Opinion
C076687
06-26-2017
CITY OF SAN DIEGO et al., Plaintiffs and Appellants, v. MICHAEL COHEN, as Director, etc., et al., Defendants and Respondents.
NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published,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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 34201380001555CUWMGDS)
The City of San Diego (the City), on its own behalf and also in its capacity as successor agency to the Redevelopment Agency of the City of San Diego, a former public entity that was dissolved at the direction of the Legislature, along with nearly 400 other redevelopment agencies, through a process we have previously characterized as the "Great Dissolution" (City of Pasadena v. Cohen (2014) 228 Cal.App.4th 1461, 1463), appeals from a judgment denying its petition for writ of mandate and dismissing causes of action for declaratory and injunctive relief (writ petition). The writ petition sought to compel the Department of Finance (the Department) to approve a certain line item in a recognized obligation payment schedule (ROPS). Specifically, the line item involved $690,000 in project management costs incurred by the City in connection with its management of the construction of a pedestrian bridge. These costs were in excess of the maximum amount the former redevelopment agency agreed to pay the City for such management ($681,013) in a memorandum of understanding (MOU) entered into between the two entities; that amount was paid in full. The Department denied the item because "there was no valid agreement" requiring payment of the $690,000 cost overrun and therefore the item was not an "enforceable obligation" of the former redevelopment agency.
As mentioned, the trial court denied the writ petition and entered judgment in favor of the Department, determining the MOU was not an "enforceable obligation" because Health and Safety Code section 34171, subdivision (d)(2), excludes from the definition of that term "any agreements, contracts, or arrangements between the city, county, or city and county that created the redevelopment agency and the former redevelopment agency." The trial court also rejected the City's alternative argument that even if the MOU is not an enforceable obligation, subdivision (b) of the foregoing section requires payment of "[e]mployee costs associated with work on specific project implementation activities, including, but not limited to, construction inspection, project management, or actual construction" (§ 34171, subd. (b)), explaining this subdivision defines the successor agency's "administrative cost allowance," and while it excludes project-specific employee costs from that definition, it does not thereby require payment of such costs from the Redevelopment Property Tax Trust Fund (RPTTF) regardless of whether they were incurred pursuant to an enforceable obligation.
Undesignated statutory references are to the Health and Safety Code.
The City challenges each of these determinations on appeal. As we explain, the trial court correctly concluded the MOU was not an enforceable obligation. Moreover, even if it was, the express terms of that agreement did not require payment of the $690,000 cost overrun. Nor were these costs payable from the RPTTF under section 34171, subdivision (b). We therefore affirm the judgment.
BACKGROUND
Formation and Dissolution of the Redevelopment Agencies
As our Supreme Court explained in California Redevelopment Assn. v. Matosantos (2011) 53 Cal.4th 231 (Matosantos), "[i]n the aftermath of World War II, the Legislature authorized the formation of community redevelopment agencies in order to remediate urban decay. [Citations.] The Community Redevelopment Law 'was intended to help local governments revitalize blighted communities.' [Citations.]" (Id. at pp. 245-246.) To fund their operations, redevelopment agencies relied on "tax increment financing," a funding method under which "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) are allocated a portion based on the assessed value of the property prior to the effective date of the redevelopment plan," whereas "tax revenue in excess of that amount—the tax increment created by the increased value of project area property—goes to the redevelopment agency for repayment of debt incurred to finance the project. [Citations.] In essence, property tax revenues for entities other than the redevelopment agency are frozen, while revenue from any increase in value is awarded to the redevelopment agency on the theory that the increase is the result of redevelopment. [Citation.]" (Id. at pp. 246-247.)
"Over time, '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. [Citations.]' [Citation.] These concerns grew as the State's financial condition worsened. 'Responding to a declared state fiscal emergency,' in the summer of 2011 the Legislature enacted legislation (Assem. Bill No. 26 (2011-2012 1st Ex. Sess.) enacted as Stats. 2011, 1st Ex. Sess. 2011-2012, ch. 5X (Assembly Bill 1X 26)) that 'bars redevelopment agencies from engaging in new business and provides for their windup and dissolution.' " (City of Petaluma v. Cohen (2015) 238 Cal.App.4th 1430, 1434 (Petaluma), quoting Matosantos, supra, 53 Cal.4th at p. 241.)
