City of Tracy v. Cohen
3 Cal. App. 5th 852
| Cal. Ct. App. | 2016Background
- In 2011 the City of Tracy's redevelopment agency transferred $2.13M (bond proceeds) and $4.18M (tax increment) to the City under a January 2011 "cooperation agreement" (a 2011 sponsor agreement) to fund downtown projects; the City spent these funds on land, contracts, staff costs, and construction.
- The Legislature (the "Great Dissolution") in 2011–2012 dissolved redevelopment agencies, changed the definition of "enforceable obligations" to exclude 2011 sponsor agreements for postdissolution audits, and created an audit/retransfer procedure (§ 34179.5) and an administrative diversion remedy (§ 34179.6).
- The Department of Finance audited and determined the 2011 cooperation agreement was not an enforceable obligation; it ordered return of bond proceeds to the successor agency and tax increment to the county auditor-controller; the City returned part of the funds under protest.
- The City sued seeking to invalidate the Department’s determinations, asserted statutory and constitutional objections to retroactive invalidation and to diversion of future local tax revenues, and claimed an exception for payments that were for goods or services.
- The trial court ruled for the Department; on appeal the Court of Appeal affirmed in part, held the City could recover payments the City itself provided as redevelopment services, modified the judgment to reduce the required reimbursement by $911,495, and declined to issue a declaratory ruling on diversion remedies as moot in light of Bellflower.
Issues
| Issue | Plaintiff's Argument (City) | Defendant's Argument (Dept. of Finance) | Held |
|---|---|---|---|
| Whether the 2012 audit/retransfer procedure (using postdissolution definition) applies retroactively to invalidate transfers made under 2011 sponsor agreements | Statutory text and context show the 2012 audit and narrower definition should not apply to predissolution 2011 sponsor agreements | Legislature intended to recapture funds diverted by 2011 sponsor agreements and expressly used the postdissolution definition for the audit/retransfer process | Held: Legislature intended retroactive application; 2011 sponsor agreements may be invalidated under §34179.5 (affirmed) |
| Whether retroactive invalidation or retransfer constitutes an unconstitutional gift of public funds (Cal. Const., art. XVI, §6) | Redirecting funds to taxing entities is an unlawful gift | Reallocation of tax increment to taxing entities for general public purposes is permissible under precedent | Held: No gift; redirection lawful (followed CRA v. Matosantos) |
| Whether the administrative diversion remedy (§34179.6) enabling the Dept. to divert future local tax revenues from sponsors violates Cal. Const., art. XIII, §24(b) | Dept. may not constitutionally divert a sponsor’s future local tax revenues to recoup wrongful transfers | Such administrative diversion is authorized by statute as an expedient remedy | Held: Administrative diversion is unconstitutional under art. XIII, §24(b) (Bellflower); the request for a declaratory ruling here is moot because Bellflower resolved the issue |
| Whether payments qualify under the §34179.5 goods-or-services exception (i.e., reimbursements for goods/services) | Payments reimbursed both City-provided redevelopment services and third-party contractor costs; both should be exempt | Exception covers only payments that are true exchanges for goods/services; reimbursements to sponsor for third-party contracts do not qualify | Held: Exception applies to costs for services the City itself provided ($911,495) but not to reimbursements for third-party contracts; judgment modified to reduce reimbursement requirement by $911,495 |
Key Cases Cited
- California Redevelopment Assn. v. Matosantos, 212 Cal.App.4th 1457 (appellate court) (upheld reallocation of tax increment to taxing entities; redirected funds not a gift of public funds)
- City of Brentwood v. Campbell, 237 Cal.App.4th 488 (appellate court) (interprets scope of §34179.5 and legislative intent to recapture 2011 sponsor transfers)
- City of Bellflower v. Cohen, 245 Cal.App.4th 438 (appellate court) (held §34179.6 diversion remedy unconstitutional under art. XIII, §24(b))
- Imagistics Internat., Inc. v. Department of General Services, 150 Cal.App.4th 581 (appellate court) (issue forfeiture doctrine cited for undeveloped arguments)