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City of Santa Maria v. Cohen

California Court of Appeals, Third District, Sacramento

April 25, 2017

CITY OF SANTA MARIA, Plaintiff and Appellant,
v.
MICHAEL COHEN, as Director, etc., Defendant and Respondent.

         APPEAL from a judgment of the Superior Court of Sacramento County, No. 34201480001918CUMWGDS Michael P. Kenny, Judge. Reversed.

          Aleshire & Wynder, June S. Ailin and Lona N. Laymon for Plaintiffs and Appellants.

          Kamala D. Harris, Attorney General, Douglas J. Woods, Senior Assistant Attorney General, Stepan A. Haytayan, Deputy Attorney General, Jeffrey A. Rich, Deputy Attorney General, for Defendants and Respondents.

          ROBIE, ACTING P. J.

         As successor to the former Redevelopment Agency of the City of Santa Maria, the City of Santa Maria owns parking facilities that were acquired and/or constructed with the proceeds of certain bonded indebtedness dating back to 1984.[1] The city leases the parking facilities from the city as successor. The bonded indebtedness was most recently refinanced with bonds issued in 2003.

         In May 2012, the city as successor sought approval from the California Department of Finance (the department) to make payments due on the 2003 bonds from the redevelopment property tax trust fund (the fund). The department determined that the fund should not be used to make the bond payments because subdivision (a)(2)(B) of Health and Safety Code[2] section 34183 provides that the fund can be used for payments to be made on revenue bonds “only to the extent the revenues pledged for [the bonds] are insufficient to make the payments and only where the agency's tax increment revenues were also pledged for the repayment of the bonds.” The department concluded that subdivision (a)(2)(B) of section 34183 applied because the bonds at issue “did not have tax increments pledged and therefore, must be paid with other funding sources.”

         The city and the city as successor commenced the present mandamus action against the department and its director (jointly, the department) to challenge the department's determination that the fund could not be used for the bond payments. The trial court agreed with the department that because tax increment revenues were not expressly pledged to satisfy the bond payments, the city as successor was not entitled to use the fund to make the bond payments under subdivision (a)(2)(B) of section 34183. The trial court further concluded, however, that to the extent the city's lease payments for the parking facilities are insufficient to cover the bond payments, the city as successor is entitled to use the fund to make the bond payments under subdivision (a)(2)(C) of section 34183, which allows the fund to be used for “[p]ayments scheduled for other debts and obligations listed in the Recognized Obligation Payment Schedule that are required to be paid from former tax increment revenue.”

         On appeal from the judgment partially granting their writ petition, the city and the city as successor contend the trial court erred in concluding that under subdivision (a)(2)(C) of section 34183 the city's lease payments must be used first to make the bond payments and that the city as successor is entitled to use the fund for the bond payments only to the extent the lease payments are insufficient. In response, the department contends the trial court was correct in concluding that the city as successor is not entitled under subdivision (a)(2)(C) of section 34183 to use the fund first to make the bond payments. The department further contends, however, the trial court erred in concluding that the city as successor is entitled under that subdivision to use the fund to make the bond payments to the extent the city's lease payments are insufficient for that purpose.

         For the reasons set forth below, we agree with the trial court that the city as successor is not entitled to use the fund to make the bond payments under subdivision (a)(2)(B) of section 34183. We further conclude that subdivision (a)(2)(C) of the statute does not apply to payments scheduled to be made on revenue bonds, and the trial court erred in concluding otherwise. Accordingly, we will reverse and remand with directions to enter judgment in favor of the department.

         LEGAL BACKGROUND

         Before June 2011, the Community Redevelopment Law (§ 33000 et seq.) authorized cities and counties to establish redevelopment agencies to remediate urban decay and revitalize blighted communities. (California Redevelopment Assoc. v. Matosantos (2011) 53 Cal.4th 231, 245-246.) To finance their activities, redevelopment agencies relied on “tax increment financing.... [Citations.] 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) [we]re 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--[went] 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 [we]re frozen, while revenue from any increase in value [wa]s awarded to the redevelopment agency on the theory that the increase [wa]s the result of redevelopment.” (Id. at pp. 246-247.)

         In June 2011, as a partial means of closing the state's projected budget deficit, the Legislature passed, and the Governor signed, Assembly Bill XI 26, which, in addition to other things, “dissolve[d] all redevelopment agencies [citation] and transfer[red] control of redevelopment agency assets to successor agencies, which are contemplated to be the city or county that created the redevelopment agency.” (California Redevelopment Assoc. v. Matosantos, supra, 53 Cal.4th at p. 251.) Under this law, the successor agency “is a separate public entity from the public agency that provides for its governance and the two entities shall not merge. The liabilities of the former redevelopment agency shall not be transferred to the sponsoring entity and the assets shall not become assets of the sponsoring entity.” (§ 34173, subd. (g).) Furthermore, “[t]he liability of any successor agency, acting pursuant to the powers granted under the act adding this part, shall be limited to the extent of the total sum of property tax revenues it receives pursuant to this part and the value of assets transferred to it as a successor agency for a dissolved redevelopment agency.” (Id., subd. (e).)

         A successor agency is required to “[c]ontinue to make payments due for enforceable obligations” (§ 34177, subd. (a)), which include “[b]onds, as defined by Section 33602 and bonds issued pursuant to Chapter 10.5 (commencing with Section 5850) of Division 6 of Title 1 of the Government Code, including the required debt service, reserve set-asides, and any other payments required under the indenture or similar documents governing the issuance of the outstanding bonds of the former redevelopment agency” (§ 34171, subd. (d)(1)(A)). To that end, a successor agency is required to prepare, and submit to the department for approval, a recognized obligation payment schedule (ROP schedule) for every six-month fiscal period from January 1, 2012 through June 30, 2016. (§§ 34171, subd. (h), 34177, subds. (a)(1), (l) & (m).) An ROP schedule “set[s] forth the minimum payment amounts and due dates of payments required by enforceable obligations for each six-month fiscal period.” (§ 34171, subd. (h).) For each recognized obligation, the schedule must “identify one or more sources of payment.” (§ 34177, subd. (l)(1).) Among the possible sources of payment is the fund (id., subd. (l)(1)(E)), into which the county auditor-controller is charged with depositing “the amount of property taxes that would have been allocated to each redevelopment agency in the county had the redevelopment agency not been dissolved” (§ 34182, subd. (c)(1)). The fund is available as a source of payment, however, “only to the extent no other funding source is available or when payment from property tax revenues is required by an enforceable obligation or by the provisions of this part.” (§ 34177, subd. (l)(1)(E).)

         Section 34183 dictates how the county auditor-controller is to allocate moneys in the fund. After making certain allocations not relevant here (§ 34183, subd. (a)(1)), the county auditor-controller is directed to make the following allocations:

         “[O]n June 1, 2012, and each January 2 and June 1 thereafter, to each successor agency for payments listed in its Recognized Obligation Payment Schedule for the six-month fiscal period beginning January 1, 2012, and July 1, 2012, and each January 2 and June 1 thereafter, in the following order of priority:

         “(A) Debt service payments scheduled to be made for tax allocation bonds.

         “(B) Payments scheduled to be made on revenue bonds, but only to the extent the revenues pledged for them are insufficient to make the payments and only if the agency's tax increment ...


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