Responding to a fiscal emergency declared by the Governor on July 1, 2009, the Legislature enacted Assembly Bill No. 4X 26 (2009-2010 4th Ex. Sess.), requiring redevelopment agencies throughout the state to contribute portions of their property tax increment funding for the 2009-2010 and 2010-2011 fiscal years into supplemental educational revenue augmentation funds (SERAF's) to be used for financing K-12 education in redevelopment areas. (Assem. Bill No. 4X 26 (2009-2010 4th Ex. Sess.) (hereafter Assembly Bill 4X 26), enacted as Stats. 2009, 4th Ex. Sess. 2009-2010, ch. 21, §§ 6-9.) However, because Assembly Bill 4X 26 further required that the funds deposited in SERAF's be counted toward the state's overall obligation to fund education, the legislation effected no net increase in school funding. Instead, redevelopment agencies were forced to transfer funds to the state General Fund as reimbursement for other state-funded local programs.
In these consolidated appeals, we conclude the Legislature acted within its constitutional authority in directing redevelopment agencies to deposit portions of their property tax funding into SERAF's. In California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231 [135 Cal.Rptr.3d 683, 267 P.3d 580] (Matosantos), the California Supreme Court upheld the Legislature's power to dissolve redevelopment agencies altogether. Inherent in the power to dissolve is the power to limit funding available to redevelopment agencies. And because Assembly Bill 4X 26 does not otherwise violate constitutional limitations on the use of property taxes or impair contractual obligations of redevelopment agencies or their successors, we conclude it is a valid exercise of the Legislature's inherent budgetary powers.
In a related matter, we conclude the trial court erred in awarding attorney fees to the prevailing plaintiffs in connection with a challenge to an earlier legislative attempt to reallocate property tax funding from redevelopment agencies to the state.
"In the aftermath of World War II, the Legislature authorized the formation of community redevelopment agencies in order to remediate urban decay." (Matosantos, supra, 53 Cal.4th at p. 245.) The Community Redevelopment Law (CRL) (Health & Saf. Code, § 33000 et seq.; further undesignated section references are to the Health and Safety Code) was designed to assist local governments in revitalizing blighted areas. (City of Cerritos v. Cerritos Taxpayers Assn. (2010) 183 Cal.App.4th 1417, 1424 [108 Cal.Rptr.3d 386].)
Redevelopment agencies may "prepare and carry out plans for the improvement, rehabilitation, and redevelopment of blighted areas" (§ 33131, subd. (a)) by acquiring real property (§ 33391, subd. (b)), clearing land and constructing infrastructure necessary for building on project sites (§§ 33420, 33421), undertaking certain improvements to other public facilities in the project areas (§ 33445), and disposing of property by lease or sale (§§ 33430, 33431).
Because redevelopment agencies generally cannot levy taxes (Huntington Park Redevelopment Agency v. Martin (1985) 38 Cal.3d 100, 106 [211 Cal.Rptr. 133, 695 P.2d 220]), "they rely on tax increment financing, a funding method authorized by article XVI, section 16 ... and section 33670. [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) 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." (Matosantos, supra, 53 Cal.4th at pp. 246-247.) In this way, "the redevelopment project in effect pays for itself." (Redevelopment Agency v. County of Los Angeles (1999) 75 Cal.App.4th 68, 71 [89 Cal.Rptr.2d 10].)
"The property tax increment revenue received by a redevelopment agency must be held in a special fund for repayment of indebtedness (§ 33670, subd. (b)), but the law does not restrict the amount of tax increment received in a given year to that needed for loan repayments in that year. [Citation.] The only limit on the annual increment payment received is that it may not exceed the agency's total debt, less its revenue on hand. (§ 33675, subd. (g).) Once the entire debt incurred for a project has been repaid, all property tax revenue in the project area is allocated to local taxing agencies according to
At the time the CRL was adopted, local governments had exclusive control over property tax (art. XIII, former § 10, enacted by Sen. Const. Amend. No. 1, Gen. Elec. (Nov. 8, 1910)), with each local jurisdiction (city, county, special district, and school district) having the power to levy its own property tax. (Matosantos, supra, 53 Cal.4th at p. 243.) However, because of inherent inequities in property taxes from jurisdiction to jurisdiction, the California Supreme Court invalidated this scheme of financing for schools on equal protection grounds in Serrano v. Priest (1971) 5 Cal.3d 584, 608-609 [96 Cal.Rptr. 601, 487 P.2d 1241] (Serrano I) and Serrano v. Priest (1976) 18 Cal.3d 728, 765-766 [135 Cal.Rptr. 345, 557 P.2d 929] (Serrano II). "The Serrano decisions threw `the division of state and local responsibility for educational funding' into `"a state of flux."' [Citation.] In their aftermath, a `Byzantine' system of financing [citation] evolved in which the state became the principal financial backstop for local school districts. Funding equalization was achieved by capping individual districts' abilities to raise revenue and enhancing state contributions to ensure minimum funding levels." (Matosantos, supra, 53 Cal.4th at p. 243.)
"A second event of seismic significance followed shortly after, with the voters' 1978 adoption of Proposition 13 (Cal. Const., art. XIII A, added by Prop. 13, as approved by voters, Primary Elec. (June 6, 1978).) ... Proposition 13 capped ad valorem real property taxes imposed by all local entities at 1 percent (Cal. Const., art. XIII A, § 1, subd. (a)), reducing the amount of revenue available by more than half [citation]. In place of multiple property taxes imposed by multiple political subdivisions, it substituted a single tax to be collected by counties and thereafter apportioned. [Citation.] Significantly, Proposition 13 did not specify how that 1 percent was to be divided, instead leaving the method of allocation to state law." (Matosantos, supra, 53 Cal.4th at p. 244.) Thus, Proposition 13 largely transferred control over local government financing to the state, thereby "converting the property tax from a nominally local tax to a de facto state-administered tax subject to a complex system of intergovernmental grants." (53 Cal.4th at p. 244.) Proposition 13 also created a zero-sum game in which local governmental entities must compete against each other for a slice of the diminished property tax pie. (53 Cal.4th at pp. 244-245.)
Adding a further complication to the local funding picture, the voters approved Proposition 98 in 1988, thereby establishing "constitutional minimum funding levels for education and requir[ing] the state to set aside a designated portion of the General Fund for public schools. (Cal. Const., art. XVI, § 8....) Two years later, the voters revised and effectively increased
Over the years, and especially after the passage of Proposition 13, the use of redevelopment agencies to finance local economic development has proven a powerful weapon for cities in the zero-sum game for allocating scarce funding, at the expense of school districts and other local taxing agencies. (Matosantos, supra, 53 Cal.4th at pp. 247-248.) By the end of 2011, redevelopment agencies were receiving 12 percent of all property tax revenue collected in the state. (Id. at p. 247.) In light of Proposition 98's requirement that the state provide minimum levels of school financing, the diversion of funds to redevelopment agencies created increasing obligations on the state's General Fund. (53 Cal.4th at p. 248.)
In response to these increased obligations, the Legislature has required redevelopment agencies to allocate tax increment revenues for other local purposes, such as low- and moderate-income-housing, and to make graduated payments to other local agencies for redevelopment projects adopted or expanded after 1994. (Matosantos, supra, 53 Cal.4th at pp. 247-248.)
