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California State Controller’s Office Orders Cerritos to Sell $170 Million in City Property

Wednesday October 9, 2013, 3:40 p.m.

Report calls into question actions by City Council, city officials, and the Successor Agency Oversight Board for “unallowable transfers” of property and cash.

By Brian Hews and Brian Hews

In a devastating blow that will send shockwaves across the city of Cerritos, Hews Media Group-Community News obtained the California State Controller’s Office (SCO) review on Tuesday confirming that transfers recorded by the Cerritos City Council and the Cerritos Redevelopment Agency were unallowable under ABX1 26, and the city must return over $170 million in property and cash to the Successor Agency.

Land named in the report include some of the crown jewels of Cerritos: the Los Cerritos Center, the Cerritos Auto Mall, the Cerritos Towne Center, Sheraton Hotel, B & B Stables, Liberty Park and several other parcels. The City must forfeit all proceeds from any sales and also future rents to the State of California.

ABX1 26 was passed in January 2011 eliminating Redevelopment Agencies in California. Under the bill, any assets transferred after the effective date must be returned to the Successor Agency.

The ruling demands city officials in Cerritos to sell the properties under the Health and Safety Code Section 34177 (d) (e) with the money disbursed to local taxing agencies.

“This is a devastating blow to the city,” said one local Commissioner who did not want to be identified, “ to lose the land and rental income is a huge loss.”

The Asset Transfer Review Report was issued by Controller John Chiang and received by Cerritos City Manager Art Gallucci via Certified Mail October 8. The review covered January 2011 to January 2012.

HMG-CN obtained the report exclusively that same day.

In the report, Jeffrey V. Brownfield, Chief Division of Audits for the State Controller’s officer, informed Cerritos officials that the Cerritos Redevelopment Agency transferred $210,774,198 in assets after January 1, 2011 including unallowable transfers of assets totaling $170,836,440 or 81.05% of the transferred assets. “Those assets must be returned at the Successor Agency to be disposed of as expeditiously as possible and in a manner aimed at maximizing value,” Brownfield said.

According to sources, the review team for the SCO spent almost a year in Cerritos performing interviews with Successor Agency personnel; reviewing meetings, minutes, resolutions, and ordinances of the Council, the RDA and the Cerritos Housing Authority; reviewing accounting records; and reviewing financial reports.

The SCO issued the initial report Aug. 2, 2013, which was reviewed by Cerritos City Attorney Mark Steres. Steres responded by letter dated Sept. 13, 2013, disagreeing with the review results.

The SCO Oct. 8, 2013 report disagreed with all of Steres’ arguments and ordered the City to return the $170 million to the Successor Agency.

Findings by the Controller

The report goes on in great detail describing the unallowable transfers via financial records obtained during the review.

The most egregious transfers occurred during the Mar. 24, 2011 Cerritos City Council meeting where the Council and the RDA approved the sale and transfer of properties to the City amounting to over $120 million.

The City Council at the time consisted of Mayor Carol Chen, Mayor pro tem Bruce Barrows, Mark Pulido, Joseph Cho, and Jim Edwards.

The first sale of properties within the RDA had a book value of over $75 million with the Council approving purchase by the city of $11 million, eliminating over $64 million because of a “decline in value.”

The City argued the value of the land dropped a staggering 85%.

The land included in the sale consisted of the Cerritos Towne Center and three dealerships at the Auto Mall- KIA, Land Rover/Jaguar, and Lincoln Station.

“That is very suspect,” said one former Mayor of a local city and former California Contract Cities Association President who did not want to be named, “it looks like they tried to transfer the property worth $75 million and buy it for $11 million and keep all the rental income.”

The Cerritos Council and the RDA then approved the transfer of over $45 million in book value assets to the City for zero dollar value.

That land included the Cerritos Center for the Performing Arts, the former ROP building, B&B Stables, and Milliken Medical.

The City Attorney attempted to argue for the transfers, but was soundly rebuffed by the SCO.

Another unallowable transfer occurred during the January 26, 2012 Cerritos City Council meeting. The Council approved the sale of future ground rents (years 2012-2087) from certain Towne Center and Auto Mall properties to the City in the amount of $28 million.

Conflict of interest questions were brought forward concerning members of the Oversight Board to the Successor Agency and the approved transfers.

Under the direction of the Oversight Board, redevelopment agencies were required to establish a Successor Agency, which would be charged with handling any outstanding debts and winding down the activities of the former redevelopment agencies.

