Opinion
C079582
01-13-2017
CITY OF PASADENA, Plaintiff and Appellant, v. MICHAEL COHEN, as Director, etc., Defendant and Respondent.
NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 34-2012-00134585-CU-MC-GDS)
This case now returns to us in a proper procedural context for us to address its merits. (City of Pasadena v. Cohen (2014) 228 Cal.App.4th 1461, 1466-1467 [reversing and remanding preliminary injunction because declaratory relief is inappropriate vehicle for review of administrative actions] (Pasadena).)
In June 2011, the Legislature enacted what we have termed the "Great Dissolution," which barred redevelopment agencies from entering into any new obligations, and (more importantly) provided a process for dissolving the nearly 400 redevelopment agencies then existing and winding up of their outstanding obligations. (Pasadena, supra, 228 Cal.App.4th at p. 1463.) This represented a public policy decision on the part of the political branches of the state in response to abuses of redevelopment law, under which the redevelopment agencies and "sponsor" entities—the entities (usually cities) that created the redevelopment agencies and staffed their boards with officials of the sponsor entities—locked up an ever-increasing share of local property taxes as "tax increment" (increases in property tax attributable to redevelopment projects) for their own benefit. (City of Tracy v. Cohen (2016) 3 Cal.App.5th 852, 855 & fn. 2 (Tracy).)
Predictably, this has led the sponsor entities and the "successor agencies" to the redevelopment agencies to flood the Sacramento County Superior Court (Health & Saf. Code, § 34168, subd. (a) [designated venue for redevelopment litigation]) when the Department of Finance (the Department)—under the auspices of its director, defendant Michael Cohen—makes unfavorable administrative determinations that disapprove the inclusion of various items in the "Recognized Obligation Payment Schedules" (ROPS) of enforceable obligations filed with the Department. (Tracy, 3 Cal.App.5th at pp. 856-857 & fn. 3; Pasadena, supra, 228 Cal.App.4th at p. 1463 & fn. 3.)
The successor agencies are essentially caretakers empowered only to complete ongoing "enforceable" redevelopment obligations—those still entitled to former tax increment. The boards of the successor agencies are usually also staffed with officials of the sponsor entities. (Tracy, supra, 3 Cal.App.5th at p. 856 & fn. 3.)
Undesignated statutory references are to the Health and Safety Code.
In the present dispute, the Department disapproved two items that plaintiff City of Pasadena (the City), as successor agency to its former redevelopment agency (the Pasadena Community Development Commission (the Commission)), included as enforceable obligations in its ROPS III (for the period of Jan. to June 2013) after previously approving their inclusion in ROPS I and II. One involved payments for pension bonds and the other for payments to the Commission's subsidized housing fund, both pursuant to a 1987 statute that expired in 2014. (Pasadena, supra, 228 Cal.App.4th at p. 1463.) On remand from our prior decision, the City in its own right and as successor agency filed an amended pleading in December 2014 against the Department and the Auditor-Controller of Los Angeles County (a nominal defendant who is a neutral stakeholder as the administrator of the trust fund into which former tax increment is deposited for the benefit of "taxing entities," those entities now entitled to former tax increment on redevelopment's abolition (Brentwood, supra, 237 Cal.App.4th at p. 492 & fn. 3)). The City sought a writ of mandate directing the Department to rescind its disapproval of the inclusion of these items in ROPS III and future ROPS's through the end of 2014.
The Department disapproved the inclusion of these items in the subsequent ROPS IV (July to Dec. 2013), as well as each ROPS for the next four reporting periods (July 2013 through June 2015). The Department's former approval of the inclusion of these items does not estop the Department from disapproving them in a subsequent ROPS. (City of Brentwood v. Campbell (2015) 237 Cal.App.4th 488, 504-505 (Brentwood).)
The Auditor-Controller has not submitted any independent briefing on appeal, so we refer only to the Department as defendant. There are also two nominal plaintiffs who purport to assert their interests as third party beneficiaries. As they also did not submit any briefing in their own right, we refer only to the City as plaintiff. (See Pasadena, supra, 228 Cal.App.4th at p. 1463, fn. 4.)
The trial court denied the petition. We shall affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Despite an appendix exceeding 3,200 pages in length, the pertinent facts are not extensive. The parties also do not represent that any of these are disputed.
