The Del Norte County auditor-controller's office is questioning how the city, which acts as the successor agency to the defunct Crescent City Redevelopment Agency, is handling revenue it has received from repayments of loans the RDA had made.

City Finance Director Ken McDonald said there is a difference of opinion between the auditor-controller and the successor agency over how it should be handled.

"There's no hiding of money or doing anything illegal on this," McDonald said, adding that with new legislation being passed in Sacramento, things are constantly changing. "The (state) Department of Finance has been OK with everything we sent them."

Crescent City became the successor to the RDA after a state law took effect in February that eliminated redevelopment agencies statewide. The city assumed the agency's assets, liabilities and debts, including some $1.76 million in RDA debt obligations, $377,000 in outstanding loans and five parcels of property.

The state law was designed to help shrink California's budget shortfall by sending more property tax revenue to cities, counties, schools and special districts. Previously, tax revenues from redevelopment areas were returned to the agencies for future projects.

In June, the dissolution of the RDA became further complicated when the Legislature approved Assembly Bill 1484. That bill changed the original law that eliminated RDAs and affected the repayment of two major local loans, including one from the city's water fund to the redevelopment agency.

There is some discrepancy over what money should be used to pay off the RDA's loans and what money should be passed through to the city, county, school district and special districts.

The new legislation requires that funds the successor agency receives from loans the RDA gave out should be given to the auditor-controller's office to be disbursed to the city, county, school districts and special districts, according to county Auditor-Controller Clinton Schaad. Only revenue the successor agency receives through property taxes can be used to pay its loan obligations, he said.

"My position is any money received by the city for those loans needs to come directly to the county auditor to be disbursed to taxing entities," Schaad said. "The city finance director and myself don't agree with what's happened with those funds."

City Manager Eugene Palazzo said the revenue that comes into the successor agency through property taxes goes to the auditor-controller, who disburses it to pay for the agency's loan obligations and any other payments. Any loan payments the successor agency receives is placed in the same fund.

At the end of the year, Palazzo said, the city will report on the amount that has been received through loans payments and property taxes. Any other funds left over, including funding from loan payments, will be sent to the auditor-controller so he can distribute that to the city, county, school and special districts, Palazzo said.

"Ken (McDonald) and the auditor are not agreeing on the process," Palazzo said. "We'll work with him and we'll either change it or agree to disagree."

In a verbal report to the Board of Supervisors on Tuesday, Fifth District Supervisor David Finigan said the successor agency submitted a loan payment schedule to the state Department of Finance without it being certified by the auditor-controller's office. The loan payment schedule also wasn't approved by the board tasked to oversee the dissolution of the RDA, he said.

"There has not been a willingness to share all this financial information," Finigan said. "It's like pulling teeth sometimes. They are not very forthcoming, not transparent at all."

McDonald, however, said the city provided the oversight board and the auditor-controller's office with the information on the loan payment schedule as part of a staff report for the May 9 board meeting. The city never submitted the loan payment schedule to the state Department of Finance, McDonald said, adding the department must have viewed the document that was posted on its website.

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