In the general election of November 2004, the electorate approved Proposition 1A (hereafter Proposition 1A), which added article XIII, section 25.5 to the state Constitution. (Stats. 2004, res. ch. 133; Matosantos, supra, 53 Cal.4th at p. 249.) Proposition 1A prohibits the Legislature from enacting any law that modifies the manner of allocating property tax revenues "so as to reduce for any fiscal year the percentage of the total amount of ad valorem property tax revenues in a county that is allocated among all of the local agencies in that county below the percentage of the total amount of those revenues that would be allocated among those agencies for the same fiscal year" under the laws in effect before the adoption of Proposition 1A. (Art. XIII, § 25.5, subd. (a)(1)(A); Stats. 2004, res. ch. 133, p. 7576.) In effect, Proposition 1A prohibits the Legislature from raiding local property tax allocations to help balance the budget.
In the 2008-2009 fiscal year, the Legislature approved Assembly Bill No. 1389 (2007-2008 Reg. Sess.) (hereafter Assembly Bill 1389) which, among other things, enacted sections 33685 through 33689, which required the transfer of a combined $350 million from redevelopment agencies to ERAF's. (Stats. 2008, ch. 751, §§ 53-57; Matosantos, supra, 53 Cal.4th at p. 248.)
California Redevelopment Association (CRA), the Community Redevelopment Agency of the City of Moreno Valley (Moreno Valley RA), the Madera Redevelopment Agency (Madera RA), and John Shirey, an individual taxpayer, initiated a mandamus proceeding against the Director of the Department of Finance (Director) and the Auditor-Controller of Riverside County, seeking to block enforcement of sections 53 through 57 of Assembly Bill 1389. (California Redevelopment Assn. v. Matosantos (Super. Ct. Sacramento County, 2010, No. 34-2008-00028334-CU-WM-GDS) (hereafter CRA v. Matosantos I).)
According to the petition in CRA v. Matosantos I, CRA is a California nonprofit corporation established in 1979 whose members are redevelopment agencies and whose associate members are businesses having interests in redevelopment activities. Moreno Valley RA and Madera RA are community redevelopment agencies under the CRL suing on behalf of themselves and all other redevelopment agencies in the state and the residents and businesses within the jurisdictions of such agencies.
On April 30, 2009, the trial court issued its decision in CRA v. Matosantos I, granting the requested relief and invalidating the transfer of tax increment funds from the redevelopment agencies to the ERAF's under Assembly Bill 1389. The court explained article XVI, section 16 prohibits the use of tax
The Director filed a notice of appeal from the trial court's decision. The plaintiffs moved for an award of attorney fees in the amount of $629,408.48, pursuant to Code of Civil Procedure section 1021.5 and section 1988 of title 42 of the United States Code. The trial court deferred ruling on the motion for attorney fees until resolution of the Director's appeal. On September 23, 2009, the Director abandoned the appeal.
The trial court thereafter determined the plaintiffs are not entitled to attorney fees under section 1988 of title 42 of the United States Code, because its ruling on the merits was based on state law alone. However, the court then issued an order awarding the plaintiffs attorney fees pursuant to Code of Civil Procedure section 1021.5 in the amount of $316,622.74, approximately half of the amount sought. The court found that at least half of the hours detailed in the plaintiffs' billing statements were either unnecessary or unrelated to the relief obtained in the litigation. The Director appeals from the order awarding attorney fees.
For fiscal years 2009-2010 and 2010-2011, the Legislature again sought to appropriate tax increment funds from redevelopment agencies to help balance the budget. In doing so, the Legislature expressly sought to avoid the deficiencies in Assembly Bill 1389 identified by the trial court in CRA v. Matosantos I. Section 1 of Assembly Bill 4X 26 declares: "It is the intent of the Legislature in enacting this act to create a procedure to ensure that the funds contributed by a redevelopment agency pursuant to this act are allocated to serve persons living within or in the vicinity of any project area of that redevelopment agency." (Stats. 2009, 4th Ex. Sess. 2009-2010, ch. 21, § 1(b).)
Assembly Bill 4X 26 added sections 33690 and 33690.5 to the Health and Safety Code. (Stats. 2009, 4th Ex. Sess. 2009-2010, ch. 21.) Among other things, section 33690 required the various redevelopment agencies to remit, prior to May 10, 2010, an aggregate $1.7 billion to SERAF's. (§ 33690, subd. (a).) It also required county auditor-controllers to distribute the funds in the SERAF's to K-12 school districts or county offices of education located
However, section 33690 also provides that the amount of property tax revenues otherwise apportioned to the affected school districts shall be reduced by the amount of SERAF funds received (§ 33690, subd. (k)(1)), thereby resulting in no net increase or decrease in funding to those school districts.
In order to avoid any problems with the requirement of article XVI, section 16, that tax increment funds be used for redevelopment activities, Assembly Bill 4X 26 added section 33020.5, which defines "redevelopment" to include "payments to school districts in the fiscal years specified in Sections 33690 and 33690.5." (§ 33020.5.) Assembly Bill 4X 26 also provides that redevelopment agencies are not required to use tax increment funds to fulfill their obligation to the SERAF's, but may use "reserve funds, proceeds of land sales, proceeds of bonds or other indebtedness, lease revenues, interest, and other earned income." (§ 33690, subd. (b).) To ameliorate any adverse financial effects on redevelopment agencies from the transfer of funds mandated by Assembly Bill 4X 26, new section 33331.5 provides that, upon full payment by a redevelopment agency into an SERAF, the legislative body that created the redevelopment agency may amend the redevelopment plan to extend the time limits for completion of redevelopment activities by one year. (§ 33331.5.)
For fiscal year 2010-2011, new section 33690.5 required the redevelopment agencies to remit an additional $350 million to the SERAF's by May 10, 2011. (§ 33690.5, subd. (a).) These funds again would be used to reduce the state's obligation to fund education. (See § 33690.5, subds. (j)(1), (5), (k)(1).)
Assembly Bill 4X 26 also added section 33691, which provides that a given redevelopment agency may reduce its required transfer to the SERAF under section 33690 or 33690.5 by whatever amount is necessary to allow the agency to pay "existing indebtedness," which is defined as the amount due in the given fiscal year on bonds and other such obligations previously incurred by the agency. (§ 33691, subds. (a)(1), (b).) In effect, current fiscal year debt payments, but not the amount of the overall debt obligations, are given priority over SERAF payments.
Two days later, The Counties of Los Angeles, San Diego, San Bernardino, San Mateo, Riverside, Orange and Alameda, along with Don Knabe (hereafter collectively the County Plaintiffs), initiated a separate mandamus action against the Director and the Auditor-Controller of Alameda County seeking to block enforcement of Assembly Bill 4X 26. (County of Los Angeles v. Matosantos (Super. Ct. Sacramento County, 2010, No. 34-2009-80000362-CU-WM-GDS (hereafter County v. Matosantos).) As in CRA v. Matosantos II, the Auditor-Controller of Alameda County was sued on behalf of himself and as the representative of all other auditors of California counties having redevelopment agencies.
