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Heads up Twentynine Palms City Hall Establishment…

PE.com, March 11, 2013:  SAN BERNARDINO: State demands another $15.2 million

The finance department says it’ll dock San Bernardino’s future tax proceeds if it doesn’t hand over redevelopment funds.

The state Department of Finance is warning that it could dock some of San Bernardino’s future tax proceeds if the city does not hand over $15.2 million in former redevelopment funds — a dispute that could cause the city to become the first in California to face costly post-redevelopment penalties.

In a strongly worded letter, the city’s attorney threatened a court fight if the state seeks to collect the money. City Attorney James Penman said San Bernardino’s pending bankruptcy case supersedes the state’s authority to extract former city redevelopment money.

The order by the state Finance Department to comply by April 3 is the latest financial blow to a city that has struggled to fund its daily operations since declaring bankruptcy last year. City officials have slashed services and deferred millions of dollars in debt in order to erase a $45.8 million deficit.

“If we paid the money, (San Bernardino) city government would cease to exist,” Penman said in an interview.

Any collection action by the state would be illegal and opposed in bankruptcy court or other venues by the city, he said. Penman also demanded, in identical letters to Finance Director Ana Matosantos and Controller John Chiang, that their agencies promise by the end of the week that they will not try to get the money.

The controller’s office had no comment on Penman’s letter.

Department of Finance spokesman H.D. Palmer said the department has never used its power to garnish a local government’s tax revenue and wants to work with San Bernardino.

“These are only tools that would be a last resort,” Palmer said Monday.

California used to have about 400 redevelopment agencies, with some of the largest in Riverside and San Bernardino counties. The state abolished the anti-blight agencies on Feb. 1, 2012, and successor agencies were created to settle redevelopment debt.

Last week, the state controller’s office released a review finding that San Bernardino had failed to properly transfer about $529 million in former redevelopment agency assets and ordered that they be turned over to its successor agency.

That warning from the Department of Finance is a separate issue that also involves the successor to the city’s redevelopment agency, state officials said.

In a Feb. 12 letter to the city, the agency stated that it objected to two uses of low- and moderate-income housing funds by the city’s former redevelopment agency.

One involved a $15 million payment to a company called Affordable Housing Solutions Inc. and the other was a $200,000 payment that was part of a development agreement with In-N-Out Burger. The reasons for the state’s objections were not explained in the letter.

Penman said both were legitimate redevelopment projects for which the city provided supporting documentation to the state.

In a March 4 follow-up letter, the Department of Finance said San Bernardino’s redevelopment successor agency must hand over the $15.2 million in low- and moderate-income housing money within 30 days. The money would go to the county auditor-controller who would distribute it to other local entities, with most going to schools. The city would get a portion of the funds, albeit a smaller amount.

The finance letter warns that if San Bernardino officials refuse to cooperate, the state could move to garnish the city’s share of sales tax and property tax money, measures allowed by a 2012 law. It also could sue the city.

In addition, “failure to remit the funds identified above could expose certain individuals to criminal penalties under existing law,” the February letter stated. [Emphasis added]

Penman said the letters were filled with “inaccurate statements and incorrect calculations.”

Much more on this story by staff writers IMRAN GHORI AND JIM MILLER - Goto Press Enterprise