City of San Jose et al v. Office of the Commissioner of Baseball et al

Filing 26

REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF MOTION TO DISMISS PLAINTIFFS COMPLAINT re 25 filed by Office of the Commissioner of Baseball, Allan Huber "Bud" Selig. (Attachments: # 1 Exhibit-A, # 2 Exhibit-B, # 3 Exhibit-C, # 4 Exhibit-D, # 5 Exhibit-E, # 6 (Proposed) Order) (Keker, John) (Filed on 8/7/2013) Text modified on 8/7/2013 (fff, COURT STAFF).

EXHIBIT D

REDEVELOPMENT AGENCY
OF THE CITY OF SAN JOSE
ASSET TRANSFER REVIEW
Review Report
January 1, 2011, through January 31, 2012

JOHN CHIANG
California State Controller

March 2013

JOHN CHIANG
California State Controller
March 21, 2013

Debra Figone, Executive Officer
City of San Jose/Successor Agency
200 E. Santa Clara, 17th floor
San Jose, CA 95113
Dear Ms. Figone:
Pursuant to Health and Safety (H&S) Code section 34167.5, the State Controller’s Office (SCO)
reviewed all asset transfers made by the Redevelopment Agency of the City of San Jose (RDA)
to the City of San Jose (City) or any other public agency after January 1, 2011. This statutory
provision states, “The Legislature hereby finds that a transfer of assets by a redevelopment
agency during the period covered in this section is deemed not to be in furtherance of the
Community Redevelopment Law and is thereby unauthorized.” Therefore, our review included
an assessment of whether each asset transfer was allowable and whether it should be turned over
to the Successor Agency.
Our review applied to all assets including, but not limited to, real and personal property, cash
funds, accounts receivable, deeds of trust and mortgages, contract rights, and rights to payment
of any kind. We also reviewed and determined whether any unallowable transfers of assets to the
City or any other public agencies have been reversed.
Our review found that the RDA transferred assets of $492,652,200, which includes unallowable
transfers totaling $148,090,481, or 30.06%, that must be turned over to the Successor Agency.
However, in January of 2013 and in October of 2012, the City approved and returned cash to the
Successor Agency for reported unallowable transfers in the amounts of $10,155,043 and
$726,214, respectively, as described in Findings 3 and 4 of the Findings and Order of the
Controller section of this report. The City need not make any further transfers of these amounts.

Debra Figone, Executive Officer

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March 21, 2013

If you have any questions, please contact Steven Mar, Bureau Chief, Local Government Audits
Bureau, at [phone].
Sincerely,
Original signed by

JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
JVB/bf
cc: Vinod Sharma, Director of Finance
County of Santa Clara
Irene Lui, Controller-Treasurer
County of Santa Clara
Steven Szalay, Local Government Consultant
California Department of Finance
Richard J. Chivaro, Chief Counsel
State Controller’s Office
Moises Laurel, Audit Manager
Division of Audits, State Controller’s Office
Daniela Anechitoaie, Auditor-in-Charge
Division of Audits, State Controller’s Office

City of San Jose

Asset Transfer Review

Contents
Review Report
Summary ............................................................................................................................

1

Background ........................................................................................................................

1

Objectives, Scope, and Methodology ...............................................................................

2

Conclusion ..........................................................................................................................

2

Views of Responsible Officials..........................................................................................

3

Restricted Use ....................................................................................................................

3

Findings and Orders of the Controller ................................................................................