On November 2, 2009, the trial court determined CRA v. Matosantos II and County v. Matosantos are related and assigned both cases to Judge Connelly, who had presided over CRA v. Matosantos I.
On December 18, 2009, in County v. Matosantos, the trial court certified a defendant class of county auditors in the 51 California counties having redevelopment agencies.
On January 22, 2010, in CRA v. Matosantos II, the trial court certified a plaintiff class of California redevelopment agencies and a defendant class of county auditors.
On February 5, 2010, the trial court conducted a hearing on both matters, at the end of which it requested supplemental briefing.
On March 30, 2010, the CRA Plaintiffs moved for a preliminary injunction or stay to maintain the status quo in order to prevent the scheduled transfer of tax increment funds on or before May 10. The County Plaintiffs joined in the motion.
The court next concluded Assembly Bill 4X 26 does not unconstitutionally impair the redevelopment agencies' contractual obligations to bondholders, inasmuch as SERAF payments are subordinated to liens on redevelopment property and current fiscal year debt payments and SERAF payments are not required to be made from tax increment funds. The court further found no violation of Proposition 1A, inasmuch as redevelopment agencies do not fall within the scope of its protection. Although the plaintiffs also argued Assembly Bill 4X 26 permits the extension of redevelopment agency obligations for one year, which could result in a decrease in funding to the sponsoring agency as prohibited by Proposition 1A, the court concluded the significance of this delay is too uncertain. Finally, the court found no other constitutional infirmity in Assembly Bill 4X 26. In light of its ruling, the court denied the plaintiffs' request for a stay of the scheduled May 10, 2010 transfer of funds.
On May 5, 2010, the CRA Plaintiffs filed a petition in this court for supersedeas or mandate to block enforcement of the trial court's judgment and to maintain the status quo pending appeal. On May 7, we denied the petition.
On May 13, 2010, the trial court entered judgment denying the petitions in CRA v. Matosantos II and County v. Matosantos. The plaintiffs in both cases appeal.
In November 2010, the voters approved Proposition 22 which, among other things, added section 25.5, subdivision (a)(7), to article XIII of the state Constitution, extending the protections of Proposition 1A to redevelopment agencies. (Matosantos, supra, 53 Cal.4th at p. 249.)
In the summer of 2011, the Legislature enacted two measures to reduce or eliminate the diversion of property tax revenues from school districts to redevelopment agencies. (Assem. Bill Nos. 1X 26 & 1X 27 (2011-2012 1st
In December 2011, the California Supreme Court issued its decision in Matosantos, upholding Assembly Bill 1X 26 (Matosantos, supra, 53 Cal.4th at pp. 262, 264) but finding Assembly Bill 1X 27 in violation of Proposition 22 (Matosantos, at p. 270). The court also found the two provisions severable. (53 Cal.4th at p. 270.) As reformed by the court, Assembly Bill 1X 26 required all redevelopment agencies to dissolve effective February 1, 2012. (Matosantos, at p. 275.) Since that date has now passed, all redevelopment agencies, including those that were parties to the present consolidated proceedings, have ceased to exist.
On April 30, 2009, the trial court in CRA v. Matosantos I issued its decision granting the requested relief and invalidating the transfer of $350 million in tax increment funds from the redevelopment agencies to the ERAF's. The court explained "the required payments by [redevelopment agencies] to their county ERAF's during the 2008-2009 fiscal year are inconsistent with the intent of [article XVI,] section 16 to use tax increment revenue for the financing of redevelopment projects...." This was so, according to the court, because there was no assurance in the legislation that the applicable funds would be used for the benefit of the redevelopment areas alone. The court thereafter entered judgment for the plaintiffs, finding sections
The plaintiffs moved for an award of attorney fees in the amount of $629,408.48, pursuant to Code of Civil Procedure section 1021.5 and section 1988 of title 42 of the United States Code. The trial court concluded CRA is entitled to attorney fees under the state provision but not the federal one. The court further found that at least half of the hours detailed in the billing statements submitted by the plaintiffs were either unnecessary or unrelated to the relief obtained in the litigation. The court awarded CRA $316,622.74, which was about half of what had been requested.
Code of Civil Procedure section 1021.5 reads: "Upon motion, a court may award attorneys' fees to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any...."
"The decision whether to award attorney fees lies within the discretion of the trial court and will not be disturbed on appeal absent a prejudicial abuse of discretion resulting in a manifest miscarriage of justice. [Citation.] However, `discretion may not be exercised whimsically and, accordingly, reversal is appropriate "where no reasonable basis for the action is shown." [Citation.]' [Citation.]" (California Licensed Foresters Assn. v. State Bd. of Forestry (1994) 30 Cal.App.4th 562, 568-569 [35 Cal.Rptr.2d 396], fn. omitted (California Licensed Foresters).)
The trial court agreed with the CRA Respondents, explaining: "Contrary to the contention of [the Director], petitioner CRA's prosecution of the litigation imposed a financial burden disproportionate to its stake in the litigation. Whether the CRA is considered to be a public entity by virtue of its redevelopment agency membership or a private, non-profit corporation representing redevelopment agencies as well as private parties having various interests in redevelopment activities, the CRA pursued this litigation in the interest of, not only its organizational membership, but also residents and businesses in redevelopment areas throughout California where tax increment financing plays a key role in fostering redevelopment projects. [Citations.]
"While the cost of the litigation to the CRA was significant, the CRA and its redevelopment agency membership had no identifiable personal financial stake in the $350 million in tax increment revenues preserved by the litigation for use in redevelopment projects[.] Those revenues were committed to redevelopment projects throughout California and had to be used in accordance with the public policies and purposes of the [CRL] administered by the redevelopment agencies. Thus, the litigation could only have been brought to preserve those uses of the revenues, not to protect any personal or private financial interest of the CRA or its members in the revenues. [Citations.]
"Nor did the CRA benefit from specific concrete and significant nonfinancial interest that resulted from the preservation of the $350 million in tax increment revenues. There is no evidence that the CRA was motivated to pursue this litigation for any other reason than to enforce the constitutional
Before addressing the parties' contentions, we note that the motion for attorney fees in the court below was filed on behalf of not just CRA but two other plaintiffs, including a redevelopment agency. Without explanation, the trial court entered an order awarding fees only to CRA. Based on the record before us, it appears the billing submitted by the plaintiffs in support of their motion for attorney fees was for work performed by counsel on behalf of all plaintiffs, not just CRA. We fail to see how the trial court could have singled out CRA as deserving of a fee award while ignoring the other plaintiffs. At any rate, as we shall explain, we conclude none of the plaintiffs were entitled to an award of attorney fees.
The CRA Respondents' arguments in support of the award, and the trial court's explanation of its ruling, are apparently based on two factors: (1) CRA must be viewed in isolation and not as simply a conduit for its members' interests and (2) the $350 million protected by the judgment was not for the benefit of CRA or its members but for the bondholders and other creditors who will be paid out of those funds. However, neither basis withstands scrutiny.
The CRA Respondents assert "[n]o agency or individual could afford to challenge [Assembly Bill 1389] alone," so "[t]he financial burden of the challenge fell to CRA." Thus, the CRA Respondents would have us look to CRA alone and not its individual members, including the two redevelopment agency plaintiffs, to determine whether the financial burden placed upon CRA was out of proportion to its individual stake in the matter. And since CRA has no stake in the outcome of the litigation apart from that of its members, so the argument goes, the cost of litigation was obviously out of proportion to CRA's stake.
