention beforehand.
On February 8, 2011, City Council by Resolution No. 11
-0030
authorized a transfer from RDA Low and Moderate Income Housing Funds (Low/Mod Funds) for the repayment of the two loans in the amount of $1,361,531. The actual repayment including principal and interest totaled $1,261,913.52. The payment was made directly from Low/Mod Funds to repay two HELP loans from the California Housing Finance Agency (CalHFA), a State of California agency. This loan was made by CalHFA to the City of Stockton as the borrower. However, the only way the loan could have been a valid agreement under article XVI, section 18 of the state constitution is if it were payable from a special FINDING 1—
Unallowable low
and moderate
income housing
fund cash transfer
to the City
ATTACHMENT A
Stockton Redevelopment Agency Asset Transfer Review
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fund such as the Low and moderate income housing fund. The general fund of the city could not be obligated without 2/3 voter approval. This was not the intent of the loan as the repayment source was a pledge of low/mod program income, which is in fact how the city repaid the loan.
As background, the HELP funds were only used for low and moderate income housing projects. Therefore, Low/Mod Funds were an appropriate source of repayment. In fact, Low/Mod Funds were listed as the repayment source in the original loan applications submitt ed to CalHFA and in the staff reports presented to City Council on September 18, 2001 and September 24, 2002. In addition, the loan agreement states that “the source of funds utilized for repayment shall not be limited to any particular asset(s) of the Borrower. ” This comports with the application and staff report, as RDA funds, not City funds, were the intended source for repayment. This loan has been paid in full to CalHFA, a State of California Agency. The City requests that the SCO revise the report and remove the "order".
SCO’s Comment
The City disagrees with the finding and stated in their response that $1,261,913.52 (principal and interest) was made directly from Low/Mod Funds to repay two HELP loans from the California Housing Finance Agency (CalFHA). The City claimed that in loan applications and staff reports, RDA funds, not City funds, were the intended source for repayment for these loans.
However, the City did not provide any evidence that this was an RDA obligation. Also, even if the RDA funds were the intended source, we found that the City paid off the CalHFA loans prior to the maturity dates, which is a violation H&S Code section 34167(a), which states:
This part is intended to preserve, to the maximum extent possible, the revenues and assets of redevelopment agencies so that those assets and revenues that are not needed to pay for enforceable obligations may be used by local governments to fund core governmental services including police and fire protection services and schools. It is the intent of the Legislature that redevelopment agencies take no actions that would further deplete the corpus of the agencies’ funds regardless of their original source. All provisions of this part shall be construed as broadly as possible to support this intent and to restrict the expenditure of funds to the fullest extent possible.
Finally, the City is correct that this issue was not discussed at the December 20, 2012 exit interview. However, the auditors made inquiries to City staff regarding this issue in early June 2013, prior to the June 18, 2013 exit conference. In addition, the City was provided an opportunity to respond prior to the issuance of the SCO draft report and after using the 10-day comment period.
The finding remains as stated.
ATTACHMENT A
Stockton Redevelopment Agency Asset Transfer Review
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On June 7, 2011, the RDA transferred properties for a sanitary pump station, and land known as the Mormon Slough Parkway, by Resolution No. R11-010. The City accepted the transferred properties by Resolution No. 11-0133. In the staff report dated June 7, 2011, the estimated value of the property is between $59,700 and $65,000.
Pursuant to H&S Code section 34167.5, any asset transfers by the RDA to a city, county, city and county, or any other local public agency after January 1, 2011, must be turned over to the Successor Agency for disposition in accordance with H&S Code sections 34177(d), (e), and 34181(a).
However it appears that these assets also may be subject to the provisions of H&S Code section 34181(a). H&S Code section 34181(a) states, in part:
The oversight board shall direct the Successor Agency to do all of the following:
(a) Dispose of all assets and properties of the former redevelopment agency that were funded by tax increment revenues of the dissolved redevelopment agency; provided however, that the oversight board may instead direct the successor agency to transfer ownership of those assets that were constructed and used for a governmental purpose, such as roads, school buildings, parks, and fire stations, to the appropriate public jurisdiction pursuant to any existing agreements related to the construction or use of such an asset . . . [emphasis added]
Order of the Controller
Based on H&S Code section 64167.5, the City would have been ordered to turn over the assets described above to the Successor Agency. The Successor Agency would have been directed to properly dispose of these assets in accordance with H&S Code sections 34177(d), (e), and 34181(a).
However, the Successor Agency Oversight Board approved Resolution No. OB 2012-10-10-06 on October 10, 2012, declaring these assets as for a governmental purpose. Therefore, no further action is needed regarding these assets.
City of Stockton’s Management Response
Management concurs with the Order of the Controller. Management had previously identified prior to the SCO audit that the properties transferred to the City fall within the guidelines of H&S Code section 34181(a); the assets are for a governmental purpose. Accordingly, the original transfer was completed prior to RDA dissolution on June 7, 2011, and reauthorized by the Oversight Board to the Stockton Successor Agency on October 10, 2012, by Resolution No. OB 2012- 10 -10-06. No additional action will be taken.
SCO’s Comment
The City agrees with the finding.
FINDING 2—
Unallowable
transfer to the City
ATTACHMENT A
Stockton Redevelopment Agency Asset Transfer Review
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Schedule 1—
RDA Assets Transferred to
the County of Stockton
January 1, 2011, through January 31, 2012
Low and Moderate Income Housing Fund Cash $ 1,361,531 1 Sanitary Pump Station and Land to Update Pump Station 65,000 2 $ 1,426,531
__________________________
1 Must be returned to the Successor Agency.
2 Not subject to be returned to the Successor Agency.
ATTACHMENT A
Stockton Redevelopment Agency Asset Transfer Review
Attachment—
City’s Response to Draft Review Report
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State Controller’s Office
Division of Audits
Post Office Box 942850
Sacramento, CA 94250-5874
http://www.sco.ca.gov
S12–RDA–902
ATTACHMENT A