Cal. Redevelopment Ass'n v. Matosantos

• Decision Date: 01 May 2013
• Docket Number: C064907,C065329,C065390
• Court: California Court of Appeals Court of Appeals
• Parties: CALIFORNIA REDEVELOPMENT ASSOCIATION et al., Plaintiffs and Appellants, v. Ana MATOSANTOS, as Director, Etc., et al., Defendants and Respondents. California Redevelopment Association, Plaintiff and Respondent, v. Ana Matosantos, as Director, Etc., Defendant and Appellant. County of Los Angeles et al., Plaintiffs and Appellants, v. Ana Matosantos, as Director, Etc., et al., Defendants and Respondents.

212 Cal.App.4th 1457

152 Cal.Rptr.3d 269

CALIFORNIA REDEVELOPMENT ASSOCIATION et al., Plaintiffs and Appellants,

v.Ana MATOSANTOS, as Director, Etc., et al., Defendants and Respondents.

California Redevelopment Association, Plaintiff and Respondent,

v.Ana Matosantos, as Director, Etc., Defendant and Appellant.

County of Los Angeles et al., Plaintiffs and Appellants,

v.Ana Matosantos, as Director, Etc., et al., Defendants and Respondents.

C064907

C065329

C065390

Court of Appeal, Third District, California.

Filed January 24, 2013

Review Denied May 1, 2013

See12 Witkin, Summary of Cal. Law (10th ed. 2005) Real Property, § 827 et seq.

APPEAL from a judgment of the Superior Court of Sacramento County, Lloyd G. Connelly, Judge. Affirmed in part and reversed in part. (Super. Ct. No. 34200980000359CUWMGDS) (Super. Ct. No. 34200800028334CUWMGDS) (Super. Ct. No. 34200980000362CUWMGDS)

Best Best & Krieger; McDonough Holland & Allen, Richard E. Brandt, T. Brent Hawkins, and Ann Taylor Schwing; Nielsen, Merksamer, Parrinello, Mueller & Naylor, Steven A. Merksamer, and Richard D. Martland, Sacramento; and Scott D. Bertzyk, Santa Monica, for Plaintiffs and Appellants, case No. C064907.

Meyers, Nave, Riback, Silver & Wilson, J. Scott Smith, Robin Paige Donoghue, and Susan E. Bloch, Oakland, for League of California Cities as Amicus Curiae on behalf of Plaintiffs and Appellants, case No. C064907.

Kamala D. Harris and Edmund G. Brown, Jr., Attorney Generals, Douglas J. Woods and Jonathan K. Renner, Senior Assistant Attorneys General, Zackery P. Morazzini, Stephen P. Acquisto and George Waters, Deputy Attorneys General for Defendant and Appellant, case No. C065329.

Greenberg Traurig, Scott D. Bertzyk, Nancy Doig, Karin L. Bohmholdt; Andrea Sheridan Ordin, County Counsel, Elizabeth M. Cortez, Assistant County Counsel, Thomas M. Tyrrell, Deputy County Counsel, for Plaintiffs and Appellants, case No. C065390.

Altshuler Berzon, Scott A. Kronland, and Caroline P. Cincotta, San Francisco, for State Building and Construction Trades Council of California as Amicus Curiae on behalf of Plaintiffs and Appellants, case No. C065390.

Kamala D. Harris and Edmund G. Brown, Jr., Attorney Generals, Douglas J. Woods and Jonathan K. Renner, Senior Assistant Attorneys General, Zackery P. Morazzini, Stephen P. Acquisto, George Waters, and Seth E. Goldstein, Deputy Attorneys General, for Defendants and Respondents, case No. C064907.

Kamala D. Harris, Attorney General, Douglas J. Woods, Senior Assistant Attorney General, and Seth E. Goldstein, Deputy Attorney General for Ana Matosantos, Director of the Department of Finance, as Amicus Curiae on behalf of Defendants and Respondents, case No. C064907.

Best Best & Krieger, Richard E. Brandt, T. Brent Hawkins, and Ann Taylor Schwing; Nielsen, Merksamer, Parrinello, Gross & Leoni, Steven A. Merksamer, and Richard D. Martland, Sacramento, for Plaintiff and Respondent, case No. C065329.

Kamala D. Harris, Attorney General, Douglas J. Woods, Senior Assistant Attorney General, Kimberly J. Graham and Seth E. Goldstein, Deputy Attorneys General for Defendants and Respondents, case No. C065390.

HULL, J.

Responding to a fiscal emergency declared by the Governor on July 1, 2009, the Legislature enacted Assembly Bill No. 26, 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. 26 (2009–2010 4th Ex.Sess.) enacted as Stats.2009, 4th Ex.Sess., ch. 21, §§ 6–9 (hereafter Assembly Bill 4X 26).) 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 Association 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.

Facts and Proceedings

Legislative Background

“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, 135 Cal.Rptr.3d 683, 267 P.3d 580.) 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.) In 1952, following voter approval, the CRL became part of the California Constitution as article XIII, section 19, later renumbered article XVI, section 16. (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 866, fn. 7, 62 Cal.Rptr.3d 614, 161 P.3d 1168; further undesignated article references are to the California Constitution.) By the end of 2011, there were nearly 400 redevelopment agencies operating in the state. (Matosantos, at p. 246, 135 Cal.Rptr.3d 683, 267 P.3d 580.)

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 infrastructurenecessary 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, 135 Cal.Rptr.3d 683, 267 P.3d 580.) 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 the ordinary formula. (§ 33670, subd. (b).)” (Matosantos, supra, 53 Cal.4th at p. 247, 135 Cal.Rptr.3d 683, 267 P.3d 580, italics omitted.)

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, 135 Cal.Rptr.3d 683, 267 P.3d 580.) 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...