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CRESCENT CITYREDEVELOPMENT AGENCYASSET TRANSFER REVIEWReview ReportJanuary 1, 2011, through January 31, 2012JOHN CHIANGCalifornia State ControllerAugust 2014
JOHN CHIANGCalifornia State ControllerAugust 26, 2014Eugene M. Palazzo, City ManagerCity of Crescent City377 J StreetCrescent City, CA 95531Dear Mr. Palazzo:Pursuant to Health and Safety Code section 34167.5, the State Controller’s Office (SCO)reviewed all asset transfers made by the Crescent City Redevelopment Agency (RDA) to theCity of Crescent City (City) or any other public agency after January 1, 2011. This statutoryprovision states, “The Legislature hereby finds that a transfer of assets by a redevelopmentagency during the period covered in this section is deemed not to be in furtherance of theCommunity Redevelopment Law and is thereby unauthorized.” Therefore, our review includedan assessment of whether each asset transfer was allowable and whether the asset should beturned over to the Successor Agency.Our review applied to all assets including but not limited to, real and personal property, cashfunds, accounts receivable, deeds of trust and mortgages, contract rights, and rights to paymentof any kind. We also reviewed and determined whether any unallowable transfers of assets to theCity or any other public agency have been reversed.Our review found that the RDA transferred 2,470,975 in assets after January 1, 2011, includingunallowable transfers to the City totaling 248,920, or 10.07% of transferred assets. These assetsmust be turned over to the Successor Agency.If you have any questions, please contact Elizabeth González, Chief, Local GovernmentCompliance Bureau, by telephone at (916) 324-0622.Sincerely,Original signed byJEFFREY V. BROWNFIELD, CPAChief, Division of AuditsJVB/kw
Eugene M. Palazzo, City Manager-2-cc: Emily Boyd, Finance DirectorCity of Crescent CityBridget Lacey, Accounts Purchasing ClerkCity of Crescent CityKathryn Murray, ChairOversight Board to the Crescent City Successor AgencyClinton Schaad, Auditor-ControllerCounty of Del NorteDavid Botelho, Program Budget ManagerCalifornia Department of FinanceRichard J. Chivaro, Chief Legal CounselState Controller’s OfficeElizabeth González, Bureau ChiefDivision of Audits, State Controller’s OfficeScott Freesmeier, Audit ManagerDivision of Audits, State Controller’s OfficeTrisha Quiambao, Auditor-in-ChargeDivision of Audits, State Controller’s OfficeAugust 26, 2014
Crescent City Redevelopment AgencyAsset Transfer ReviewContentsReview ReportSummary .1Background .1Objective, Scope, and Methodology .2Conclusion .2Views of Responsible Officials.2Restricted Use .3Finding and Order of the Controller .4Schedule 1—Summary of Asset Transfers to the Successor Agency andthe City of Crescent City after January 1, 2011 .5Attachment—City of Crescent City’s Response to Draft Review Report
Crescent City Redevelopment AgencyAsset Transfer ReviewAsset Transfer Review ReportSummaryThe State Controller’s Office (SCO) reviewed the asset transfers madeby the Crescent City Redevelopment Agency (RDA) after January 1,2011. Our review included, but was not limited to, real and personalproperty, 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 2,470,975 in assets afterJanuary 1, 2011, including unallowable transfers to the City of CrescentCity (City) totaling 248,920, or 10.07% of transferred assets. Theseassets must be turned over to the Successor Agency.BackgroundIn January of 2011, the Governor of the State of California proposedstatewide elimination of redevelopment agencies (RDAs) beginning withthe fiscal year (FY) 2011-12 State budget. The Governor’s proposal wasincorporated into Assembly Bill 26 (ABX1 26, Chapter 5, Statutes of2011, 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, establishedmechanisms and timelines for dissolution of the RDAs, and created RDASuccessor Agencies to oversee dissolution of the RDAs andredistribution of RDA assets.A California Supreme Court decision on December 28, 2011 (CaliforniaRedevelopment Association et al. v. Matosantos), upheld ABX1 26 andthe Legislature’s constitutional authority to dissolve the RDAs.ABX1 26 was codified in the Health and Safety (H&S) Code beginningwith section 34161.H&S Code section 34167.5 states in part, “ the Controller shall reviewthe activities of Redevelopment Agencies in the State to determinewhether an asset transfer has occurred after January 1, 2011, between thecity or county, or city and county that created a redevelopment agency orany 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 other public agencies. By law, theSCO is required to order that such assets, except those that already hadbeen committed to a third party prior to June 28, 2011, the effective dateof ABX1 26, be turned over to the Successor Agency. In addition, theSCO may file a legal action to ensure compliance with this order.-1-