4

Schedule 1—Unallowable Asset Transfers to the City of San Jose ................................... 10
Schedule 2—Unallowable Asset Transfers to San Jose Diridon Authority ...................... 11
Attachment—City’s Response to Draft Review Report

City of San Jose

Asset Transfer Review

Asset Transfer Review Report
Summary

The State Controller’s Office (SCO) reviewed the asset transfers made
by the Redevelopment Agency of the City of San Jose (RDA) for the
period of January 1, 2011, through January 31, 2012. Our review
included, but was not limited to, real and personal property, cash funds,
accounts receivable, deeds of trust and mortgages, contract rights, and
any rights to payments of any kind from any source.
Our review found that the RDA transferred assets of $492,652,200,
which includes unallowable transfers totaling $148,090,481, or 30.06%,
that must be turned over to the Successor Agency.
However, in January of 2013 and in October of 2012, the City of San
Jose (City) approved and returned cash to the Successor Agency for
reported unallowable transfers in the amounts of $10,155,043 and
$726,214, respectively, as described in Findings 3 and 4 of the Findings
and Orders of the Controller section of this report. The City need not
make any further transfers of these amounts.

Background

In January of 2011, the Governor of the State of California proposed
statewide elimination of redevelopment agencies (RDAs) beginning with
the fiscal year (FY) 2011-12 State budget. The Governor’s proposal was
incorporated into Assembly Bill 26 (ABX1 26, Chapter 5, Statutes of
2011, First Extraordinary Session), which was passed by the Legislature,
and signed into law by the Governor on June 28, 2011.
ABX1 26 prohibited RDAs from engaging in new business, established
mechanisms and timelines for dissolution of the RDAs, and created RDA
Successor Agencies to oversee dissolution of the RDAs and
redistribution of RDA assets.
A California Supreme Court decision on December 28, 2011 (California
Redevelopment Association et al. v. Matosantos), upheld ABX1 26 and
the Legislature’s constitutional authority to dissolve the RDAs.
ABX1 26 was codified in the Health and Safety (H&S) Code beginning
with section 34161.
In accordance with the requirements of H&S Code section 34167.5, the
State Controller is required to review the activities of RDAs, “to
determine whether an asset transfer has occurred after January 1, 2011,
between the city or county, or city and county that created a
redevelopment agency, or any other public agency, and the
redevelopment agency,” and the date at which the RDA ceases to
operate, or January 31, 2012, whichever is earlier.

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City of San Jose

Asset Transfer Review

The SCO has identified transfers of assets that occurred during that
period between the RDA, the City, and/or other public agencies. By law,
the SCO is required to order that such assets, except those that already
had been committed to a third party prior to June 28, 2011, the effective
date of ABX1 26, be turned over to the Successor Agency. In addition,
the SCO may file a legal order to ensure compliance with this order.

Objectives, Scope,
and Methodology

Our review objective was to determine whether asset transfers that
occurred after January 1, 2011, and the date upon which the RDA ceased
to operate, or January 31, 2012, whichever was earlier, between the city
or county, or city and county that created an RDA, or any other public
agency, and the RDA, were appropriate.
We performed the following procedures:
 Interviewed Successor Agency personnel to gain an understanding of
the Successor Agency operations and procedures.
 Reviewed meeting minutes, resolutions, and ordinances of the RDA
and the City.
 Reviewed accounting records relating to the recording of assets.
 Verified the accuracy of the Asset Transfer Assessment Form. This
form was sent to all former RDAs to provide a list of all assets
transferred between January 1, 2011, and January 31, 2012.
 Reviewed applicable financial reports to verify assets (capital, cash,
property, etc.).

Conclusion

Our review found that the RDA transferred assets of $492,652,200,
which includes unallowable transfers totaling $148,090,481, or 30.06%,
that must be turned over to the Successor Agency.
However, in January of 2013 and in October of 2012, the City approved
and returned cash to the Successor Agency for reported unallowable
transfers in the amounts of $10,155,043 and $726,214, respectively, as
described in Findings 3 and 4 of the Findings and Orders of the
Controller section of this report. The City need not make any further
transfers of these amounts.
Unallowable Assets Transferred:
Unallowable assets transferred to City of San Jose
Unallowable assets transferred to San Jose Diridon
Development Authority

$ 118,952,754

Total Unallowable Transfers

$ 148,090,481

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29,137,727

City of San Jose

Asset Transfer Review

Details of our findings and orders are in the Findings and Orders of the
Controller section of this report. We also have included a detailed
schedule of assets to be turned over to, or transferred to, the Successor
Agency.
The agencies named above, as recipients of the unallowable asset
transfers, are ordered to immediately reverse the transfers and to turn
over the assets identified in this report to the Successor Agency (see
Schedules 1 and 2).