The Oversight Board consists of Chairman and former Cerritos Mayor Jim Edwards who was a councilmember during the unallowable transfers, Vice Chair and former Cerritos Mayor Barry Rabbitt, Secretary and Cerritos City Clerk Vida Barone, former Cerritos Finance Director Becky Lingad, current Assistant City Manager Kathy Matsumoto, Director of the Business Services Office for Cerritos College David L. Fattahl, Toan Nguyen, CFO of the ABCUSD, and David Mochiuki.

Jacob Roper, spokesman for California State Controller John Chiang confirmed to HMG-CN late Wednesday afternoon that officials in Cerritos must transfer the assets to the Cerritos Assessor Agency “immediately.”

“The law is clear, Cerritos needs to comply with the order and the report immediately,” Roper said.

“If they don’t comply, a legal order was built into the law to compel Cerritos officials comply with the review,” Roper added, “litigation will not stop the process.”

A copy of the report can be found below.

Click here to view report.

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14 Responses to California State Controller’s Office Orders Cerritos to Sell $170 Million in City Property

  1. Hidding News from the Residents Reply

    October 13, 2013 at 4:31 pm

    Attention: Mr. Doug Kellam

    I am curious. You conveniently suggested an agenda for one long time Cerritos resident. However, no matter what one thinks of the city’s handling of all of this it is the BIGGEST news story to in this city in two decades.

    I say this because NO WHERE is there any mention of this $200,000,000 loss on the Cerritos-Artesia Patch. However, there is an article on what movies are playing in Cerritos.

    If you want to suggest an agenda, Mr. Kellam, look in the obvious places and please don’t try to deflect from the story at hand.

    Thank you Hews Media Group for reporting the News that matters to residents!

  2. California Public CEO Reply

    October 12, 2013 at 7:03 pm

    This article appeared in the PUBLIC CEO News this week and I wanted to share it with you and your readers:

    “The City of Cerritos must return over $170 million in property and assets to its Successor Agency, according to a new unreleased report issued by the California State Controller’s Office (SCO).

    On Tuesday, the Hews Media Group obtained a copy of the review compiled by California’s leading investigative authority of the Cerritos Redevelopment Agency. After reviewing its content, Los Cerritos News reports that the city committed a violation of ABX1 26 by illegally transferring assets from its Redevelopment Agency (RDA) to city coffers after the January 1, 2011 cutoff date.

    ABX1 26 provided for the dissolution of redevelopment agencies. It went into effect October 1, 2011 and required municipalities with RDAs to surrender remaining assets to the respective Successor Agency.

    Some of the property that will be affected by the ruling includes the the Los Cerritos Center, the Cerritos Auto Mall, the Cerritos Towne Center, Sheraton Hotel, B & B Stables, and Liberty Park in addition to a number of other parcels.

    After selling the aforementioned properties, the city will then be required to forfeit all revenue from the sales to the State.”

  3. Doug Kellam Reply

    October 12, 2013 at 12:22 pm

    The previous City Councils legally made great use of redevelopment laws to make many of the award winning improvements that the residents today enjoy. Nothing illegal about it. Redevelopment has made a huge difference in California. In fact, many agencies in the state copied the Cerritos model to try and maximize the use of this tool. However, when the Gov pulled the plug and demanded every asset from each agency, most cities went about trying to protect those assets and their citizens as best they could. They knew it was a long shot in keeping these things from being essentially stolen by the state, but I certainly don’t blame them for trying. It would seem that the people commenting on this site would have been happier if Cerritos had just handed the Gov the keys to the City. Shame on the State and the Gov for their collective lack of concern for the many cities in Ca now faced with financial difficulties as they try to maintain services while all of their previously legal revenues are taken from them and misspent by badly regulated state and county programs. The people making the ignorant comments on this blog should try to focus on the actual issue at hand and not ram their thinly veiled agendas home. Jim McMahan, who obviously penned the posts demanding the heads of everyone in Cerritos, has every right to hate the Mayor for beating him up, but not for trying to save the legally built Cerritos assets from being stolen from the residents of the City. Wake up.

    • Cerritos Resident Reply

      October 12, 2013 at 1:34 pm

      Wait a minute, Mr. Kellem.

      First of all you are a city employee who is part of the problem. Of COURSE you will stick up for these corrupt city council members and city management, they DO sign your paychecks.

      When did Mayor Bruce Barrows “beat up Jim Mahon?” Wasn’t resident Jay Gray a big enough target for for “Battery Bruce?” The District Attorney sure thought so.

    • OMG Reply

      October 12, 2013 at 4:42 pm

      Mr Kellum:
      You are the ignorant one. First you worked for the city and are a Barrows supporter. Second Cerritos is the poster child for abuse of the RDA. What was blighted here in the area? The 75 million transfer of the Towne Center for 11 million to the city COMPLETE FRAUD.THEY ALL NEED TO BE RECALLED.

