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Los Angeles Unified School District v. County of Los Angeles

January 27, 2010

LOS ANGELES UNIFIED SCHOOL DISTRICT, PLAINTIFF AND APPELLANT,
v.
COUNTY OF LOS ANGELES ET AL., DEFENDANTS AND RESPONDENTS; CITY OF LOS ANGELES ET AL., REAL PARTIES IN INTEREST AND RESPONDENTS.



APPEAL from a judgment of the Superior Court of Los Angeles County, Emilie H. Elias, Judge. Reversed and remanded. (Los Angeles County Super. Ct. No. BS108180).

The opinion of the court was delivered by: Suzukawa, J.

CERTIFIED FOR PUBLICATION

This is an appeal from the denial of a petition for writ of mandate. Plaintiff Los Angeles Unified School District (LAUSD) petitioned to compel defendants County of Los Angeles, City of Los Angeles, and numerous community redevelopment and other local agencies*fn1 (collectively, the County) to increase its allocation of community redevelopment project mitigation payments (pass-through payments) under Health and Safety Code section 33607.5. We conclude, as a matter of law, that LAUSD's pass-through payments have been based on an erroneous calculation of its percentage share of property taxes. Given that LAUSD's right to reimbursement has yet to be litigated, we reverse and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

This appeal presents a single legal issue regarding the correct allocation of LAUSD's pass-through payments under Health and Safety Code section 33607.5. The petition, filed on March 29, 2007, cites two relevant statutory schemes: (1) the Educational Revenue Augmentation Fund (ERAF) legislation (Rev. & Tax. Code, §§ 97.2, 97.3), which was enacted in 1992 as former section 97.03 of the Revenue and Taxation Code (Stats. 1992, ch. 699, § 12, pp. 3093-3096; Stats. 1992, ch. 700, § 4, pp. 3120-3125); and (2) the pass-through legislation (Health & Saf. Code, § 33607.5), which was enacted in the Community Redevelopment Law Reform Act of 1993 (Stats. 1993, ch. 942 (Assem. Bill No. 1290)). Before discussing these two statutes, we briefly review the relevant events preceding their enactment.

Since 1971, the division of state and local responsibility for educational funding has "been in a state of flux." (City of El Monte v. Commission on State Mandates (2000) 83 Cal.App.4th 266, 278.) The state's responsibility for educational funding has increased since 1971 for three primary reasons.

First, in the 1970's, the California Supreme Court held that the state must ameliorate the disparities in local property tax-based educational funding. (Serrano v. Priest (1971) 5 Cal.3d 584; Serrano v. Priest (1976) 18 Cal.3d 728.) Second, in 1978, the voters adopted Proposition 13, now article XIII A of the California Constitution, which limited local property taxation. (See, e.g., County of Los Angeles v. Sasaki (1994) 23 Cal.App.4th 1442, 1450-1452 [after Prop. 13 was adopted, the share of local property tax revenue allocated to K-14 schools dropped from 53 percent to 35 percent by the 1991-1992 fiscal year].) Finally, in 1988, the voters enacted Proposition 98, which established a minimum guaranteed state funding entitlement for schools. (Cal. Const., art. XVI, § 8, subd. (b); see County of Sonoma v. Commission on State Mandates (2000) 84 Cal.App.4th 1264, 1275, fn. 8 [under Prop. 98, non-excess tax school entities are entitled to additional revenue from the state General Fund according to one of three formulas].)

The term "excess tax school entity" refers to "an educational agency for which the amount of the state funding entitlement determined under Section 2558, 42238, 84750, or 84751 of the Education Code, as appropriate, is zero." (Rev. & Tax. Code, § 95, subd. (n).) Under Proposition 98, non-excess tax-school entities (hereafter, schools) are entitled to additional revenue from the state General Fund in order to supplement the funds received from local property taxes. (County of Sonoma v. Commission on State Mandates, supra, 84 Cal.App.4th at p. 1275, fn. 8.)

