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City of Cerritos v. Cerritos Taxpayers Association

April 20, 2010

CITY OF CERRITOS ET AL., PLAINTIFFS, CROSS-DEFENDANTS AND RESPONDENTS,
v.
CERRITOS TAXPAYERS ASSOCIATION ET AL., DEFENDANTS, CROSS-COMPLAINANTS AND APPELLANTS;
CUESTA VILLAS HOUSING CORPORATION ET AL., CROSS-DEFENDANTS AND RESPONDENTS.



APPEAL from a judgment of the Superior Court for the County of Los Angeles. John A. Torribio, Judge. Affirmed. (Los Angeles County Super. Ct. No. VC 050414).

The opinion of the court was delivered by: Lichtman, J.*fn32

CERTIFIED FOR PUBLICATION

SUMMARY

The principal questions in this case are two. The first is whether a city and a redevelopment agency may use funds earmarked for low- and moderate-income housing to purchase and renovate property which would then be leased to a school district, as part of an arrangement in which the district would in turn lease other property (currently housing its administrative offices) to the redevelopment agency (and ultimately to a non-profit housing corporation) for the construction of a low- and moderate-income apartment complex for senior citizens. The second question is whether the project, in which 16 percent of the apartments are designated for low-income households, must be submitted to a vote of the electorate under article XXXIV of the California Constitution, which requires voter approval for a "low rent housing project" developed, constructed or acquired by any state public body.

In a validation action brought under Code of Civil Procedure section 860 and Government Code section 53511, the trial court entered a judgment determining that the arrangements were valid and lawful in all respects and were not required to be submitted to a vote of the electorate. We agree and affirm the judgment.

LEGAL, FACTUAL, AND PROCEDURAL BACKGROUND

To provide context for our discussion of the facts and the points at issue, we briefly summarize the redevelopment principles at play here, and then describe the parties and the contemplated transactions in more detail.

1. The Community Redevelopment Law

The Community Redevelopment Law (CRL) was intended to help local governments revitalize blighted communities. (Health & Saf. Code, §§ 33000 et seq.; Lancaster Redevelopment Agency v. Dibley (1993) 20 Cal.App.4th 1656, 1658 (Lancaster).)*fn1 Local redevelopment agencies have no power to tax, and instead are funded by "tax increment revenue." (Craig v. City of Poway (1994) 28 Cal.App.4th 319, 325 (Craig). Tax revenues available for local agencies from land within a redevelopment area are frozen as of the date a redevelopment plan is adopted, and any tax revenues generated by an increase in property values after adoption of the plan -- the tax increment -- are paid to the local redevelopment agency for use in financing the redevelopment project. (§ 33670; Lancaster, at p. 1658, fn. 2.)

One of the goals of the CRL is to increase the supply of low- and moderate-income housing. (Lancaster, supra, 20 Cal.App.4th at p. 1658.) However, local redevelopment agencies have had broad discretion to spend redevelopment funds in a manner best suited to the community, and "have historically devoted their resources to the commercial sector, rather than low-income housing development." (Craig, supra, 28 Cal.App.4th at p. 330.) Consequently, the CRL was amended in 1976 and now requires that at least 20 percent of the tax increment revenue be used by the agency "for the purposes of increasing, improving, and preserving the community's supply of low- and moderate-income housing available at affordable housing cost . . . ." (§ 33334.2, subd. (a); Craig, supra, 28 Cal.App.4th at p. 334.) This 20 percent of the tax increment revenue is required to be set aside in a Low and Moderate Income (LMI) Housing Fund. (§ 33334.3.)

Since enactment of the 20 percent set-aside for low- and moderate- income housing, "the Legislature has repeatedly enacted amendments narrowing the agencies' discretion to ensure that the agencies place sufficient funds in their LMI Housing Fund and spend that money in an appropriate manner." (Craig, supra, 28 Cal.App.4th at p. 330.) Craig observed that the statutory provision at issue there -- section 33334.2, subdivision (e)(2), governing onsite or offsite improvements -- had been twice amended since 1979 to reflect "the Legislature's continuing concern that redevelopment agencies were misusing [the provision on offsite improvements] as a broad loophole to fund community-wide infrastructure and commercial development without any connection to affordable housing." (Craig, supra, 28 Cal.App.4th at pp. 335-336.)

2. The Events in This Case

The City of Cerritos (City) and the Cerritos Redevelopment Agency (sometimes collectively referred to as the Agency)*fn2 adopted redevelopment plans for two areas in the 1970's, making all the necessary findings that the project areas were blighted and the plans would redevelop the project areas in conformity with the CRL. Increases in property values in those areas has resulted "in tens of millions of dollars in tax-increment revenue being earned by the Agency each year" (italics and bold omitted), 20 percent of it set aside for low- and moderate-income housing. If the Agency fails timely to expend or encumber the LMI housing funds, the funds may be transferred to the county housing authority or another public agency exercising housing development powers. (§ 33334.12, subd. (a).)

