California Court of Appeals, Third District, Sacramento
from a judgment of the Superior Court of Sacramento County
No. 34-2013-80001380-CUWMGDS, Eugene L. Balonon, Judge.
Best & Krieger, Iris P. Yang, Kimberly E. Hood for
Plaintiffs and Appellants.
D. Harris and Xavier Becerra, Attorneys General, Douglas J.
Woods, Senior Assistant Attorney General, Mark R. Beckington,
Susan K. Smith, and John W. Killeen, Deputy Attorneys
General, for Defendant and Respondent.
appearance for Real Party in Interest and Respondent.
NICHOLSON, Acting P. J.
Governor Brown announced his intention to dissolve
redevelopment agencies, but before the legislation passed,
City of Galt entered into an agreement (the Cooperative
Agreement) with its former redevelopment agency under which
the former redevelopment agency agreed to finance several
parts of the redevelopment plan, totaling more than $22, 000,
000. To obtain money for the financing, the former
redevelopment agency issued tax allocation bonds, which were
to be repaid using tax increment revenue. With the
dissolution of redevelopment agencies discussed but still not
signed into law, City of Galt and its former redevelopment
agency filed a complaint to validate the Cooperative
Agreement. No one responded to the complaint, so the trial
court entered a validation judgment.
Legislature and Governor eventually dissolved redevelopment
agencies (the Dissolution Law). The Dissolution Law, on its
face, renders unenforceable any agreement between a local
agency and its former redevelopment agency (sponsor
agreements) during a specified period of time before
dissolution took place (the freeze component of the
Dissolution Law). The Department of Finance (DOF) determined
that the Cooperative Agreement here is unenforceable under
the freeze component. City of Galt filed a petition for writ
of mandate, but the trial court upheld DOF's
appeal, City of Galt contends: (1) the state must allow City
of Galt to use the proceeds from the tax allocation bonds to
fund the Cooperative Agreement projects; (2) the Cooperative
Agreement is enforceable because it was the subject of a
validation judgment, and (3) equitable estoppel bars DOF from
determining that the Cooperative Agreement is unenforceable.
None of City of Galt's contentions has merit.
background in this redevelopment dissolution case, we quote
parts of the Supreme Court's decision in California
Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231
(Matosantos), which upheld the provisions of the
Dissolution Law relevant to this case:
Bill 1X 26... consist[s] of [two] principal components,
codified as new parts 1.8 [and] 1.85... of division 24 of the
Health and Safety Code. Part 1.8 ([Health & Saf. Code, ]
§§ 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).)
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 agency would have received absent
the redevelopment agencies. (See §§ 34177, subd.
(d), 34183, subd. (a)(4), 34188.) Proceeds from redevelopment
agency asset sales likewise must go to the county
auditor-controller for similar distribution. (§ 34177,
subd. (e).) Finally, tax increment revenues that would have
gone to redevelopment agencies must be deposited in a local
trust fund each county is required to create and administer.
(§§ 34170.5, subd. (b), 34182, subd. (c)(1).) All
amounts necessary to satisfy administrative costs,
pass-through payments, and enforceable obligations will be
allocated for those purposes, while any excess will be deemed
property tax revenue and distributed in the same fashion as
balances and assets. (§§ 34172, subd. (d), 34183,
subd. (a).)” (Matosantos, supra, 53 Cal.4th at
the freeze, redevelopment agencies were authorized to
continue distributing tax increment pursuant to enforceable
obligations, the definition of which included
‘sponsor agreements' between a former redevelopment
agency and its sponsor agency [such as City of Galt and the
former redevelopment agency here]. (§§ 34167, subd.
(d), 34169, subd. (a)). Postdissolution, however, the
definition of ‘enforceable obligations' entitled to
tax increment from the successor agencies excluded
all sponsor agreements. (§§ 34171, subd. (d)(2),
34177, subd. (a).)” (City of Brentwood v.
Campbell (2015) 237 Cal.App.4th 488, 494
(Brentwood), original italics, fn. omitted.)