"Assembly Bill 1X 26 consists of two principal components, codified as new parts 1.8 and 1.85 of division 24 of the Health and Safety Code. 'Part 1.8 (§§ 34161 to 34169.5) is the "freeze" component: it subjects redevelopment agencies to restrictions on new bonds or other indebtedness; new plans or changes to existing plans; and new partnerships, including joint powers authorities (§§ 34162 to 34165). Cities and counties are barred from creating any new redevelopment agencies. (§ 34166.) Existing obligations are unaffected; redevelopment agencies may continue to make payments and perform existing obligations until other agencies take over. (§ 34169.) Part 1.8's purpose is to preserve redevelopment agency assets and revenues for use by "local governments to fund core governmental services" such as fire protection, police, and schools. (§ 34167, subd. (a).) [¶] 'Part 1.85 (§§ 34170 to 34191) is the dissolution component. It dissolves all redevelopment agencies (§ 34172) and transfers control of redevelopment agency assets to successor agencies, which are contemplated to be the city or county that created the redevelopment agency (§§ 34171, subd. (j), 34173, 34175, subd. (b)). Part 1.85 requires successor agencies to continue to make payments and perform existing obligations. (§ 34177.) However, unencumbered balances of redevelopment agency funds must be remitted to the county auditor-controller for distribution to cities, the county, special districts, and school districts in proportion to what each agency would have received absent the redevelopment agencies. (See §§ 34177, subd. (d), 34183, subd. (a)(4), 34188.)' " (Petaluma, supra, 238 Cal.App.4th at pp. 1434-1435, quoting Matosantos, supra, 53 Cal.4th at pp. 250-251.)
This case involves the proper interpretation of the dissolution component of the enactment. We set forth the relevant statutes in greater detail in the discussion portion of this opinion. For present purposes, we note the successor agency "is obligated to '[e]xpeditiously wind down the affairs of the redevelopment agency' under 'the direction of the oversight board.' (§ 34177, subd. (h).) The oversight board consists of appointed members and has 'fiduciary responsibilities to holders of enforceable obligations.' (§ 34179, subds. (a), (i).)" (Petaluma, supra, 238 Cal.App.4th at p. 1435.) Enforceable obligations include "[a]ny legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy." (§ 34171, subd. (d)(1)(E).) However, the same section excludes from the definition of enforceable obligation "any agreements, contracts, or arrangements between the city, county, or city and county that created the redevelopment agency and the former redevelopment agency." (Id., subd. (d)(2).)
"The successor agency prepares a ROPS for each six-month fiscal period, setting forth the minimum payment amounts for enforceable obligations, and the ROPS must be approved by the oversight board. (§§ 34171, subds. (g) & (h), 34177, subd. (l)(1).) The ROPS is also submitted to the Department and California's State Controller, who have authority to require documentation relating to any enforceable obligation. (§ 34177, subds. (l)(2)(C) & (a)(2).) The Department then makes 'its determination of the enforceable obligations and the amounts and funding sources of the enforceable obligations.' (Id., subd. (m).) In addition, the Department has authority to review actions of the oversight board and to eliminate or modify any item on a ROPS. (§ 34179, subd. (h).) A successor agency or oversight board cannot restore funding for an enforceable obligation that was reduced or deleted by the Department, unless the restoration reflects decisions made during a meet and confer process with the Department or a court order. (§ 34178, subd. (a).)" (Petaluma, supra, 238 Cal.App.4th at pp. 1435-1436.)
Harbor Drive Pedestrian Bridge Project
In June 2008, three years before the Legislature enacted the aforedescribed dissolution law, the City's redevelopment agency entered into a construction contract with Reyes Construction, Inc. to build a pedestrian bridge "to provide safe pedestrian access from the east side of Harbor Drive to the bay side" (the Project). An MOU was also executed between the City, the redevelopment agency, and Centre City Development Corporation (CCDC), a nonprofit public benefit corporation created by the City to manage redevelopment agency projects. Because ownership of the pedestrian bridge was ultimately to be transferred to the City, "the City desire[d] to oversee the Project during construction." To that end, the MOU required the City to "[p]rovide construction management, inspection, and oversight of the Project during construction" and required the redevelopment agency, through CCDC, to "[r]eimburse the City for its costs incurred for City participation in the Project, including oversight, inspection and testing, in an amount not to exceed $681,013," a figure based on the estimated number of hours the City would spend overseeing the Project assuming timely completion. The City was also required to "[n]otify CCDC if costs will exceed the agreed upon funding amounts or if the construction schedule changes." There was no express agreement on the part of the redevelopment agency to pay such excess costs. The MOU further provided: "This MOU represents the entire understanding of the Parties as to those matters contained herein. No prior oral or written understanding shall be of any force or effect with respect to those matters covered herein. This MOU may not be modified or altered except in writing signed by all Parties."