In support of their argument that a nonprofit organization such as CRA may recover attorney fees under Code of Civil Procedure section 1021.5 regardless of its members' stake in the litigation, the CRA Respondents cite Pacific Legal Foundation v. California Coastal Com. (1982) 33 Cal.3d 158 [188 Cal.Rptr. 104, 655 P.2d 306] (PLF); Folsom v. Butte County Assn. of Governments (1982) 32 Cal.3d 668 [186 Cal.Rptr. 589, 652 P.2d 437] (Folsom); State Water Resources Control Bd. Cases (2008) 161 Cal.App.4th 304 [73 Cal.Rptr.3d 842] (Water Board Cases); and Riverside Sheriffs' Assn. v.
PLF involved two actions against the California Coastal Commission, one filed by the Pacific Legal Foundation and a group of property owners and another filed by two property owners (Jackson and Hunter), challenging commission regulations affecting the rights of coastal property owners. In addition to pursuing its own action, Pacific Legal Foundation represented Jackson and Hunter in their case, which sought to overturn a commission requirement of public access as a condition to approval of a permit. (PLF, supra, 33 Cal.3d at p. 164.) In the Jackson and Hunter matter, the Supreme Court concluded Pacific Legal Foundation was not entitled to attorney fees under Code of Civil Procedure section 1021.5, despite having obtained a judgment invalidating the permit condition. According to the court, the decision did not confer a significant benefit on a large class of persons but instead vindicated the rights of the owners of a single parcel of property. (33 Cal.3d at p. 167.)
PLF is obviously inapposite to the present matter, as it involved application of the second requirement for a Code of Civil Procedure section 1021.5 award — the matter conferred a significant benefit on the general public or a large class of persons — and not the third requirement at issue here. Furthermore, it does not support the CRA Respondents' position because the high court concluded attorney fees were not warranted under the circumstances presented.
In Folsom, the plaintiffs were elderly or disabled individuals dependent on public transit who brought a declaratory relief action challenging the county's allocation of street and road project funds and obtained relief by way of a settlement agreement. (Folsom, supra, 32 Cal.3d at p. 671.) In the litigation, the plaintiffs were represented by Legal Services of Northern California and other public entities. (Id. at p. 681, fn. 22.) On the issue of the plaintiffs' right to attorney fees, the court first concluded the fact the plaintiffs were represented by public entities did not bar such an award. (Id. at pp. 683-684.) The court thereafter concluded the plaintiffs had been successful in the litigation, notwithstanding the settlement and voluntary actions by the defendants. (Id. at pp. 686-687.) Notably, the court did not consider the question whether the burden on the litigants exceeded their personal stake in the matter, thus distinguishing it from the present case.
Water Board Cases involved seven consolidated cases arising out of an omnibus water rights proceeding before the State Water Resources Control Board (SWRCB). One of the cases was brought by five private, nonprofit
This court reversed the denial of attorney fees to the Audubon Society parties. We explained that, where "a public entity receives fees under [Code of Civil Procedure] section 1021.5 for succeeding in important public interest litigation, a private party who succeeded alongside that public entity cannot be denied a similar award of fees simply because the success might have been achieved by the public entity acting alone." (Water Board Cases, supra, 161 Cal.App.4th at p. 318.)
Water Board Cases too is inapposite as it dealt with a different requirement for an award of attorney fees, to wit, whether the necessity of private enforcement is such as to make an award appropriate. There was no question as to whether the financial burden placed on the plaintiffs was out of proportion to their individual stakes in the matter.
Finally, in Riverside Sheriffs, the sheriffs' association brought an action to enforce the rights of several officers to representation which had been denied during a criminal investigation of sexual improprieties, and the trial court issued an injunction prohibiting such denial. The court thereafter awarded the association attorney fees, and the county defendant appealed. (Riverside Sheriffs, supra, 152 Cal.App.4th at pp. 417-419.) The Court of Appeal affirmed the award of attorney fees concluding, among other things, that the trial court did not abuse its discretion in awarding attorney fees where the association enforced an important procedural right for its members and bore the entire financial burden of the litigation without seeking or receiving any pecuniary recovery. (Id. at pp. 423-424.)
Although the court in Riverside Sheriffs made a finding based on the third requirement for an award of attorney fees, the question there was not whether the court could ignore pecuniary benefits to the individual members of the association and rely instead on the fact the association itself did not receive a financial benefit. In fact, in reaching its decision, the court relied on other
Thus, none of the cases cited by the CRA Respondents supports their assertion that the court may ignore the financial stake of an organization's members in deciding whether the financial burden on the plaintiffs was out of proportion to their individual stakes in the litigation.
In California Licensed Foresters, the California Licensed Foresters Association (CLFA) brought an action challenging emergency regulations and guidelines adopted by the State Board of Forestry which were allegedly detrimental to the interests of CLFA's members, and CLFA obtained a preliminary injunction against enforcement. However, after permanent regulations were adopted, CLFA filed a request for dismissal and later requested and obtained an award of attorney fees. (California Licensed Foresters, supra, 30 Cal.App.4th at pp. 567-568.)
The same reasoning applies here. The petition below alleged: "Petitioner CRA is a California nonprofit corporation established in 1979. CRA members are California redevelopment agencies. Currently, approximately 360 redevelopment agencies are CRA members. Associate members of CRA are businesses having an interest in redevelopment activity in California, including
Like CLFA in California Licensed Foresters, CRA had a financial stake in this matter to the same extent as its members. As a membership association, it may be inferred "[CRA's] very existence depends upon the economic vitality of its members and any benefit or burden derived by [CRA] from this lawsuit ultimately redounds to the membership." (California Licensed Foresters, supra, 30 Cal.App.4th at p. 570.)
The CRA Respondents nevertheless argue the fact they had a pecuniary interest in the litigation does not disqualify them from an award of attorney fees. They cite as support Feminist Women's Health Center v. Blythe (1995) 32 Cal.App.4th 1641 [39 Cal.Rptr.2d 189] (Blythe). In Blythe, the plaintiff clinic obtained an injunction against abortion protesters and we concluded the record supported the trial court's finding that the women's health clinic did not have a sufficient financial interest in the litigation to preclude an award of attorney fees. (Blythe, at pp. 1668-1669.) The clinic "provide[d] gynecological health care, birth control services, pregnancy testing and screening, sexually transmitted disease testing and screening, and abortions." (Id. at p. 1654.) Regarding the clinic's financial interest, we explained: "The trial court found plaintiff's year-end surplus of revenues over liabilities for all of its clinics combined together amounted to only $11,914 in 1988, $15,000 in 1989 and $30,353 in 1990. In other words, the financial burden of litigation exceeded plaintiff's net income for a three-year period. Moreover, plaintiff is a nonprofit corporation operating four medical clinics in northern California, and its surpluses are used to subsidize its failing clinics, not to provide dividends for shareholders." (Id. at pp. 1667-1668.) We further noted the clinic's primary motivation for pursuing the litigation was not to protect its stream of income but "to ensure its ability to continue providing medical and abortion services to women." (Id. at p. 1668.) In particular, the clinic did not seek damages and did not receive any such award in the case. (Id. at pp. 1666, 1668.)
