State says San Bernardino mishandled over $500M

SAN BERNARDINO, Calif. (AP) -- San Bernardino failed to transfer more than $500 million in redevelopment funds, California's controller said in a report ordering the bankrupt city to pay properly.

The city illegally moved $108.3 million to the San Bernardino Economic Development Corp., which is an entity under the city's control, and is wrongly holding onto another $420.5 million, according to the report state Controller John Chiang released Wednesday.

The state last year dissolved its local redevelopment agencies, about 400 in all, which were used by cities to generate funds for betterment projects using property tax revenue. The cities were required to transfer the funds to so-called "successor agencies" responsible for completing existing projects, clearing out debt and dispersing excess cash to core public services.

San Bernardino should have given all of the $529 million to its successor agency, and the report says the city is now "ordered to transfer these assets."

"I'm working to make sure redevelopment assets go where they belong,"

In a letter responding to a November draft of the report, City Manager Andrea Travis-Miller said the allegations were false and the nonprofit San Bernardino Economic Development Corp. was not under the city's control.

She left her post in January, and the new city manager, Allen Parker, did not immediately return a call from The Associated Press on Thursday.

The city conceded that it transferred the $108 million in assets to the San Bernardino Economic Development Corp. in March 2011 in an attempt to keep it from the state.

But Jim Morris, chief of staff to Mayor Pat Morris, said the move was "completely legal" at the time and later validated in court. Only a year later did the Legislature redefine what kind of transfers were allowed.

"The whole purpose of it was to preserve economic development opportunities for a city that desperately needs it," Morris told the Riverside Press-Enterprise.

City Council members plan to meet soon to decide how to respond to Chiang.

San Bernardino, located 60 miles east of Los Angeles, filed for bankruptcy protection in August after learning it faced a $46 million deficit.

The City Council is being sued by a long list of creditors and has voted to freeze vacancies in the Police Department and cut the Fire Department.

Assemblyman Mike Morrell, who represents most of San Bernardino, said the new burden may be more than San Bernardino can handle.

"I just wonder if the city has the rest of the money to transfer," Morrell, D-Rancho Cucamonga, told the Press-Enterprise. "It's a lot of money."