Opinion
Review Granted April 2, 1997.
Previously published at 51 Cal.App.4th 1313
Carl Fabian, San Diego, Eric Norby and Lewis A. Wenzell, San Diego, for Plaintiffs and Appellants.
Luce, Forward, Hamilton & Scripps, Charles A. Bird, Thomas A. May, San Diego, John W. Witt, City Attorney, Casey G. Gwinn, Deborah L. Berger, San Diego, Seltzer, Caplan, Wilkins & McMahon, Julie P. Dubick and Virginia C. Pearson, San Diego, for Defendants and Respondents.
HALLER, Associate Justice.
Plaintiffs Richard Rider, Pat Wright and Chris Winkler brought an action challenging the validity of a lease-back financing plan for expanding the San Diego Convention Center (Convention Center). (Code Civ. Proc., § 860 et seq.) The trial court determined the financing plan was valid and granted summary judgment in favor of the answering entities, The City of San Diego (San Diego), The San Diego Convention Center Expansion Financing Authority (Convention Authority or Authority), and The Coalition to Protect the Economy (Coalition).
Plaintiffs appeal, contending the court erred in failing to determine the city charter's voter approval requirement for revenue bond issuance applies to the Convention Authority, a joint powers agency created by San Diego and the San Diego Unified Port District (Port District). (GOV.CODE, § 6500 et seq.) We reject this contention and affirm.
All further statutory references are to the Government Code unless otherwise specified.
FACTS
The Port District owns the existing Convention Center. San Diego operates the Convention Center under a management agreement with the Port District.
The Port District is a governmental entity under the San Diego Unified Port District Act. (Harb. & Nav.Code, appen. 1.) The Port District was initially created by the state Legislature and then approved by voters in San Diego and in the neighboring cities of Chula Vista, Coronado, Imperial Beach and National City. (Id., §§ 5, 6, 12, 13.)
On June 21, 1994, San Diego and the Port District entered into a Memorandum of Understanding, whereby the parties agreed in principle to expand the Convention Center on existing and adjacent Port District property and to finance the expansion by a lease-back financing arrangement. To implement this understanding, San Diego and the Port District first entered into a joint exercise of powers agreement (JPA), forming a joint powers agency (the Convention Authority) (§ 6500 et seq.) The JPA provides the Convention Authority is a public entity separate from San Diego and the Port District and that its debts, liabilities and obligations are not debts, liabilities or obligations of San Diego or the Port District. Under the JPA, the Convention Authority is administered by a Board consisting of the San Diego Mayor, the City Manager, the Port Director, and a member of the Board of Port Commissioners.
The parties then negotiated several additional agreements, together creating a lease-back transaction.
First, the Port District agreed to lease to the Convention Authority the existing Convention Center and the site on which the expansion will be located.
Second, the parties prepared documents by which the Convention Authority would issue bonds in an amount not to exceed $205,000,000 to finance the improvements to the Convention Center. The documents provided the bonds would be paid by the Authority from revenues derived from "base rental payments" made by San Diego (see below) and "support payments" made by the Port District (see below).
Third, the parties negotiated a sublease agreement in which the Convention Authority would sublease the Convention Center and the expansion site to San Diego (the Facility Lease). Under this Facility Lease, San Diego would pay base rental payments equal to the debt service on the lease revenue bonds issued by the Convention Authority and additional rental payments equal to the Convention Authority's administrative expenses. The Facility Lease also contained a provision under which San Diego agreed "to take such action as may be necessary" to include base rental payments and additional rental payments in its budget for each fiscal year. San Diego, however, did not agree to encumber funds of any fiscal year to pay rent.
Fourth, San Diego and the Port District entered into a Support Agreement, in which the Port District agreed to pay to San Diego $4.5 million annually for 20 years to assist San Diego's rental obligation under the Facility Lease.
The City Council approved these agreements and related documents on March 5, 1996. The Port District approved the agreements on March 5, 1996. The Authority approved the agreements on May 1, 1996.