Blythe too is readily distinguishable from the present matter. Unlike CRA here, the clinic in Blythe was not a membership association suing on behalf of its members. The clinic sued on behalf of its customers. Moreover, the clinic in Blythe did not receive any monetary recovery in the action, whereas CRA obtained a judgment providing for the retention of $350 million by its members.
The CRA Respondents next cite Serrano v. Priest (1977) 20 Cal.3d 25 [141 Cal.Rptr. 315, 569 P.2d 1303] (Serrano III), where the state high court permitted an award of fees to two public interest legal advocates, Public Advocates, Inc., and Western Center on Law and Poverty, that had represented the plaintiffs — students and their parents — in litigation challenging public school funding in the state. (Serrano III, at pp. 31-33 & fn. 4.) The court concluded the award was proper notwithstanding that the plaintiffs had not incurred any obligation to pay legal fees to the two advocates and the advocates received public funding. (See id. at pp. 33, 47-48.)
The CRA Respondents contend the Serrano III plaintiffs "are equivalent to" the two redevelopment agency plaintiffs and the individual plaintiff in this matter, because they are "individually affected by the unconstitutional acts but not so situated that they could afford to sue individually." However, given that the average recovery of each of the approximately 360 redevelopment agencies represented by CRA is approximately $10 million, it is hard to see such equivalence. The CRA Respondents also contend the two public interest legal advocates in Serrano III are "roughly equivalent" to CRA here. We suppose that depends on what is meant by "roughly." The public advocates in Serrano III were the attorneys representing the plaintiffs in that case. They had no other relation or affiliation with the plaintiffs. CRA, on the other hand, is an association composed of the individual redevelopment agencies. It is not
The CRA Respondents nevertheless contend neither CRA nor its members had any real stake in this action, because the ultimate beneficiaries were the bondholders who will be paid from the recovered funds. However, this argument is like saying a debtor who collects an unrelated debt from a third party is not thereby benefited because the proceeds will ultimately be used to pay the debtor's creditors. Certainly the debtor is benefited to the extent he is not required to look elsewhere for funds to satisfy the debt. If CRA's members had lost the $350 million in funds, it would have had to find other means to satisfy bondholders.
Lastly, the CRA Respondents contend that, even if the fee award under Code of Civil Procedure section 1021.5 is invalid, they are entitled to attorney fees under section 1988 of title 42 of the United States Code. They argue they sought an award of attorney fees on the basis of both provisions and they were entitled to an award under the federal law, notwithstanding that the trial court did not rule on their civil rights claim. The CRA Respondents cite as support Filipino Accountants' Assn. v. State Bd. of Accountancy (1984) 155 Cal.App.3d 1023, 1032 [204 Cal.Rptr. 913] (Filipino Accountants), where we stated a plaintiff who litigates a civil rights claim need not prevail on that claim in order to be entitled to attorney fees under section 1988 "provided that [the] plaintiff's complaint has pleaded a `substantial' civil rights act claim and [the] plaintiff prevails on a noncivil rights act claim that is factually related to the pleaded civil rights act claim."
The Director makes no attempt to refute the foregoing argument. In her reply brief on appeal, she simply reiterates her arguments regarding the propriety of a fee award under Code of Civil Procedure section 1021.5. Nevertheless, we conclude the CRA Respondents' argument is without merit.
In ruling for the CRA Respondents on their underlying claims, the trial court concluded Assembly Bill 1389 violates the requirement in article XVI, section 16 of the state Constitution that tax increment funds be used exclusively for redevelopment purposes. The court further stated: "Because the court has determined that the section 33865 [sic] is facially unconstitutional, the court need not resolve petitioners' contention that the statute also violates the prohibitions on the impairment of contracts and the taking of property without just compensation under the California and United States Constitutions."
It is clear the basis for the trial court's ruling — that the appropriation of funds violates the requirement that such funds be used for redevelopment purposes — is not factually related to claims that the appropriation of such funds constitutes an impairment of contract or a taking of property without just compensation. Hence, CRA is not entitled to an award of attorney fees under section 1988 of title 42 of the United States Code. The trial court made no ruling on any of the issues raised by the federal claim.
Because CRA is not entitled to an award of attorney fees under either the state or the federal provision, the trial court's order granting such fees must be reversed.
Under the terms of Assembly Bill 4X 26, the redevelopment agencies were required to transfer $1.7 billion to the SERAF's by May 10, 2010, and an additional $350 million by May 10, 2011. (§§ 33690, subd. (a), 33690.5, subd. (a).) The CRA Plaintiffs and the County Plaintiffs sought a preliminary injunction or stay in the trial court to block the required transfer of funds. The trial court denied the request for a stay. On May 5, 2010, the CRA Plaintiffs filed a petition in this court for supersedeas or mandate to block enforcement of the trial court's judgment and to maintain the status quo pending appeal.
As described more fully above, in the summer of 2011, the Legislature enacted Assembly Bill 1X 26, providing for the winding down and dissolution of all redevelopment agencies in the state. In December 2011, the California Supreme Court issued its decision in Matosantos upholding Assembly Bill 1X 26. (Matosantos, supra, 53 Cal.4th at pp. 262, 264.) As reformed by the court, Assembly Bill 1X 26 required all redevelopment agencies to dissolve effective February 1, 2012. (53 Cal.4th at p. 275.) Since that date has now passed, all redevelopment agencies presumably have ceased to exist.
At our request, the parties provided supplemental briefing on the impact of Assembly Bill 1X 26 and Matosantos on the present matter.
The Director argues these consolidated appeals are moot because the required transfer of $2.05 billion from the redevelopment agencies to the SERAF's has already taken place and this court can no longer provide effective relief to plaintiffs.
The Director also argues the matter is moot by virtue of Assembly Bill 1X 26, which dissolved all redevelopment agencies. She asserts this court cannot provide any meaningful relief in the event we were to decide Assembly Bill 4X 26 is invalid, because there are no longer any redevelopment agencies to whom misappropriated funds may be returned. While acknowledging that Assembly Bill 1X 26 provides for successor agencies to take over the functions of the dissolved redevelopment agencies, the Director argues "these entities exist only to pay off [redevelopment agency] indebtedness, [to] dispose of [redevelopment agency] assets, and to wind down the affairs of the [redevelopment agencies]." However, the Director fails to explain how the successor agencies are expected to pay off indebtedness if their funding is taken away. Any relief provided in this action obviously would inure to the benefit of these successor agencies, just as it would have inured to the benefit of the redevelopment agencies had they not been dissolved. Thus, we conclude this matter is not moot.
The primary argument of both the CRA Plaintiffs and the County Plaintiffs is that Assembly Bill 4X 26 violates article XVI, section 16. That constitutional provision authorizes the Legislature to "provide that any redevelopment plan may contain a provision" that the taxes collected on redevelopment project property "after the effective date of the ordinance approving the redevelopment plan" shall be divided as follows: (a) taxes based on the assessed value of the property before the effective date of the ordinance shall be allocated to "the State of California, any city, county, city and county, district, or other public corporation" and (b) any taxes collected in excess of the foregoing (the tax increment funds) "shall be allocated to and when collected shall be paid into a special fund of the redevelopment agency to pay the principal of and interest on loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed or otherwise) incurred by the redevelopment agency to finance or refinance, in whole or in part, the redevelopment project." (Ibid.)
