CRA Paid $1.57 Million More Than Appraisals in 7 Deals, Audit Finds

The Los Angeles redevelopment agency bought seven properties for a combined $1.57 million more than the agency’s own appraisals said they were worth, according to an audit Monday that found “inadequate control” over agency finances.

The audit, commissioned by City Controller Rick Tuttle, found that the Community Redevelopment Agency failed to disclose the extra cost to the City Council. In addition, it said the CRA often failed to use competitive bidding in awarding contracts from 1996 through 1999.

Tuttle asked the district attorney to investigate, citing the audit findings and a private investigator’s report that “suggests the possibility of questionable or unlawful activity” within the agency.

“We have serious concerns about the management culture there, and about how taxpayer money is being used and accounted for,” Tuttle said. “This is not someone’s private piggy bank. This is taxpayer money.”

Tuttle said the audit did not find evidence that any specific CRA employee benefited financially from agency activities.

CRA Administrator Jerry Scharlin, who took over the agency 15 months ago, asked for the audit this summer after inquiries from The Times.

Scharlin sent a directive to agency staff Monday implementing 10 short-term changes in policy recommended by the auditor. They include a requirement that the city appraisal manager be in charge of all assessments, that two appraisals be done on each land purchase and that the results be disclosed to the City Council and CRA board.

The audit criticized the agency’s use of private consultants to relocate residents and businesses displaced by redevelopment. It said two firms got agency business--more than $550,000 worth--without competitive bids or written justification.

“The report by the controller indicates these are serious breakdowns,” Scharlin said. “This agency does need to focus on strengthening policies and internal controls.”

Scharlin had been criticized by some City Hall officials for paying a private detective more than $20,000 to look into all the topics covered in the Tuttle audit. Scharlin said the private investigator’s report was used by the Tuttle auditors.

The district attorney’s Special Investigations Division, which handles public corruption cases, will probably be assigned to examine the reports sent over by Tuttle, said Sandi Gibbons, a spokeswoman for the prosecutors.

“We will review it to determine if there will be a [criminal] investigation,” Gibbons said.

Councilman Joel Wachs, a candidate for mayor, said a county grand jury should investigate all the transactions. Wachs said he felt “betrayed” that agency officials had not disclosed that the purchase prices they asked the council to approve were higher than appraised values.

“You have professional people that you place your trust in,” Wachs said. “They have a duty to be honest with us.”

The Times disclosed in September that the agency paid a politically influential landowner $1.46 million for a Hollywood parking lot on Argyle Street that a city appraiser said was worth $795,000. The purchase was made as part of a plan to build a parking garage to serve Capitol Records.

Steve Ullman, whose investment firm sold the Argyle Street lot to the agency, said in an interview that he did it reluctantly at the request of officials of the mayor’s office because he was told it would help keep Capitol Records in Hollywood. He said the deal was not unfair to the city. Ullman, whose family has made many political contributions to city officials, said the initial CRA appraisal was inaccurately low, and he believes he could have sold the parcel to others for what the CRA paid.

This year, the council approved the sale of the lot to Capitol Records for $1.46 million.

That purchase by the city was the center of the Tuttle audit, conducted by a private auditing firm. For all seven properties combined, the agency paid a total of $1,572,315 more than city appraisers said they were worth, according to the report by the auditors. Two of the purchases--both for lots on Yucca Street--were part of the effort to keep Capitol Records in Hollywood.

In one case, the agency appraised the parcel at 6270 Yucca St., identified in the audit as owned by Soo C. Wong and H. Tung, at $69,000, but the agency paid more than twice as much, $145,000. In the other, for a parcel at 6272 Yucca St. owned by Stanley and Joyce Black, the agency appraisal said the lot was worth $385,000 but the agency paid $475,00, or $90,000 in excess of the appraised value.

The agency paid more than twice the $204,000 appraised value of a property at 252 S. San Pedro St. in Little Tokyo, according to the audit.

In two other transactions covered in the audit, agency officials added payments of $275,000 for “goodwill” to the appraised value--an effort to compensate intangible losses--boosting the seller’s price.

In each case, auditors said appraisal amounts were not disclosed to the CRA board and City Council, which approve the purchases.

“This lack of disclosure resulted in the misrepresentation by CRA staff of property acquisition information to the CRA board and City Council,” the audit concluded. “We believe if the appraisal amounts had been disclosed, certain property transactions may not have been approved or further negotiations might have taken place resulting in a potentially lower price.”

The audit said the CRA’s former relocation department manager was allowed to select contractors, authorize work, approve invoices and even pick up the checks from the accounts payable department for contractors.

One seller, Stanley Black, a prominent Beverly Hills real estate investor, said he thought the CRA got a good deal for the building. “They paid way less than it was worth,” Black said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Questions of Worth

The following properties were bought by the Los Angeles redevelopment agency for more than their appraised value.

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Location Appraised Value Price Paid 1. 6270 Yucca St. $69,000 $145,000 2. 6272 Yucca St. $385,000 $475,000 3. 1751 Argyle St. $795,000 $1,467,315 4. 252 S. San Pedro St. $204,000 $430,000 5. Block 29, Wilmington $987,000 $1,220,238

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Source: City of Los Angeles