On May 3, 1996, plaintiffs filed an action challenging the validity of the lease-back revenue financing plan. (Code Civ.Proc., § 863.) Plaintiffs named San Diego and the Convention Authority as defendants. These defendants filed answers. The Coalition also appeared and answered. (Code Civ.Proc., § 862.)
Code of Civil Procedure section 863 permits "any interested person" to bring an action challenging the validity of certain public agency actions.
Defendants moved for summary judgment, contending the undisputed facts showed the lease-back financing plan was valid and constitutional. In opposition, plaintiffs argued the financing plan was improper because it did not require voter approval for issuing the revenue bonds. Plaintiffs maintained voter approval was required based on (1) California Constitution article XVI, section 18, which prohibits the city from "incur[ring] any indebtedness ... exceeding in any year the income and revenue provided for such year, without the assent of two-thirds of the qualified electors"; and (2) San Diego City Charter article VII, section 90(a), which expressly prohibits the city from issuing bonds without a two-thirds vote of the electorate. The court rejected these arguments and granted summary judgment, ruling the financing plan was constitutional and valid. (See Code Civ.Proc., § 870, subd. (a).)
Code of Civil Procedure section 870, subdivision (a) provides a judgment on a validation action is "forever binding and conclusive, as to all matters therein adjudicated or which at that time could have been adjudicated, against the agency and against all other persons, and the judgment shall permanently enjoin the institution by any person of any action or proceeding raising any issue as to which the judgment is binding and conclusive."
Plaintiffs appeal. DISCUSSION
I. California Constitution Article XVI, Section 18
After the trial court granted summary judgment upholding the validity of the Convention Center financing plan, this court upheld the constitutionality of a similar lease-back financing arrangement used to fund improvements to San Diego Jack Murphy Stadium. (City of San Diego v. Rider (1996) 47 Cal.App.4th 1473, 55 Cal.Rptr.2d 422 (City of San Diego ).) The majority determined the transaction did not create debt within the meaning of California Constitution article XVI, section 18 and therefore the California Constitution did not require a vote of the electorate. (Id. at pp. 1481-1496, 55 Cal.Rptr.2d 422.)
Plaintiffs acknowledge the "prohibited debt" constitutional issue which they raised in opposition to summary judgment is identical to that resolved in City of San Diego. Accordingly, they concede City of San Diego is controlling and that, under City of San Diego, the Convention Center financing plan does not violate California Constitution article XVI, section 18.
In their opening brief, plaintiffs preserved the constitutional issue by repeating the arguments made in the petition for review to the California Supreme Court filed by the plaintiffs in City of San Diego. The California Supreme Court later denied the plaintiffs' petition for review in City of San Diego. In their reply brief, plaintiffs did not reassert their constitutional challenge to the Convention Center financing plan.
On our own independent examination of the Facility Lease, we agree the financing plan does not violate California Constitution article XVI, section 18. The Facility Lease makes clear that each of San Diego's rental payments is for consideration furnished that year and the lease provisions do not create present debt for future payments owed. Therefore, the Facility Lease does not create California Constitution article XVI, section 18 prohibited debt. (See City of San Diego v. Rider, supra, 47 Cal.App.4th 1473, 55 Cal.Rptr.2d 422.)
II. San Diego City Charter Article VII, Section 90(a)
For ease of reference, we will refer to this city charter section as City Charter section 90(a).
Plaintiffs raise an alternative argument not addressed in City of San Diego. They argue the lease financing arrangement violates City Charter section 90(a), providing San Diego's issuance of bonds "require[s] a vote of two-thirds of the electors voting on each proposition at a regular or special election...." While plaintiffs recognize the Convention Authority is the entity issuing the bonds and concede that the Convention Authority is an entity separate from San Diego, they argue City Charter section 90(a) is equally binding on the Authority based on (1) provisions of the Joint Powers Act (§ 6500 et seq.) and (2) the language of the JPA. We examine these arguments below.
In City of San Diego, the plaintiffs had expressly abandoned the argument that the stadium financing violated San Diego's city charter and therefore we did not reach the issue. (City of San Diego v. Rider, supra, 47 Cal.App.4th at p. 1481, fn. 7, 55 Cal.Rptr.2d 422.)