The Project was expected to be completed by the end of 2009, but "was delayed 16 months due to unforeseen events," including metal fabrication issues and necessary design adjustments. The Project was completed in early 2011 and opened to the public in March of that year.
The Present Dispute
Because of the construction delay noted above, the City's actual construction management costs were roughly double the reimbursable amount set forth in the MOU. That $681,013 amount was paid in full prior to the redevelopment agency's dissolution.
On January 31, 2012, the day before the redevelopment agency dissolved by operation of the dissolution law, and about a year after the Project was completed, the City notified CCDC of the construction delay and claimed an additional $680,000 in construction management costs. Nearly nine months later, in September 2012, the City issued two invoices to CCDC in the amounts of $663,982.93 and $670,835.58, respectively. Eventually, CCDC became Civic San Diego. According to Civic San Diego's president, the delay in invoicing CCDC for these excess project-related costs was due to "an accounting glitch" and the invoice would have been paid in full prior to dissolution of the redevelopment agency but for that glitch.
In February 2013, acting as successor agency to the now-dissolved redevelopment agency, the City obtained oversight board approval of a ROPS for the period of July through December 2013 and submitted that document to the Department for its review. This ROPS listed $690,000 as the total outstanding debt or obligation owed by the former redevelopment agency to the City for construction management services rendered under the MOU and listed $600,000 as the amount of the payment to be made to the City. The Department rejected this item, disputing it qualified as an enforceable obligation. Following a meet and confer session held in May, the Department again rejected the item, explaining: "It is our understanding that these expenditures were incurred by the City . . . for project management costs; however, there was no valid agreement in place. Therefore, this item is not an enforceable obligation and is not eligible for RPTTF funding on this ROPS."
The ROPS for the previous six-month period also listed $690,000 as the total outstanding debt or obligation and listed a $90,000 payment to be made to the City. This ROPS was apparently approved by the Department and the payment made from the former redevelopment agency's reserve funds. With respect to the differing figures listed in the cost overrun notice supplied to CCDC, the two invoices, and the ROPS submitted to the Department, we note these discrepancies are immaterial because the cost overrun—whatever the precise figure happens to be—is not payable either as an enforceable obligation or as part of the successor agency's administrative costs, as we explain in the discussion portion of the opinion.
Trial Court Proceedings
In July 2013, the City filed a petition for writ of mandate and complaint for declaratory and injunctive relief seeking to compel the Department to approve the foregoing line item. The City argued payment of the cost overrun was an enforceable obligation under section 34171, subdivision (d)(1)(E), and, in the alternative, payable out of the RPTTF as project-specific employee costs under subdivision (b) of that section. In response, the Department argued the MOU did not create an enforceable obligation under section 34171, subdivision (d), because that section excludes from the definition of enforceable obligation "any agreements, contracts, or arrangements between the city, county, or city and county that created the redevelopment agency and the former redevelopment agency" (§ 34171, subd. (d)(2)), and, in any event, the express terms of the MOU did not require payment of project management costs in excess of the $681,013 already paid by the former redevelopment agency. The Department also argued such excess costs were not payable under section 34171, subdivision (b), because that provision simply defines the successor agency's "administrative cost allowance" and specifically excludes project-related employee costs from that definition.
After issuing a tentative ruling and entertaining argument from counsel, the trial court ruled in favor of the Department. We describe the trial court's decision in greater detail in the discussion portion of the opinion. Judgment was thereafter entered denying the writ petition and dismissing the causes of action for declaratory and injunctive relief. This appeal followed.
