Craig v. City of Poway

• Decision Date: 13 September 1994
• Docket Number: No. D016608,D016608
• Citation: 28 Cal.App.4th 319,33 Cal.Rptr.2d 528
• Court: California Court of Appeals Court of Appeals
• Parties: Cheri L. CRAIG et al., Plaintiffs and Appellants, v. CITY OF POWAY et al., Defendants and Appellants.

Page 528

33 Cal.Rptr.2d 528

28 Cal.App.4th 319

Cheri L. CRAIG et al., Plaintiffs and Appellants, v. CITY OF POWAY et al., Defendants and Appellants.

No. D016608.

Court of Appeal, Fourth District, Division 1, California.

Sept. 13, 1994.

Legal Aid Soc. of San Diego, Inc., Catherine A. Rodman, Gregory E. Knoll, Richard M. Steiner, San Diego, and Jonathan Lehrer-Graiwer, Los Angeles, for plaintiffs and appellants.

National Economic Development & Law Center, Benjamin Quinones, Janette E. Stokley, James W. Head, Oakland, Goldfarb & Lipman, Raymond P. Bolanos, Lee C. Rosenthal and Peter Franklin, San Francisco, for amici curiae on behalf of plaintiffs and appellants.

Stradling, Yocca, Carlson & Rauth, Donald J. Hamman and David H. Mann, Newport Beach, for defendants and appellants.

NARES, Associate Justice.

Plaintiff Cheri L. Craig, a low-income resident of the City of Poway, brought an action against Poway, Poway's City Council, and the Poway Redevelopment Agency (collectively "Agency"), challenging various aspects of the Agency's implementation of its redevelopment plan. ¹ Craig claimed inter alia (1) the Agency had not properly funded its Low-and Moderate-Income Housing Fund ("LMI Housing Fund" or "Fund") and (2) the Agency had improperly used money from the LMI Housing Fund to pay for a series of improvements to Pomerado Road, known as the Pomerado Road Improvement Project ("Pomerado Road Project" or "Project"). ² The court sitting without a jury found the Agency had adequately funded its LMI Housing Fund, but issued a writ of mandate ordering the Agency to refund $239,949 plus interest to the LMI Housing Fund, reflecting the amount of LMI Housing Fund expenditures used for the Pomerado Road Project. Both parties appeal.

For the reasons explained below, we conclude the Agency's method of funding its LMI Housing Fund was improper and, accordingly, we reverse the portion of the judgment pertaining to the funding issue. We remand for the trial court to determine the amount, if any, the LMI Housing Fund is entitled to be reimbursed based on the Agency's funding practices between 1984 and 1990. In all other respects, we affirm the judgment.

I. ADEQUACY OF THE AGENCY'S METHOD OF FUNDING THE LMI HOUSING FUND

A. The Applicable Law

In 1952, the Legislature enacted the California Redevelopment Law to help local redevelopment agencies improve and revitalize blighted communities. (HEALTH AND SAF.CODE, §§ 33000³ et seq.) Under the statutory scheme, a local redevelopment agency initially Redevelopment agencies have no power to tax. Instead, to finance their activities, they are funded primarily through tax increment financing. (§ 33670; Redevelopment Agency v. County of San Bernardino (1978) 21 Cal.3d 255, 259, 145 Cal.Rptr. 886, 578 P.2d 133; Bell Community Redevelopment Agency v. Woosley (1985) 169 Cal.App.3d 24, 27, 214 Cal.Rptr. 788.) Under the tax increment system, the assessed value of property within a redevelopment project area is frozen when the redevelopment plan is adopted. (§ 33670.) For the duration of the redevelopment plan, the agency is entitled to the difference between the taxes levied on the base year assessed value and those generated from current assessed value. (Ibid.) This increase in, or "increment" of, property tax revenue is known as "tax increment revenue." Since redevelopment agencies receive tax increment revenue only to the extent they incur debt (§§ 33670, subd. (b), 33675), redevelopment agencies commonly finance redevelopment by issuing tax allocation bonds secured by an agency's future stream of tax increment revenue payments. (§§ 33640, 33641; Bell Community Redevelopment Agency v. Woosley, supra, 169 Cal.App.3d at p. 27, 214 Cal.Rptr. 788; see generally Schuster and Recht, Tax Allocation Bonds in California After Proposition 13 (1983) 14 Pacific L.J. 159.)

identifies a project area containing "blight" that will not be alleviated by private efforts. (§ 33367, subd. (d).) The agency then prepares a redevelopment plan directed at the development of residential, commercial, industrial or public structures "appropriate or necessary in the interest of the general welfare." (§ 33020, subd. (a).)