A. Joint Powers Act
The Joint Powers Act (Act) allows two or more public agencies to enter into an agreement to jointly exercise powers. (§ 6500 et seq.; see The City of Oakland v. Williams (1940) 15 Cal.2d 542, 547-554, 103 P.2d 168; City of Los Angeles v. Superior Court (1996) 50 Cal.App.4th 598, 606, 57 Cal.Rptr.2d 878; City of South El Monte v. Southern Cal. Joint Powers Ins. Authority (1995) 38 Cal.App.4th 1629, 1636, 45 Cal.Rptr.2d 729.) Section 6503.5 provides a joint powers agreement may create a separate entity to exercise these powers.
Article 1 of the Act generally sets forth the scope of the powers of a joint powers agency. Section 6502 states "two or more public agencies by agreement may jointly exercise any power common to the contracting parties...." Section 6508 states the joint powers agency "shall possess the common power specified in the agreement and may exercise it in the manner or according to the method These statutes generally limit the powers of a joint agency to the powers of a creating public entity. (§ 6509; see City of Oakland v. Williams, supra, 15 Cal.2d at p. 549, 103 P.2d 168.) As recognized by our Supreme Court, "cities may contract in effect to delegate ... a power or the performance of an act in behalf of all of them, and which each independently could have exercised or performed." (City of Oakland v. Williams, supra, 15 Cal.2d at p. 549, 103 P.2d 168.) These provisions "grant[ ] no new powers but merely set[ ] up a new procedure for the exercise of existing powers." (Ibid.; accord City of Los Angeles v. Superior Court, supra, 50 Cal.App.4th at p. 607, 57 Cal.Rptr.2d 878.)
Contrary to San Diego's assertions, San Diego Service Authority for Freeway Emergencies v. Superior Court (1988) 198 Cal.App.3d 1466, 1471, 244 Cal.Rptr. 440 (SAFE ), did not interpret these statutory provisions in a different manner. SAFE is inapposite because in that case the public entity was not a joint agency created under the Joint Powers Act.
Relying on City of Oakland and on section 6509, plaintiffs argue the Convention Authority cannot possess power greater than San Diego, and therefore it has no power to issue revenue bonds without voter approval. We disagree. City of Oakland did not concern the power of a joint agency to issue bonds and interpreted only those code sections that are now set forth in Article 1 of the Act. The Legislature has since added Articles 2 and 4 dealing specifically with the scope of a joint agency's power to issue revenue bonds. The added code sections provide a joint agency with powers beyond those set forth in Article 1.
In 1947, the Legislature first recognized a joint agency's power to issue revenue bonds by enacting certain statutes now contained in Article 2. One of those code sections, as amended, provides "[i]n addition to other powers, any agency ... provided for by a joint powers agreement pursuant to Article 1 ... may issue revenue bonds pursuant to this article to pay the cost and expenses of acquiring or constructing a project ... [including public buildings] ...." (§ 6546, italics added.) Other Article 2 provisions describe the procedures for a joint agency's issuance of bonds. (See §§ 6547, 6547.5, 6550, 6551.) These procedures do not require voter approval. Instead, the provisions provide that in issuing bonds a joint agency must be viewed as separate from the creating public entities and specifically state the debts of the joint agency do not constitute "a debt, liability or obligation" of the creating public entities. (See § 6551.)
Section 6551 provides: "Revenue bonds issued under this article and contracts or obligations entered into to carry out the purposes for which bonds are issued, payable in whole or in part from the proceeds of said bonds, shall not constitute a debt, liability or obligation of any of the public agencies who are parties to the agreement creating such entity."
In 1985, the Legislature added Article 4 to the Act, known as the Marks-Roos Local Bond Pooling Act of 1985. Article 4 clarifies the express exception to the general scope of a joint agency's powers for matters involving the issuance of revenue bonds.
Section 6587 states "this article [Article 4] shall be deemed to provide a complete and supplemental method for exercising the powers authorized by this article, and shall be deemed as being supplemental to the powers conferred by other applicable laws. The issuance of bonds, financing, or refinancing under this article need not comply with the requirements of any other state laws applicable to the issuance of bonds, including, but not limited to, other articles of this chapter." (Italics added.)