DISCUSSION
I
Standard of Review
"While we accord at least ' "weak deference" ' to an agency's interpretation of its governing statutes where its expertise gives it superior qualifications to do so [citation], the issue nonetheless is one subject to our de novo review [citations]." (County of Sonoma v. Cohen (2015) 235 Cal.App.4th 42, 47.) "Furthermore, the ' "interpretation of a contract is subject to de novo review where the interpretation does not turn on the credibility of extrinsic evidence." [Citations.]' [Citations.]" (Pellandini v. Valadao (2003) 113 Cal.App.4th 1315, 1319.)
II
The Cost Overrun is Not an Enforceable Obligation
The City contends the cost overrun is an enforceable obligation because section 34171, subdivision (d)(1)(E), defines that term to include "[a]ny legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy." However, as the trial court correctly observed in denying the City's writ petition, subdivision (d)(2) of the same section limits the definition of enforceable obligation by providing: "For purposes of this part, 'enforceable obligation' does not include any agreements, contracts, or arrangements between the city, county, or city and county that created the redevelopment agency and the former redevelopment agency." (Id., subd. (d)(2).) The trial court concluded, "[t]he more specific definition in subdivision (d)(2), excluding agreements between the City and its [former redevelopment agency], prevails over the more general definition in subdivision (d)(1)(E)." We agree with this assessment.
Indeed, in County of San Bernardino v. Cohen (2015) 242 Cal.App.4th 803 (San Bernardino), we reached the same conclusion with respect to a loan agreement entered into between the county and its former redevelopment agency. While the loan agreement would otherwise qualify as an enforceable obligation under section 34171, subdivision (d)(1)(B) ["[l]oans of moneys borrowed by the redevelopment agency"] and (E) ["[a]ny legally binding and enforceable agreement or contract that is not otherwise void as violating the debt limit or public policy"], we concluded "the overriding provision [was subdivision (d)(2)] limiting the definition of enforceable obligation." (San Bernardino, supra, 242 Cal.App.4th at p. 814.) As we explained: "On its face, the statutory exclusion of agreements such as the County Loan from the definition of 'enforceable obligations' identifies the extent of the exclusion: 'For purposes of this part . . . .' (§ 34171[, subd. ](d)(2).) 'This part' is the Dissolution Law, set forth in part 1.85 of division 24 of the Health and Safety Code. Therefore, for purposes of the Dissolution Law, the exclusion in section 34171[, subdivision ](d)(2) applies to all 'agreements . . . between the . . . county . . . that created the redevelopment agency and the former redevelopment agency' (§ 34171[, subd. ](d)(2)), such as the [c]ounty [l]oan here. [¶] Construing the Dissolution Law and the cited statutes to mean that agreements between the [c]ounty and the former redevelopment agency are enforceable obligations would negate the intent of the Legislature, as shown by the words used, to make such agreements unenforceable. Accordingly, the language of the statutes supports only our interpretation, excluding the [c]ounty [l]oan from the definition of 'enforceable obligations.' " (Id. at p. 815.)
The same reasoning applies to the MOU entered into between the City and the former redevelopment agency in this case. As an agreement "between the city . . . that created the redevelopment agency and the former redevelopment agency" (§ 34171, subd. (d)(2)), it does not fall within the statutory definition of an enforceable obligation. "Any other interpretation would render [subdivision (d)(2)] meaningless." (San Bernardino, supra, 242 Cal.App.4th at p. 814; see also § 34178, subd. (a) [providing, with exceptions not applicable here, "agreements, contracts, or arrangements between the city or county, or city and county that created the redevelopment agency and the redevelopment agency are invalid and shall not be binding on the successor agency"].)
The foregoing analysis disposes of the City's arguments that subdivision (d)(1)(E) should prevail over subdivision (d)(2) and, at the very least, there is an ambiguity or conflict in the provisions, such that we should interpret them in a way that leads to enforcement of the MOU and avoids nonpayment for services already fully rendered by the City, a result the City characterizes as "absurd and harsh" and "contrary to the intent and spirit of the Dissolution Laws." On the contrary, the language of the statute is clear and unambiguous. "When the language of a provision is free of ambiguity, it must be given its plain meaning. Rules of statutory interpretation are applied only where ambiguity or conflict exists, or where a literal construction would lead to absurd results." (Shippen v. Department of Motor Vehicles (1984) 161 Cal.App.3d 1119, 1124.) While the City believes it is "absurd" to not be paid for services rendered, for purposes of statutory construction, " '[a]bsurd' means when a statute is obviously not construed in a reasonable and commonsense manner." (People v. Kalnoki (1992) 7 Cal.App.4th Supp. 8, 17.) The more absurd result would be to construe section 34171, subdivision (d), in a manner that rendered paragraph (2) meaningless. That we cannot do.
