Marek v. Napa Community Redevelopment Agency

• Decision Date: 13 October 1988
• Docket Number: No. S000820,S000820
• Citation: 761 P.2d 701,251 Cal.Rptr. 778,46 Cal.3d 1070
• Court: California Supreme Court
• Parties: , 761 P.2d 701 James H. MAREK, Jr., as Auditor-Controller, etc., Plaintiff and Appellant, v. NAPA COMMUNITY REDEVELOPMENT AGENCY, Defendant and Respondent.

Page 778

251 Cal.Rptr. 778

46 Cal.3d 1070, 761 P.2d 701

James H. MAREK, Jr., as Auditor-Controller, etc., Plaintiff and Appellant, v. NAPA COMMUNITY REDEVELOPMENT AGENCY, Defendant and Respondent.

No. S000820.

Supreme Court of California In Bank.

Oct. 13, 1988.

R. Clifford Lober, County Counsel, and Joseph C. Folkard and David L. Zaltsman, Deputy County Counsel, Napa, for plaintiff and appellant.

McDonough, Holland & Allen, Richard E. Brandt and David F. Beatty, Sacramento, for defendant and respondent.

Lee C. Rosenthal and Goldfarb & Lipman, San Francisco, as amici curiae on behalf of Defendant and Respondent.

KAUFMAN, Justice.

To receive tax increment revenues (see fn. 3, post) under California's Community Redevelopment Law (Health & Safety Code, § 33000 et seq.), local redevelopment agencies must file with the county auditor an annual "statement of indebtedness." (Health & Saf. Code, § 33675, subd. (b) (see fn. 8, post).) ¹ The auditor is then required to pay tax increment revenues to the agency "in an amount not to exceed the amount shown on the agency's statement of indebtedness." ( § 33675, subd. (d).) If the auditor disputes the amount of indebtedness claimed in its statement, the auditor is authorized to institute a declaratory relief action to adjudicate the amount of indebtedness. ( § 33675, subd. (e).)

In the 1981-1982 and 1982-1983 statements of indebtedness submitted by the Napa Community Redevelopment Agency (Agency) to James Marek, the Auditor-Controller for the County of Napa (Auditor), the indebtedness claimed by the Agency consisted of the estimated cost of performing its executory obligations under a binding contract with a private redeveloper. The Auditor disputed the claimed indebtedness, refused to pay the Agency the accrued tax increment revenues and instituted the declaratory relief action at bench. We are called upon to decide whether the Agency's claimed indebtedness constitutes indebtedness under the redevelopment law. As will appear, we conclude that the Agency's estimated cost of performance under the contract does constitute indebtedness within the meaning of the redevelopment law and that the Auditor was required to pay the Agency the available tax increment revenues.

I. Factual and Procedural Background

A. History of the Redevelopment Plan

The Parkway Plaza Redevelopment Project (project) was originally part of an urban redevelopment plan adopted in 1969 by the Napa City Council ² to convert the downtown area of Napa into a modern shopping district. The plan was to be financed in substantial part by tax increment financing as authorized by article XVI, section 16 and by section 33670 which was enacted by the Legislature to implement the constitutional provision. The text of section 33670 which repeats the constitutional language is set out in the margin. ³

Following the adoption of the redevelopment plan, the Agency in 1971 entered into a Disposition and Development Agreement (DDA) with the private redeveloper Nichandros Associates (Nichandros) for the development of the downtown shopping district. Difficulties developed between the Agency and Nichandros and their agreement was eventually terminated. Nichandros thereafter sued the Agency for damages and recorded a lis pendens on property within the redevelopment site. The Agency ultimately settled the suit by paying Nichandros nearly $400,000.

The dispute between the Agency and Nichandros delayed the project for some years. Nevertheless, the record indicates the Agency was able to accomplish considerable redevelopment in the project area during the years leading up to the present dispute. This included construction of department stores and other retail shops, street and traffic improvements, brick inlays, and the like. This work was apparently funded in part by some $10 million in grants from the federal Department of Housing and Urban Development. However, the Agency also received more than $3 million of tax increment revenues between 1971 and 1981 from Auditor Marek and his predecessor in office, Robert Benning.

B. Earlier Dispute Between the Parties

In 1977 the Agency and former auditor Benning had a dispute over payment of tax increment revenues. Benning instituted a declaratory relief action against the Agency alleging among other things that the Agency's statement of indebtedness for fiscal year 1977-1978 was deficient. Thereafter Marek was elected and replaced Benning as plaintiff in that lawsuit. The matter was resolved in January 1979 when the parties negotiated a settlement in the form of a stipulated judgment entered by the superior court.