Article 4, section 6588 provides in relevant part:
"In addition to other powers specified in an agreement pursuant to Article 1 ... and Article 2 ..., the [joint] authority may do any or all of the following:
"... "(c) Issue bonds, including, at the option of the authority, bonds bearing interest, to pay the cost of any public capital improvement, working capital, or liability or other insurance program.
"...
"(n) Lease the public capital improvements being financed to a local agency, upon terms and conditions that the authority deems proper; charge and collect rents therefor; terminate any lease upon the failure of the lessee to comply with any of the obligations of the lease; include in any lease provisions that the lessee shall have options to renew the lease for a period or periods, and at rents as determined by the authority; purchase or sell by an installment agreement or otherwise any or all of the public capital improvements; or, upon payment of all the indebtedness incurred by the authority for the financing or refinancing of the public capital improvements, the authority may convey any or all of the project to the lessee or lessees.
"(o) Charge and apportion to local agencies which benefit from its services the administrative costs and expenses incurred in the exercise of the powers authorized by this article."
The Legislature enacted Article 4 to "make it easier for a [joint powers agency] to issue revenue bonds and incur other forms of indebtedness." (Conf.Com.Rep. (1985-1986 Reg. Sess.), No. 1, Sen. Bill No. 17, p. 5.) While the Legislature was primarily concerned with providing a mechanism for local agencies to pool their resources to issue bonds, the Legislature did not limit the Article 4 provisions to such factual scenario. Rather, the Legislature broadly declared it was enacting Article 4 because of the "critical need within the state to expand, upgrade, and otherwise improve the public capital facilities of local government" and "to assist in the reduction of local borrowing costs, help accelerate the construction, repair, and maintenance of public capital improvements, and promote greater use of existing and new financial instruments and mechanisms ...." (§ 6584.5, subd. (a).)
Given its statutory language, we conclude the Act permits a joint agency to issue revenue bonds without voter approval and does not limit the joint agency's bond issuing powers to the powers of the creating agencies. Articles 2 and 4 expressly provide a joint agency with the power to issue bonds and do not contain a voter approval requirement. (§§ 6546, 6588, subd. (c).) Further, these articles implicitly recognize the propriety of a lease-back transaction such as the one before us. (§§ 6588, subds. (c) & (n), 6549.)
Section 6549 provides that the revenues from which the bonds are payable may include "revenue, including existing funds, of the entity derived from any other building or buildings, coliseum, stadium, facilities or other sources and any or all extensions or renewals thereof."
While the code sections in Article 1 contain provisions limiting a joint agency's powers to the powers of the creating public entities (see §§ 6502, 6508, 6509), Article 4, section 6587 states that when a joint agency issues bonds it "need not comply ... with the requirements of" Article 1. (§ 6587.) Instead, the Legislature provided a joint agency a "complete and supplemental method for exercising [its] [bond] powers...." (Ibid.) This method does not limit the scope of a joint agency's authority to the powers of the creating agencies or require voter approval.
At oral argument, plaintiffs' counsel urged us to find Article 1, section 6509 controlling and to determine Article 4 provisions are inapplicable because repeals by implication are disfavored. However, we are not holding the Legislature's enactment of Article 4 "repealed " the Article 1 provisions. Rather, we are recognizing that the Legislature clarified and amended the Act to provide that the Article 1 provisions, including section 6509, do not apply to define a joint agency's bond issuing powers to the extent they conflict with Article 4 provisions. Such amendment was not implied--it was expressed in plain and simple language. (See §§ 6587, 6588.)
