City of Cerritos v. State

• Decision Date: 25 August 2015
• Docket Number: C070484
• Citation: 239 Cal.App.4th 1020,191 Cal.Rptr.3d 611
• Court: California Court of Appeals Court of Appeals
• Parties: CITY OF CERRITOS et al., Plaintiffs and Appellants, v. STATE of California et al., Defendants and Respondents.

239 Cal.App.4th 1020

191 Cal.Rptr.3d 611

CITY OF CERRITOS et al., Plaintiffs and Appellants

v.STATE of California et al., Defendants and Respondents.

C070484

Court of Appeal, Third District, California.

Filed August 25, 2015

Review Denied November 24, 2015

Rutan & Tucker, Jeffrey M. Oderman, Dan Slater, Mark J. Austin, and William H. Ihrke, Costa Mesa, for Plaintiffs and Appellants.

Goldfarb & Lipman, Juliet E. Cox, Oakland, for amicus curiae on behalf of Appellant League of California Cities.

Kamala D. Harris, Attorney General, Douglas J. Woods, Senior Assistant Attorney General, Peter A. Krause and Peter K. Southworth, Supervising Deputy Attorneys General, Ross C. Moody and Seth E. Goldstein, Deputy Attorneys General, for Defendants and Respondents.

Opinion

HULL, J.

Plaintiffs are a group of cities in their municipal capacities and the successor agencies to several redevelopment agencies that have since been dissolved, multiple community development commissions, a private nonprofit housing corporation, and an individual taxpayer. Specifically, plaintiffs are the City of Cerritos, City of Carson, City of Cypress, City of Lakewood, City of Paramount, City of Placentia and City of Signal Hill, each in their municipal capacities and as the successor agencies to their respective former redevelopment agencies, as well as the City of Commerce, Commerce Community Development Commission, City of Downey, Community Development Commission of the City of Downey, City of Santa Fe Springs, Community Development Commission of the City of Santa Fe Springs, Cuesta Villas Housing Corporation, and Bruce W. Barrows.

Plaintiffs filed a combined complaint for injunctive and declaratory relief and petition for writ of mandate challenging the constitutionality of Assembly Bill No. 26 (2011-2012 1st Ex. Sess.) and Assembly Bill No. 27 (2011-2012 1st Ex. Sess.), which laid the groundwork for the demise of California's nearly 400 redevelopment agencies in order to partially address a declared fiscal emergency in 2011. (Assem. Bill Nos. 26 & 27 (2011-2012 1st Ex.Sess.) enacted as Stats. 2011, 1st Ex.Sess. 2011-2012, chs. 5-6 (hereafter Assembly Bill 1X 26 and Assembly Bill 1X 27); California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, 241, 135 Cal.Rptr.3d 683, 267 P.3d 580 (Matosantos I ).) The legislation was intended to reduce or eliminate the redevelopment agencies' diversion of property tax revenues from school districts thereby relieving pressure on the state to backfill educational funding requirements under Proposition 98. (53 Cal.4th at pp. 241-242, 245, 135 Cal.Rptr.3d 683, 267 P.3d 580.)

The Supreme Court, in Matosantos I, declared Assembly Bill 1X 26 constitutional and a valid exercise of the Legislature's power. It struck down Assembly Bill 1X 27, which would have allowed redevelopment agencies to continue operating under certain conditions. (Matosantos I, supra, 53 Cal.4th at p. 242, 135 Cal.Rptr.3d 683, 267 P.3d 580.) As reformed by the court, Assembly Bill 1X 26 required all redevelopment agencies to dissolve effective February 1, 2012. ( Matosantos I, at pp. 275–276, 135 Cal.Rptr.3d 683, 267 P.3d 580 ; City of Pasadena v. Cohen (2014) 228 Cal.App.4th 1461, 1463, 176 Cal.Rptr.3d 729 [characterizing Assem. Bill 1X 26 as the “Great Dissolution”].)

Plaintiffs then sought a preliminary injunction in Sacramento County Superior Court to enjoin Assembly Bill 1X 26 on additional constitutional grounds not considered in Matosantos I. (Matosantos I, supra, 53 Cal.4th at p. 242, fn. 2, 135 Cal.Rptr.3d 683, 267 P.3d 580.) The trial court denied plaintiffs' preliminary injunction request, concluding they were unlikely to prevail on the merits. On February 1, 2012, the dissolution and wind-down procedures commenced. (Id. at p. 275, 135 Cal.Rptr.3d 683, 267 P.3d 580.) That process continues today.

On appeal, plaintiffs argue Assembly Bill 1X 26 violates at least seven different constitutional provisions.

Although additional parties were originally named in plaintiffs' complaint and petition, only defendants the State of California and the Director of Finance in her official capacity filed a brief in this appeal (the State).

The State argues plaintiffs' challenge is moot because redevelopment agencies have been dissolved. While we disagree that dissolution of the state's redevelopment agencies moots this appeal, we nevertheless reject plaintiffs' constitutional challenges to Assembly Bill 1X 26.