The stipulated judgment outlined a number of procedures relating to the submission and review of annual statements of indebtedness thereafter. Under these procedures, the Agency was to maintain accounting records reflecting the status of the "special fund" into which tax increment revenues are paid pursuant to section 33670, subdivision (b) (see fn. 3, ante ). Additionally, subsequent statements of indebtedness were to show all funds of the Agency "on hand or otherwise available" and separately account for funds arising from tax increment revenues and from other sources. Further, the Agency was to identify the moneys committed to specific obligations or indebtedness and to provide the Auditor copies of contracts documenting the claimed indebtedness. In this regard the stipulated judgment provided: "To the extent [the] Agency has any monies ... which are not specifically committed or allocated to a particular obligation or indebtedness of the Agency, the ... Auditor shall consider such monies as being available for general expenditure purposes to pay, in whole or in part, any of the indebtedness shown on [the] Agency's Statement of Indebtedness when [the] Auditor calculates the distribution of tax increment revenues pursuant to Health and Safety Code Section 33675(d)."

C. The Present Dispute

In February 1980, the Agency amended the original redevelopment plan and entered into a new DDA with another redeveloper called The Sequoia Partnership (Sequoia) for the redevelopment of a 10-acre site within the Parkway Plaza project. Under the Sequoia DDA, the Agency was obligated to acquire certain parcels of real property, to resell the property to the redeveloper and to provide for and bear the expense of utility relocations, street and traffic improvements, and the construction of parking facilities. ⁴ Sequoia agreed to purchase the land from the Agency, to construct a shopping center with a large department store and other retail shops, and to secure tenants for the shopping complex.

After execution of the Sequoia DDA in 1980, the Agency acquired two properties, one at a cost of some $150,000 (paid from a federal community development block grant) and the other for some $830,000 (paid from the previous year's tax increments and out of funds the Agency borrowed from the City of Napa after the present dispute arose). In addition, the Agency incurred other expenses and was proceeding with negotiations and condemnation actions to acquire the two remaining parcels necessary to fulfill its preconveyance obligations under the Sequoia DDA.

In 1980, the Agency submitted to the Auditor a statement of indebtedness for fiscal year 1980-1981, ⁵ pursuant to section 33675, subdivision (b) (see fn. 8, post). The 1980-1981 statement listed a partial indebtedness of $800,000, identified by the phrase "Implement DDA" (i.e., to implement the DDA with Sequoia). The record indicates that for fiscal year 1980-1981 the Auditor disbursed to the Agency tax increments amounting to $439,000.

In September 1981, the Agency filed a statement of indebtedness with the Auditor for fiscal year 1981-1982. The statement showed a total outstanding indebtedness of $1.35 million--$1.31 million to implement the Sequoia DDA (again identified by the phrase "Implement DDA") and $40,000 for administrative costs. In October 1981, the Auditor sent the Agency a letter disputing the Agency's 1981-1982 statement of indebtedness. Relying on the 1979 stipulated judgment, the Auditor stated he interpreted the statement of indebtedness and supporting materials as showing the Agency had ample funds available from sources other than the tax increment revenues to pay its obligations and thus that the Agency had no true indebtedness. Apparently, within its stated amount of available funds the Agency had included the $550,000 in tax increment revenues it expected would be paid to it by the Auditor during 1981-1982. The Auditor evidently read the declaration of available funds as not including the $550,000.

After some correspondence with the Auditor, the Agency submitted an amended statement of indebtedness. In an accompanying letter, the Agency stated it planned to sell bonds to finance the great bulk of the Agency's postconveyance obligations under the DDA. In order to keep the amount of the bond issue and attendant interest expense to a minimum, however, the Agency hoped to use the tax increment revenues directly to finance the "front-end project costs" such as acquisition of property, design, street clearing, site improvements, and administration. The amended statement included only minor accounting changes without making any substantive modifications. Because the Auditor still disputed the amount of indebtedness claimed by the Agency, in December 1981 he issued a final notice of the statement's deficiencies and of his intent to withhold the available tax increment funds and to seek declaratory relief if the Agency did not comply with the Community Redevelopment Law and with the 1979 stipulated judgment.

In February 1982, the Agency submitted a drastically revised statement of indebtedness. As its total outstanding debt the Agency declared more than $11.9 million, some $11.7 million of which was identified as indebtedness under the Sequoia DDA. Annotations and supporting materials submitted with the revised...