To ensure that redevelopment agencies focus attention on creating affordable housing, the Legislature has mandated that 20 percent of the tax increment received by a redevelopment agency be set aside in a separate housing fund to be spent exclusively to improve and increase affordable housing opportunities. (§ 33334.2, 33334.3; see Lancaster Redevelopment Agency v. Dibley (1993) 20 Cal.App.4th 1656, 1658-1659, 25 Cal.Rptr.2d 593.) Section 33334.2, subdivision (a) provides in pertinent part:

"Not less than 20 percent of all taxes which are allocated to the agency pursuant to Section 33670 shall be used by the agency for the purposes of increasing, [and] improving ... ⁴ the community's supply of low- and moderate-income housing available at affordable housing cost ... to persons and families of low or moderate income ..., and very low income households...." ⁵

Section 33334.3 states "the funds ... required by Section 33334.2 ... shall be held in a separate Low- and Moderate-Income Housing Fund until used." The amount a redevelopment agency deposits into its LMI Housing Fund constitutes an "indebtedness" of the agency for purposes of determining the amount of tax increment revenue to which the agency is entitled. (§§ 33670, 33675, subd. (f).)

B. Events in this Case

The facts relevant to the funding issue were undisputed by the parties and were set forth in a stipulated set of facts submitted to the court at trial.

Poway initially created its redevelopment agency (administered by the Poway City Council) in April 1983. On December 13, 1983, the Agency declared approximately 8,200 acres were "blighted" and adopted a redevelopment plan. The project area's tax base was frozen on that date. The Agency received annual tax increment revenue from 1984 through 1991. (§ 33670.) To achieve Between 1985 and 1990, the Agency did not place 20 percent of the annual tax increment revenue in its separate LMI Housing Fund. Instead, based on advice from its independent auditors, the Agency decided to comply with section 33334.2's set aside requirement by placing 20 percent of its 1985 and 1986 net bond proceeds ⁸ into the Fund. The Agency refers to this practice as "forward funding."

its redevelopment objectives, the Agency issued bonds in 1985, 1986, and 1989 ⁶, pledging 100 percent of its tax increment revenue to repay the bonds. In 1990, the Agency refinanced the 1985 and 1986 bonds by issuing new bonds. The official statement accompanying the 1990 bond issue specifically excluded the amounts required to be set aside in [28 Cal.App.4th 327] the LMI Housing Fund as a potential source of repayment for the 1990 bond. ⁷

In her complaint, Craig alleged the Agency's "forward funding" method violated sections 33334.2 and 33334.3 because it resulted in insufficient money deposited into the LMI Housing Fund. At trial, the parties agreed that 20 percent of annual tax revenue from fiscal years 1984 through 1990 would have left an accumulated total of $5,624,637 and that the Agency's actual deposits into the LMI Housing Fund equaled $7,819,503. The Agency thus maintained that it had met its statutory obligation since it had deposited $2,194,866 over and above its 20 percent set aside mandate by 1991. Agreeing with the Agency's position, the trial court determined that Craig failed to show the Agency's method of funding its LMI Housing Fund violated the statutory scheme.

C. Analysis

Craig contends the Agency's method of funding its LMI Housing Fund violated the law because under the circumstances the Agency was required to deposit into the LMI Housing Fund "both 20 percent of the proceeds of all Bond sales that pledge the [LMI] Housing Fund and 20% of the tax increment revenue received...." (Italics in original.)

The key to understanding Craig's argument is to recall that the Agency initially pledged 100 percent of its future tax increment to repay the 1985 and 1986 bonds. Of that future tax increment, 80 percent is to be allocated to the general redevelopment fund and 20 percent is to be allocated to the LMI Housing Fund. (§ 33334.2, subd. (a).) Contending that the 20 percent portion of the future tax increment "belongs to" the LMI Housing Fund, Craig maintains the Agency was required to deposit 20 percent of the bonds proceeds received as a result of the pledge into the LMI Housing Fund. According to Craig, the Agency must then also deposit the annual 20 percent tax increment into the LMI Housing Fund because that tax increment, required to be deposited into the Fund by section 33334.2, subdivision (a), is the source of money used to repay the bonds. Pursuant to this theory, the LMI Housing Fund is then responsible for paying the debt service on 20 percent of the bonds.

Craig thus takes the position that whenever a redevelopment agency pledges 100 percent of its future increment stream to pay debt service on bond proceeds, the LMI Housing Fund is entitled to (1) 20 percent of the net bond proceeds plus (2) 20 percent of the annual tax increment minus (3) debt service on the deposited bond proceeds. Our task is to determine whether such funding method is mandated by the relevant statutes.

Because there is no specific code section setting forth the consequences of a redevelopment agency's decision to capitalize its The Legislature mandated that redevelopment agencies incur debt as a prerequisite to receiving tax increment revenue to ensure that agencies actively pursue redevelopment goals throughout the life of a redevelopment project. While it is not the only permissible method of incurring debt, redevelopment agencies most commonly issue bonds because sufficient tax increment revenues do not accrue in the beginning of a project. (See Marek v. Napa Community Redevelopment Agency (1988) 46 Cal.3d 1070, 1081,...