The URL can be used to link to this page

Home My WebLink About08. State Controller's Report DOWNEY COMMUNITY DEVELOPMENT COMMISSION ASSET TRANSFER REVIEW Review Report January 1, 2011, through January 31, 2012 JOHN CHIANG California State Controller August 2014 JOHN CHIANG California State Controller August 29, 2014 Gilbert A. Livas, City Manager/Executive Director City of Downey/Successor Agency 11111 Brookshire Avenue Downey, CA 90241 Dear Mr. Livas: Pursuant to Health and Safety Code section 34167.5, the State Controller’s Office (SCO) reviewed all asset transfers made by the Downey Community Development Commission (RDA) to the City of Downey (City) 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 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 to the City or any other public agency have been reversed. Our review found that the RDA transferred $22,344,482 in assets after January 1, 2011, including unallowable transfers to the City totaling $5,548,327, or 24.83% of transferred assets. However, on June 30, 2012, the City turned over $2,858,295 in real property to the Successor Agency. Therefore, the remaining $2,690,032 in unallowable transfers must be turned over to the Successor Agency. If you have any questions, please contact Elizabeth González, Chief, Local Government Compliance Bureau, by telephone at (916) 324-0622. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/sk Gilbert A. Livas -2- August 29, 2014 cc: Brian Saeki, Director of Community Development/Chair to Oversight Board City of Downey/Successor Agency Edward Velasco, Housing Manager City of Downey/Successor Agency Maurina Lee, Finance Manager City of Downey/Successor Agency John Naimo, Acting Auditor-Controller County of Los Angeles David Botelho, Program Budget Manager California Department of Finance Richard J. Chivaro, Chief Legal Counsel State Controller’s Office Elizabeth González, Bureau Chief Division of Audits, State Controller’s Office Scott Freesmeier, Audit Manager Division of Audits, State Controller’s Office Trisha L. Quiambao, Auditor-in-Charge Division of Audits, State Controller’s Office Downey Community Development Commission Asset Transfer Review Contents Review Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Objective, Scope, and Methodology ................................................................................. 2 Conclusion .......................................................................................................................... 2 Views of Responsible Officials .......................................................................................... 2 Restricted Use .................................................................................................................... 3 Finding and Order of the Controller ................................................................................... 4 Schedule 1—Unallowable Asset Transfers to the City of Downey .................................... 5 Attachment—City of Downey’s Response to Draft Review Report Downey Community Development Commission Asset Transfer Review -1- Asset Transfer Review Report The State Controller’s Office (SCO) reviewed the asset transfers made by the Downey Community Development Commission (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 that the RDA transferred $22,344,482 in assets after January 1, 2011, including unallowable transfers to the City of Downey (City) totaling $5,548,327, or 24.83% of transferred assets. However, on June 30, 2012, the City turned over $2,858,295 in real property to the Successor Agency. Therefore, the remaining $2,690,032 in unallowable transfers must be turned over to the Successor Agency. 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 and oversight boards 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 (H&S) Code beginning with section 34161. H&S Code section 34167.5 states in part, “. . . the Controller shall review the activities of redevelopment agencies in the state 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.” The SCO identified asset transfers that occurred after January 1, 2011, between the RDA, the City and/or any other public agency. 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 action to ensure compliance with this order. Summary Background Downey Community Development Commission Asset Transfer Review -2- 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’s operations and procedures.  Reviewed meeting minutes, resolutions, and ordinances of the City, the RDA, the Successor Agency, and the Oversight Board.  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 that the Downey Community Development Commission transferred $22,344,482 in assets after January 1, 2011, including unallowable transfers to the City of Downey (City) totaling $5,548,327, or 24.83% of transferred assets. However, on June 30, 2012, the City turned over $2,858,295 in real property to the Successor Agency. Therefore, the remaining $2,690,032 in unallowable transfers must be turned over to the Successor Agency. Details of our finding are described in the Finding and Order of the Controller section of this report. We issued a draft review report on June 11, 2014. Edward Velasco, Housing Manager responded by letter dated August 1, 2014, disagreeing with the review results. The City’s response is included in this final review report as an attachment. Objective, Scope, and Methodology Views of Responsible Officials Conclusion Downey Community Development Commission Asset Transfer Review -3- This report is solely for the information and use of the City, the Successor Agency, the Oversight Board, 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 29, 2014 Restricted Use Downey Community Development Commission Asset Transfer Review -4- Finding and Order of the Controller The Downey Community Development Commission (RDA) made unallowable asset transfers of $5,548,327 to the City of Downey (City). The transfers occurred after January 1, 2011, and the assets were not contractually committed to a third party prior to June 28, 2011. These transfers consisted of the following items:  Cash totaling $2,690,032 for loan repayment from the following funds: o Fund 87 ($1,587,032) o Fund 90 ($707,000) o Fund 93 ($396,000)  Land located at 9066 Firestone Boulevard valued at $2,858,295 However, on June 30, 2012, the City turned over the property located at 9066 Firestone Boulevard to the Successor Agency. Therefore, the remaining $2,690,032 in unallowable transfers must be turned over to the Successor Agency. Pursuant to Health and Safety (H&S) Code section 34167.5, the RDA may not transfer assets to a city, county, city and county, or any other public agency after January 1, 2011. The assets must be turned over to the Successor Agency for disposition in accordance with H&S Code section 34177 (d). Order of the Controller Pursuant to H&S Code section 34167.5, the City is ordered to reverse the transfers of the assets described in Schedule 1 in the amount of $2,690,032 and turn over the assets to the Successor Agency. The Successor Agency is directed to properly dispose of the assets in accordance with H&S Code sections 34177 (d). City’s Response The Successor Agency respectfully requests that the SCO reconsider its finding and order that the Downey Community Development Commission (acted as the City’s redevelopment agency) made $2,690,032 in “unallowable transfers” that must be returned from the City of Downey (City) to the Successor Agency for the following summarized reasons: . . . See Attachment – City of Downey’s Response to the Draft Review Report FINDING— Unallowable asset transfers to the City of Downey Downey Community Development Commission Asset Transfer Review -5- SCO’s Comment Despite the subsequent approval of those loans as enforceable obligations by the Oversight Board and the Department of Finance, the SCO’s authority under H&S Code section 34167.5 extends to all assets transferred after December 31, 2010, by the RDA to the city or county, or city and county that created the RDA, or any other public agency. This responsibility is not limited by the other provisions of the RDA dissolution legislation. As a result, loan repayments made by the RDA to the City during the periods of January 1, 2011 through January 31, 2012, were invalid. With regards to the total loan balance of $3,300,000 owed by the RDA to the City, repayments are to be made through the Recognized Obligation Payment process. H&S Code section 34167.5 states that if such an unallowable transfer occurs, the Controller shall order the return of those assets to the Successor Agency. Therefore, the Finding and Order of the Controller remain as stated. Downey Community Development Commission Asset Transfer Review -6- Schedule 1— Unallowable Asset Transfers to the City of Downey January 1, 2011, through January 31, 2012 Unallowable transfers to the City of Downey: Current assets Cash $ 2,690,032 Capital assets 9066 Firestone Boulevard 2,858,295 Total unallowable transfers 5,548,327 Less property returned to the Successor Agency on June 30, 2012 (2,858,295) Total transfers subject to H&S Code section 34167.5 $ 2,690,032 Downey Community Development Commission Asset Transfer Review Attachment— City of Downey’s Response to Draft Review Report State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S14-RDA-983