We note that amicus curiae League of California Cities raises additional arguments that the Department of Finance is applying Assembly Bill 1X 26 and Assembly Bill No. 1484 (2011-2012 Reg. Sess.) (hereafter Assembly Bill 1484), which amended portions of Assembly Bill 1X 26, effective June 27, 2012 (Stats. 2012, ch. 26.), in an unconstitutional manner. We do not consider these expanded arguments and deny the League's request for judicial notice. (Matosantos I, supra, 53 Cal.4th at p. 242, fn. 2, 135 Cal.Rptr.3d 683, 267 P.3d 580.)

We affirm the trial court's order denying the preliminary injunction.

Facts and Proceedings

A. Redevelopment Agencies and Tax Increment Financing Generally

The historical underpinnings of California's redevelopment agencies were discussed in Matosantos I and several cases since the Supreme Court's landmark decision and need no further exposition here. (See generally Matosantos I, supra, 53 Cal.4th at pp. 245–248, 135 Cal.Rptr.3d 683, 267 P.3d 580 ; see also California Redevelopment Assn. v. Matosantos (2013) 212 Cal.App.4th 1457, 1464–1473, 152 Cal.Rptr.3d 269 (Matosantos II ).) Briefly summarized, since the 1940's, the Community Redevelopment Law (Health & Saf. Code, § 33000 et seq. ) allowed sponsoring cities and counties to establish redevelopment agencies to address urban blight. (See Legis. Analyst's Off., Governor's Redevelopment Proposal (Jan. 18, 2011) p. 1; see also Stats. 1945, ch. 1326, p. 2478 et seq. [Community Redevelopment Act]; Stats. 1951, ch. 710, p. 1922 et seq. [codifying and renaming the Community Redevelopment Law, Health & Saf. Code, § 33000 et seq. ]; unless otherwise stated, statutory references that follow are to the Health and Safety Code.) A redevelopment agency was a separate legal entity from the city or county that established it. (County of Solano v. Vallejo Redevelopment Agency (1999) 75 Cal.App.4th 1262, 1267, 90 Cal.Rptr.2d 41 [“A redevelopment agency is a public body, corporate and politic, which may sue, be sued, and make contracts,” and is a separate legal entity from its sponsoring agency].)

Redevelopment agencies generally could not levy taxes, and, instead, relied primarily on tax increment financing as a funding source as authorized by article XVI, section 16 of the California Constitution and Health and Safety Code section 33670. (Matosantos I, supra, 53 Cal.4th at p. 246, 135 Cal.Rptr.3d 683, 267 P.3d 580.) Under that funding mechanism, redevelopment agencies received the growth in property taxes from a designated redevelopment plan area, known as the property tax increment, while the other public entities entitled to receive property tax revenue in the redevelopment area were allocated a portion based on the assessed value of the property prior to the effective date of the redevelopment plan (known as the frozen base). (Id. at pp. 246-247, 135 Cal.Rptr.3d 683, 267 P.3d 580 ; Cal. Const., art. XVI, § 16, subds. (a), (b); Health & Saf. Code, § 33670.)

By 2011, California's redevelopment agencies were receiving approximately 12 percent of statewide property tax revenues. (See Legis. Analyst's Off., Governor's Redevelopment Proposal (Jan. 18, 2011) p. 1.) It was further estimated that redevelopment agencies would divert approximately $5 billion of property tax revenue annually that would otherwise fund school districts, cities, counties, and special districts. Under negotiated agreements and state statute, redevelopment agencies “pass[ed]through” about $1.1 billion to local agencies; a portion of this amount was passed to schools. The state General Fund, however, had to backfill the remaining property tax revenues diverted from K-14 schools, at a cost of over $2 billion annually.

B. The 2011 Fiscal Crisis

Faced with a budget gap of more than $25 billion, on January 20, 2011, incoming Governor Jerry Brown renewed a previously declared state fiscal emergency and convened a special session of the Legislature to address the state's budget crisis. (Matosantos I, supra, 53 Cal.4th at p. 250, 135 Cal.Rptr.3d 683, 267 P.3d 580 [citing Legis. Counsel's Digest, Assem. Bill 1X 26 and Professional Engineers in California Government v. Schwarzenegger (2010) 50 Cal.4th 989, 1001-1002, 116 Cal.Rptr.3d 480, 239 P.3d 1186 [detailing the ongoing crisis] (Professional Engineers ) ].) To partially close the state's projected $25 billion operating deficit, Governor Brown proposed eliminating redevelopment agencies entirely. (See Legis. Analyst's Off., The 2011-2012 Budget: Should California End Redevelopment Agencies? (Feb. 9, 2011) p. 1 [“The Governor's 2011-12 budget includes a plan for dissolving redevelopment agencies and distributing their funds (above the amounts necessary to pay outstanding debt) to other local agencies”]; see also Governor's Budget Summary--2011-2012 (Jan. 10, 2011) p. 171 [“The Budget prohibits existing [redevelopment] agencies from creating new contracts or obligations effective upon enactment of urgency legislation. By July 1, existing agencies would be disestablished and successor local agencies would be required to use the property tax that RDAs would otherwise have received to retire RDA debts and contractual obligations in accordance with existing payment schedules”].)

It was projected that dissolving redevelopment agencies would produce approximately $1.7 billion in revenue to offset State General Fund costs for the 2011-2012 fiscal year.

C. Assembly Bill 1X 26 and Assembly Bill 1X 27

Responding to the declared fiscal emergency, the Legislature passed Assembly Bill 1X 26 and ...