The $3 Million is a Penalty. The $21.5 Million is a Journal Entry. There is No Money Coming From the State.
By: Libi Uremovic | Original Article at patch.com
Below is the transcript from the March 23, 2015 Beaumont Audit Workshop regarding the infamous $21.5 IOU to the City from the Redevelopment Agency listed on page 5 of the 2014 Audit.
City Treasurer Nancy Carroll can’t understand why the City doesn’t pay off the $3 Million fine owed to the State to receive $21.5 Million.
The $3 Million owed to the State is a penalty derived from improperly allocating RDA.
The $21.5 Million is an IOU from the RDA to the City. The State can/will only authorize the obligation from the RDA to the City. There will be no reimbursement or funds from the State.
The $21.5 Million is only a journal entry from the City’s left hand to its right hand. There is no money backing the journal entry. Think Enron.
The State has already rejected part of the City’s RDA claim; hence the $3 Million fine.
The State is currently demanding the City reverse another $6.5 Million for claims for 2011 alone: http://patch.com/california/banning-beaumont/findings-and-order-state-controller-0
The City claims the $21.5 Million IOU from the RDA for one very simple reason; the City has no other assets to claim.
23:30 White: On page 5 there’s the listing for the $21.5 Million to the RDA Successor Agency. That is managements’ responsibility to tell you that needs to be on this sheet; is that correct?
Hartzheim: It is. All these numbers are managements’ numbers, the City’s numbers.
White: So management determines, I think you’ve stated in two or three audits that it’s doubtful that will be collectable. If management were to determine that would not be collected; there’s nothing wrong with not including it in the financial statements going forward.
Hartzheim: If we know through the DOF, Department of Finance and the State Controller that there’s a potential to collect that; then it behoves us to leave it on there. If management tells us to take it off and we do that then we could maybe issue an Adverse Opinion because we know the number is probably not right. Because we know that $21.5 Million is on the ROPS, which is the Retired Obligation Payment Schedule and it’s an enforceable obligation right now. And from what we know from the DOF, and they haven’t told us otherwise, is that if the $3 Million gets paid back that was not properly transferred to the General Fund. When that gets paid back then it’s our understanding that the $21.5 Million will be paid as part of an enforceable obligation of the successor agency.
White: But you did issue an opinion that you don’t believe that it’s collectable, correct?
Hartzheim: I don’t believe we ever said that.
Knight: I was under the understanding that it was possibly collectable and that’s why it’s still there.
Hartzheim: Correct
Knight: Even if it is years and years from now.
Hartzheim: Correct
26:00 Carroll: I thought I had seen a note also that it was questionable and it was on the prior years’ [audits] also.
Aylward: Note 19 on the 2nd sentence says: “it is uncertain whether the $21.5 [million] advances to the Beaumont Successor Agency will be collectable due to the dissolution of the Redevelopment Agency.”
Carroll: In that particular instance; if you owed me $21 Million and all I had to do is pay you back $3 Million to get the $21 Million and I hadn’t done that for a very long period of time I think a lot of people would wonder why. In other words, I’m going to get more money if I hand you that $3 Million – you’re going to give me $21 Million back maybe. So, i’m not an auditor, but I would think you would want to delve in and question why that hadn’t been done. Now maybe that’s not your area because you just accept the information from management and just look at it with a certain amount of professional skepticism. But it seems to me that I’d really want to understand why year after year after year if you owed me $21 Million and all I had to do is give you $3 [Million] why that hadn’t been worked out.
Hartzheim: That’s not our place to say. The only thing I will say is that it’s a budgeting issue, a cash flow issue. The City’s going to pay what they can to pay that off.
Carroll: That makes a certain amount of sense, but remember; I’m going to borrow $3 Million from the CFDs if I need to for all of my other expenses, so it still seems like a really good idea for me to still take $3 Million out of that bucket and give it to you so you give me $21 Million back.
Hartzheim: You wouldn’t get the $21 Million all at one time. It’s paid with tax increments that the successor agency is entitled to. I don’t know what that schedule would be. Once the $3 Million is paid there will be a scheduled payback on the enforceable obligation. So what you need to do is speak to management and Council about why they aren’t paying this back fast. Someone mentioned that somewhere that i you paid it back faster you might get your $21 Million, but I don’t know how much you’d get. If you paid $3 Million and all of a sudden you’re only getting $100,000/year enforceable obligation for the next 2,200 years it wouldn’t be worth it.
Carroll: I appreciate you letting me know that I would not get it all in one sum. However; if I own all the buckets and I’m going to get paid back that money, even if it’s in small payments, all I have to do is take it out of the CFD bucket and write up a loan saying that I’m going to pay it back in payments and i’m still ahead of the game.
Hartzheim: If you can get it out of the CFD fund.
Carroll: We did for the General Fund, right, or not?
Hartzheim: For certain administration that I believe they were entitled to for doing the work on the CFDs. I don’t know if it can take any more.