To comply with their affordable housing obligations, the City and the Agency entered into an agreement denominated "Affordable Housing, Financing, and Disposition and Development Agreement" (the financing agreement), to which the ABC Unified School District (District) and Cuesta Villas Housing Corporation (Cuesta Villas), a nonprofit public benefit corporation formed by the City, are also parties. As of January 8, 2008, after notices and many months of public meetings and hearings, all parties had approved and signed the financing agreement.

The financing agreement will ultimately result in the construction of a 247-unit affordable senior citizen apartment development, together with a senior recreation center and a park (the senior housing project), located on Norwalk Boulevard in Cerritos, a property now owned and used by the District. The financing agreement involves both the Norwalk Boulevard property and another property to which the District offices would be relocated. Specifically:

1. The 15.7 acre Norwalk Boulevard property presently houses the District's administrative office, warehouse, and kitchen facilities. Under the financing agreement:

* The District, as lessor, will enter into a long-term ground lease with the Agency as lessee.

* The Agency will subsequently transfer its interest in the leasehold to a nonprofit housing corporation formed by the City (Cuesta Villas) for 55 years, for the construction, management, and operation of the senior housing project. (Cuesta Villas will apply for tax exempt status as a charitable organization, and approval of its tax exempt status is a condition precedent to the further implementation of the financing agreement.)

* When the ground lease is assigned to Cuesta Villas, Cuesta Villas will be obligated for ground lease payments to the District. The Agency will act as guarantor of Cuesta Villas's ground lease payments, "and to that extent using [LMI] Fund monies . . . to pay the ground lease rents via [Cuesta Villas]."

* The Agency will finance Cuesta Villas's clearance of the Norwalk Boulevard property and the subsequent construction of the senior housing project, providing a $46 million loan (the total estimated cost of the improvements) to Cuesta Villas, forgivable after 55 years. After construction of the project, Cuesta Villas will own and operate the project.

* Cuesta Villas will be required to deposit all net income from operation of the project into a trust fund to be used solely for the benefit of the project.

* The Agency will reimburse the District for the costs of relocating its administrative offices, not to exceed one million dollars.

* The total cost to the Agency of the conveyance of its ground lease interest in the Norwalk Boulevard property to Cuesta Villas totals $80,974,000: $33,974,000 for the ground lease payment guarantee, $46,000,000 for the improvements, and $1,000,000 in relocation costs to be paid to the District.

1. The District's facilities (currently on the Norwalk Boulevard property) will be relocated to existing office and warehouse buildings located at two adjacent properties on Moore and 166th Streets (the Moore/166th Street properties), as follows:

* The City, using LMI housing funds, will purchase the Moore/166th Street properties, totaling 4.6 acres, from private owners, and will lease the properties to the District, giving the District an option to purchase at a later date. (This purchase has occurred; the City and the seller executed an agreement for the purchase and sale of the properties effective January 28, 2008.)

* The City will renovate the Moore/166th Street properties to accommodate the District's functions.

* Approximately $18,500,000 from the Agency's LMI Housing Fund is allocated to the City's purchase and renovation of the Moore/166th Street properties ($14.5 million for the purchase and $4 million for improvements to accommodate District functions). The purchase will be financed by the Agency's LMI Housing Fund "because such purchase is necessary for the production of affordable housing on the Norwalk Boulevard property."

* The revenue that will ultimately be generated in the form of lease payments by the District (and/or the sale of the property to the District under its purchase option) will be transferred to Cuesta Villas and deposited in the trust fund for use in the operation of the senior housing project.

* Under the District's purchase option, it is entitled to purchase the Moore/166th Street properties at the same price the City paid ($14.5 million), reduced to reflect lease payments already made by the District.

Additional facts relevant to the project will be related as necessary in connection with our discussion of the various points raised on appeal.

After all the parties approved the above-described arrangements, the City, the Agency, and the District (sometimes collectively referred to as the public agencies) brought an action under section 860 of the Code of Civil Procedure to determine the validity of the financing agreement.*fn3 The lawsuit sought a determination that the financing agreement was a valid, binding and lawful agreement, and specifically that the Agency was lawfully permitted to spend low- and moderate-income housing funds as contemplated in the agreement and without submitting the project to a vote of the electorate under article XXXIV, section 1 of the California Constitution. Cerritos Taxpayers Association and United Community Alliance answered the validation complaint and filed a cross-complaint against the public agencies and Cuesta Villas for declaratory and injunctive relief, claiming the public agencies' actions were invalid on several bases and seeking to enjoin implementation of the financing agreement.

The trial court entered a judgment validating the financing agreement, and Cerritos Taxpayers Association and United Community Alliance (collectively, Taxpayers) filed a timely appeal. We granted an application by the Western Center on Law and Poverty ...


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