Redevelopment agencies in Milpitas and Morgan Hill wrongly transferred hundreds of millions of dollars worth of assets prior to those agencies' dissolution last year by Gov. Jerry Brown, state Controller John Chiang announced Tuesday.
Those assets, which include real estate, cash and invested funds, must now be returned to both city's successor agencies, the mandated entities that are overseeing the end of their redevelopment agencies, according to Chiang's office.
If cities disagree with the reviews, they can appeal to the oversight board of their successor agency.
The controller's review of 400 former redevelopment agencies is required by a law signed last year by Brown that ultimately shut down the state's redevelopment agencies, diverting the property tax revenue they collect to schools and local governments.
Reviews of agencies in San Jose and Santa Clara, where both cities last year also moved agency assets to separate legal entities to avoid the state's clutches before the law took effect, are among the first 14 Chiang's office has undertaken. City officials in San Jose and Santa Clara expect the controller's office will issue reports on their assets in the next few weeks.
In particular, San Jose officials are awaiting Chiang's decision about their deal that allows A's co-owner Lew Wolff an option to buy six parcels of agency-owned land near Diridon Station for a Major League Baseball stadium.
The law that ended agencies on Feb. 1 of this year requires that all redevelopment assets transferred to a city, county or other public agency after Jan. 1, 2011, be returned to its successor agency unless the assets involved a deal with a third party by June 28, 2011. The successor agency's oversight board, made up of local appointees, can return an asset or property to a local government if it serves a "governmental purpose.''
Chiang's review of assets comes after many cities last year established what they said were separate legal joint powers authorities or economic development corporations, often overseen by their own city councils, which would allow them to protect their assets. At the time, however, the state's Department of Finance had warned all cities against such moves.
"My responsibility is to conduct these reviews as required by the legislature and courts, while also helping local governments to make sense of this process," said Chiang in a statement.
In Milpitas, the state controller's report says the city's redevelopment agency transferred $175.6 million in assets between January 1, 2011, and January 31, 2012. Of that, $96.9 million of prohibited asset transfers were made to the city and $50.2 million of prohibited asset transfers were made to the Milpitas Economic Development Corporation.
Chiang's office also found that an additional $87.6 million of redevelopment assets have not yet been transferred to the successor agency, and the report said it will require that to happen. In total, the audit determined that $234.7 million in redevelopment assets are owed to the RDA's successor agency.
Milpitas city officials could not be reached for comment on Chiang's review.
In Morgan Hill, Chiang's office found a total of $228.3 million in redevelopment agency assets were transferred between January 1, 2011, and January 31, 2012, of which $108.4 million was determined to be prohibited.
Of this amount, $88.6 million and $19.8 million must be returned by the city and the Morgan Hill Economic Development Corporation, respectively.
But the review also noted that some of the real estate transfers, including land Santa Clara County courthouse in Morgan Hill, may qualify as "government purpose," in which case the oversight board of the successor agency is authorized to transfer them to the appropriate local government.
Leslie Little, Morgan Hill's assistant city manager, said her office already had been working to transfer agency-owned public buildings back to the city when agencies were shut down on Feb. 1. But she said the community will be disappointed to have to return a handful of acres of land in downtown Morgan Hill that its redevelopment agency had set aside to help build up that area.
Meanwhile, in San Jose, City Attorney Rick Doyle on Tuesday reiterated that San Jose legally transferred nine Diridon properties to a newly created San Jose Diridon Development Authority in March 2011, well before the state's June 28, 2011, deadline.
Doyle has said that even if Chiang's office determines that six of the nine properties the city has offered the A's in an option agreement must be returned, a legal contract already has been signed between the two parties.
While the transfer of properties was authorized by the San Jose City Council in November, Doyle said there was nothing under California law in March 2011 when the San Jose Diridon Development Authority was created that prohibited the transfers.
Contact Tracy Seipel at 408 275-0140.
State Controller John Chiang's office is initially reviewing the transactions of 14 redevelopment agencies. Now that the Milpitas and Morgan Hill reviews are completed, here are the remaining 12:
Source: State Controller's office