Views of
Responsible
Officials

We issued a draft review report on November 6, 2012. Ms. Debra
Figone, Executive Officer, responded by letter dated November 15,
2012. The City’s response is included in this final review report as an
attachment.

Restricted Use

This report is solely for the information and use of the City of San Jose,
the San Jose Diridon Development Authority, City of San Jose/Successor
Agency, the Successor Agency Oversight Board, and the SCO; it is not
intended to be and should not be used by anyone other than these
specified parties. This restriction is not intended to limit distribution of
this report, which is a matter of public record when issued final.

Original signed by
JEFFREY V. BROWNFIELD, CPA
Chief, Division of Audits
March 21, 2013

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City of San Jose

Asset Transfer Review

Findings and Orders of the Controller
FINDING 1—
Unallowable asset
transfers to the
City of San Jose

The Redevelopment Agency of the City of San Jose (RDA) made
unallowable asset transfers of $108,071,497 to the City of San Jose
(City). All of the property transfers occurred during the period January 1,
2011, through January 31, 2012, and the assets were not contractually
committed to a third party prior to June 28, 2011. These assets consisted
of capital assets and a business interest in an Owners Operating
Participating Agreement (OOPA).
Unallowable asset transfers were as follows:
 In March 2011, the RDA transferred capital assets of $97,071,497 in
land and improvements to the City. To accomplish those transfers, a
Cooperation Agreement was entered into on March 8, 2011, between
the City and the RDA.
The Cooperation Agreement states:
It was always the intent of the parties that upon completion of the
public facilities, the Agency would transfer title to such properties
to the City.” However, a staff memorandum of Board Agenda Item
8.2 dated March 4, 2011, states, “given the current uncertainties
surrounding state legislation related to the Agency, it is prudent that
the Agency transfer to the City certain properties that were acquired
and developed, or are to be developed as public facilities for the
benefit of the community. . . .

 In March 2011, the RDA entered into an Assignment Agreement with
the City to transfer all of the RDA’s right, title, and interest in an
OOPA to the City.
The purpose of the transfer was to compensate the City for its funding
commitments for real improvements to the Montague Expressway
pursuant to the North San Jose settlement agreement entered into on
November 16, 2006. In that agreement, the City agreed to provide
funding to Santa Clara County up to an amount not to exceed $11
million. The settlement agreement was a result of the City of Santa
Clara, County of Santa Clara, and the Santa Clara Redevelopment
Agency filing a petition for a writ of mandate challenging the City of
San Jose and RDA’s approval of the North San Jose Project.
Pursuant to Health & Safety (H&S) Code section 34167.5, a
redevelopment agency may not transfer assets to a city, county, city and
county, or any other public agency after January 1, 2011. Those assets
should be turned over to the Successor Agency for disposition in
accordance with H&S Code section 34177(d) and (e). However, it
appears that some of those assets may be subject to the provisions of
H&S Code section 34181(a). H&S Code section 34181(a) states:
The oversight board shall direct the successor Agency to do all of the
following:
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City of San Jose

Asset Transfer Review

a)

Dispose of all assets and properties of the former redevelopment
agency; provided however, that the oversight board may instead
direct the successor agency to transfer ownership of those assets
that were constructed and used for a governmental purpose, such
as roads, school buildings, parks, police and fire stations, libraries,
and local agency administrative buildings to the appropriate public
jurisdiction pursuant to any existing agreements relating to the
construction or use of such an asset. . . .