The County Plaintiffs contend Assembly Bill 4X 26 violates article XVI, section 16 by effectively taking tax increment funds allocated to redevelopment agencies and redirecting them to the state to satisfy the state's other obligations. They identify the following trail of funds to support this argument:
In effect, the County Plaintiffs argue, the funds earmarked by Assembly Bill 4X 26 are transferred from redevelopment agencies, laundered through redevelopment area schools, and wind up in the hands of the state for use in satisfying other state obligations. This, they argue, violates the requirement of article XVI, section 16 that all tax increment funds be used for redevelopment purposes.
The trial court agreed with the County Plaintiffs that article XVI, section 16 prohibits the Legislature from requiring redevelopment districts to use tax increment funds to finance services unrelated to redevelopment projects. However, the court also found article XVI, section 16 leaves it to the Legislature to define the meaning of "redevelopment" and the scope of indebtedness that may be incurred to refinance redevelopment. The court further found the Legislature's determination in Assembly Bill 4X 26 that the SERAF payments are indebtedness incurred to finance redevelopment is entitled to deference. According to the trial court:
"No language in [article XVI,] section 16 restricts the Legislature's definitional discretion, and no case law has constrained the Legislature's past expansive exercise of that discretion to control and direct [redevelopment agencies]' use of tax increment by, for example, requiring [redevelopment agencies] to annually set aside 20 percent of their tax increment for low- and moderate-income housing, to allocate or pass through specified percentages of their tax increment to local taxing agencies affected by redevelopment plans, to limit the duration and amount of tax increment used, or to pay the administrative costs of county auditor-controllers in allocating tax increment revenues to [redevelopment agencies]. [Citation.] Nothing in [article XVI,] section 16 insulates the [redevelopment agencies] from such legislative requirements that control and direct the [redevelopment agencies]' use of tax increment financing to further the purposes of the CRL in eliminating conditions of physical and economic blight in urban neighborhoods.
The CRA Plaintiffs take issue with the foregoing analysis by the trial court. They argue, among other things, there is no nexus between the funds required to be transferred to redevelopment area schools and the burden on those schools imposed by the redevelopment projects. However, we need not decide if the trial court correctly concluded the SERAF payments constitute redevelopment indebtedness. As we shall explain, contrary to the underlying premise of the trial court's findings, the Legislature was not constrained by article XVI, section 16 to use tax increment funds for redevelopment purposes alone.
In Matosantos, the high court indicated Article XVI, section 16 "made express the Legislature's authority to authorize property tax increment financing of redevelopment agencies and projects. However, nothing in its text creates an absolute right to an allocation of property taxes." (Matosantos, supra, 53 Cal.4th at pp. 256-257.) The court went on to explain: "Article XVI, section 16 does not protect the receipt of tax increment funds up to the amount of a redevelopment agency's total indebtedness, nor does it grant a constitutional right to continue to receive tax increment for as long as redevelopment agencies have debt; rather, it authorizes the Legislature to statutorily grant redevelopment agencies rights to tax increment up to the amount of their total indebtedness. As the Legislature may extend that authorization (and did, in the [CRL]), so it may limit or withdraw that authorization ... without violating article XVI, section 16." (Id. at pp. 258-259.)
Amicus curiae League of California Cities argues this type of reallocation does in fact violate article XVI, section 16, as interpreted by Proposition 22, which was approved by the electorate in the November 2, 2010 General Election. Proposition 22 added article XIII, section 25.5, section (a)(7), to the state Constitution, expressly prohibiting such allocations in the future. However, that provision is not applicable to the allocations required by the previously enacted Assembly Bill 4X 26.
Section 9 of Proposition 22 states: "Section 16 of Article XVI of the Constitution requires that a specified portion of the taxes levied upon the taxable property in a redevelopment project each year be allocated to the redevelopment agency to repay indebtedness incurred for the purpose of eliminating blight within the redevelopment project area. Section 16 of Article XVI prohibits the Legislature from reallocating some or that entire specified portion of the taxes to the State, an agency of the State, or any other taxing jurisdiction, instead of to the redevelopment agency." (Voter Information Guide, Gen. Elec. (Nov. 2, 2010) text of Prop. 22, § 9, p. 105, italics added.) Amicus curiae argues: "The adoption of Proposition 22 thus represents an express finding of the voters that takings such as those compelled by [Assembly Bill 4X 26] were always intended to be prohibited."
In Matosantos, the high court rejected this argument, explaining: "The assertion in Proposition 22, section 9 that the tax increment allocations to redevelopment agencies are constitutionally mandated, rather than constitutionally authorized and statutorily mandated, is a clear misstatement of the law as it stood prior to the passage of Proposition 22. Moreover, section 9 of Proposition 22 does not purport to amend article XVI, section 16 or to change existing law concerning the source of redevelopment agencies' entitlement, if any, to tax increment. Accordingly, we decline to treat its immaterial misstatement of law as a basis for silently amending the state Constitution." (Matosantos, supra, 53 Cal.4th at p. 259, fn. omitted.)
The CRA Plaintiffs nevertheless contend obligations incurred by redevelopment agencies "that are not secured by a specific pledge of tax increment are
The CRA Plaintiffs cite as support Marek v. Napa Community Redevelopment Agency (1988) 46 Cal.3d 1070 [251 Cal.Rptr. 778, 761 P.2d 701] (Marek), where the high court indicated the term "indebtedness" as it relates to redevelopment agency obligations for purposes of allocating tax increment funds should be interpreted broadly. (Marek, at pp. 1081-1086.) The court stated: "Article XVI, section 16, and section 33670, subdivision (b) dictate that tax increment revenues `shall be allocated to and when collected shall be paid into a special fund of the redevelopment agency' to pay its indebtedness. (Italics added.) The very notion of a `special fund of the redevelopment agency' plainly implies that the agency itself will control the utilization of tax increment funds and militates against the notion of a process budgetarily controlled by county auditors. This reading of the `special fund' language is virtually mandated by section 33603, the carry-over provision, which authorizes redevelopment agencies to `invest any money held in reserves or sinking funds, or any money not required for immediate disbursement, in property or securities ...' and section 33670 which mandates payment of tax increment revenues into the `special fund' until the agency's `loans, advances and indebtedness, if any, and interest thereon have been paid'.... Thus, the Auditor's notion that available tax increment funds not needed for expenditure in the upcoming fiscal year are to be distributed to other tax entities is wholly incorrect. It is clear the Legislature contemplated the `special fund' would provide a reliable fund of money to be used to pay any and all obligations incurred by a redevelopment agency and that up to the amount of the agency's total indebtedness, tax increment revenues not expended currently would be accumulated for payment of such indebtedness when due." (Marek, at p. 1083, citation omitted.)
