City of Bakersfield v. West Park Home Owners Assn. and Friends
4 Cal. App. 5th 1199
| Cal. Ct. App. | 2016Background
- City of Bakersfield formed a nonprofit public benefit corporation to finance, design, construct, and sell certain street and highway improvement projects to the City.
- The City entered an installment sale agreement obligating it to make installment payments to the corporation; payments would be funded solely from three pledged revenue streams (gas tax fund, transportation impact fees, and a restricted utility franchise surcharge fund).
- The City sought declaratory/validation relief under Gov. Code §53511 and Code Civ. Proc. §860 to confirm the financing plan; West Park HOA intervened opposing validation.
- Trial court validated the plan, finding (1) obligations were payable from special funds (not general fund debt), (2) gas tax use complied with the Constitution, and (3) the corporation was a valid separate entity.
- On appeal the Court of Appeal affirmed validation in part but reversed the portion allowing use of state gas tax revenues to pay the certificates.
Issues
| Issue | Plaintiff's Argument (City) | Defendant's Argument (West Park) | Held |
|---|---|---|---|
| Whether the financing violates article XVI, §18 debt limitation (special fund doctrine) | Obligations payable solely from segregated special funds, so not constitutional debt | Payments create city liability and risk to general fund; funds are effectively general | Financing valid under special fund doctrine because payments are limited to pledged funds and are not a charge on general fund |
| Whether pledged revenue sources qualify as "special funds" and satisfy nexus requirement | Gas tax, transportation impact fees, and restricted franchise surcharge are tied to streets/highways and thus special; reasonable nexus exists | Revenues lack direct correlation to specific projects; roads do not themselves generate revenue so nexus fails | All three revenue sources qualify as special funds and there is a sufficient nexus to the street/highway projects |
| Whether state gas tax revenues can be used to pay non‑voter approved debt (article XIX limitations) | Certificates are not "bonds"; prior trial court validations support use; payments ultimately finance street projects permitted by article XIX | Using gas tax to pay non‑voter approved financing circumvent voter-approval limits and statutory caps | Use of state gas tax revenues to pay the non‑voter approved certificates is impermissible; reversed as to gas tax use |
| Whether the public benefit corporation is a sham and the City effectively issued the debt (corporate separateness) | Corporation is validly formed, has separate existence, and will carry out construction obligations; certificates are issued by the corporation | Corporation is essentially controlled by City and is a shell to evade voter approval | Corporation has a genuine separate existence; control alone does not collapse separateness; certificates may be issued by the corporation |
Key Cases Cited
- Rider v. City of San Diego, 18 Cal.4th 1035 (1998) (upholding similar financing where the financing authority had a genuine separate existence)
- City of Redondo Beach v. Taxpayers, Property Owners, etc., City of Redondo Beach, 54 Cal.2d 126 (1960) (distinguishing special funds from general revenues and rejecting use of general taxes for bonded debt)
- City of Oxnard v. Dale, 45 Cal.2d 729 (1955) (adopting the special fund doctrine and permitting pledge of revenues from an entire system)
- City of Palm Springs v. Ringwald, 52 Cal.2d 620 (1959) (holding sales/use tax pledges to parking finance violated constitutional debt limits)
- City of Costa Mesa v. Connell, 74 Cal.App.4th 188 (1999) (holding gas tax revenues may not be used to pay non‑voter approved street improvement bonds)