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Covarrubias v. Cohen

California Court of Appeals, Third District, Sacramento

October 7, 2016

CLAUDIA COVARRUBIAS et al., Plaintiffs and Appellants,
v.
MICHAEL COHEN, as Director, etc. et al., Defendants and Respondents CITY OF WINTERS, as Taxing Entity, etc., et al., Real Parties in Interest and Respondents.

         APPEAL from a judgment of the Superior Court of Sacramento County, No. 34-2013-80001650-CU-WM-GDS Michael P. Kenny, Judge.

Page 1230

         COUNSEL

         Western Center on Law & Poverty, S. Lynn Martinez, Richard A. Rothschild, Navneet Grewal; Legal Services of Northern California, Alysa E. Meyer, Sarah Steinheimer; Public Interest Law Project, Deborah A. Collins, Michael Rawson; Arnold & Porter and Steven L. Mayer for Plaintiffs and Appellants.

         Kamala D. Harris, Attorney General, Douglas J. Woods, Assistant Attorney General, Marc A. LeForestier and Nancy J. Doig, Deputy Attorneys General, for Defendants and Respondents.

         Fagen Friedman and Fulfrost, Paul G. Thompson and Travis A. Brooks for Real Party in Interest and Respondent Winters Joint Unified School District.

         No appearance for remaining Real Parties in Interest and Respondents.

Page 1231

         OPINION

         BUTZ, J.

         Nominal plaintiffs Claudia Covarrubias, Veronica Alvarado, Rebecca Rivas, and Lucila Gomez[1] brought this action against Michael Cohen, in his capacity as the Director of the Department of Finance (the Department), in order to compel the Department to approve the City's continued payments of set-asides from “tax increment”-the increase above the tax base level attributed to redevelopment (City of Brentwood v. Campbell (2015) 237 Cal.App.4th 488, 492, fn. 4 [188 Cal.Rptr.3d 88] (Brentwood))-to the fund for subsidized housing in the City's redevelopment project area that was previously mandated under redevelopment law (Health & Saf. Code, §§ 33334.2, subd. (a), 33334.3, subd. (a), 33334.6, subd. (c) & 33670).[2] Plaintiffs argued these come within the definition of “ ‘[e]nforceable obligations' ” (§ 34171, subd. (d)(1)) of the City's former redevelopment agency because the entirety of the set-asides to be paid over the life of a redevelopment project was due ab initio, and thus survived the abolishment of tax increment in the “ ‘Great Dissolution' ” in 2012 (Brentwood, at p. 491).[3] The trial court ruled that the strictly statutory obligation to make set-asides accrued on an annual basis and accordingly expired when the Great Dissolution took place; the set-asides therefore were no longer enforceable obligations of the redevelopment agency. It entered judgment in favor of both defendants and real parties in interest. We shall affirm.

Page 1232

         FACTUAL AND PROCEDURAL BACKGROUND

         As is generally the case in Great Dissolution appeals, the facts are undisputed and merely serve to provide a contextual framework. Our analysis is concerned principally with statutory interpretation.

         The City established its former redevelopment agency (the Winters Community Development Agency) in 1992, and adopted a redevelopment plan for the project area (which consists of about 41 percent of the total land area of the City). In 2008, the City voted to extend the expiration date of the plan to 2033, and the authority of the redevelopment agency to receive tax increment and pay related debts until 2043. In its 2009 five-year redevelopment plan, the City noted that the Sacramento Area Council of Governments had identified a need in the project area for 431 units of subsidized housing; as of that date, none had been built with money from the housing fund.

         In order to satisfy its constitutionally mandated minimum funding obligation, the Legislature directed redevelopment agencies to transfer tax increment to school and community college districts in funds created for “educational revenue augmentation” or “supplemental educational revenue augmentation” on multiple occasions between 1992 and 2009 (see California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, 245, 248 [135 Cal.Rptr.3d 683, 267 P.3d 580] (Matosantos I); California Redevelopment Assn. v. Matosantos (2013) 212 Cal.App.4th 1457, 1467 [152 Cal.Rptr.3d 269] (Matosantos II).) In imposing this obligation, the Legislature authorized the redevelopment agencies to borrow from their annual set-asides for their subsidized housing funds, requiring the loans to be repaid within 10 years. (E.g., §§ 33681.7, subd. (b) [2002-2003 fiscal year], 33681.9, subd. (b) [2003-2004 fiscal year], 33681.12, subd. (b) [2004-2005 fiscal year and 2005-2006 fiscal year], 33690, subds. (a)(1)(A) & (c)(2) [2009-2010 fiscal year, to be repaid by June 30, 2015], 33690.5, subds. (a)(1)(A) & (c)(2) [2010-2011 fiscal year, to be repaid by June 30, 2016].) In addition, the redevelopment agencies were authorized generally to defer set-asides if there was insufficient tax increment to satisfy other obligations. (§ 33334.6.) Plaintiffs do not appear to contend that any such sums are owed to the subsidized housing fund from the former redevelopment agency.

         The amount of tax increment to which a redevelopment agency is entitled is limited to the amount of its total indebtedness (both existing and executory), less available revenue. Thus, the redevelopment agency must annually prepare a statement of its total indebtedness and submit it to the county auditor (or other responsible officer). (Matosantos I, supra, 53 Cal.4th at p. 264; Matosantos II, supra, 212 Cal.App.4th at p. 1465; Glendale Redevelopment Agency v. County of Los Angeles (2010) 184 Cal.App.4th 1388, 1393-1394;

Page 1233

[109 Cal.Rptr.3d 815] § 33675, subd. (b).) As noted in the state Controller's final annual report on redevelopment agencies for the fiscal year ending June 2011, the definition of “indebtedness” for the purposes of this form “is not limited to the formal accounting definition of indebtedness, but is expanded to include all redevelopment obligations, ” including obligations to the housing fund. This statement of indebtedness “is perhaps the least understood aspect of redevelopment finance. It itemizes all future tax increment requirements for the purpose of repaying indebtedness.” (Italics added.) The statement is accompanied by a reconciliation document that identifies all changes from the prior year's statement. Moreover, pursuant to the state Controller's instructions for preparing the statement, total indebtedness is increased by the 20 percent obligation for the housing fund (as well as percentages for other similar statutory obligations) so that sufficient revenue is available for the remaining redevelopment obligations. (§ 33675, subd. (f) [for purposes of this statement “the amount an agency will deposit in its... Housing Fund... shall constitute an ...


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