In a single line in the opening brief, the City asserts such a conclusion "would, in essence, be a gift of public funds, a result that would violate the Charter of the City of San Diego, section 93." Because the City provides no substantive argument in support of this assertion, we consider it forfeited. (See Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852 [appellant forfeits issue not supported by substantive argument].)
In any event, even if the MOU was not excluded from the definition of enforceable obligation, that agreement required the former redevelopment agency to reimburse the City for construction management costs "in an amount not to exceed $681,013." This amount has already been paid. And while the City was also required to "[n]otify CCDC if costs will exceed the agreed upon funding amounts or if the construction schedule changes," the MOU contained no agreement on the part of the redevelopment agency to pay such excess costs. The MOU further provided: "This MOU represents the entire understanding of the Parties as to those matters contained herein. No prior oral or written understanding shall be of any force or effect with respect to those matters covered herein. This MOU may not be modified or altered except in writing signed by all Parties." Thus, the express terms of the MOU neither required nor allowed payment of the $690,000 in overrun costs set forth in the ROPS submitted to the Department. A written modification of the MOU would have been required to obligate the former redevelopment agency to reimburse the City for such costs.
This conclusion makes it unnecessary to address the City's final argument with respect to whether the MOU set forth an enforceable obligation, i.e., the Legislature did not intend for section 34171, subdivision (b)(2), or section 34178 "to apply retroactively to bar contracts for construction management services . . . that had already been fully performed prior to dissolution." We note the Department argues in response that "there is no retroactivity issue" in this case because the City did not seek payment of the cost overrun until September 2012, well after these provisions became operative. We need not decide the issue because even if the City were correct that the MOU created an enforceable obligation because it was fully performed before the dissolution of the former redevelopment agency, the MOU does not authorize payment of the cost overrun. --------
For the foregoing reasons, we conclude the cost overrun is not an enforceable obligation within the meaning of the dissolution law.
III
The Cost Overrun is Not Payable From the RPPTF as Employee Costs
The City also contends we "must allow" payment of the cost overrun from the RPPTF even though we have concluded it is not an enforceable obligation "because [the overrun] constitutes project-specific employee costs incurred for inspection and project management." Not so.
Section 34171, subdivision (b), defines a successor agency's "administrative cost allowance," i.e., "the maximum amount of administrative costs that may be paid by a successor agency from the [RPTTF] in a fiscal year," and provides that "[e]mployee costs associated with work on specific project implementation activities, including, but not limited to, construction inspection, project management, or actual construction, shall be considered project-specific costs and shall not constitute administrative costs." But the fact project-specific employee costs are not payable as part of a successor agency's administrative cost allowance does not mean, as the City would have us hold, they must instead be paid out of the RPTTF as project-specific employee costs. Nothing in section 34171, subdivision (b), provides for payment of project-specific employee costs out of the RPTTF. "Instead," as the trial court correctly explained in denying the writ petition, "to be paid from RPTTF, the costs must be owed pursuant to an enforceable obligation. [Citations.] Since the City's MOU is not an enforceable obligation, it is not entitled to payment." Moreover, as the trial court also correctly explained, section 34171, subdivision (b), "deals with the successor agency's administrative cost allowance," whereas here, "the City wants to be reimbursed for the costs of its own employees " before the City became successor agency to its former redevelopment agency. Section 34171, subdivision (b), "simply does not apply in this situation."
For the foregoing reasons, we conclude the cost overrun is not payable from the RPTTF as project-specific employee costs.
DISPOSITION
The judgment is affirmed. Respondents are entitled to costs on appeal.
/s/_________
HOCH, J. We concur: /s/_________
BLEASE, Acting P. J. /s/_________
ROBIE, J.