Cuenca v. Cohen

• Decision Date: 06 February 2017
• Docket Number: C076814
• Court: California Court of Appeals Court of Appeals
• Parties: Hilda CUENCA et al., Plaintiffs and Appellants, v. Michael COHEN, as Director, etc., et al., Defendants and Respondents; City of Santa Ana, as Successor Agency, etc., et al., Real Parties in Interest and Respondents.

8 Cal.App.5th 200

213 Cal.Rptr.3d 689

Hilda CUENCA et al., Plaintiffs and Appellants,

v. Michael COHEN, as Director, etc., et al., Defendants and Respondents;City of Santa Ana, as Successor Agency, etc., et al., Real Parties in Interest and Respondents.

C076814

Court of Appeal, Third District, California.

Filed February 6, 2017

MANATT, PHELPS & PHILLIPS, Roger A. Grable, Andrew H. Struve, Andrea Ruth Bird, Cherise S. Latortue, Costa Mesa; Public Law Center, Anthony Christian Abasto and Lily Graham; Public Interest Law Project and Craig David Castellanet, for Plaintiffs and Appellants.

Kamala D. Harris, Attorney General, Douglas J. Woods, Assistant Attorney General, Mark R. Beckington and Jonathan M. Eisenberg, Deputy Attorneys General, for Defendants and Respondents.

No Appearance for Real Parties in Interest and Respondents.

HOCH, J.

From 1945 until 2011, California's redevelopment agencies received their funding from a tax increment that represented the difference between the property tax "based on the assessed value of the property prior to the effective date of the redevelopment plan" and "[a]ny tax revenue in excess of that amount ... created by the increased value of project area property." (California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, 246–247, 135 Cal.Rptr.3d 683, 267 P.3d 580 (Matosantos I ).) In response to the growing perception the redevelopment agencies avoided funding low- and moderate-income housing projects, the Legislature required 20 percent of the tax increment be transferred to a Low and Moderate Income Housing Fund (Housing Fund). ( Id. at pp. 247–248, 135 Cal.Rptr.3d 683, 267 P.3d 580 ; Health and Saf. Code, §§ 33334.2, 33334.4, & 33334.6.)¹ Lawsuits were also brought to secure greater percentages of the tax increment for low- and moderate-income housing projects. As pertinent to this case, the City of Santa Ana (City) entered into four stipulated judgments in 1984 and one stipulated judgment in 1994 that required the City to set aside various percentages of the tax increment for low- and moderate-income housing projects. Even after entry of the stipulated judgments, the City was slow to fund affordable housing projects, and it would eventually amass more than $56 million in moneys set aside under the stipulated judgments.

In 2011, the Legislature responded to an ailing economy by dissolving the redevelopment agencies, eliminating the tax increment, and transferring the property taxes back to local governments and schools. (Assem. Bill No. 26 (2011–2012 1st Ex. Sess.) (Assembly Bill 1x 26) enacted as Stats. 2011, 1st Ex. Sess. 2011–2012, chs. 5-6; see also Assem. Bill No. 1484 (Assembly Bill 1484) enacted as Stats. 2012, ch. 26, §§ 6-35.)² However, the Legislature recognized elimination of the tax increment did not also erase the enforceable obligations already created by the redevelopment agencies. (See § 34171, subd. (d).) Enforceable obligations were to be paid—but only under the oversight of the California Department of Finance (DOF) and State Controller. (City of Emeryville v. Cohen (2015) 233 Cal.App.4th 293, 298–299, 182 Cal.Rptr.3d 578 (City of Emeryville ).) Unencumbered funds must be transmitted to the county auditor-controller for return to the taxing entities. (§ 34177, subd. (d).)

The issues presented here concern the effects of the elimination of the tax increment and dissolution of the Santa Ana Redevelopment Agency on the five stipulated judgments. In this case, petitioners Hilda Cuenca, Claudia Castaneda, Enimia Hernandez, and Evangelina Avalos, and Habitat for Humanity of Orange County ((Habitat) cumulatively Cuenca) sought a writ of mandate to overturn DOF's determination that approximately $30 million set aside under the stipulated judgments was unencumbered and must be remitted to the county auditor-controller. The trial court affirmed DOF's determination except for a $3.5 million loan pledged to Habitat for construction of 17 affordable houses.

On appeal, Cuenca contends (1) the five stipulated judgments are enforceable obligations under the Dissolution Law, (2) the tax increment moneys set aside under the stipulated judgments remain available for use by the Santa Ana Redevelopment Agency's housing successor, (3) the stipulated judgments are contracts subject to protections of the contract clauses of the United States and California Constitutions, and the Dissolution Law may not require the diversion of tax increment moneys to the county auditor-controller, and (4) DOF's "taking of $30 million in pre-dissolution tax increment violates [California Constitution article XIII, section 25.5 (a)(3) (Proposition 1A) and section 25.5(a)(7) (Proposition 22) ]."³

On our own motion, we asked the parties to address whether this case has become moot after a settlement agreement was reached in Peebler v. Department of Finance et al . (Third District Court of Appeal No. C073698) the trial court found to be a related case. We also consider respondents' contention Habitat lacks standing in this appeal.

