CITY OF TRACY, as Successor Agency, etc., et al., Plaintiffs and Appellants, v. MICHAEL COHEN, as Director, etc., et al., Defendants and Respondents.
No. C077440
Third Dist.
Sept. 29, 2016.
Petition for rehearing denied October 12, 2016
246 Cal.App.4th 852
1 We again adjust the appellate title in one of these appeals, putting the official capacity cart (“Successor Agency, etc.“) back behind the party name horse (“City of Tracy“), and deleting the Department of Finance as a party, a redundant defendant. (City of Brentwood v. Campbell (2015) 237 Cal.App.4th 488, 492, fn. 3 [188 Cal.Rptr.3d 88] (Brentwood).)
Bill Sartor, City Attorney; Goldfarb & Lipman, Dоlores Bastian Dalton, James T. Diamond, Jr., and Karen M. Tiedemann for Plaintiffs and Appellants.
Kamala D. Harris, Attorney General, Douglas J. Woods, Assistant Attorney General, Marc A. LeForestier and John W. Killeen, Deputy Attorneys General, for Defendants and Respondents.
OPINION
BUTZ, J.—In 2011, the political branches of our state government decided as a matter of public policy that abuses of the redevelopment law, which constituted an ever-growing drain on state finances, required the dissоlution of nearly 400 redevelopment agencies and the winding down of outstanding redevelopment obligations; this resulted in a frantic scurry on the part of “sponsoring entities”2 (usually cities) and their conjoined former redevelopment agencies to lock up “tax increment” revenues—the share of property taxes to which redevelopment agencies had been entitled before the enactment of this “Great Dissolution.” (California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, 243–248 [135 Cal.Rptr.3d 683, 267 P.3d 580]; Brentwood, supra, 237 Cal.App.4th at pp. 491, 492, fn. 4, 499 & fns.
We confront a recurring issue in this appeal. In 2012, the Legislature decided to apply the postdissolution exclusion of any agreements between a sponsor and a former redevelopment agency (hereafter, sponsor agreements) from the definition of “enforceable obligations” (see fn. 3, ante, at p. 856) to any sponsor agreements that antedated dissolution (which previously had still been included in the definition), for the purpose of retransferring to “taxing entities”4 any redevelopment agency transfers to sponsors pursuant to a sponsor agreement; the Legislature also created an audit process to identify these sponsor transfers. (Brentwood, supra, 237 Cal.App.4th at p. 494;
The City of Tracy (City) brought this action as the successor agency to its former redevelopment agency (and also in its own right) against Michael Cohen as director of the Department of Finance (the Department) to challenge administrative determinations that invalidated the transfer of funds from the former redevelopment agency—before its dissolution—to the City because this action was pursuant to a sponsor agreement, and that directed return of a portion of the funds (constituting bond proceeds) to the successor agency and another portion (constituting former tax increment) to the Auditor-Controller of San Joaquin County (Auditor-Controller),5 the administrator of the trust fund for former tax increment (
Without any analysis of Brentwood, which antedates its briefing, the City makes a lengthy argument in its opening brief (to which it does not return in its reply brief) that, as a matter of statutory analysis, the 2012 audit procedure and its incorporation of the postdissolution definition of enforceable obligations was not intended to apply to any predissolution sponsor agreements. It
We agree that a portion of the payments made to the City reflect goods or services that the City provided to the redevelopment project that the successor agency was overseeing. Our decision in City of Bellflower v. Cohen (2016) 245 Cal.App.4th 438 [199 Cal.Rptr.3d 383], remittitur issued May 3, 2016 (Bellflower), renders moot any need for a declaration in the present action that the administrative diversiоn of future local tax revenues violates a provision of our state charter (
FACTUAL AND PROCEDURAL BACKGROUND
As is typically the case with the statutory interpretation involved in these redevelopment agency dissolution cases, the particular facts are largely irrelevant. We include them primarily for context.