The state's ability to meet its increased financial obligation to schools under Proposition 98 was severely tested in fiscal year 1991- 1992, when the state "faced an unprecedented budgetary crisis . . . with expenditures projected to exceed revenues by more than $14 billion." (Department of Personnel Administration v. Superior Court (1992) 5 Cal.App.4th 155, 163.) In response to this economic crisis, the Legislature enacted the 1992 ERAF legislation, former Revenue and Taxation Code section 97.03*fn2 (presently § 97.2). The ERAF legislation lessened the burden imposed by Proposition 98 on the state General Fund by reducing the property tax allocation of cities, counties, and special districts, and shifting the amount of the reduction to ERAF's for distribution to schools. (County of Los Angeles v. Sasaki, supra, 23 Cal.App.4th at p. 1452; City of El Monte v. Commission on State Mandates, supra, 83 Cal.App.4th at p. 272.)

"The ERAF reallocation design can be summarized as requiring reduction of property tax revenues previously allocated to counties by use of a specified formula, deposit of the reduced amounts into ERAF's, and distribution of the ERAF funds to schools. Another portion of the same legislation deemed the ERAF revenues to be part of the state General Fund revenues for purposes of calculating the minimum educational funding guarantee under Proposition 98. [Fn. omitted.] The overall result of these statutes is that the tax revenues of the counties are decreased, school revenues remain the same, and the minimum school funding guarantee of Proposition 98 is satisfied in part by the ERAF funds. This legislative adroitness fulfilled the funding of Proposition 98 by reallocating available finite funds from one local governmental entity to another. (Legis. Analyst, Rep. to Joint Legis. Budget Com., analysis of 1993-1994 Budget Bill, p. 90.) [Fn. omitted.]" (County of Sonoma v. Commission on State Mandates, supra, 84 Cal.App.4th at pp. 1275-1276.)

In addition to shifting property taxes from other local entities to ERAF's for distribution to schools, the 1992 ERAF legislation added former section 33681 to the Health and Safety Code (repealed by Stats. 2002, ch. 1127, § 13, operative Jan. 1, 2004), which required redevelopment agencies to make supplemental deposits to ERAF's during fiscal years 1992-1993 and 1993-1994. (Stats. 1992, ch. 699, § 7, and ch. 700, § 1.5.) By subsequent legislation, the Legislature required redevelopment agencies to make supplemental deposits to ERAF's during fiscal years 1994-1995 (Health & Saf. Code, § 33681.7), 2002-2003 (id. at § 33681.7), 2003-2004 (id. at § 33681.9), 2004-2005 and 2005-2006 (id. at § 33681.12). As provided in the Health and Safety Code, redevelopment agencies may make the required supplemental deposits to ERAF's with funds other than property taxes.*fn3

In short, the ERAF legislation employed two separate funding mechanisms. One required the annual shift of property taxes from other local entities to ERAF's for distribution to schools (§§ 97.2, 97.3), and the other required the occasional deposit of funds (not limited to property taxes) by redevelopment agencies to ERAF's as required by the Health and Safety Code.

The pass-through legislation, which also applies to redevelopment agencies and schools, was enacted in 1993, one year after the ERAF legislation was adopted. (Health & Saf. Code, § 33607.5.) After a redevelopment project is established, all growth in property tax revenue that occurs after the initial or base year*fn4 is commonly called the property tax increment. When certain requirements are met, a redevelopment agency may retain the property tax increment and apply it toward the indebtedness incurred in financing the redevelopment project. (Cal. Const., art. XVI, § 16, subds. (a), (b); see 11 Miller & Starr, Cal. Real Estate (3d ed. 2004) § 30B:6, p. 16.)

The pass-through legislation requires redevelopment agencies to share or pass-through a portion of the property tax increment to affected local taxing entities, including schools. The Legislature declared pass-through payments are "necessary . . . to alleviate the financial burden and detriment that affected taxing entities may incur as a result of the adoption of a redevelopment plan, and payments made pursuant to this section will benefit redevelopment project areas." (ยง 33607.5, subd. (f)(1)(A).) Pass-through payments uniquely benefit schools in that they are deemed to contain fixed percentages of ...


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