City of Shasta Lake v. County of Shasta

• Decision Date: 21 September 1999
• Docket Number: No. C029036,C029036
• Court: California Court of Appeals Court of Appeals
• Parties: , 99 Cal. Daily Op. Serv. 7859, 1999 Daily Journal D.A.R. 9954 CITY OF SHASTA LAKE et al., Plaintiffs, Cross-Defendants and Respondents, v. COUNTY OF SHASTA et al., Defendants, Cross-Complainants and Appellants.

Page 863

88 Cal.Rptr.2d 863

75 Cal.App.4th 1, 99 Cal. Daily Op. Serv. 7859,

1999 Daily Journal D.A.R. 9954

CITY OF SHASTA LAKE et al., Plaintiffs, Cross-Defendants and Respondents, v. COUNTY OF SHASTA et al., Defendants, Cross-Complainants and Appellants.

No. C029036.

Court of Appeal, Third District, California.

Sept. 21, 1999.

Certified for Partial Publication.

Kronick, Moskovitz, Tiedemann & Girard, Michael F. Dean, Sacramento; Karen Keating Jahr, County Counsel, Brickwood, Olmstead & Underwood, James M. Underwood, Redding, for Defendants, Cross-Complainants and Appellants.

Moss & Enochian, and John Sullivan Kenny, Redding, for Plaintiffs, Cross-Defendants and Respondents.

BLEASE, Acting P.J.

This is an appeal from a judgment in cross-actions for declaratory relief concerning the rights and obligations of the parties arising under conditions imposed on the approval of incorporation of a new city.

The City of Shasta Lake (the City) and the Shasta Lake Redevelopment Agency (the City RDA) filed an action seeking declaratory relief concerning the conditions of incorporation, naming as defendants the County of Shasta (the County) and the Shasta County Redevelopment Agency (the County RDA). The County in turn cross-complained for declaratory relief and breach of contract concerning similar issues.

The parties stipulated that a retired superior court judge, Judge Kleaver, would try the matter under the rules of evidence applicable to a trial by the court and that his decision "will have the same force and effect as a Superior Court judgment and will be appealable as such." The superior court approved the stipulation. The stipulation characterizes this arrangement as "binding arbitration [of] all issues raised in the complaint." Judge Kleaver rendered a decision in favor of the City, filed as a judgment in the action, which apportions the property tax revenue between the City and the County and provides for the payment of the costs of services arising out of the incorporation of the City.

The County appeals from the judgment.

In the published portion of this opinion ¹ we decide we have appellate jurisdiction as this is de facto an appeal from a judgment of a temporary judge under California Constitution, article VI, section 21. Accordingly, we use the term "trial court" in referring to the actions of Judge Kleaver.

On the merits, we decide the trial court correctly construed an incorporation condition, condition Y, requiring payments from the City RDA to the County measured in part by "the amount of property taxes actually generated within the boundaries of the new city...." The trial court construed this provision to mean the net property tax benefit accruing to the County from the new city territory, after deducting the property tax revenues diverted to the State and adding revenues which replaced the diverted property tax revenues (the replacement revenues).

We also decide the trial court correctly determined the City's payment for services provided the City by the County during the first year of incorporation should be offset by the replacement revenues retained by the County which would have been allocated to the City pursuant to Government Code section 30054 ² had it been incorporated in the 1993/1994 fiscal year.

In the unpublished portion of the opinion we find merit in the claim the City owes interest for amounts due under the contract for services the County rendered the City.

We will reverse the judgment insofar as it denies interest to the County. In all other respects we will affirm the judgment.

FACTS AND PROCEDURAL BACKGROUND

We begin with a brief survey of the Cortese-Knox Local Government Reorganization Act of 1985 (Cortese-Knox Act), a detailed statutory scheme which governs, inter alia, the incorporation of new cities. (§ 56000 ff.) It vests authority in the local agency formation commission ("LAFCO") in each county (§ 56325) to approve a proposal for the incorporation of a city within the county. ³ (§§ 56375, 56021.)

In passing on a proposal LAFCO determines the property tax to be exchanged by the affected local agencies pursuant to section 56842. (Also see, § 56375, subd. (q).) Under section 56842 a county must allocate to the new city a portion of the property taxes collected by the county measured by the ratio (the Assessor's ratio) of all such taxes to the total amount of revenue available for general purposes times the "total net cost" of county services which the new city will assume. (§ 56842, subd. (c)(1)(2) & (3).) This is called the "base year amount." In effect the new city is allocated an amount which is less than the cost of services it will assume.

