Technical assistance 17 1 0 1 14 3 7 7 36 for completing BIF Application 20% 1% 0% 1% 16% 3% 8% 8% 42%

Recommendations 10

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  Qualifications of GSD appraisers According to the City of Los Angeles Class Specification Bulletin(s), the Real Estate Officer and the Senior Real Estate Officer staff are each required to possess either a “State of California Certificate Appraisal License” or an International Right of Way Association (IRWA) Relocation Certificate.17 The California Certified Appraisal License has two levels, the residential and general license. It is not clear which “Certified” license is being referred to in the City specifications and there are significant differences.18 • A Certified Residential Appraiser license allows an appraiser to value “Any non-complex 1-4 unit family property with a value up to $1 million, and non-residential property with a value up to $250,000.”19 • The Certified General Appraiser license allows an appraiser to appraise all real estate without regard to value or complexity.”20 The Certified General license requires more strenuous education and experience. The City should clarify the level required in the “Class Specification Bulletins” for the Real Estate Officer and the Senior Real Estate Officer to specify which State of California Certificate Appraisal License is required. The CGJ believes if either one will suffice, it should be so stated. Additionally, equal to or higher designations such as an MAI (Member of the Appraisal Institute) should be allowed in lieu of a State of California Certified or the Certified General License. The CGJ believes that GSD staff assigned to estimate the value of excess City real estate should be required to possess an appropriate current State of California Certified 17 City of Los Angeles-Class Specifications Bulletin; Class Code: 1961; 1960. http://cityclerk.lacity.org/lacityclerkconnect 18 California Bureau of Real Estate Appraisers, 2015 Licensing Handbook, Summary of Each Licensing Level, p. 4. http://www.orea.ca.gov/html/Lic_Hdbk.html 19 Ibid. Ibid. 2015-2016 LOS ANGELES COUNTY CIVIL GRAND JURY FINAL REPORT 363 General License, and/or an appropriate designation for the property appraisal assignment, such as an MAI from the Appraisal Institute.
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  Class “C” Estimates of value The Class “C” Estimates of value that the CGJ has reviewed were used for “budgetary and/or information purposes” and included limited information. See Chart 2. Chart 2 Information in Class “C” Estimates YES NO Value Conclusion X Address and parcel number X Current property use X Building area X Lot area X Zoning X Topography X Highest and best use X Land value and improvement value conclusion X Total value conclusion X Data used to arrive at the value conclusion X Analysis used to arrive at value conclusion X Unusual or detrimental conditions X Approach to value-i.e. comparative sales, income, cost X Source: Betts, Richard M., and Ely, Silas, Basic Real Estate Appraisal, South-Western Educational Publishing (2005). The CGJ acknowledges that Class “C” Estimates are meant to be a shorter procedure to evaluate real estate. The CGJ requested attachments, if any exist, for the Class “C” Estimates. However, no response to the request was received, so attachments may not exist. The CGJ believes the estimates should include concise statements with the following information: the appraisal approach used to value the property, a list of data that supports the value conclusion, other relevant data affecting value, and an explanation of the analysis to arrive at the value conclusion. If another document has the supporting information it should be attached to the Class “C” Estimates. According to GSD, the Class “C” Estimates have never been audited. The Class “C” Estimates should be audited periodically. E. Real Estate Sales And Councilmembers “Discretionary Funds” The LAAC Section 5.500 states in sum that each Council District (CD) shall have a fund into which monies from City sales of surplus property will be deposited. “Fifty percent (50%) of all net proceeds collected from each sale (of surplus City real property) is deposited into the fund for the CD in which the property is located (Discretionary 364 2015-2016 LOS ANGELES COUNTY CIVIL GRAND JURY FINAL REPORT Funds or Council District Real Property Fund).”21 The Council District Real Property Fund (CDRPF) may be used by a Councilmember exclusively for his or her district for a variety of purposes including funding programs within the district or the construction or maintenance of improvements. Certain types of City property such as unused fire stations and animal shelters