Moreover, if we were to accept plaintiffs' position that the Article 4 provisions should be ignored here, we would render those provisions meaningless. "[S]tatutes should be interpreted in such a way as to make them consistent ..., rather than obviate one another." (Nickelsberg v. Workers' Comp. Appeals Plaintiffs' reliance on City of Inglewood-L.A. County Civic Center Auth. v. Superior Court (1972) 7 Cal.3d 861, 103 Cal.Rptr. 689, 500 P.2d 601 and dicta in SAFE, supra, 198 Cal.App.3d at p. 1471, footnote 3, 244 Cal.Rptr. 440, is misplaced. Neither case concerned a joint agency's bond issuing powers and therefore these courts did not consider the issues presented here. Moreover, in City of Inglewood, the city charter and the joint powers agreement specifically stated the joint powers agency was required to follow competitive bids procedures. (City of Inglewood-L.A. County Civic Center Auth. v. Superior Court, supra, 7 Cal.3d at pp. 864-865, fn. 2, 103 Cal.Rptr. 689, 500 P.2d 601.) Thus, the court found the joint agency erred when it awarded a contract outside the competitive bid process.
Plaintiffs alternatively argue that to the extent the state Legislature has permitted the Convention Authority to issue bonds without a vote, such laws violate California Constitution article XI, section 5, subdivision (a), providing that with "respect to municipal affairs" a city charter "shall supersede all laws inconsistent therewith." This constitutional provision, known as the "home rule" principle, recognizes "the authority of the people to create and operate their own local government and define the powers of that government, within the limits set out by the Constitution." (Dibb v. County of San Diego (1994) 8 Cal.4th 1200, 1206, 36 Cal.Rptr.2d 55, 884 P.2d 1003.)
California Constitution article XI, section 5, subdivision (a) states: "It shall be competent in any city charter to provide that the city governed thereunder may make and enforce all ordinances and regulations in respect to municipal affairs, subject only to restrictions and limitations provided in their several charters and in respect to other matters they shall be subject to general laws. City charters adopted pursuant to this Constitution shall supersede any existing charter, and with respect to municipal affairs shall supersede all laws inconsistent therewith."
"[A] court asked to resolve a putative conflict between a state statute and a charter city measure initially must satisfy itself that the case presents an actual conflict between the two"--that is if the city complies with one, it will necessarily violate the other. (California Fed. Savings & Loan Assn. v. City of Los Angeles (1991) 54 Cal.3d 1, 16, 283 Cal.Rptr. 569, 812 P.2d 916; accord Johnson v. Bradley (1992) 4 Cal.4th 389, 399, 14 Cal.Rptr.2d 470, 841 P.2d 990; see also College Area Renters & Landlord Assn. v. City of San Diego (1996) 43 Cal.App.4th 677, 689, 50 Cal.Rptr.2d 515 [recognizing the "identification of an actual conflict between the state and local law" is a "threshold question"].)
There is no actual conflict here. The City Charter states San Diego may not issue bonds without voter approval. The Legislature has enacted laws permitting the creation of joint powers agencies and giving a joint powers agency the power to issue bonds without voter approval. Plaintiffs concede San Diego and the Convention Authority are separate entities. This concession is supported by the record showing the Convention Authority is governed not merely by city officials, but by a joint board of city and Port District personnel. The City Charter does not contain any provision prohibiting San Diego from creating a joint powers agency with the power to issue bonds without voter approval. Thus, the Act does not violate the home rule provision because it does not grant the Convention Authority a power forbidden by the Charter. Because the Act pertains to the activities of the joint agency and not San Diego, the Act does not create a conflict. B. The JPA
The joint powers agreement generally defines the powers and limitations of the particular joint powers agency. (§ 6508; City of South El Monte v. Southern Cal. Joint Powers Ins. Authority, supra, 38 Cal.App.4th at p. 1636, 45 Cal.Rptr.2d 729.) Section 5 of the JPA here sets forth the scope of the Convention Authority's powers:
"The Authority shall have the power common to the City and the District to finance, acquire, construct, maintain, operate, improve and lease the Center and the Expansion Project for holding conventions, exhibitions, spectacles and other public meetings. The Authority is hereby authorized to do all acts necessary for the exercise of said common power for said purpose, including, but not limited, to any or all of the following: to make and enter into contracts, to employ agents and employees, to acquire, construct, manage, maintain and operate any buildings, works or improvements, to acquire by condemnation or contract, hold or dispose of property, to lease the Center and the Expansion Project or any part thereof, to incur debts, liabilities or obligations which do not constitute a debt, liability or obligation of the City or the District, to sue and [be] sued in its own name. Such power shall be exercised in the manner provided in the Act, and, except as expressly set forth herein, subject only to such restrictions upon the manner of exercising such powers as are imposed upon the City in the exercise of similar powers.
