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.