Successor Agency’s Response
As noted in the Asset Transfer Review, in March, 2011, the RDA
transferred to the City pursuant to the Cooperation Agreement
referenced above various properties that were acquired and developed,
or to be developed, as public facilities for the benefit of the community
pursuant to Health and Safety Code Section 33445. These government
purpose properties consist of parcels required for a read extension, a
public theater, convention center expansion and parking, and a public
plaza.
Although title to these properties was initially held by the former
redevelopment agency, these properties were always public facilities
that were intended to be transferred to and owned by the City.
Furthermore, as mentioned above, at the time the transfer to the City
occurred, there was no legal prohibition on the transfer of these
properties to the City. Furthermore, Health and Safety Code Section
34181 (a) provides that the Oversight Board may direct the Successor
Agency to transfer governmental purpose assets to the appropriate
public entity. Ordering the City to return the assets to the Successor
Agency only to have the Oversight Board direct that they be returned to
the City is simply form over substance and wastes valuable time,
energy and resources to arrive at the same result.
As pointed out in the Asset Transfer Review, the purpose of this
assignment was to compensate the City for its funding commitments of
$11 million for public improvements to the Montague Expressway
pursuant to a settlement agreement among the City, the RDA, the
County of Santa Clara, the City of Santa Clara and the City of Milpitas.
The RDA and the City always intended that the RDA would pay for
such public improvements under the provisions of Health and Safety
Code Section 33445. The City relied on the RDA’s funding
commitment and would not have entered into the Settlement
Agreement on the terms set forth therein without that commitment.

SCO’s Comment
The City feels that this finding is “simply form over substance and
wastes valuable time, energy and resources to arrive at the same result;”
however, the legislation is clear that the oversight board shall have the
authority to dispose of all assets and properties of the former
redevelopment agency (Health and Safety Code Section 34181 (a)). Any
attempt to deny the oversight board its rights would be thwarting the
intent of the legislation.

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City of San Jose

Asset Transfer Review

The City may have always intended that the RDA would fund the
improvement for the Montague Expressway, but the settlement
agreement states that the City will pay for the improvements. In other
sections of the settlement agreement where the RDA was the presumed
party, the term “Agency” is used. Any attempt to revise this agreement
and transfer the funds to the City is unallowable under H&S 34167.5.
The finding remains as written.
Order of the Controller
Based on H&S Code section 34167.5, the City is ordered to reverse the
transfer of assets, described in Schedule 1, in the amount of
$108,071,497, and return the assets to the Successor Agency. The
Successor Agency is directed to properly dispose of those assets in
accordance with H&S Code sections 34177(d) and (e) and 34181(a).

FINDING 2—
Unallowable asset
transfer to the
San Jose Diridon
Development
Authority

The RDA made unallowable asset transfers of $29,137,727 to the
San Jose Diridon Development Authority (Authority), a joint powers
authority made up of the City and the RDA. All of the property transfers
occurred during the period of January 1, 2011, through January 31, 2012
and the assets were not contractually committed to a third party prior to
June 28, 2011.
In March 2011, the RDA transferred seven properties in the Diridon Area
to the Authority. To accomplish those transfers, a Joint Powers
Agreement was entered into on March 8, 2011, between the City and the
RDA, creating the Authority. The seven properties were subsequently
transferred by quit claim deed on March 8, 2011.
Pursuant to H&S Code section 34167.5, a redevelopment agency may
not transfer assets to a city, county, city and county, or any other public
agency after January 1, 2011. Those assets should be turned over to the
Successor Agency for disposition in accordance with H&S Code section
34177(d) and (e). However, it appears that some of those assets may be
subject to the provisions of H&S Code section 34181(a). H&S Code
section 34181(a) states:
The oversight board shall direct the successor agency to do all of the
following:
a)

Dispose of all assets and properties of the former redevelopment
agency; provided, however, that the oversight board may instead
direct the successor agency to transfer ownership of those assets
that were construed and used for a governmental purpose, such as
roads, school buildings, parks, police and fire stations, libraries,
and local agency administrative buildings to the appropriate public
jurisdiction pursuant to any existing agreements relating to the
construction or use of such an asset. . . .