In July 1986, the City and its former Commission entered into an "Amended and Restated Reimbursement Agreement" (the reimbursement agreement) with respect to costs the City incurred for improvements in the downtown redevelopment plan adopted in 1970, along with unpaid principal and interest accruing for these costs since 1974. (The former Commission had been reimbursing the costs since July 1974 under a predecessor agreement.) Under the authority of former section 33445, the former Commission agreed to "pay the City from any funds which may be legally available to the Commission . . . , including, but not limited to, tax increments . . . ." In a July 1987 "first amendment" (1987 amendment) the former Commission agreed to continue to make payments on a principal amount of $21,313,000 (rounded), along with accrued interest, for the costs of unspecified public improvements and a conference center in the downtown area through 2014 (and for the outstanding principal and interest antedating the reimbursement agreement). The former Commission further agreed to deposit $800,000 annually through 2014 in its subsidized housing fund if funds were available. Again, the payments were to be from tax increment or any other legally available funds. The City also pledged "without creating within the meaning of the Constitution . . . an obligation enforceable against or an indebtedness of the City" to deposit $10 million into the housing fund between 1987 and 2014 from sources other than tax increment. The 1987 amendment expressly deemed low- and moderate-income City residents to be third party beneficiaries of the agreement. Nothing in either the reimbursement agreement or its amendment makes any reference to bond obligations of the City.
The 1987 amendment was followed by the City's successful lobbying efforts in Sacramento. At its behest, the Legislature enacted section 33608 (eff. Jan. 1, 1988), which validated the past or future action of "a" charter city (meeting criteria unique to the City) "with respect to" a reimbursement agreement dated 1986 and amended in 1987. (§ 33608, subd. (a).) Section 33608 both ratified the City's use of reimbursement payments under that agreement for making payments to its public safety pension fund (a use of tax increment otherwise unauthorized under the redevelopment law), and directed the use of the proceeds for the pension fund and the housing fund. As noted in the digest of the Legislative Counsel, "The bill would require first priority for use of reimbursements under the agreement to be for the annual funding requirements of the city's . . . retirement fund." (Legis. Counsel's Dig., Sen. Bill No. 481 (1987-1988 Reg. Sess.) 4 Stats. 1987, Summary Dig., p. 336.) The statute specified that the City was otherwise obligated to commit such amounts from its general fund and assets to funding the pension fund as were necessary and actuarially appropriate. (§ 33608, subd. (e).) The statute deemed the former Commission's deposits to the housing fund under the reimbursement agreement to satisfy its statutory obligations to the housing fund under the redevelopment law (see §§ 33334.2, 33334.6; 33608, subd. (f)). The statute did not make any reference to the issuance of bonds in connection with the City's pension obligations, or itself direct the former Commission to make the reimbursement payments to the City. The statute was part of the City's effort to cope with an unfunded pension liability for public safety workers of $128 million at that time.
The parties refer to this statute by its bill number, Senate Bill No. 481.
In 1991, the City and its pension fund entered into an agreement under which the City agreed to contribute all payments it received under the reimbursement agreement from 1990 to 2014 to the pension fund, as well as additional amounts from its general fund and assets. The former Commission was not a party to this 1991 agreement.
As the trial court describes, the 1991 agreement "did not, as planned, eliminate or substantially reduce [the] unfunded liability to the [pension fund]," which was only 30 percent funded as of June 1998 (the unfunded liability being $133 million). The City therefore entered into a new agreement with the pension fund in 1999 under which it would issue pension bonds in the amount of $100 million and pay the proceeds to the pension fund in order to bring its funding system up to 80 percent. The City would also make supplemental payments. In exchange, the pension fund assigned to the City the right under section 33608 to receive the tax increment that the former Commission paid pursuant to the reimbursement agreement, and the City agreed to use these funds solely for payments on the pension bonds. The 1999 agreement was conditioned on the City's obtaining a validation judgment (Code Civ. Proc., § 860) for the issuance of the proposed bonds and other terms of the 1999 agreement. Again, the former Commission was not a party to the 1999 agreement.
In June 1999, the Los Angeles County Superior Court issued a validation judgment. It declared the validity of the proposed bond issue, the debentures, the 1999 agreement between the City and the pension fund, and "the continuation of the Funding Agreement" (the name given to the reimbursement agreement in the complaint). As to the reimbursement agreement, the court "finds and declares that [it] will not terminate upon issuance by the City of one or more" bond issues, "and that the City has the authority" to "continue the Funding Agreement" and use the receipts from the agreement pursuant to section 33608 to reimburse itself for bond payments. The judgment also recited that it "binds all parties to the Funding Agreement . . . as to all of the terms of the Funding Agreement . . . and as to all issues concerning, without limitation, the validity, enforceability[,] and constitutionality of the Funding Agreement . . . ." The judgment did not purport to adjudicate the right of the former Commission to receipt of former tax increment.