are exempt from this rule.22 In the years 2008-2009 and 2009-2010, Los Angeles City Ordinances, 180,206 and 180,764, respectively, amended this provision of the Administrative Code so that 100% of the net proceeds from the sale of surplus properties would instead be placed in the General Fund. These monies helped the City meet obligations in the slowing economy.23 An audit by the City Controller in 2010 indicated that from July 1, 1997, through September 30, 2009, $25 million had been deposited into the CDRPF that could have been used in the General Fund. It was suggested at that time that the ordinance suspending the 50/50 split be continued, but it was never acted upon.24 There have been many instances where properties were purchased in one Council District, and due to re-districting, the net proceeds from the property being sold were credited to a different district. Other instances show that property was purchased with monies 100% from the General Fund, but only 50% is returned to that Fund when the property was sold. Variances in property values, as well as the number of properties available and sold, in the different Council Districts affect the monies that are deposited into the CDRPF. There is, in fact, a huge discrepancy in funds received by the different districts from the sale of surplus land. LAAC § 5.500(a). http://cityclerk.lacity.org/lacityclerkconnect 22 November 7, 2014, CAO File No. 0150-08814-0001. http://cityclerk.lacity.org/lacityclerkconnect 23 Ordinances 180,206 and 180,764. http://cityclerk.lacity.org/lacityclerkconnect 24 “Follow up audit of GSD’s Asset Management Division, March 5, 2008. http://cityclerk.lacity.org/lacityclerkconnect 2015-2016 LOS ANGELES COUNTY CIVIL GRAND JURY FINAL REPORT 365 Chart 3 shows the proceeds that have been applied to CDRPF for the years 1998 through 2010. This information is the most up to date that the Los Angeles City Controller’s office can offer. Chart 3 Source: “Audit of Real Property Trust Fund Revenues,” reprinted from report of the Office of the Controller to the Chief Administrative Officer, City of Los Angeles, dated February 10, 2010.The CGJ was informed by the Los Angeles City Controller that the $48,750 entry to CD 13 in 2010 adjusted an incorrect entry from 2006. The Los Angeles City Council District Map (on the opposite page) corresponds with Chart 3.25 25 Source for the Los Angeles City Council District Map on is: http://navigatela.lacity.org/common/mapgallery/cd.cfm 366 2015-2016 LOS ANGELES COUNTY CIVIL GRAND JURY FINAL REPORT 2015-2016 LOS ANGELES COUNTY CIVIL GRAND JURY FINAL REPORT 367 F. Comparisons With Nine Other Cities Source: created by the CGJ using information collected in telephone calls with officials in the listed jurisdictions. Do you have a city Do you have/maintain a How many How do you dispose of real properties? surplus R.E. ordinance? complete/up to date real surplus/unneeded property database? properties are on Cities the list? We follow our Dallas City Currently we keep our records 8 By way of sealed bid or public auction. The Code (Section 2.26.4) in an access database. We will Texas Local Government Code list some Dallas along with the Texas local soon migrate to a web-based exceptions that allow direct sales for government code module that will house all city- affordable housing, economic development (Section 272). When owned property and their projects, entities with the power of eminent declaring a property characteristics. This module is domain and a few others. surplus, we do so by being created by our GIS resolution. department, and we are hopeful to go live in the next few months. Yes Yes, both surplus and managed Approximately Philadelphia city properties. 6500 The department of Public Property disposes of property through a process that uses the Philadelphia Industrial Development Corporation (PDIC) as an intermediary (required by the City Charter to use an authority for these transactions). Yes There are three separate real 20-30 Properties are declared surplus to individual estate groups within the City department needs: then canvassed to other Houston that maintain a surplus list, departments. If no department finds a need Airport, Public Works & for them, it is declared surplus to the City Engineering Department & needs via a City Council action. Then we try General Services. and sell the property through either a direct sale or hire a broker to list & market the property. Yes Did not respond 13,000 Competitive bidding, appraised value, reduced price in return for public benefit, Chicago reduced price to adjacent or neighboring homeowners. Yes Yes Did not respond After providing appropriate notice to local, state, and federal agencies, (affording