HERCULES -- The state Controller's Office on Thursday published a review of the former Hercules Redevelopment Agency's asset transfers that challenges about $35 million in transactions from Jan. 1, 2011, through Jan. 31, 2012.

Hercules City Manager Steve Duran said recent property deals would stand, although some proceeds likely would go toward satisfying debts of the agency rather than those of the city. A spokesman for Controller John Chiang, Garin Casaleggio, said those deals would need approval by the oversight board of the redevelopment agency's successor agency as well as by the state Department of Finance.

Transactions deemed "unallowable" by the state office include the transfer of four properties valued at an aggregate $31.4 million from the redevelopment agency to the city in March 2011 to satisfy pre-existing debts, including loans from the city to the agency dating to the 1980s.

Also unallowable, according to the state office, is the transfer in December of little more than $4 million in redevelopment area tax increments to the city to pay back part of an August 2011 cash advance to the redevelopment agency to enable it to pay bond debt service. The city counters that the $4 million replenishes, and then only partly, the August 2011 advance, of $5.3 million.


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"At the end of the day, this is just accounting," Duran said, "and the RDA still owes the city millions more, which it'll never be able to pay."

The state office ordered the city to reverse the asset transfers and turn over the assets to the redevelopment agency's successor agency. The city itself is the successor agency to the redevelopment agency, but the successor agency exists as an entity distinct from the city. The state dissolved redevelopment agencies effective Feb. 1.

The four properties transferred in March 2011 from the Hercules Redevelopment Agency to the city are the 11.43-acre Sycamore Crossing at Sycamore and San Pablo avenues; the 17¼-acre so-called Parcel C, once owned by Wal-Mart and now slated for housing; the 6.37-acre Victoria Crescent along San Pablo Avenue north of Highway 4; and the so-called Yellow Freight property on Highway 4 on the eastern outskirts of the city.

The City Council agreed in January to sell Sycamore Crossing to a subsidiary of Safeway for $9.27 million. In June, the council authorized the sale of Parcel C to DeNova Homes for $8.75 million. And in August, the council authorized the city to negotiate with developer City Ventures for Victoria Crescent.

Yellow Freight was sold to a San Francisco company, closing escrow in January; the proceeds, about $1.2 million, went to pay back the city for advances to the redevelopment agency for bond payments.

Duran said the proceeds of the sales of Parcel C and Victoria Crescent will go to a court-approved settlement of a debt to bond insurer AMBAC for the tax increment funds diverted in 2011, and money owed to a construction company, Oliver & Co. Based on the controller's order, any surplus from those two sales now would go toward redevelopment agency debt rather than city debts, as would net proceeds of the sale of Sycamore Crossing, Duran said.

On Tuesday, the City Council will discuss transferring assets from the city to the successor agency in accordance with the controller's order.

Contact Tom Lochner at 510-262-2760. Follow him at twitter.com/tomlochner.

IF YOU GO
What: Hercules City Council
Where: Hercules City Hall, 111 Civic Drive
When: 7 p.m. Tuesday