Bankrupt San Bernardino doesn’t want to give the state $528.9 million it says it is owed, but it’s not necessarily because the city is, you know, bankrupt.

City officials say the state is wrong in pursuing millions from its now-defunct redevelopment agency, claiming that the assets reside in forms and in places that can’t be touched. State Controller John Chiang wants the money.

The Southern California city of 209,000 declared bankruptcy in July 2012, facing a budget shortfall of $45.8 million.  

The governor and lawmakers killed redevelopment agencies last year for budgetary reasons, abruptly dismantling a government apparatus that distributed $5 billion a year from property taxes to 400 communities. The governor proposed the change in January 2011. Agencies knew it was over in February 2012, and in July received official notices from the state ordering that they immediately turn over any redevelopment assets still in their possession.

Many have not. Dozens of municipalities are fighting in court; others are just obfuscating and delaying. Before San Bernardino shut down its redevelopment agency, as ordered, it moved $108.4 million in assets to the nonprofit San Bernardino Economic Development Corp. to shield it from the state. Those assets include the historic California Theatre of the Performing Arts, Sturges Center for the Fine Arts and San Manuel Stadium.

Another $420.5 million that was also supposed to be shuttled to a successor agency was held on to by the city. But some of those assets may be difficult to access, since they don’t really exist. They are accounting entries, not assets.

“Specifically, they were informed that $193,955,410 represented an accounting entry of an ‘Amount to be Provided for Long Term Debt,’ which is an off-set to bonds payable and is not a tangible asset,” according to a report by Controller Chiang.. Another $64.7 million are accounts receivables that are offset by accounts payable, neither of which are tangible assets.

Redevelopment agencies, which have been around since 1945, are mostly creatures of city governments, and ostensibly focused on urban renewal. They have been criticized for wasting money on undeserving projects and interfering with private development. Supporters point to numerous worthwhile projects, like affordable housing, that would not otherwise have been built, using a conduit to state funding desperately needed in difficult economic times.

Some questioned the legality of moving the $108.4 million back in 2011. The San Bernardino Sun quoted City Attorney James F. Penman as saying early on, “This nonprofit idea may be one of the more creative ones. But even if it isn't money laundering, it has the appearance of money laundering, and even if it's not a shell game, it has the appearance of a shell game, and I don't think the city is going to get away with it.”

He could be right.

–Ken Broder

To Learn More:

San Bernardino Landmarks Face Uncertain Future under Redevelopment Shuffle (by Josh Dulaney, San Bernardino Sun)

State Slams San Bernardino in Redevelopment Assets Review (by Abby Sewell, Los Angeles Times)

State Battling Cities over Redevelopment Billions (by Ken Broder, AllGov California)

City of San Bernardino Economic Development Agency Asset Transfer Review (California State Controller) (pdf)