State vs. Cerritos over redevelopment money

The city of Cerritos may be a trailblazer of sorts among local governments, but it’s leading the way on a trail that local governments probably don’t want to follow.

The southern California community, which boasts a population just shy of 50,000 residents, is among the first of several city governments in California to go to the mat against the state controller’s review of its shift of local assets from the redevelopment agency.

The result: Cerritos may be on the hook for a $170 million price tag.

“The worst that could happen is that we go bankrupt,” Barrows earlier told the Long Beach Register, although he emphasized in a written statement that Cerritos was “financially secure.”

“The City disputes the state’s report as the Cerritos Redevelopment Agency transferred the funds and properties to the City in accordance with the law,” Cerritos Mayor Bruce Barrows said in a written statement issued Oct. 24.

“We oppose the State’s attempt to claw back funds that are from payments made to the City that were consistent with an interest and principal payment schedule that had been in place for more than 30 years,” he added.

The city says it paid for the assets – a number of properties that include a freeway easement, a water reservoir, a fire station and a performing arts center, among others – but the controller says the assets should have remained with the redevelopment agency.

Cerritos was just one of many communities scrambled to transfer assets away from the redevelopment agencies in 2011, when the agencies were abolished by Gov. Brown and their revenue streams diverted.

“The worst that could happen is that we go bankrupt,” Barrows earlier told the Long Beach Register, although he emphasized in a written statement that Cerritos was “financially secure.”

Patrick Whitnell, general counsel for the California League of Cities, described the Cerritos money involved as the “largest number I can recall,” when it comes to redevelopment suits, of which there are many still pending.

“What Cerritos is doing is related to redevelopment dissolution, but it’s related to the asset transfer audit that the controller’s office is doing,” Whitnell said. “The controller’s office has ordered Cerritos to transfer $170 million in assets back to their successor agency, which will then be given to the county auditor controller for distribution to the taxing entities in LA County.”

There are more than four-dozen lawsuits filed by cities and other entities across the state challenging the state’s decision to abolish California’s more than 400 redevelopment agencies.

Jacob Roper, a spokesperson for state Controller John Chiang, said the controller began the reviews last year to determine what transfers of redevelopment assets were allowable and unallowable.

The reviews are part of the efforts to wind down redevelopment agencies after Gov. Brown’s signature of AB 1484, the 2011 bill that put an end to them. According to Roper, the controller’s office will complete over 400 such reviews to determine whether asset transfers between June of 2011, when Brown signed the bill and February of 2012 were allowable.

There are more than four-dozen lawsuits filed by cities and other entities across the state challenging the state’s decision to abolish California’s more than 400 redevelopment agencies.

The California Department of Finance, the powerful state agency that writes the governor’s budgets, also is embroiled in suits regarding other aspects of enforcement in the redevelopment wind down, such as obligation payment schedules.

Cerritos is at least the third city to challenge the Chiang’s reviews, following the cities of Tulare and Fresno, according to Whitnell.

Despite the state controller’s position, Cerritos says its asset transfers were allowable, because they fell under a 1969 agreement over which the controller’s office did not have jurisdiction, according to a letter from the Cerritos city to the controller’s auditor.

“They’re speeding up as we perform more of them,” he said. Roper added that many local agencies and governments have reversed their transfers before the review was performed or received the necessary approval for the transfers that were completed, citing West Sacramento as an example of a city that has completed the process smoothly.

Meanwhile the Department of Finance, which enforces the obligation payment schedule, and the Controller’s office are making the case that 1969-related agreements are not “enforceable obligations.”

Given the startlingly large amount at stake, the Cerritos case is drawing scrutiny from other municipalities because of the dollars involved and the potential for a precedent-setting decision in court.,

Meanwhile, more and more cities appear to be adhering to the state’s redevelopment demands, however. According to Roper, while the Controller has only completed 88 of the 402 redevelopment agencies it must review, but he said as time goes on it gets easier.

“They’re speeding up as we perform more of them,” he said. Roper added that many local agencies and governments have reversed their transfers before the review was performed or received the necessary approval for the transfers that were completed, citing West Sacramento as an example of a city that has completed the process smoothly.

Roper said the successor agencies pay off redevelopment agency debt with the assets and if there are leftover assets, distribute those to cover local public expenditures. He added that local governments and agencies that dispute the controller’s demands to transfer assets can take up their objections with the oversight board of the successor agency.

In any event, the state is not capturing the benefits — at least not directly.

“These are not going back to the state,” Roper said of the asset transfers, citing libraries, parks, and lighting districts as examples of where the successor agencies might direct funds.