The City created its former redevelopment agency in 1970, designating its city council as the administrating body. The former redevelopment agency adopted a community redevelopment plan in 1990 for the project area. In
In January 2011, the Governor announced his intention to seek the abolition of redevelopment agencies, leading to the resultant frenzy on the part of former redevelopment agencies and their sponsoring agencies throughout the state tо lock up unencumbered tax increment. (Brentwood, supra, 237 Cal.App.4th at pp. 493, 499.) The City and its former redevelopment agency were among these. At a January 2011 special meeting of the city council in its joint capacities, the City and its former redevelopment agency entered into a “cooperation agreement” for the former redevelopment agency to fund identified improvements from the five-year plan, for which the City would acquire land and provide design and construction services. The sources of the revenue were all “funds currently held by the [redevelopment agency]...not previously budgeted or appropriated for other...projects....” The agreement specified four projects: the downtown shopping plaza, downtown infrastructure, acquisition of properties for joint public-private improvements, and a signage program. In response to an inquiry whether there was any binding commitment to these four projects, the City‘s finance director stated at the meeting that the agreement “does not mean the projects are being funded. The plan is simply moving forward.” The agreement “will allow the City Council to proceed and to award contracts for these projects.” The purpose of entering into the cooperation agreement was to “directly address some of the issues presented by the Governor‘s proposed budget“; rather than return redevelopment agency reserves to the “state” (actually, to the taxing entities), “the action transfers the funds to the City.” The City and the redevelopment agency thus enacted resolutions approving the agreement. The redevelopment agency on the same date transferred $4.18 million in tax increment funds and $2.13 million in bond funds to the City pursuant to the agreement.
In declaring that it was not subject to the
The City estimates the construction costs for the plaza project on its February 2014 completion to have been $3.81 million. The City had entered into contracts in May 2011 with third parties to provide landscaping and engineering services for the plaza for a total cost of $141,000. The City incurred an additional $911,000 in “design, construction management, staff and inspections costs” for the work of City employees in connection with the plaza project. In June 2011, the City entered into a $2.30 million contract with Knife River Construction to build the shopping plaza. An additional $460,000 in funds were attributed to a 20 percent contingency fee. The City also entered into a contract in June 2011 with a third party to buy land near the plaza for $650,000. This brought the total amount of expenditures at issue to $4.46 million, which reflected the $2.13 million in bond proceeds and $2.34 million in tax increment from the former redevelopment agency (our rounding of the components resulting in a larger sum than the total).
On June 28, 2011, the Legislature enacted the Great Dissolution as an urgency measure, immediately freezing the authority of the former redevelopment agencies to incur further obligations and providing a process for the dissolution of the former redevelopment agencies on February 1, 2012 (as judicially reformed). (Brentwood, supra, 237 Cal.App.4th at p. 494.) After that date, the successor agencies were responsible for winding down the outstanding enforceable obligations of the former redevelopment agencies, which did not include “sponsor agreements” between the former redevelopment agency and its sponsoring agency. (Ibid.;
In reviewing the result of such an audit, the Department concluded the cooperation agreement was an invalid sponsor agreement, and consequently
The City then brought the instant action in July 2013. The Department thereafter issued a demand that the City comply with its administrative findings, or else it would direct the diversion of the City‘s future local tax revenues to reclaim the $4.46 million. However, it never took action to direct the diversions. Under protest, noting that it had already expended all the funds at issue on the redevelopment project, the City remitted the contested amounts from its general fund in December 2015 in order to meet an impending deadline for obtaining a “finding of completion” (
DISCUSSION
1.0 The Legislature Intended Retroactively to Invalidate Transfers Pursuant to Sponsor Agreements
In interpreting the Great Dissolution legislation, we do not owe any deference to the Department; we decide the issue de novo. (Brentwood, supra, 237 Cal.App.4th at p. 500.)