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City of San Jose

Asset Transfer Review

Successor Agency’s Response
The draft Asset Transfer Review states that “All of the property
transfers [to the JPA] occurred during the period of January 1, 2011
through January 31, 2012”. However, there is no statutory or other
legal support for the State Controller’s Office to use a June 28, 2011
cutoff date for assets contractually committed to third parties.
In fact, Health and Safety Code Section 34167.5 states, in relevant part:
“If such an asset transfer did occur during that period and the
government agency that received the assets is not
contractually committed to a third party for the expenditure
or encumbrance of those assets, to the extent not prohibited by
state and federal law, the Controller shall order the available
assets to be returned…” Italics added.
Therefore, since certain properties transferred to the JPA were
contractually committed by the Option Agreement with AIG prior to
the State Controller’s review, such properties are not subject to an order
to return. The relevant provision of Section 34167.5, that “the asset is
not contractually committed”, is not ambiguous nor does it make
reference to the effective date of the legislation. Under the plain and
ordinary meaning of the statute, “is” means “is”. The only logical
reading of this provision is that the commitment must have been made
any time prior to the date of the Controller’s order. Therefore, the State
Controller’s use of June 28, 2011, as the cut-off date for contractual
commitments by third parties is inconsistent with the legislation and the
Controller has no authority to order the return of an asset that is
contractually committed to a third party.
In addition, any order to that effect would constitute an impairment of
AIG’s rights under the option Agreement which would be prohibited
under both state and federal law. The Diridon Authority would be in
breach of contract without recognizing the Option Agreement.
Therefore, we request that those assets contractually committed to AIG
under the Option Agreement be deleted from the final Asset Transfer
Review report.

SCO’s Comment
Pursuant to H&S Code section 34167.5, if an asset transfer occurred after
January 1, 2011, between the city that created the redevelopment agency
and the redevelopment agency, and the asset was not contractually
committed to a third party by the effective date of the law, which is
June 28, 2011, the available asset must be returned to the Successor
Agency. Furthermore, the Authority is considered under the control of
the City pursuant to H&S Code section 34167.10 because:


The Authority is a component unit of the city



The City and the Authority share common or overlapping boards



The City provides administrative and related business support

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City of San Jose

Asset Transfer Review

The RDA transferred the properties to the Authority in March 2011. On
November 8, 2011, the Authority committed those assets by entering into
an agreement with a third party, Athletics Investment Group, LLC, after
the effective date of the act.
Because the Authority is under the control of the City and the asset was
not contractually committed to a third party prior to June 28, 2011, the
asset transfer is unallowable under H&S Code section 34167.5.
The finding remains as written.
Order of the Controller
Based on H&S Code section 34167.5, the City is ordered to reverse the
transfer of assets described in Schedule 2, in the amount of $29,137,727
and return them to the Successor Agency. The Successor Agency is
directed to properly dispose of those assets in accordance with H&S
Code sections 34177(d) and (e) and 34181(a).

FINDING 3—
Unallowable Cash
Transfer to City
Housing Fund

The County of Santa Clara’s Agreed-Upon Procedures report, conducted
pursuant to H&S Code section 34182 and dated October 5, 2012,
disclosed an unallowed transfer of $10,155,043 (unrestricted cash) from
the RDA’s Low and Moderate Income Housing Fund (Fund No. 443) to
the City’s Affordable Housing Investment Fund (Fund No. 346).
The County reported that, pursuant to H&S Code section 34176, Low
and Moderate Income Housing Funds were to be excluded from assets
available for transfer to the City of San Jose Housing Agency. However,
the Housing Agency retained the funds on the premise the funds were
eligible for housing use through interpretation of AB 1484.
Order of the Controller
Pursuant to H&S Code section 34167.5, the City is ordered to transfer
cash of $10,155,043 to the Successor Agency. The Successor Agency is
directed to properly dispose of those assets in accordance with H&S
Code sections 34177(d) and (e).
In a conference of the SCO and City officials held on December 18,
2012, the City communicated that it would not contest the finding and
would return the $10,155,043 to the Successor Agency. On January 29,
2013, the City Council approved the return, and subsequently transmitted
copies of documentation in support of the transfer to the SCO.

