Oakland’s $170 Million Redevelopment Budget Controversy Makes CAO Look Bad

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

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.

As you may recall, if you pay attention to California politics, California Governor Jerry Brown successfully pushed for the elimination of redevelopment agencies in the state, and with the idea of recovering money the state would then use to close a giant, and seemingly chronic, budget deficit.

From this blogger’s perspective, as one who worked for the Oakland Mayor Elihu Harris on Oakland Redevelopment matters, it looks like, on the surface, that the City of Oakland did a kind of cash grab, leaving itself with free and clear money to use for whatever purpose, rather than assigning it to a designated city organization, or what the State calls a “successor agency.” But once you get down to details, the picture is a bit more complicated.

In the document obtained by this blogger, the responsible party for the action is listed as Oakland Chief Administrative Officer Deanna Santana, who was appointed by Oakland Mayor Jean Quan. However the letter opening the report and from John Chiang, The State Of California Controller, was addressed to Oakland Assistant City Administrator Fred Blackwell, the former head of the Oakland Redevelopment Agency.

The bottom line question is this: will this dispute cost the City Of Oakland $170 million, or is it just a matter of shifting money so the accounting looks right? The basic answer is, it’s a little bit of both.

Well, that starts with what a “successor agency” is. It’s to be designated by The City Of Oakland for the retirement of redevelopment bonds and other obligations. The State says that the city didn’t point to a place where cash should go, and thus it’s an action that’s not allowed. If the city did basically not transfer those monies, and they were used for other purposes effecting the budget, the resulting adjustment could, effectively, bankrupt the city.

Consider that in the last budget cycle the City of Oakland made cuts of 11 million and 16 million for fiscal years FY 2013-14 and FY 2014-15, which resulted in the proposed elimination of 79.5 full-time equivalent (FTE) employees
in FY 2013-14 and 86.5 FTEs in FY 2014-15. So, from that perspective, it’s a big deal but, as I stated above, when you drill down to details, the problem looks to be solvable. It just depends on the degree to which the State of California wants to stick to its guns, or admit that perhaps their analysts didn’t look at when the law declaring transfers to be illegal was inacted.

Got that? This is the kind of stuff the City should hold a live-streamed press conference about. So far, it’s stayed publicly silent – perhaps hoping this stays out of media gaze.

Deanna Santana’s written response is that the State of California made a mistake. She says the city of Oakland took over control of housing units and other assets totaling $341 million in a way that was legal because the law that made such transfers not legal, called AB1X 26, wasn’t even law until June 28, 2011. In other words, the City of Oakland itself was the “successor agency” and that’s within the law to do.

This is shaping up to be a huge battle. The State Controller’s Office has this as its big gun issue, place right at the front page of its website, and in a way that says “look what we caught the City Of Oakland doing!”

Plus, State Controller Chiang’s running for California State Treasurer (http://www.electjohnchiang.com/), so he’s got a personal reason to score some kind of win here.

From that perspective, it’s going to take a lot of work by the City of Oakland to make The California State Controller’s Office’s back off.

What it looks like is the City Of Oakland may have acting before all of the legal challenges to the State Of California’s attempt to stop AB 26 to go into place were done. So that by the time the stay that was placed on AB1X 26 was lifted on August 11, 2011, all of the city’s transactions in transfering assets were complete. The problem is they weren’t done to the pleasure of the State Of California.

The other problem is this: was the Oakland City Council informed of this problem in a timely fashion, in other words, while the State Of California Controller’s Office was conducting its audit, and not after it was done? And more important, what did Oakland Mayor Jean Quan know, and when did she know it?

As a note, I called the State Of California Controller’s Office and got the run-around. Steven Mar, who’s listed as the person to call, was out of the office until September 3rd. The number he left to call gave me a man who said he knew nothing of the issue. He directed me to the press office, which I did not call because, from experience, they’re only going to push me to Steven Mar because it’s a complex issue.

But, I can read, and this is not my first rodeo with this stuff.

Here’s the entire report:

CITY OF OAKLAND REDEVELOPMENT AGENCY
ASSET TRANSFER REVIEW
Review Report
January 1, 2011, through January 31, 2012 by Zennie Abraham

Stay tuned.