Crescent City Redevelopment AgencyObjective, Scope,and MethodologyAsset Transfer ReviewOur review objective was to determine whether asset transfers thatoccurred after January 1, 2011, and the date upon which the RDA ceasedto operate, or January 31, 2012, whichever was earlier, between the cityor county, or city and county that created an RDA, or any other publicagency, and the RDA, were appropriate.We performed the following procedures: Interviewed Successor Agency personnel to gain an understanding ofthe Successor Agency 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. Thisform was sent to all former RDAs to provide a list of all assetstransferred between January 1, 2011, and January 31, 2012. Reviewed applicable financial reports to verify assets (capital, cash,property, etc.).ConclusionOur review found that the Crescent City Redevelopment Agencytransferred 2,470,975 in assets after January 1, 2011, includingunallowable transfers to the City of Crescent City totaling 248,920, or10.07% of transferred assets. These assets must be turned over to theSuccessor Agency.Details of our finding are described in the Finding and Order of theController section of this report.Views ofResponsibleOfficialsWe issued a draft review report on February 18, 2014. Eugene Palazzo,City Manager, responded by letter dated March 11, 2014 disagreeingwith the review results. The City’s response is included in this finalreview report as an attachment.The City’s response referenced a finding related to housing assets. Thatfinding was eliminated due to a subsequent court ruling.-2-
Crescent City Redevelopment AgencyRestricted UseAsset Transfer ReviewThis report is solely for the information and use of the City, theSuccessor Agency, the Oversight Board, and the SCO; it is not intendedto be and should not be used by anyone other than these specified parties.This restriction is not intended to limit distribution of this report, whichis a matter of public record when issued final.Original signed byJEFFREY V. BROWNFIELD, CPAChief, Division of AuditsAugust 26, 2014-3-
Crescent City Redevelopment AgencyAsset Transfer ReviewFinding and Order of the ControllerFINDING—Unallowable assettransfer to the Cityof Crescent CityThe Crescent City Redevelopment Agency (RDA) made unallowableasset transfers totaling 248,920 to the City of Crescent City (City). Thetransfers occurred after January 1, 2011, and the assets were notcontractually committed to a third party prior to June 28, 2011.On January 31, 2012, the RDA transferred 248,920 to the City forrepayment of a loan from the City’s Water Fund.Pursuant to Health & Safety (H&S) Code section 34167.5, the RDA maynot transfer assets to a city, county, city and county, or any other publicagency after January 1, 2011.Order of the ControllerPursuant to H&S Code section 34167.5, the City is ordered to reverse thetransfer of the above assets in the amount of 248,920 and turn the assetsover to the Successor Agency. The Successor Agency is directed toproperly dispose of the assets in accordance with H&S Code section34177 (d).City’s ResponseThe Successor Agency respectfully disagrees that the partial repaymentof the loan of 248,920 was not allowed. The payment was made priorto the dissolution of the Redevelopment Agency. Further, thistransaction was reviewed as part of the Due Diligence Review processunder Health and Safety Code section 341796, and the Department ofFinance did not determine that this transfer was not allowed. TheSuccessor Agency made all payments required under the Due DiligenceReview Process set forth in AB 1484 and the state Department ofFinance issued a Finding of Completion to the Successor Agency onMay 9, 2013.SCO’s CommentThe SCO disagrees with the City.Pursuant to H&S Code authority, the SCO asset transfer reviews aredifferent form the DOF Due Diligence Reviews.The SCO’s authority under H&S Code section 34167.5 extends to allassets transferred after January 1, 2011, by the RDA to the city orcounty, or city and county that created the RDA or any other publicagency.The Finding and Order of the Controller remains as stated.-4-
Crescent City Redevelopment AgencyAsset Transfer ReviewSchedule 1—Summary of Asset Transfers to the Successor Agencyand the City of Crescent City after January 1, 2011DateJanuary 31, 2012February 1, 2012February 1, 2012February 1, 2012February 1, 2012February 1, 2012February 1, 2012February 1, 2012DescriptionTotalCash transfer to the City for Water Fund loan repaymentCash transfer to the Successor AgencyLoans receivables transfer to the Successor AgencyLand transfer to the Successor AgencyBuilding and equipment transfer to the Successor Agency (net ofdepreciation)Cash transfer to the Entity Assuming the Housing FunctionsReceivables transfer to the Entity Assuming the Housing FunctionsLand held for development transfer to the Entity Assuming theHousing Functions1See the Finding and Order of the Controller section.-5-Allowable Unallowable 75 2,222,055248,920—248,9201
Crescent City Redevelopment AgencyAttachment—City of Crescent City’s Response toDraft Review Report
State Controller’s OfficeDivision of AuditsPost Office Box 942850Sacramento, CA 94250-5874http://www.sco.ca.govS14-RDA-966
City of Crescent City 377 J Street Crescent City, CA 95531 Dear Mr. Palazzo: Pursuant to Health and Safety Code section 34167.5, the State Controller's Office (SCO) reviewed all asset transfers made by the Crescent City Redevelopment Agency (RDA) to the City of Crescent City (City) or any other public agency after January 1, 2011. This statutory