    • The Magic Man Reply

      October 12, 2013 at 11:28 pm

      Mr. Kellam,

      Can you please explain what is being “stolen” by the state? Didn’t the courts rule redevelopment belongs to the state of California?

      If anything was stolen it was by the city council. In essence stealing from the residents by transferring millions from the general fund into redevelopment.

      To say many cities used the Cerritos model to maximize redevelopment is misleading. It would be more correct to state that as many cities used the Cerritos model to abuse redevelopment the state stepped in to stop the abuse.

      Mr. Kellam and example of that abuse is the $6 million yearly losses at the Performing Arts Center.

      Redevelopment was a law created to improve the quality of life for our citizens by removing blighted areas and provide jobs and housing for the unemployed and the under employed not to line the pockets of multimillion dollar auto dealerships and property developers.

      As for any comments Mr. McMahan’s may have made or any agenda he may have — seems we would be better off today with individuals like Mr. McMahan on city council.

      My guess is between the city manager, city council council, Mr. Kellan and Mr. McMahan …. Mr. McMahan is the only one who is holding his head up high.

  4. The Magic Man Reply

    October 10, 2013 at 9:01 pm

    Smoke and Mirrors. From Rabbit to Edwards it was all slight of hand. The Governor spotlighted the deception. The so called “success” of Cerritos never really existed. It was all smoke and mirrors.

  5. THANK YOU HEWS MEDIA GROUP! Reply

    October 10, 2013 at 5:28 pm

    Once Again, the True work of a REAL News Organization is delivered to the people. Brian Hews and Randy Economy have exposed the Rotten Rats Nest at Cerritos City Hall – Now if you want to read about Bev Ray’s Pumpkin Bread recipe or Carol Chen, Joe Cho and Laura Lee’s Holiday Lantern Festival, just pick up a copy of the NEW powder puff paper that Jerry Bernstein and LaPalma SocialiteLarry ‘The Rug’ Caballero! GREAT WORK COMMUNITY NEWS! Keep their feet to the fire!

  6. Time To Fumigate Cerritos City Hall! Reply

    October 10, 2013 at 1:03 pm

    It is obvious that the Cerritos City Council were co-conspirators in the now-exposed Cerritos Redevelopment Scandal but Cerritos’ ‘Guns For Hire’ should be routed as well; City Manager Art Gallucci Must Go! Hired-Gun Vita Barrone Must GO (This is the time if ever for an Elected City Clerk! – Someone that lives in Cerritos with an investment in the community – not some hired gun!) Mark Steres / Brown Winfield Canzoneri – the ‘Legal Eagles’ who have laid a Multi-Million Dollar Rotten Egg – Must GO! Kathy Matsumoto, former Galucci Secretary promoted to Asst. City Manager – Must GO! Becky ‘Moneymover’ Lingad – Must GO! Time to fumigate Cerritos City Hall! CLEAN HOUSE, SWEEP THEM ALL OUT!

  7. RECALL THE CROOKED CERRITOS CITY COUNCIL! Reply

    October 10, 2013 at 12:05 pm

    I read the article carefully:

    The city council tried to game the system and got caught red handed- They ‘sold’ themselves back property worth $78M (at least) for just $11M so they could double dip- they used REDEVELOPMENT laws that they twisted into pretzels and now want to play the victim – the PEOPLE of Cerritos are not being victimized by the State – It is the CROOKED CITY COUNCIL that conspired to DEFRAUD the State (All of US Tax Payers) and the people of Cerritos!

    I Say RECALL THE ENTIRE CITY COUNCIL NOW!
    Bruce Barrows (25 years at the government tit) and Realtor Carol Chen are ring leaders yes but Cho and Pulido are just as culpable for not questioning these shaky deals.

    Shame on Mark Pulido who had access to high-level information through his boss Sen. Alan Lowenthal and yet still rubber-stamped this travesty!

    Cho was always a double-dealing ‘Developer’ – George Ray runs a big corporation so he is used to shaking down the government.

    DUMP THE CERRITOS CITY COUNCIL – Time to CLEAN HOUSE IN CERRITOS!

  8. Don Loper Reply

    October 9, 2013 at 5:32 pm

    The residents of Cerritos have been fed a crock of shi* from City Hall for DECADES! Today the TRUTH FINALLY CAME OUT! SHAME on US for allowing our city council and city officials to have gotten away with these misdeeds for YEARS! Time for some RESIGNATIONS, starting at the TOP with City Manager Art Gallucci and the City Attorney. Where is Mayor Bruce Barrows? Get rid of Barrows, and Carol Chen, and Joseph Cho, and shame on Geroge Ray for “playing along” with the game and defending these BOZO’S! Good for the State Controller!

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