LAFCO may impose conditions on the approval of an incorporation as prescribed in section 56844, including for example, the transfer of property, payments for the transfer of property, and the allocation of debt. (§ 56843.) If LAFCO determines the current expenditures made by the county for services assumed by the new city are not substantially equal to the current revenues received by the county that would otherwise accrue to the city, it can approve the proposal if either: (1) the county and all of the "subject agencies" (see §§ 56077, 56021) agree or (2) the negative fiscal effect on the county is adequately mitigated by terms and conditions under section 56844. (§ 56845, subd. (c)(1), (2).)

In 1992, the Shasta County LAFCO (the Shasta LAFCO) began proceedings pursuant Condition W was adopted in anticipation the Legislature would enact legislation to transfer property taxes from the County to the State of California (the State). It provides the "base year amount" should be reduced proportionally if the State reduces the property tax revenue to the County derived from the City territory for the fiscal years 1991/1992 through 1993/1994 without providing "actual replacement revenues." Condition W also specifies an adjustment for property taxes transferred to the State for a prior fiscal year, 1991-92, in the amount of $36,000.

to the Cortese-Knox Act to incorporate the City of Shasta Lake. The Shasta LAFCO approved the incorporation predicated on the following pertinent conditions, among others: (1) the County provides services within the newly incorporated territory for the remainder of the 1993/1994 fiscal year or until the City takes action to discontinue the services; (2) the City pays for such services at the County's net cost; see section 57384, subdivision (b); (3) the property tax revenue to be transferred to the City is $685,000, except as adjusted by condition "W."

The Shasta LAFCO approved the incorporation of the City with these conditions. The fiscal analysis accompanying the approval noted that as a result of the transfer of the obligation to the City to pay for services formerly assumed by the County there would be a net gain to the County general fund of approximately $200,000 per year. For that reason it said that "[b]ased on the cost and revenue estimates contained in [the fiscal analysis] the incorporation more than meets this criterion of fiscal neutrality" under section 56845. It concluded: "Since LAFCO relied on the agreement reached by the two parties [the County and the PUD], rather than on strict fiscal neutrality, the Commission did not require that the County benefit be reduced."

After the initial approval of incorporation, at the request of the County the Shasta LAFCO reconsidered its approval and imposed condition Y. Condition Y calls for a written agreement between the County and a predecessor to the City, the Shasta Dam Area Public Utilities District (the PUD), consistent with an attached document entitled "Conceptual Agreement Between County of Shasta and Shasta Dam Area Public Utility District." The conceptual agreement, inter alia, acknowledges the creation of the City RDA and its assumption of the obligations of the County RDA. ⁴ It calls for the payment by the City RDA to the County of the difference between the "property tax base transfer amount" and "the amount of property taxes actually generated within the boundaries of the new city and allocated to the new city." The conceptual agreement says the purpose of the payment is to reimburse the County "for the cost of certain specified public improvements constructed in the redevelopment project area by the County if territorial jurisdiction over the redevelopment project is transferred to the redevelopment agency of the new city."

However, contrary to the fiscal analysis, it also recites that the condition provides "a mechanism whereby the negative fiscal effect of the reorganization on the county, measured by the amount of property tax losses resulting to the County from the exchange of property tax revenues for the incorporation in excess of the amount of property taxes actually generated within the city and allocated to the city, will be fully mitigated."

The County and the PUD entered into a mitigation agreement (the Mitigation Agreement). It provided the new City RDA shall reimburse the County for public improvements, constructed in the new city territory by the County RDA, in annual payments measured by the amount by which the "property tax base transfer amount" exceeds "the amount of property On March 8, 1993, the Shasta LAFCO again approved the incorporation, subject to the Mitigation Agreement and the City succeeded to the PUD.

taxes actually generated within the boundaries of the new city...." It deleted the phrase "and allocated to the new city" contained in the conceptual agreement. ⁵

Disputes arose concerning the meaning of conditions and the rights and obligations of the City and the County. This litigation was commenced. Thereafter the parties stipulated, in pertinent part, as follows. They submit to "binding arbitration [of] all issues raised in the complaint and cross-complaint" before "Retired Siskiyou County Superior Court Judge James Kleaver." The arbitration will be conducted under "the rules of...