OF RELEVANT EVENTS
to December 31, 2010 - Proceeds from bonds issued by a former
redevelopment agency after this date may not be used by the
successor agency if they are not encumbered by an enforceable
obligation. (§ 34191.4, subd. (c)(2); statute eff. June
to January 1, 2011 - After this date, transfers of assets
from the former redevelopment agency to the sponsoring agency
were “deemed not to be in the furtherance of the
Community Redevelopment Law and  thereby
unauthorized.” (§ 34167.5; statute eff. June 29,
6, 2011 - City of Galt entered into an agreement with real
party in interest Callander Associates Landscape
Architecture, Inc. (the Callander Agreement). Callander
agreed to provide design, engineering, and other services on
the Central Galt Corridor Rehabilitation and Union Pacific
Railroad (UPRR) Parking Lot projects in exchange for $326,
029, with some additional compensation for optional services.
The former redevelopment agency was not a party to this
18, 2011 - Governor Brown proposed eliminating redevelopment
agencies as a partial means of closing the state's
projected operating deficit. (Matosantos, supra, 53
Cal.4th at p. 250.)
21, 2011 - City of Galt and its former redevelopment agency
entered into a Cooperative Agreement under which the City
agreed to complete nine redevelopment projects and the former
redevelopment agency agreed to reimburse City of Galt a total
of $22, 015, 000 for those projects. The following projects
were specified: Central Galt Corridor Improvements ($2, 000,
000), UPRR Parking Lot and Landscaping ($1, 000, 000),
Simmerhorn Commercial Property Acquisition ($3, 000, 000),
Simmerhorn Infrastructure Improvements ($10, 100, 000),
Industrial Way/Live Oak Road Improvements ($1, 000, 000), SR
99 Water Crossing Improvement ($500, 000), Old Town Property
Acquisitions ($1, 000, 000), Theater Property Acquisition and
Infrastructure Improvements ($2, 000, 000), and Brewster
Building Rehabilitation ($1, 415, 000). Further details of
the Cooperative Agreement are provided below.
1, 2011 - The board of directors of the former redevelopment
agency passed a resolution authorizing the former
redevelopment agency to issue up to $17 million in tax
allocation bonds to pay for redevelopment activities in Galt.
The indentures would provide that the bond indebtedness would
be paid from tax revenues.
1, 2011 - The former redevelopment agency issued tax
allocation bonds in the amounts of $7, 720, 000 (Series A)
and $6, 005, 000 (Series B) under an Indenture of Trust.
14, 2011 - City of Galt and the former redevelopment agency
filed a complaint for validation judgment of the Cooperative
Agreement between the City and the former redevelopment
29, 2011 - The Dissolution Law was enacted, as described
above. (Stats. 2011, 1st Ex. Sess. 2011-2012, ch. 5X.)
26, 2011 - The superior court entered judgment on the
complaint for validation judgment, declaring the validity of
the “Cooperative Agreement Between the Redevelopment
Agency of the City of Galt and the City of Galt.”
29, 2011 - The California Supreme Court upheld the
Dissolution Law as constitutional. (Matosantos,
supra, 53 Cal.4th 231.)
1, 2012 - Redevelopment agencies in California were dissolved
under the Dissolution Law as reformed in Matosantos.
(Matosantos, supra, 53 Cal.4th at p. 275.) City of
Galt became the successor agency of the Redevelopment Agency
of the City of Galt.
2012 - City of Galt, as successor agency, adopted Recognized
Obligation Payment Schedules (ROPS I & II), which
included the Callander Agreement and project delivery costs
under the Cooperative Agreement as enforceable obligations to
be paid with tax allocation bond proceeds, for the periods
from January 2012 to June 2012 and from July 2012 to December
2012. The oversight board of the former redevelopment agency
approved ROPS I and II. DOF approved ROPS I and II, with
exceptions to that approval not relevant here.
28, 2012 - The oversight board of the former redevelopment
agency authorized use of the tax allocation bond proceeds to
fund projects in Galt. DOF did not object to this action by
the oversight board.
23, 2012 - City of Galt submitted ROPS III to DOF for the
period from January 2013 to June 2013, listing the tax
allocation bonds and the Cooperative Agreement as obligations
of the former redevelopment agency. Separately, ROPS III