Shasta County's top prosecutor has sent a complaint about a city of Redding land purchase to other authorities for further investigation.

Former Redding resident John Harris, CEO of a financial software company focused on electronic bond trading, has accused the city of illegally using $1.5 million in Redding Electric Utility reserves in 2004 to buy the 82-acre Stratte Estate south of the city for open space.

District Attorney Jerry Benito confirmed Friday he forwarded the complaint to the Shasta County grand jury and to the FBI. Those agencies typically handle charges of misuse of public funds and government corruption, Benito has said.

The city on Feb. 16 agreed to sell the Stratte property, a meadowy rectangular wedge between Interstate 5 and the Sacramento River, to the Redding Rancheria for $1.575 million - slightly more than its original purchase price.

But the Stratte purchase has already harmed REU ratepayers and bondholders, Harris said in his complaint.

"Using REU reserves to fund the purchase of land outside of city limits means those funds will not be available for unforeseen contingencies, or for the acquisition of facilities in newly annexed areas, or for extensions and betterments of the existing system," Harris said in his complaint. "To the extent the reserve fund was too large, it was incumbent on city officials to reduce electric rates to an appropriate level - not to appropriate the excess reserves for other municipal purposes."

2005 grand jury investigation

The Shasta County grand jury in 2005 investigated the Stratte purchase, along with two other city property acquisitions in 2004. The grand jury called the city's borrowing of REU reserves to buy property outside of town an "unsound business practice" and recommended the excess utility reserves should go to lowering utility rates.

In their response to the grand jury in 2005, Redding officials disagreed that using REU reserves to finance property purchases is an "unsound" business practice. The city can borrow from its utility at a lower rate than it can borrow from a private bank, saving taxpayers money, officials said in their response.

Redding officials also disagreed that REU should use its reserves to lower electric rates. The utility holds the cash for major building projects and equipment purchases, and if REU used the money to lower rates, it would have to raise rates later to help pay for those purchases, officials said in their response.

Stratte purchase, loan called illegal

The grand jury had stopped short of calling the Stratte purchase illegal, as Harris does.

Harris makes his case partly on sheer logic - either the city used REU reserves for other-than-intended purposes under the utility's rate establishment ordinance, or the utility illegally set rates higher than they needed to be, since REU had "extra" cash to spend outside its mandate.

The city's decision to finance the Stratte purchase with an REU loan is further "irrefutable proof" that the property acquisition was illegal, Harris said in his complaint. Harris called the loan a "fiction" and a "sham" that would not have been needed had the property purchase been a legitimate use of REU reserves.

"They concocted the sham loan to create the false appearance that the electric reserves were being invested in a loan, but otherwise remained as reserves," Harris said in his complaint. "It is high time for this public farce and deception to end and for its perpetrators to be held accountable for their bad acts."

Harris notes the city treasurer never accounted for the Stratte loan in reports on interest earned by the city's reserve funds. The purchase was not reflected in general fund financial reports, nor the loan in the utility's monthly financial statements, Harris said.

References to the loan in the city's Comprehensive Annual Financial Reports are inconsistent and full of year-to-year discrepancies that would indicate principal and interest on the loan were declining during the years before the general fund was supposed to begin repayment to REU.

Repayment to REU problematic in past

Cash from the Stratte property sale to the Rancheria, once it's executed, is supposed to repay REU in full. The outstanding balance on the loan from REU to the city's general fund as of June 30 was $1.418 million, including accrued interest, according to the city's 2009 Comprehensive Annual Financial Report (CAFR).

The general fund was supposed to repay REU in $200,000 annual increments over 10 years, according to council reports.

The city's 2009 CAFR notes a $200,000 "repayment of advances to other funds" for REU but gives no other specifics on the source of that payment to the utility. An REU employee has confirmed it's the general fund for the Stratte loan.

Redding's agreement to sell the Stratte land means the $200,000 that would have gone each year to the loan will go to essential services instead, officials have said. In fact, an $8.2 million plan to balance the general fund budget the council approved Feb. 16 was conditioned, in small part, on the Stratte property sale.

The Stratte purchase isn't the only time Redding has tapped REU for other government purposes.

The utility in 1972 loaned the Redevelopment Agency $550,000 to build the north end of the California Street parking garage. Property tax increment revenue was supposed to repay that loan, but it remains outstanding, with the balance - including 3 percent interest - at $576,155 as of June 30, according to the city's 2009 CAFR.

REU later made a second loan to the Redevelopment Agency for the south end of the California Street parking garage. Some $550,056 remained outstanding on that loan with no interest accruing as of June 30.

Rancheria pays for adjacency

Harris issued his complaint just as the council was nearing an agreement to sell the Stratte land to the Rancheria. The property sits next to 150-acre Strawberry Fields parcel the tribe already owns just south of Win-River's Hilton Garden Inn.

Tracy Edwards, Rancheria CEO, confirmed the tribal government commissioned an appraisal of the Stratte property in October that valued the land as currently zoned for grazing at $750,000 - a bit less than half of what it agreed to pay the city.

Some people may believe the Rancheria overpaid for the Stratte property based on the tribe's own most recent appraisal, Edwards has said. But the land's adjacency to property the tribe currently owns makes it more valuable than an isolated parcel, she said.

The Rancheria has no immediate plans for the Strawberry Fields or the Stratte property, Edwards has said.

A city-commissioned appraisal in April 2008 had valued the Stratte property at $2.43 million.

The council declared the property surplus at that time, disappointing residents who wanted to see the city keep the land as a hedge against casino and other development in that part of the Churn Creek Bottom.

The open space argument

Top Redding administrators have always maintained that the city bought the freeway frontage from the Helen O. Stratte Trust to establish an open space buffer along I-5 between Redding and Anderson.

Then-City Manager Mike Warren, in particular, said he wanted to prevent the two towns from merging along a freeway-fronting retail strip like those common in the San Francisco Bay area and Southern California.

A review of internal documents shows the city meant to buy the 150-acre Strawberry Fields for an auto mall and use the adjacent Stratte Estate as an enhancement and open space buffer.

As originally proposed, the city would buy the Stratte property only if its $1.8 million offer on the Strawberry Fields land to the north went through.

But the Rancheria made a competing offer of $1.7 million for the Strawberry Fields in late 2003. Curiously, that offer was accepted, and the city was caught off-guard.

Redding decided in early 2004 to go ahead with the Stratte purchase despite having lost the Strawberry Fields, using the open space argument as justification.

Reporter Scott Mobley can be reached at 225-8220 or at smobley@redding.com.