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City of Petaluma v. Cohen

California Court of Appeals, Third District, Sacramento

July 30, 2015

CITY OF PETALUMA et al., Plaintiffs and Appellants,
MICHAEL COHEN, as Director, etc., Defendant and Respondent.


APPEAL from a judgment of the Superior Court of Sacramento County, No. 34-2013-80001459-CU-WM-GDS Eugene L. Balonon, Judge.

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[Copyrighted Material Omitted]

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Burke, Williams & Sorensen, J. Leah Castella and Megan A. Burke, for Plaintiffs and Appellants.

Kamala D. Harris, Attorney General, Douglas J. Woods, Assistant Attorney General, Mark R. Beckington, George Waters and Ryan W. Marcroft, Deputy Attorneys General, for Defendant and Respondent.



A few months before the 2011 enactment of legislation leading to the “Great Dissolution” of California’s redevelopment agencies, [1] the Petaluma Community Development Commission issued bonds to fund certain projects. The commission was the redevelopment agency (Agency) for the City of Petaluma (City), and the newly funded projects included an interchange and roadway under-crossing of U.S. Highway 101 (the Rainier Project).

The City, as successor to the Agency, submitted various recognized obligation payment schedules (ROPS) that included expenditures of bond proceeds

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for the Rainier Project.[2] The Department disapproved certain of these expenditures because they were pursuant to contracts to which the Agency was not a party. The City brought a petition for a writ of mandate, seeking an order to require the Department to approve these expenditures. The trial court denied the petition.

On appeal, the City contends the Department abused its discretion in disapproving ROPS items relating to the use of bond proceeds for the Rainier Project. It contends the 2011 bonds are enforceable agreements that require the proceeds be spent on specified projects, including the Rainier Project. The City argues the Department’s refusal to approve these expenditures is an unconstitutional impairment of contracts. Focusing on what it believes will be the result of the Department’s action, defeasance of the bonds, [3] the City contends the Department had no authority to order defeasance and abused its discretion in failing to defer to the City and its oversight board on the decisions relating to the bonds.

As we will explain, although the bonds at issue are enforceable obligations, no enforceable obligation to use those bond proceeds specifically to fund the Rainier Project appears in the record. Accordingly we shall affirm, holding in the published portion of our opinion that the Department did not abuse its discretion in disapproving ROPS items relating to the Rainier Project. In the unpublished portion of our opinion, Part II of the Discussion, post, we conclude that the City’s remaining contentions also fail.


The Law Dissolving Redevelopment Agencies

“In the aftermath of World War II, the Legislature authorized the formation of community redevelopment agencies in order to remediate urban decay. [Citations.] The Community Redevelopment Law ‘was intended to help local governments revitalize blighted communities.’ [Citations.] It has since become a principal instrument of economic development, mostly for cities, with

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nearly 400 redevelopment agencies now active in California.” (California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, 245-246 [135 Cal.Rptr.3d 683, 267 P.3d 580] (Matosantos).) Redevelopment agencies used a tax increment funding method. “Under this method, those public entities entitled to receive property tax revenue in a redevelopment project area (the cities, counties, special districts, and school districts containing territory in the area) are allocated a portion based on the assessed value of the property prior to the effective date of the redevelopment plan. Any tax revenue in excess of that amount-the tax increment created by the increased value of project area property-goes to the redevelopment agency for repayment of debt incurred to finance the project. [Citations.] In essence, property tax revenues for entities other than the redevelopment agency are frozen, while revenue from any increase in value is awarded to the redevelopment agency on the theory that the increase is the result of redevelopment. [Citation.]” (Id. at pp. 246-247.)

Over time, “a perception had grown that some redevelopment agencies were used as shams to divert property tax revenues that otherwise would fund general local governmental services, and legislative efforts were made to address these concerns. [Citations.]” (City of Emeryville v. Cohen (2015) 233 Cal.App.4th 293, 298 [182 Cal.Rptr.3d 578] (Emeryville).) These concerns grew as the State’s financial condition worsened. “Responding to a declared state fiscal emergency, ” in the summer of 2011 the Legislature enacted legislation (Assem. Bill No. 26 (2011-2012 1st Ex. Sess.) enacted as Stats. 2011, 1st Ex. Sess. 2011-2012, ch. 5X (Assembly Bill 1X 26)) that “bars redevelopment agencies from engaging in new business and provides for their windup and dissolution.” (Matosantos, supra, 53 Cal.4th at p. 241.)

Assembly Bill 1X 26 consists of two principal components, codified as new parts 1.8 and 1.85 of division 24 of the Health and Safety Code.[4] “Part 1.8 (§§ 34161 to 34169.5) is the ‘freeze’ component: it subjects redevelopment agencies to restrictions on new bonds or other indebtedness; new plans or changes to existing plans; and new partnerships, including joint powers authorities (§§ 34162 to 34165). Cities and counties are barred from creating any new redevelopment agencies. (§ 34166.) Existing obligations are unaffected; redevelopment agencies may continue to make payments and perform existing obligations until other agencies take over. (§ 34169.) Part 1.8’s purpose is to preserve redevelopment agency assets and revenues for use by ‘local governments to fund core governmental services’ such as fire protection, police, and schools. (§ 34167, subd. (a).)

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“Part 1.85 (§§ 34170 to 34191) is the dissolution component. It dissolves all redevelopment agencies (§ 34172) and transfers control of redevelopment agency assets to successor agencies, which are contemplated to be the city or county that created the redevelopment agency (§§ 34171, subd. (j), 34173, 34175, subd. (b)). Part 1.85 requires successor agencies to continue to make payments and perform existing obligations. (§ 34177.) However, unencumbered balances of redevelopment agency funds must be remitted to the county auditor-controller for distribution to cities, the county, special districts, and school districts in proportion to what each ...

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