In Matosantos, the high court explained it did not decide in Marek that redevelopment agencies are constitutionally entitled to tax increment funds up to the amount of total indebtedness as a special fund. Rather, as explained above, article XVI, section 16, "authorizes the Legislature to statutorily grant redevelopment agencies rights to tax increment up to the amount of their total
Assembly Bill 4X 26 applies only to redevelopment agencies and directs them to transfer $2.05 billion to the SERAF's. It would appear, therefore, that Proposition 1A is not implicated. The CRA Plaintiffs argue Proposition 1A is in fact violated because the $2.05 billion transferred by redevelopment agencies will ultimately come out of the coffers of the local agencies that created them. They reason that tax increment funds are allocated to redevelopment agencies only to the extent necessary to pay redevelopment obligations. Once those obligations are satisfied, the tax increment funds are reallocated to the creating agency. Thus, if $2.05 billion is diverted from redevelopment agencies now, that money will have to be made up on the back end of the redevelopment process, thereby delaying the ultimate transfer of tax increment funds to the creating agency.
The County Plaintiffs similarly contend Assembly Bill 4X 26 violates Proposition 1A. They point out the legislation contains a provision, section
The Director contends the foregoing issue has been resolved by the elimination of all redevelopment agencies pursuant to Assembly Bill 1X 26. According to the Director, the elimination of redevelopment agencies means there will be no one-year extension of redevelopment activities and, hence, no reduction in the flow of property tax revenue to the creating agencies. However, this argument ignores the one raised by the CRA Plaintiffs that every dollar taken from redevelopment agencies now will have to be made up by the creating agency at the back end. The obligations that might have been satisfied with the $2.05 billion do not just go away with the transfer of those funds to the SERAF's. They must be paid with other funds, which funds might otherwise have gone to the creating agency for other purposes.
Nevertheless, it is readily clear the CRA Plaintiffs' argument proves too much. They argue any transfer of funds from redevelopment agencies will inevitably come out of the coffers of the creating agencies. However, to accept this argument would mean that Proposition 1A, in effect, prohibits all transfers from redevelopment agencies. But this would be contrary to the voters' intent.
As explained in Matosantos, local government interests responded to raids on their funding "by qualifying for the ballot Proposition 65, a set of constitutional amendments to restrict such state actions in the future, but they subsequently agreed to support a compromise measure, Proposition 1A, instead. [Citations.] The voters approved Proposition 1A and rejected Proposition 65. Among its reforms, Proposition 1A prevented the state from statutorily reducing or altering the existing allocations of property tax among cities, counties, and special districts. [Citation.] Unlike Proposition 65, however, Proposition 1A did not extend its protections to redevelopment agencies. [Citations.]" (Matosantos, supra, 53 Cal.4th at p. 249.)
First, the CRA Plaintiffs argue "[t]he Legislature's failure to increase the dollar limit on project tax increment debt (as in [Assem. Bill] 1389 ...) impairs preexisting creditors' security." This is apparently a reference to section 33689, added by Assembly Bill 1389 (Stats. 2008, ch. 751, § 57), which provides that amounts paid by redevelopment agencies in the 2008-2009 fiscal year pursuant to Assembly Bill 1389 would not be counted as having been received by the agency for purposes of determining if the dollar limit of tax increment funds for the agency has been reached. However, the purpose of the dollar limit on tax increment debt was to set an upper threshold for when tax increment funding would no longer be allocated to the redevelopment agencies. Given that the redevelopment agencies no longer exist, so too do any dollar limits on their funding. And even if those dollar limits continued to apply to the successor agencies, the CRA Plaintiffs provide no basis for concluding those agencies would be impaired by Assembly Bill 4X 26 in their ability to meet contractual obligations. The CRA Plaintiffs' argument is thus premature. (See San Miguel Consolidated Fire Protection Dist. v. Davis (1994) 25 Cal.App.4th 134, 150-151 [30 Cal.Rptr.2d 343] [rejecting as premature a claim that a fire services contract "`will be impaired'" by a reduction in property taxes available to pay for the contract].)
The CRA Plaintiffs next argue the claims of existing redevelopment creditors have priority over obligations to fund SERAF's under Assembly Bill 4X 26. However, the fact existing creditors may have priority over other claims to tax increment funds does not establish that the rights of existing creditors are somehow impaired. Again, the argument of the CRA Plaintiffs is
The CRA Plaintiffs next point out that, as a result of Assembly Bill 4X 26, redevelopment bondholders have lost $2.05 billion in irrevocably pledged security. They argue the $2.05 billion lost through Assembly Bill 4X 26 cannot be recouped and will force agencies to borrow with no means of repayment. This claim likewise is premature. The CRA Plaintiffs provide no basis for assuming the loss of $2.05 billion in 2010 and 2011 will make it impossible for the successor agencies to meet redevelopment obligations. It is not enough simply that money has been taken away. That takeaway must cause an inability to otherwise meet obligations in order for there to be an impairment of contract.
The CRA Plaintiffs next take issue with the redefinition in Assembly Bill 4X 26 of "existing indebtedness" from the entire amount of indebtedness owed by the redevelopment agency to merely the amount due in the current fiscal year. They argue this change ignores the multiyear nature of such obligations. However, the CRA Plaintiffs fail to explain how this will result in an impairment of contractual obligations. On this record, there is no basis for concluding such change will prevent the successor agencies from ultimately paying all redevelopment obligations. Hence, this claim too is premature.
The CRA Plaintiffs next challenge the redefinition of "redevelopment" in Assembly Bill 4X 26 to include payments to schools and school districts in the redevelopment areas. They argue such payments violate redevelopment creditors' rights to those funds as provided in article XVI, section 16. According to the CRA Plaintiffs, "[t]he Legislature cannot adopt inconsistent definitions or alter definitions affecting past transactions." However, as explained earlier, article XVI, section 16, does not prohibit the use of tax increment funds for other than redevelopment purposes. Just as the Legislature is authorized, but not mandated, by article XVI, section 16 to allocate tax increment funds to redevelopment agencies, it can reallocate those funds elsewhere.
As support for their assertion that section 33607.5, subdivision (f)(1)(B), is incorporated in all redevelopment indebtedness as a matter of law, the CRA Plaintiffs cite Sutter Basin Corp. v. Brown (1953) 40 Cal.2d 235 [253 P.2d 649]. There, the state high court said the laws in existence at the time bonds are issued, "under the authority of which the bonds were issued, `... enter into and become a part of the contract to such extent that the obligation of the contract cannot thereafter be impaired or fulfillment of the bond obligation hampered or obstructed by a change in such laws.'" (Sutter Basin, at p. 241.) The CRA Plaintiffs also cite May v. Board of Directors (1949) 34 Cal.2d 125 [208 P.2d 661], where the court said: "The statute under which the bonds are issued is a part of the contract between the bondholders and the district and cannot be substantially impaired under the Constitution." (May, at p. 129.)
The short answer to the foregoing is that there is no showing in this matter that any change in the law brought about by Assembly Bill 4X 26 has or will substantially impair any contractual obligation that has been assumed by the successor agencies. As with their other claims, the CRA Plaintiffs' claim in this regard is premature.
The CRA Plaintiffs nevertheless cite as support for their impairment of contract claim the circumstances facing Union City RA, which purportedly anticipated tax increment funding for the 2009-2010 fiscal year of $18.6 million but faced existing debt obligations which would leave it with a surplus of only $2.6 million. However, Union City RA also faced a $7.7 million SERAF obligation under Assembly Bill 4X 26, thereby leaving it with insufficient funds to meet all current obligations. But, as previously explained, Assembly Bill 4X 26 provides that current fiscal year obligations of redevelopment agencies take precedence over the SERAF obligations. Thus, Union City RA is not required to default on such obligations in order to make SERAF payments.