The City thereafter issued $102 million (rounded) in bonds in 1999, without any limitation as to payment: "Payment . . . on the Bonds is not limited to any specific source of funds of the City." The offering noted the payments pursuant to the reimbursement agreement were available for servicing the bonds (including a chart of the receipts from fiscal years 1995 to 1999, which averaged approximately $9 million per year), but the "obligation of the City to repay the Bonds is payable from all available funds of the City . . . ." In 2004, the City issued an additional $41 million (rounded) in pension bonds to make up for the decline in the market value of the pension fund in the bear market of the early aughts. The City Manager advised its Council that the $2.5 million debt service on these bonds would be solely from tax increment. The City did not pursue a validation action in connection with these bonds, but it asserts here that they were validated by operation of law (Code Civ. Proc., § 863; McLeod v. Vista Unified School Dist. (2008) 158 Cal.App.4th 1156, 1166).
For an extended period of time, the former Commission did not have sufficient tax increment available to pay for its obligations under the reimbursement agreement, which resulted in negative amortization and a ballooning of the outstanding debt. By December 2014, when the former Commission's obligation to make payments expired, the balance due was still about $41 million.
Although we will not confirm the math ourselves from exhibit 10 to the declaration of Vicken Erganian (the City Treasurer) in support of the petition, the Department represents that the total reimbursement payments to the City, tethered to the $21 million principal, amount to $212 million.
In December 2012, the Department determined that the reimbursement agreement was not an enforceable obligation of the former Commission, and accordingly disapproved the inclusion on ROPS III of payments to the City for its pension costs and to the housing fund. As to the former, the Department noted the bonds were an obligation of the City, not its former Commission and, under section 34171, subdivision (d)(2) (hereafter, section 34171(d) and its provisions), the reimbursement agreement was not an enforceable agreement for which the successor agency was authorized to make payments. The Department also stated that the obligation under the agreement to make payments to the housing fund was not an enforceable obligation, and the statutory obligation to contribute to the housing fund otherwise ended with the Great Dissolution. This action followed. Pursuant to stipulations of the parties, the Auditor-Controller has sequestered $40 million (rounded) in disputed former tax increment in the trust fund pending the resolution of this litigation.
DISCUSSION
Although a traditional writ of mandate ordinarily reviews administrative actions for an abuse of discretion, at issue here is whether the Department has correctly interpreted its governing statutes, which is subject to our de novo review. (Brentwood, supra, 237 Cal.App.4th at p. 500.)
The City's arguments are difficult to organize cohesively. We attempt to apply a rational ordering to them.
1.0 The Reimbursement Agreement Is Excluded from the Definition of Enforceable Obligations
"For purposes of this part [(§ 34170 et seq.)], 'enforceable obligation' does not include any agreements . . . between the [public entity] that created the redevelopment agency and the former redevelopment agency. However, written agreements entered into . . . at the time of issuance . . . of indebtedness obligations[] and . . . solely for the purpose of securing or repaying those . . . obligations may be deemed enforceable obligations for purposes of this part." (§ 34171(d)(2); accord, § 34178, subd. (a) [sponsor agency contracts are invalid and not binding on successor agency as of operative date of Feb. 1, 2012 for dissolution]; see California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231, 274-275.)
The only agreement to which the former Commission is a direct party is the 1986 reimbursement agreement amended in 1987. Under the definition above, it is therefore excluded from the category of enforceable obligations constituting "Any legally binding and enforceable agreement . . . that is not otherwise void as violating the debt limit or public policy." (§ 34171(d)(1)(E).)
The City offers various farfetched arguments why this language does not apply to the reimbursement agreement. All of these are without merit.
1.1 Section 34171(d)(2) Controls Over Section 34171 (d)(1)(E), and Does Not Present any Ambiguity Requiring Interpretation
Floating around in the City's arguments is the premise that somehow the exclusion of sponsor agreements does not govern over the provision otherwise identifying lawful enforceable agreements as enforceable obligations. We rejected a similar inexplicable contention in County of San Bernardino v. Cohen (2015) 242 Cal.App.4th 803, 814-815 (County of San Bernardino), where we categorized the exclusion as being the "overriding provision" limiting the inclusion of loans and enforceable agreements among enforceable obligations; otherwise, it would be "meaningless" (id. at p. 814).
