OAKLAND -- State regulators have rejected Oakland's multimillion dollar accounting "gimmick" that helped balance its books two years ago, a move that severely cuts into the city's rainy day reserve.

Faced with a $58 million deficit in 2011, Oakland sold eight properties -- most notably the shuttered Henry J. Kaiser Convention Center -- to its redevelopment agency.

The transactions moved more than $32 million from the redevelopment agency into city coffers shortly before Gov. Jerry Brown eliminated the state redevelopment program and seized agency assets to help close the state's budget deficit.

There had been doubts from the start whether Oakland's move was permissible. Last month, Mayor Jean Quan said state auditors had told her the transactions would be reversed.

Under the state's order, Oakland returned $32.4 million Thursday in connection with the transactions. The city is moving the money under protest, retaining the option to challenge the ruling in court.

The funds, which were wired Thursday, will go to an agency that is winding down Oakland's redevelopment projects. The agency will split the $32.4 million among entities that collect local property tax with Oakland getting back about one-third of the funds.

The properties, including the Kaiser building, will be transferred back to the city.

Oakland already had set aside money in its reserve fund in anticipation of the state's action. The reserve had soared to $84 million last year, but now stands much closer to the $30 million required under the city's charter.


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The state's action came as Oakland continues working on a two-year budget. During a budget hearing Thursday, the city announced that tax revenue projections were being raised by $5.5 million through June 2015.

Council members proposed several priorities for available funds. Councilwoman Desley Brooks said non-public safety workers, whose contracts expire in June, should be given their first cost-of-living raise since before the financial crisis.

City labor negotiators are asking civilian workers to pay more for pension and health benefits at the same time the city's draft budget proposes hiring 160 new police officers.

Councilwoman Rebecca Kaplan said remaining funds should be used to fight illegal dumping and increase civilian jobs in the police department, such as evidence technicians.

"If we don't have people collecting evidence, we can't solve crimes," Kaplan said.

Civilian workers in the audience jeered Council members Libby Schaaf and Pat Kernighan when they said many of their constituents listed more police officers as their top concern.

Pointing to the city's major increase in robberies over the last two years, Kernighan said, "Let's not pretend that having an adequately staffed police department is not an important city function, because it is."

Contact Matthew Artz at 510-208-6435 or martz@bayareanewsgroup.com.