City Of Oakland’s Response To California Controller On ‘Misdirected’ Assets

Posted on Aug 23 2013 - 8:28pm by Zennie Abraham
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DSI_Oakland_City_Hall_USA_02 California State Controller John Chiang has dropped what looks like a legal bomb on the City of Oakland. What I wrote in the last blog post (where the State’s full report is included) was: “The City Of Oakland’s in huge trouble, to the tune of $170 million, unless it can successfully challenge John Chiang, The State Of California Controller’s claim that it failed to transfer $170 million to a specifically designated “successor agency”, as part of the elimination of the Oakland Redevelopment Agency in 2011. ”

Here’s the full City of Oakland response:

City of Oakland Responds to State Controller’s

Office Redevelopment Review

Oakland, CA — State Controller John Chiang announced today that he has completed

his review of assets and cash transferred by the City of Oakland’s Redevelopment

Agency to the City of Oakland prior to statewide dissolution of redevelopment

agencies on February 1, 2012. Under the State law dissolving redevelopment agencies,

assets which were transferred to the City are subject to “clawback,” meaning that they could be turned over to the City’s Successor Agency.

No Impact on City of Oakland Budget: Assets Set Aside in Anticipation of “The bottom line is there are no new developments or surprises today. We have planned and prepared through a transparent process, and there will be no impact to

the City’s budget or the services we provide,” City Administrator Deanna J. Santana

The Controller’s order will have little practical impact on the City:

 Less than a quarter of the assets transferred to the City will be “clawed back”

from the City under the Controller’s order.

 Most of the clawed back cash ($41.5 million) is bond proceeds that the City’s

Successor Agency will get to keep and use on existing or new projects.

 The City has already budgeted for the remainder of the cash ($35.1 million)

and most of that amount ($32.5 million) was already returned to ORSA and

distributed to the taxing agencies per the final Due Diligence Review audit,

o These were cash transfers to the City for the Henry J. Kaiser

Convention Center and five other properties.

o The City anticipated that these transfers may be subject to clawback

and accounted for possible repayment accordingly by setting the funds

aside in the General Fund Reserve more than one year ago.

o However, even a portion of these funds (nearly $16 million) originated

from restricted bond proceeds and will be returned to the City’s

Successor Agency for new projects.

 The Henry J. Kaiser Convention Center will be returned to the City; this is an

important asset that will become available for reuse.


 The clawed-back real property ($93.4 million) will go back to the City’s

Successor Agency. The Successor Agency has already submitted its long

range-property management plan to the State Department of Finance, which

included these properties in anticipation of the claw-back order. Only a small

number will have to be sold on the open market.

The State Controller reviewed nearly $730 million in asset transfers (land, property

and cash) between the City of Oakland and the Redevelopment Agency and

determined that $342 million in asset transfers were “unallowable.” The City of

Oakland disputes the State Controller’s characterization of these asset transfers as

“All of these transfers were legal at the time they were made, and were properly

authorized and documented by contracts,” Santana said. “The Controller’s Office

designation of the transfers is misleading because the legislation dissolving

redevelopment agencies took effect in June 2011—months after these transfers were

Among the key findings, the State Controller’s Office found that the $84 million

transfer of the Oakland Army Base and the funds set aside to redevelop the Base were

allowable, which is significant to moving this important project forward.

About 5% of Asset Transfers Subject to Clawback

Of the $342 million the State Controller deemed “unallowable,” $172 million was later

approved by the Oakland Oversight Board, leaving $170 million potentially subject to

Total asset transfers $730 million

 Deemed allowable: $388 million

 Received Oversight approval: $172 million

Total allowed/approved: $560 million

Balance subject to “clawback” $170 million

 Cash transfers for properties: $35.1 million

 Land transfers (value of land): $93.4 million

 Third-party contracts/cash transfer: $41.5 million

The City’s primary dispute with the Controller’s review centers on the finding that

$41.5 million in fund transfers for third-party contracts entered into after June 28,

2011 should be reversed. There is no legal justification for this cutoff date. Under the

clawback statute, the Controller only has the authority to order reversals if the assets

are not contractually committed to a third party, but the statute does not reference the

June 28 date. The City has asked the Controller to provide a legal opinion explaining

how the June 28, 2011 cutoff date can apply to third-party contracts when the statute

that governs the Controller’s clawback powers includes no such date.

The City committed most of the funds transferred from the Redevelopment Agency to

third parties under contacts for streetscape projects and other public improvements. All

of the contracts had long-standing commitments of funds, and many of the projects

have been completed and the contractors have been paid.

(Henry J. Kaiser and 5 others)


Most of the property transfers characterized by the State Controller as “unallowable”

pertained to $150.5 million of housing asset transfers to the City. These were not only

“allowable,” they were required by the legislation itself, which said that upon

dissolution of redevelopment agencies, all housing functions and obligations

automatically transfer to the designated housing successor, which is the City. The

transfer of the housing assets to the City as housing successor took place automatically

on February 1, 2012, the day the Redevelopment Agency dissolved. These transfers

were later approved by the Oversight Board and the State Department of Finance, so

there is no basis for labeling them as “unallowable.”

Let’s see what John Chiang’s next move is.

Stay tuned.

About the Author

Zennie Abraham | Zennie Abraham or "Zennie62" is the founder of Zennie62Media which consists of and a multimedia blog news aggregator and video network, and 78-blog network, with social media and content development services and consulting. Zennie is a pioneer video blogger, YouTube Partner, social media practitioner, game developer, and pundit. Note: news aggregator content does not reflect the personal views of Mr. Abraham.

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