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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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