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Eighty-One Cases and Counting: An Update on Redevelopment Dissolution Litigation

March 29, 2013
Since Gov. Jerry Brown signed ABx1 26 on June 28, 2011, 81 lawsuits have been filed in Sacramento County Superior Court related to this statute and the later-enacted statute, AB 1484 (2012).
A summary of these lawsuits can be found on the League's website, which the League periodically updates as new lawsuits are filed. The majority of lawsuits concern disputes involving the Recognized Obligation Payment Schedule (ROPS).
The disputes tend to fall into four categories:
  1. Affordable housing obligations;
  2. Challenges to Department of Finance (DOF) decisions regarding the low- and moderate-income housing fund due diligence review (DDR);
  3. Constitutional challenges to the “claw-back” provisions, including the League’s lawsuit discussed further below; and
  4. Challenges to ABx1 26, the State Controller’s audit, and other miscellaneous challenges. 
At this early stage, it is difficult ascertain how the courts are viewing the arguments being presented by cities and successor agencies, however, the statistics on these lawsuits break down as follows:
  • Of the 81 lawsuits filed, 56 are currently active as of March 25.
  • Thirteen lawsuits have also been filed by private parties.
  • Eighteen of the 25 lawsuits that are no longer active have been settled. Of the 18 settled lawsuits, 15 of those related to the July 2012 true-up payment demands.
  • Three lawsuits have resulted in wins for the petitioners, and four have been dismissed by the courts. 
DOF’s Process 
The next significant deadline is DOF’s decisions on the “Other Funds DDR.”  This DDR involves a review by a licensed accountant of successor agency funds other than the Low- and Moderate-Income Housing Fund. The completed DDR’s will be submitted to DOF. DOF may adjust, at its sole discretion, the amount determined to be unobligated, and therefore, available for distribution to cities, counties, schools, and special districts. While some successor agencies may be further ahead in this process, DOF has until April 1 to make its determination. 
Successor agencies have five business days after receiving DOF’s determination to request a meet-and-confer with DOF. DOF has 30 days after receiving a meet-and-confer request to make a final determination. This means DOF will likely be rendering determinations in early May. Given the experience with DOF’s final determinations on Low- and Moderate-Income Housing Fund DDRs, it can be expected that some successor agencies will file lawsuits to resolve disputes with DOF over their final determinations on the Other Funds DDRs.
State Controller Audits
As the State Controller’s Office continues its audits of property transfers occurring between Jan. 1, 2011 and June 28, 2011, additional lawsuits are expected to challenge the Controller’s audit findings.
DOF Effort to Enforce Clawbacks
Recently, DOF sent 30-day notice letters to 42 cities informing them of their intent to impose the clawback provisions if the cities did not transfer to the auditor-controller the amounts determined to be owing by the Low- and Moderate-Income Housing Fund DDR, as adjusted by DOF. In a presentation to the Board of Equalization, DOF indicated that it intended to impose the clawback provisions through the diversion of sales and use tax. Based upon representations from the Attorney General’s Office, the clawbacks will not be attempted to be imposed until May at the earliest. 
Status and Timing of League Litigation
On Sept. 24, 2012, the League filed a lawsuit, League of California Cities v. Matosantos, in Sacramento County Superior Court bringing various constitutional and other challenges to provisions of AB 1484. In particular, the League brought constitutional challenges to the so-called “clawback” provisions as a violation of Proposition 1A and Proposition 22.
The clawback provisions in AB 1484 outline a mechanism for DOF or the auditor-controller to divert sales and use tax or property tax from a city where the successor agency has not transferred to the auditor-controller the unobligated amounts identified in the DDR as adjusted by DOF. The League asserts that the clawback provisions violate Prop. 1A and Prop. 22 in that:
  • The clawback reallocates, uses, and changes the method for distributing local sales and use tax revenue. The League asserts that the only permissible use for local sales and use taxes is for purposes determined by the cities and counties that imposed those taxes.
  • The clawback would reduce the city pro rata share of property taxes and reallocate the taxes between cities, counties, and special districts without a two-thirds vote of the Legislature. AB 1484 was not adopted with a two-thirds vote. 
In addition to the Prop. 1A and Prop. 22 arguments, the League’s lawsuit also contends that:
  • The clawback would unconstitutionally attribute the debt of one public entity (the successor agency) to another public entity (the city) and divert the city’s sales and use tax or property tax to the other taxing entities to satisfy this debt;
  • AB 1484 is an unconstitutional delegation of legislative authority to DOF because it does not contain adequate direction or standards for implementing the Legislature’s legislative policies; and
  • DOF has violated the Administrative Procedures Act by failing to engage in the rulemaking procedures and standards required by the act in implementing AB 1484. 
Next Steps
Oral argument for League of California Cities v. Matosantos is set for April 19 and a ruling should be issued within 90 days. The League will keep cities updated on developments related to this litigation.

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