We conclude Habitat has standing to participate in this appeal, and this case is not moot. Petitioners in this case were not parties to the settlement in Peebler v. Department of Finance et al ., and the continuing validity of the stipulated judgments after enactment of the Dissolution Law remains to be resolved.

On the merits, we conclude the stipulated judgments meet the definition of enforceable obligations under the Dissolution Law. However, there are no remaining terms to be fulfilled under the stipulated judgments once the Dissolution Law became effective. The Dissolution Law eliminated the tax increment that provided the only source of funding subject to the stipulated judgments. Nothing in the stipulated judgments requires the tax increment to continue to be collected after the effective date of the Dissolution Law. And the stipulated judgments do not purport to prevent the Legislature from recapturing unspent tax increment funds by subsequent legislation. Thus, the moneys already set aside under the stipulated judgments, but that are unencumbered, must be remitted to the county auditor-controller.

We also conclude DOF's determination that the Dissolution Law requires the turning over of unencumbered moneys to the county auditor-controller does not violate the contract clauses of the United States or California Constitutions.

Finally, we determine the Dissolution Law's requirement that unencumbered funds be remitted to the county auditor-controller does not violate Proposition 1A or Proposition 22. This court rejected a nearly identical challenge to the Dissolution Law under Proposition 1A in City of Cerritos v. State (2015) 239 Cal.App.4th 1020, 191 Cal.Rptr.3d 611. And the Supreme Court rejected a similar challenge under Proposition 22 in Matosantos I, supra , 53 Cal.4th 231, 135 Cal.Rptr.3d 683, 267 P.3d 580. The reasoning employed in these decisions applies here and compels the conclusion the Dissolution Law, as implemented in this case, does not violate Propositions 1A or 22.

Accordingly, we affirm the judgment.

BACKGROUND

The Community Redevelopment Law (§ 33000 et seq. )

In 1945, the Legislature authorized cities and counties to form community redevelopment agencies to address issues of urban decay in California. (Stats. 1945, ch. 1326, § 1, p. 2478 et seq.; Matosantos I , supra , 53 Cal.4th at p. 245, 135 Cal.Rptr.3d 683, 267 P.3d 580.) In 1951, the Legislature renamed the statutory scheme as the Community Redevelopment Law (CRL) and codified it at section 33000 et seq. (Matosantos I , at pp. 245–246, 135 Cal.Rptr.3d 683, 267 P.3d 580 ; Stats. 1951, ch. 710, § 1, p. 1922 et seq.) "The Community Redevelopment Law 'was intended to help local governments revitalize blighted communities.' " (Matosantos I , at p. 246, 135 Cal.Rptr.3d 683, 267 P.3d 580, quoting City of Cerritos v. Cerritos Taxpayers Assn . (2010) 183 Cal.App.4th 1417, 1424, 108 Cal.Rptr.3d 386 (Cerritos Taxpayers Assn . ).) Included in the aim of the CRL was the goal "to increase the supply of low- and moderate-income housing." (Cerritos Taxpayers Assn. at p. 1424, 108 Cal.Rptr.3d 386.)

To fund their projects, the redevelopment agencies "rel[ied] on tax increment financing, a funding method authorized by article XVI, section 16 of the state Constitution and section 33670.... ( City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 866 [62 Cal.Rptr.3d 614, 161 P.3d 1168] ; City of El Monte [v. Commission on State Mandates (2000) 83 Cal.App.4th 266,] 269–270 .) 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) [were] 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—[went] to the redevelopment agency for repayment of debt incurred to finance the project. (Cal. Const., art. XVI, § 16, subds. (a), (b); § 33670, subds. (a), (b); City of Dinuba , at p. 866 [62 Cal.Rptr.3d 614, 161 P.3d 1168].) In essence, property tax revenues for entities other than the redevelopment agency [were] frozen, while revenue from any increase in value [was] awarded to the redevelopment agency on the theory that the increase [was] the result of redevelopment. (Cerritos Taxpayers Assn ., at p. 1424 .)" (Matosantos I , supra , 53 Cal.4th at pp. 246–247, 135 Cal.Rptr.3d 683, 267 P.3d 580.)

Over the years, "a perception had grown that some redevelopment agencies were used as shams to divert property tax revenues that otherwise would fund general local governmental services, and legislative efforts were made to address these concerns." (City of Emeryville, supra, 233 Cal.App.4th at p. 298, 182 Cal.Rptr.3d 578, citing Matosantos I, supra , 53 Cal.4th at pp. 247–248, 135 Cal.Rptr.3d 683, 267 P.3d...