"The Authority may also issue revenue bonds pursuant to the [Joint Powers] Act [§ 6500 et seq.] and any other applicable laws of the State of California and issue refunding revenue bonds pursuant to any applicable laws of the State of California, including, but not limited to, Article 10, Chapter 3, Division 2, Title 5 of the Government Code of the State of California (commencing with Section 53570) and Article 11, Chapter 3, Division 2, Title 5 of the Government Code of the State of California (commencing with Section 53580), to finance and refinance the Expansion Project or any part thereof. The Authority may also purchase, with the amounts received or to be received by it pursuant to a Bond Purchase Agreement, bonds issued by the City, at public or negotiated sale, for the purposes set forth in Section 2 hereof, all in accordance with the Act. Any such bonds so purchased may be held by the Authority or sold to public or private purchasers at public or negotiated sale, in whole or in part. The Authority shall set any other terms and conditions on any purchase or sale of bonds contemplated herein as it deems to be necessary, appropriate and in the public interest, in furtherance of the Act.
"Notwithstanding the foregoing, the Authority shall have any additional powers conferred under the Act or under applicable law, insofar as such additional powers may be necessary to accomplish the purposes set forth in Section 2 hereof." (Italics added.)
Directing us to the first italicized phrase "subject only to such restrictions upon the manner of exercising such powers as are imposed upon the City," plaintiffs argue the JPA "specifically limits the powers of the [Convention] Authority by imposing upon it the same restrictions as are imposed upon the City...."
The second paragraph of Section 5, however, specifically provides the Authority with the power to issue bonds and does not contain a voter approval requirement. Contrary to plaintiffs' arguments, this paragraph does not merely set forth procedures for implementing the powers described in the first paragraph. Section 5's second paragraph begins "[t]he Authority may also issue revenue bonds pursuant to the [Joint Powers] Act and any other applicable laws of the State of California." (Italics added.) As we have concluded, the Act permits a joint powers agency to issue bonds without voter approval. Read according to its plain meaning, the second paragraph of Section 5 affirmatively grants the Convention Authority powers in addition to those powers "common to the City and the [Port] District," including the power to issue bonds without voter approval.
JPA Section 5's concluding paragraph supports this conclusion. This paragraph states
DISPOSITION
Judgment affirmed. Sanctions denied. Plaintiffs to bear costs on appeal.
San Diego brought a motion for sanctions on appeal, which plaintiff opposed. Plaintiffs then sought sanctions against San Diego, asserting San Diego's sanctions motion was frivolous. San Diego later withdrew its motion. We deny all requests for sanctions.
McDONALD, J., concurs.
BENKE, Acting Presiding Justice, Concurring and Dissenting.
I fully concur in part II of the majority opinion. Government Code section 6588 permits a joint powers authority to incur indebtedness that might otherwise be prohibited if incurred by one of the authority's constituent agencies. In light of the fact the San Diego City Charter does not prevent the city from participating in a joint powers authority which exercises the power provided by Government Code section 6588, there is no conflict between the statute and the city charter. Thus in this case, Government Code section 6588 does not give rise to any violation of the home rule principles set forth in article XI, section 5(a) of the Constitution.
I must respectfully dissent however, from part I of the majority opinion. The facility lease in this case is in all material respects indistinguishable from the lease discussed in City of San Diego v. Rider (1996) 47 Cal.App.4th 1473, 55 Cal.Rptr.2d 422 (City of San Diego ). For the reasons set forth more fully in my separate opinion in City of San Diego, I believe the landlord's remedies on default create a debt prohibited by article XVI, section 18 of the Constitution. Accordingly, as I would have in City of San Diego, I would find that the lease provision permitting the landlord to retain excess rents recovered during a reletting and the provision making the city liable for any alterations or repairs the landlord made during a reletting are not enforceable. I would modify the judgment to conform with such finding and as modified affirm the trial court's judgment.