Because we find no impairment of contract under the circumstances of this matter, we likewise dispose of the CRA Plaintiffs' takings claim, which relies on the same arguments. Furthermore, there has been no taking of any property of the redevelopment agencies, because they never had an irrevocable right to the tax increment funds required to be paid to the SERAF's.
The CRA Plaintiffs contend Assembly Bill 4X 26 violates equal protection principles by reallocating school funding in such a way as to benefit students
The CRA Plaintiffs cite as illustrative Fountain Valley RA, which covers an area that is primarily industrial. According to the CRA Plaintiffs: "No public schools are in the Project. Using information from the 2000 Census and the District, the Agency estimated 56 K-12 students live within the project area. [Citation.] The Agency has assisted development of 15 housing units outside that area, excluding units occupied by seniors or others unlikely to generate students. The Agency estimated these units generate perhaps 8 public school students. [Citation.] Use of the Agency's 2009-2010 SERAF allocation to serve these 64 pupils as § 33690[, subdivision] (j) requires yields a per-pupil expenditure of $52,518. Average California per-pupil expenditures are $8,594."
The Director responds that the foregoing argument is based on a false assumption that SERAF money is allocated to individual students rather than to individual schools. According to the Director, school funding is a two-step process: "First, money is allocated to school districts. [Citation.] Then, the districts allocate funds to the schools. [Assembly Bill 4X 26] only provides guidance up to this point...." The Director argues: "[O]nce SERAF money is given to a school, that school can use the funds in a way that benefits pupils living in redevelopment areas but that also benefits students who do not live in those areas. For example, if School X fixes its leaky roof with SERAF money, it keeps students A, B and C dry, all of whom live in the redevelopment area, but all students share in the benefits conferred by those improvements." The Director also argues it is hard to see how the disproportionate injection of $1.7 billion in fiscal year 2009-2010, which represents only 2.5 percent of total school funding, can cause an equal protection violation.
The trial court, for its part, agreed with the Director that Assembly Bill 4X 26 is intended to provide for funding of schools not individual students which, the court concluded, "avoids much of the disparities in per pupil funding resulting from" the CRA Plaintiffs' reading of the legislation. The court further concluded the legislation "must be read in the context of the highly complex and ongoing computations conducted pursuant to Education Code section 42238 et seq. to equalize funding and educational opportunities for students throughout California." According to the trial court: "This ongoing process can be expected to police and largely eliminate funding inequalities with respect to schools receiving SERAF funds."
The CRA Plaintiffs cite as support Neecke v. City of Mill Valley (1995) 39 Cal.App.4th 946 [46 Cal.Rptr.2d 266] (Neecke), where the Court of Appeal concluded an occupancy tax approved by a bare majority of the city electorate was not a special tax subject to a two-thirds majority vote
Neecke is of no assistance to the CRA Plaintiffs. It provides no guidance as to whether funds allocated to school districts by virtue of Assembly Bill 4X 26 may be counted toward the state's Proposition 98 obligations. The CRA Plaintiffs themselves acknowledge Assembly Bill 4X 26 effects no net increase or decrease in overall school funding. At most, it results in a reallocation of funding among the various schools in the state. However, it contains no restriction on how such funds may be spent. But even if it did, the CRA Plaintiffs provide no basis for concluding such restricted funds cannot be counted toward the state's Proposition 98 obligations. Their Proposition 98 claim is therefore a nonstarter.
The County Plaintiffs contend Assembly Bill 4X 26 violates Proposition 13 by taking money from local redevelopment agencies and reallocating it to the state for use in satisfying state obligations. Proposition 13 added article XIII A to the state Constitution. Section 1, subdivision (a) article XIII A reads: "The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to [sic] be collected by the counties and apportioned according to law to the districts within the counties."
The CRA Plaintiffs contend Assembly Bill 4X 26 amounts to a gift of public funds in violation of article XVI, section 6. That constitutional
Golden Gate Bridge is inapposite. That case involved an attempt by a bridge district to transfer excess funds collected from tolls to various counties for general use therein. Such transfer would have taken funds collected from one class of users, bridge patrons, and delivered them to another class, county taxpayers, for a purpose unrelated to the limited special purpose of the bridge district.
The present matter is more akin to White v. State of California (2001) 88 Cal.App.4th 298 [105 Cal.Rptr.2d 714] (White), where the Legislature passed four bills that allocated certain property and sales taxes previously allocated to various Orange County agencies to the county's general fund in order to assist the county in emerging from bankruptcy. (White, at p. 301.) The Court of Appeal found no violation of article XVI, section 6. Distinguishing Golden Gate Bridge, the court explained the bills "do not involve transfers of funds from one agency to the other, but instead concern the Legislature's reallocation of funds from Orange County local agencies to the county's general fund." (88 Cal.App.4th at p. 312.) According to the court, "[a]rticle XVI, section 6 is not triggered merely because the Legislature has allocated less property tax dollars to certain local agencies and instead determined that such funds should be allocated to the general fund to be used for a public purpose." (Ibid.) The court further indicated the same group of individuals that paid the taxes, county property and sales taxpayers, will benefit from the transfer. (Ibid.) Finally, the court indicated the funds in question had not been specially raised for the purposes of the transferring agencies, as in Golden Gate Bridge, but were levied as general property and sales taxes and thereafter allocated to the agencies. (Id. at p. 313.)
In the present matter, the funds in question were not raised by the redevelopment agencies for a specific purpose. They came from general property taxes that were allocated to the agencies. This is not a transfer of
The CRA Plaintiffs assert the issue was raised in their reply brief. However, points first raised in a reply brief will not be considered unless good cause is shown for failure to present them earlier. (Neighbours v. Buzz Oates Enterprises (1990) 217 Cal.App.3d 325, 335, fn. 8 [265 Cal.Rptr. 788].) The CRA Plaintiffs provide no good cause for failing to raise their home rule argument sooner.
Furthermore, we disagree the point was raised in the CRA Plaintiffs' reply brief. The argument to which the CRA Plaintiffs refer dealt with article XVI, section 16 of the state Constitution, not article XI, the home rule provision. The CRA Plaintiffs argued article XVI, section 16 authorized the Legislature to enact the CRL notwithstanding the home rule rights of charter cities. The CRA Plaintiffs further argued that, once the Legislature so acted, it could not repeal or modify the financing scheme established by the CRL. According to the CRA Plaintiffs, article XVI, section 16 mandates that, once redevelopment is financed by tax increment funds, those funds must be spent on redevelopment. We rejected this argument earlier in this opinion.
Because the CRA Plaintiffs first raised their home rule issue at oral argument, thus giving the Director no opportunity to prepare a response, we decline to consider it on appeal.
The judgments in CRA v. Matosantos II and County v. Matosantos are affirmed. The order awarding attorney fees in CRA v. Matosantos I is reversed. The defendants in all three cases are entitled to their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
Blease, Acting P. J., and Mauro, J., concurred.