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City of San Jose

FINDING 4—
Unallowable
Pension Payment
from Low and
Moderate Income
Housing Fund

Asset Transfer Review

The County of Santa Clara’s Agreed-Upon Procedures report, conducted
pursuant to H&S Code section 34182 and dated October 5, 2012,
disclosed an unallowed transfer of cash from the RDA’s Low and
Moderate Income Housing Fund, in the amount of $726,214, as a
prepayment to the pension plan representing an estimate of the
employer’s annual contribution. The unamortized balance of $726,214
represents 5/12ths of that payment and is included on the trial balance of
January 31, 2012 as a prepaid expense.
As further described in the report, the City’s Housing (Department)
benefitted by shifting a portion of its future pension costs to resources in
the Low and Moderate Income Housing Fund, which is not permitted by
H&S Code section 34176. Because the transfer is not allowed, the
resources would have been available as unrestricted (unencumbered)
housing cash and should have been appropriately transferred to the
Successor Agency. Unrestricted Low and Moderate Income Housing
assets are to be turned over to the County Auditor-Controller for
distribution to taxing entities.
Order of the Controller
Based on H&S Code section 34167.5, the City is ordered to return cash
in the amount of $726,214 to the Successor Agency. The Successor
Agency is directed to properly dispose of those assets in accordance with
H&S Code sections 34177(d) and (e).
On January 16, 2013, the City transmitted copies of documentation in
support of a transfer, made in October 2012, returning $726,214 to the
Successor Agency.

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City of San Jose

Asset Transfer Review

Schedule 1—

Unallowable Asset Transfers to the City of San Jose
January 1, 2011, through January 31, 2012
Autumn 456 Street Extension

$

Autumn 456 Street Extension (Akatiff Properties)

377,068
4,669,614

Autumn 456 Street Extension (435 W. Julian)

400,753

California Theater

67,675,958

Balback Parking Lot (Convention Center Expansion Site)

14,557,943

Block 1 Fairmont Hotel Plaza (Circle of Palms)

2,240,965

Convention Center Expansion

7,149,196

Transfer of Agency’s Business Interest in Owners Operating Participating Agreement
for the Fairmont Hotel (Montague Settlement)
Total Property & Business Interest Transfer

11,000,000
108,071,497

Pension Prepayment for Low and Moderate Income Housing Fund

726,214

Cash Transfer from Low and Moderate Income Housing Fund

10,155,043

Total Cash Transfer From Low and Moderate IHF

10,881,257

Total Asset Transfer to City of San Jose

$ 118,952,754

__________________________
1

See the Findings and Orders of the Controller section

2

These amounts are reported as book value.
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1, 2

City of San Jose

Asset Transfer Review

Schedule 2—

Unallowable Asset Transfers to San Jose Diridon Authority
January 1, 2011, through January 31, 2012
Downtown Mixed Use – 1050 South Montgomery Street

$$

6,356,158

Downtown Mixed Use – 115 South Autumn Street (510 W. San Fernando Street)

6,345,391

Downtown Mixed Use – 150 South Montgomery Street

6,250,860

Area Parking Lot – 8 South Montgomery Street

1,588,087

Downtown Mixed Use – 102 South Montgomery Street

1,234,923

Downtown Mixed Use – 92 South Montgomery Street

1,362,308

Downtown Mixed Use – 645 Park Avenue

6,000,000

Total

29,137,727

__________________________
1

See the Findings and Orders of the Controller section.

2

These amounts are reported as book value.

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1, 2

City of San Jose

Asset Transfer Review

Attachment—

City’s Response to
Draft Review Report

State Controller’s Office
Division of Audits
Post Office Box 942850
Sacramento, CA 94250-5874
http://www.sco.ca.gov

S13-RDA-900