We do not find any ambiguity in section 34171(d)(2). We therefore reject the City's efforts at positing an overarching legislative policy that would embrace sponsor agreements within the exclusion only if they were executed in anticipation of the " 'End of Redevelopment As We Knew It' " (Brentwood, supra, 237 Cal.App.4th at p. 499), or the City's assertion that we should interpret the statute narrowly. Absent ambiguity, a court does not have any basis to engage in interpretative exercises (County of Sacramento v. Superior Court (2012) 209 Cal.App.4th 776, 782), and the overall intent behind the provisions of the Great Dissolution is in any event not a basis for departing from the plain language in them (County of Sonoma v. Cohen, supra, 235 Cal.App.4th at p. 48).
Moreover, as we noted in County of Sonoma v. Cohen (2015) 235 Cal.App.4th 42, 48, the Legislature was just as concerned with sponsor agreements as a class since the conjoined governing boards could take collusive action that would not reflect the best interests of the other taxing entities otherwise entitled to property tax proceeds.
1.2 The Reimbursement Agreement Does Not Come Within the Exception in Section 34171 (d)(2)
Raising a contention for the first time on appeal, the City asserts it comes within the exception to section 34171(d)(2), quoted in part above. Section 34171(d)(2) further states, "[h]owever, written agreements entered into . . . at the time of issuance . . . of indebtedness obligations[] and . . . solely for the purpose of securing or repaying those . . . obligations may be deemed enforceable obligations for purposes of this part." (Italics added.) The definition of "indebtedness obligations," in turn, provides that these are all "evidence of indebtedness[] issued or delivered by the redevelopment agency . . . to third-party investors or bondholders to finance . . . redevelopment projects . . . ." (§ 34171, subd. (e), italics added.)
Repeatedly adding a past perfect tense that does not appear in the statute, the City argues that as long as the execution of the reimbursement agreement preceded the 1999 bond issue, and its payments were dedicated to repayment of the bonds, it comes within this exception. Assuming this argument is not forfeited on appeal, this is not a reasonable construction of the statute.
Section 34171(d)(2) plainly provides that the agreement must be contemporaneous with the issuance of the bonds ("at the time of issuance") and provide solely for payment of the bonds. Therefore, the reimbursement agreement fails to come within this exception on this basis (putting aside the issue that the City does not address, namely, that the reimbursement agreement was not itself with any third party investors or bondholders). We thus do not need to address the City's claim that the reimbursement agreement was solely for the purpose of repaying obligations, or its challenge to the effect of its failure to pledge these funds to repayment of the bonds.
1.3 The Presence of Possible Third Parties to the Reimbursement Agreement Does Not Prevent the Application of Section 34171 (d)(2)
In a remarkable argument devoid of supporting authority, the City argues that in enacting section 33608, the State became a party to the reimbursement agreement. It also points to the identification of residents who qualify for subsidized housing as third party beneficiaries. It then argues that the presence of these additional parties to the reimbursement agreement makes section 34171(d)(2) inapplicable.
We have rejected this claim—that the agreement in question was not exclusively between the former redevelopment agency and its creator—as well: "The word 'exclusively' is not in the statute" (County of San Bernardino, supra, 242 Cal.App.4th at p. 815); "such an exception would effectively swallow the rule. There is no such express exception [in section 34171(d)(2) for the reimbursement agreement], and . . . we cannot conclude that the Legislature meant to include one [only] by implication" (id. at p. 818).
1.4 Civil Code Section 1642 Does Not Make Section 34171 (d)(2) Inapplicable
In an argument that seems to be missing an intermediate link, the City contends that the trial court erred in finding that Civil Code section 1642 did not apply to link the reimbursement agreement between the City and the former Commission with the City's later negotiations with its pension fund to issue bonds and receive an assignment of the pension fund's right to receive section 33608 payments back to the City for servicing the bonds, as well as the issuance of the bonds. It is not specified why treating these disparate events as a single transaction would change the sponsor agreement nature of the 1986 reimbursement agreement such that it would come within the provision of section 34171(d)(1)(E) and preclude the application of section 34171(d)(2), since adding more parties does not have that effect (as we have just noted).
Civil Code section 1642 codifies principles under common law for construing different instruments among the same or different parties as part of a single transaction.
In any event, the applicability of Civil Code section 1642 is a question of fact for the trial court, which we review for substantial evidence. (Versaci v. Superior Court (2005) 127 Cal.App.4th 805, 815.) The trial court found this claim to be an unreasonable view of the undisputed facts, in which the 1986 agreement and its 1987 amendment, the aim of its parties, and its enabling statute were completely divorced—save for the common subject of the use of redevelopment tax increment for the City's underfunded pension liabilities—from the subsequent agreement more than a decade later between the City and its pension fund to, in effect, amend section 33608 and allow the City to make payments to bondholders with the pension fund's permission rather than to the pension fund, in exchange for the bond proceeds. On these facts, there is substantial evidence to support the trial court's conclusion that the City and the former Commission did not contemplate making a bond sale and reassignment of payments under the reimbursement agreement—years later—part of the same transaction. Because this is a question of fact, it is immaterial that the City cites cases finding the application of Civil Code section 1642 appropriate. (People v. Rundle (2008) 43 Cal.4th 76, 137-138 ["Reviewing the sufficiency of evidence . . . necessarily calls for analysis of the unique facts and inferences present in each case, and therefore comparisons between cases are of little value."]; DeVore v. Department of California Highway Patrol (2013) 221 Cal.App.4th 454, 463.) Therefore, the former Commission did not have any obligation on which pensioners or bondholders could reasonably rely.