them San Francisco the opportunity to acquire), then most sales are by either sealed bid or public auction process. Yes Yes, all surplus properties are 6 Market with our real estate staff. Website, on our city real estate website. listing websites, Costar, LoopNet, etc. Oakland No Yes 200 Direct to adjacent property owner, through market listing with a broker, through a Long Beach request for proposal solicitation. No, we go to ordinance Not at this time. Over 500 Given direction to dispose of property, for each property to be background information is gathered on the declared surplus. property, determination is made. Direct sale or competitive sealed bid, canvass property, order survey and appraisal, advertise property for competitive sealed bid, develop San Antonio marketing plan, bids are submitted and bidder is selected, notified, 10 days to sign & close. Yes Partial list, not a complete list. Over 1000 After declared surplus, auction or direct sale. Los Angeles Did not respond Did not respond Did not respond Did not respond New York 368 2015-2016 LOS ANGELES COUNTY CIVIL GRAND JURY FINAL REPORT Who makes the decision How many of these properties What was the Is any percentage of the sales price applied to sell these properties? have been sold in the past five total dollar for use by the City Councilmember in whose Cities years? amount sold? district the property was sold? Ultimately the Dallas City 43 $15 million No, any proceeds received will be credited to Council. the original purchasing department or find Dallas account. A request to purchase Department of Public Property $14,221,549 Philadelphia property comes from has sold 103 properties. This No, the proceeds are deposited into the either PIDC marketing does not include properties City’s general fund. efforts, City Council or sold through the Vacant interested parties Property Review Committee. contacting our Department. The Administration, in conjunction with the respective Council person, makes the decision to move forward with the sale. The director of the 26 $851,000,000 No, the funds generally go back into the General Services or the General Fund which is used for a variety of Houston Mayor’s Office (Chief purposes. Development Officer). The City Council Approximately 550 tax parcels $28,000,000 No, the funds go back to the account which was used to purchase the property. Chicago Did not respond Did not respond $50,000,000 in the No, proceeds go to affordable housing past 10 years. projects led by the mayor’s office of Housing San Francisco & Community Development. Administration after Did not respond Did not respond It depends if the revenues has already been following surplus lands budgeted/allocated it. If not Council as a Oakland act. whole can appropriate funds how they see fit. The Long Beach City 11 $5,040,000 No, except for the sale of the former Council, acting on behalf Redevelopment Agency parcels, 75% of the Long Beach of the City of the City’s shares of the proceeds of the sale Successor Agency of the (which are 21% of the net proceeds) are City of Long Beach reserved for use in the Project Area from which the properties are sold. Many project areas are within specific Councilmember’s Districts. Did not respond Did not respond Did not respond Did not respond San Antonio City Council 44 $36,179,575 50% Los Angeles Did not respond Did not respond Did not respond Did not respond New York 2015-2016 LOS ANGELES COUNTY CIVIL GRAND JURY FINAL REPORT 369 lll. METHODS AND PROCEDURES The CGJ reviewed Council Ordinances and decisions concerning surplus property disposition. Several newspaper articles detailing how the City handled real estate transactions were researched by CGJ. One particular article regarding the sale of one property that was sold without bid or auction appeared to be especially egregious and formed the beginning of this investigation. As the CGJ progressed, several other areas of concern began to appear, and we widened our scope of investigation to include those other areas as well. To understand this complex process, the CGJ interviewed the Chief Deputy Auditor Controller, met with a City Council member, GSD personnel, and the City and County RES staff. The CGJ also reviewed building and safety records, Municipal Ordinances, California law, court documents, City web sites, Los Angeles County Assessor’s Public Records, the “C” appraisal process and Class “C” Estimates, as well as Class “A” appraisals. The CGJ conducted a survey that compared how other municipalities used proceeds from the sale of surplus property. IV. FINDINGS
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  Fifty percent of most surplus real estate funds pass into Councilmembers’ Discretionary Funds.