The City contends the incorporation in section
In Brentwood, we rejected this tactic of hunting indirectly through legislative mousеholes for an elephant of legislative intent. “[I]f this were in fact the intent in enacting section 34179.5[,] it would have been so much more straightforward simply to define ‘enforceable obligation’ by reference to section 34167 rather than section 34171.” (Brentwood, supra, 237 Cal.App.4th
2.0 The Legislature Did Not Violate the Constitution in Retroactively Invalidating Transfers Pursuant to Sponsor Agreements
2.1 Section 34179.5 Does Nоt Result in a Gift of Public Funds
The City argues that the redirection of funds transferred under sponsor agreements is a gift of public funds in violation of
We rejected this claim in Matosantos. Relying on authority that a redirection of local tax revenues (derived only for general purposes from residents of the county) from specific local agencies to the county‘s general fund is not a gift of public funds (Matosantos, supra, 212 Cal.App.4th at p. 1499), we concluded that tax increment is similarly derived only for general purposes, and could thus permissibly be reallocated from redevelopment agencies to taxing entities for the general benefit of county residents (id. at pp. 1499–1500). We accordingly reject this argument again.
2.2 Section 34179.5 Does Not Violate Article XIII, Section 25.5, Subdivision (a)(7)
The City contends the electorate, through a 2010 initiative adding
We determined that this constitutional protection of former redevelopment agencies no longer applies after the point at which the Legislature decided that the redevelopment agencies did not have any further authority to exercise redevelopment powers, and thus the withdrawal in 2012 of the
2.3 Section 34179.5 Does Not Violate Article XIII, Section 24, Subdivision (b)
The City (mistakenly referencing a different initiative) makes an abbreviated claim that the same 2010 initiative, in also adding
“[T]he Legislature ‘may not reallocate, transfer, borrow, appropriate, restrict the use of, or otherwise use the proceeds of any tax imposed or levied by a local government solely for the local government‘s purposes.‘” (Bellflower, supra, 245 Cal.App.4th at p. 451, quoting
However, we were careful to note that “[w]ithholding the tax revenue to which the sponsoring agency is entitled is not the only means by which the State can acquire from the sponsoring agency the funds that should [have been] distributed to other taxing entities, if such a result is justified. For example, the State is authorized to obtain judicial relief for violation of the dissolution law. (
The import of Bellflower is that the Legislature cannot withhold local tax revenues from sponsors through administrative fiat as a remedy for violation of the directives in the Great Dissolution. However, the sponsors are not rendered judgment-proof by virtue of the constitutional provision, such that their general funds are immune from answering for a violation of state law in court. A judgment is not a legislative action to “reallocate, transfer, borrow, approрriate, restrict the use of, or otherwise use” local tax revenues in the coffers of a sponsor. (
3.0 To the Extent the City Itself Provided Redevelopment Services (as Opposed to Third Parties with Whom It Contracted), It Comes Within the Exception to Section 34179.5 for Goods or Services
In Brentwood, we concluded section
The City contends payments from the former redevelopment agency for the costs of redevelopment services that City staff provided, as well as for the costs to the City for services that third parties provided, come within the exception. Brentwood forecloses the City from receiving payments for the latter; we do not see anything in the cooperation agreement to indicate that the former redevelopment agency was engaging the City‘s services as a manager for the specific projects involving the third party contracts, or engaging it to exеcute any redevelopment contracts with third parties in general. The cooperation agreement described itself as simply a “funding mechanism” for future redevelopment work—i.e., a reimbursement agreement for these third party arrangements. However, the City is correct that it was entitled to be paid for the redevelopment work that its own staff directly provided; this was not the case in Brentwood, a distinction that the Department overlooks.9 We also decline to accept the Department‘s suggestion that we should “interpret” the unambiguous section
Bellflower determined that the remedy provided in section
The trial court thus erred in finding to the contrary in denying the requested declaratory relief. However, we cannot assume that the Department will act in disregard of this declaration (indeed, it never acted upon its threats to employ the remedy in the present case), so the issue of a declaration to the same effect in the present case is moot. (Burke v. City etc. of San Francisco (1968) 258 Cal.App.2d 32, 34–35 [65 Cal.Rptr. 539].) We therefore decline to modify the judgment to include a declaration of unconstitutionality.
DISPOSITION
The judgment is modified to grant a writ of mandate directing the Department to reduce its determination of the total required reimbursement by $911,495. As thus modified, the judgment is affirmed. Neither party shall recover costs on appeal. (Cal. Rules of Court, rule 8.278(a)(5).)
Hull, Acting P. J., and Robie, J., concurred.
A petition for a rehearing was denied October 12, 2016, and the opinion was modified to read as printed above.