2.0 The Payments Pursuant to the Reimbursement Agreement Do Not Come Within Other Categories of Enforceable Obligations That Do Not Involve Written Agreements
2.1 The Reimbursement Payments Are Not Pursuant to an Obligation "Imposed by State Law" (§ 34171(d)(1)(C))
The City contends the former Commission reimbursement payments were an obligation imposed by section 33608, and therefore it is an enforceable obligation as defined in section 34171(d)(1)(C). We disagree.
In the first place, section 33608 does not mandate that the former Commission make the payments pursuant to the agreement. It simply authorized the agreement and directed the uses to which the City could put the funds. More importantly, as we recently concluded in Covarrubias v. Cohen (2016) 3 Cal.App.5th 1229, section 34189 abrogates " 'all provisions of the Community Redevelopment Law that depend on the allocation of tax increment to redevelopment agencies' " (Covarrubias, at p. 1237; § 34189, subd. (a), italics added). Thus, any obligations that the City contends its former Commission had pursuant to section 33608 have ceased to exist, and section 34171(d)(1)(C) is therefore inapplicable.
The City contends section 33608 somehow created an obligation outside the Community Redevelopment Law not subject to section 34189, citing a provision that "The validation provided by this section shall be the only determination necessary to satisfy the requirement of subdivision (e) of Section 33675 . . . ." (§ 33608, subd. (a).) The significance of this provision escapes us, as the cross-referenced statute involves the reporting requirements for former redevelopment agencies (regarding the tax increment that they received and the redevelopment projects on which they were expending the increment) in statements of indebtedness and reconciliation statements filed with county auditors. This does not alter the fact that former tax increment is the source of the funds authorized under section 33608 for nonredevelopment and housing purposes, and therefore any ongoing statutory obligation to make the payments ceased upon the Great Dissolution. Given this resolution, we do not need to address the City's argument that the payments for the housing fund are encumbered for purposes of section 34177, which in subdivision (d) requires successor agencies to remit unencumbered housing funds to the county auditor-controller.
We also do not perceive the relevance of the recent amendments to section 34189 to which the City refers. These amendments remove various time or amount limitations with respect to project areas on funds owed to housing funds either in unrepaid loans, or past failures to make required set-asides. These are a separate category of enforceable obligations. (§ 34171(d)(1)(G).) The City fails to identify any such outstanding obligations at issue in the present case.
2.2 The Reimbursement Payments Do Not Arise Out of a Judgment Against the Former Commission (§ 34171(d)(1)(D))
The City contends the 1999 validation judgment established an obligation on the part of the former Commission to make reimbursement payments to the City pursuant to the validated agreement, which therefore would be an enforceable obligation pursuant to section 34171(d)(1)(D). It contends it would be a violation of the separation of powers for the Legislature to abolish this adjudicated obligation.
All that the validation judgment established with respect to the reimbursement agreement was the validity and continuing validity of its terms between the parties to the agreement under the law as it existed at that time, and the reassignment to the City of the pension fund's right to receive payments under it for the purpose of servicing the pension bonds. It did not purport to establish any absolute right under redevelopment provisions for the former Commission to receive tax increment, or any duty on its part to make the payments or for the City to receive payments under the agreement, that was superior to the Legislature's "plenary power" over the Community Redevelopment Law (subject to constitutional restrictions) in the regulation of the use of former tax increment. (Brentwood, supra, 237 Cal.App.4th at pp. 496-497.) The terms of the reimbursement agreement, as enforced through the validation judgment, directed the former Commission to make the payments out of former tax increment or other funds legally available to it. Upon the Great Dissolution, neither former tax increment nor any other funds are legally available for financing the reimbursement payments. Thus, an enforceable obligation arising out of a judgment against the former Commission does not exist, and section 34171(d)(1)(D) is inapplicable as a result.
DISPOSITION
The judgment is affirmed.
BUTZ, J. We concur: RAYE, P. J. DUARTE, J.