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  Eleven properties were sold in 2014-2015 for a total value of $3,883,800.
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  Forty four properties were sold in the last five years for a total of $36,179,575.
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  Class” C” appraisals have never been audited.
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  The Surplus Property Procedure can take up to 2.5 years, or more.
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  The City Council makes the decision to declare property surplus and to offer it for sale.
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  Oakland lists surplus properties on its city website.
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  Of the nine other largest cities surveyed, no other city applies any funds from the sale of surplus property into City Council members’ discretionary funds. 370 2015-2016 LOS ANGELES COUNTY CIVIL GRAND JURY FINAL REPORT V. RECOMMENDATIONS 17.1 The Los Angeles City Controller should implement a full and comprehensive audit of General Services Division/Real Estate Services and their operations relating to the sale of surplus city land within the next 12 months. 17.2 The City of Los Angeles should install an up-to-date computer inventory program to provide a comprehensive inventory of all real estate holdings in the City within the next 12 months. 17.3 The Los Angeles City Council should , enact an ordinance stating that all proceeds from surplus real estate sales be deposited into the General Fund. 17.4 The City of Los Angeles should list all surplus property available on its General Services Division/Real Estate Services website within two years. 17.5 The City of Los Angeles should update the Surplus Property Procedure to lessen the time needed to complete a sale 17.6 The City of Los Angeles should instruct the Los Angeles City Controller to conduct an audit of the Class “C” Estimates every two years. 17.7 The City of Los Angeles should clarify the class specifications for the Real Estate Officer and the Senior Real Estate Officer so that the specific type(s) of California Certified Appraisal Licenses are stated. If both are sufficient, the specifications should be modified 17.8 The City of Los Angeles should appoint a dedicated manager to direct General Services Division/Real Estate Services whose focus is to implement a plan to reasonably sell surplus real estate at or above appraised value. VI. REQUEST FOR RESPONSE California Penal Code Sections 933(c) and 933.05 require a written response to all recommendations contained in this report. Such responses shall be made no later than ninety (90) days after the Civil Grand Jury publishes its report (files it with the Clerk of the Court). Responses shall be made in accord with the Penal Code Section 933.05(a) and (b). 2015-2016 LOS ANGELES COUNTY CIVIL GRAND JURY FINAL REPORT 371 All responses to the recommendations of the 2015-2016 Civil Grand Jury must be submitted on or before September 30, 2016, to: Presiding Judge Los Angeles County Superior Court Clara Shortridge Foltz Criminal Justice Center 210 West Temple Street Eleventh Floor-Room 11-506 Los Angeles, CA 90012 Responses are required from: Los Angeles City Controller: 17.1 The City of Los Angeles: 17.2, 17.3, 17.4, 17.5, 17.6, 17.7, 17.8 VII. ACRONYMS AMD Asset Management Division BOS Board of Supervisors CD Council District CDRPF Council District Real Property Fund CGJ Civil Grand Jury City City of Los Angeles GSD General Services Division IRWA International Right of Way Association LAAC Los Angeles Administrative Code LAMC Los Angeles Municipal Code RES Real Estate Services VIII. COMMITTEE MEMBERS Sandy A. Orton Chair Rene Childress Debra Cohen Judy Goossen Davis 372 2015-2016 LOS ANGELES COUNTY CIVIL GRAND JURY FINAL REPORT STANDING COMMITTEE REPORTS AUDIT COMMITTEE AUDIT COMMITTEE I. EXECUTIVE SUMMARY The purpose of the Audit Committee of the Civil Grand Jury (CGJ) is to oversee contracting with outside auditors and to assist investigative committees examine issues that require an audit. II. BACKGROUND AND METHODOLOGY The selection of auditors was based on each firm’s schedule, budget proposal, subject matter expertise and prior experience dealing with the CGJ. The CGJ requested audits of: