More Than 40 Redevelopment Lawsuits Filed Against DOF

 

 

At least forty-two lawsuits have been filed in the past year regarding disputes arising from the end of redevelopment, according to a study by the League of California Cities. League officials there think even more lawsuits have been filed in recent weeks. 

The League's analysis found that lawsuits fell into four main categories: true-up payments, ROPS (recognized obligation payment schedules) , constitutional challenges, and housing-related disputes. Thirty-six of the cases were filed by cities and local agencies. 

H.D Palmer, a spokesman for the Department of Finance, says the many of the cases are "narrowly focused targeted items" involving issues like ROPS.  Palmer says the department's own count from early January is that there have been 17 lawsuits involving enforceable obligations. DOF counts eight lawsuits by nonprofit or private petitioners, he said. The cases have been filed in Sacramento County Superior Court. 

In contrast, the League’s figures show that six cases were filed by private entities. The League’s report also noted that 15 of the 42 cases were already resolved, with mixed results. 

"We assumed there would be litigation relating to the dissolution of redevelopment," Palmer said, adding "our preference is not to go the litigation route."

Chris McKenzie, executive director of the League of Cities, said the savings that were supposed to come from the end of redevelopment are creating the conflicts with the cities and the DOF.  "The Department of Finance is under pressure from the governor's office to produce as much savings as possible," he said, claiming that the administration "significantly overestimated how much they could get out of this program." 

Jennifer Farrell, an attorney with Rutan & Tucker, a Costa Mesa law firm which has filed many cases against the Department of Finance, said, "it needs to go to litigation to get their attention."

But with another round of ROPS due to the state Department of Finance on March 1 (with results of that reviews released by April 15), can another round of lawsuits be far behind? 

Cities may find more resolve in filing lawsuits based on recent victories against the Department of Finance. 

"They've settled some of these cases. They've admitted they've been wrong," said McKenzie.

Some of the legal matters are resolved quickly without heading to full-bore litigation. For example, in a recent matter involving the city of Duarte, the city sued the Department of Finance on Dec. 18, and a portion of the matter, involving $1.2 million in low- and moderate-income housing funds, was resolved several days later after the Department of Finance dropped its objections. Duarte continues to press on with a larger dispute over $8.3 million in housing funds, also filed on Dec. 18.

Among cases that settled, the city of El Cerrito in Contra Costa County settled a case in December that allowed it to skip a $1.7 million true up payment. 

But as cases settle, more cases have been filed. The city of Murrieta in Riverside County sued in December over a DOF decision to invalidate two payments--one a $3 million payment from the city to the redevelopment agency and the second a $1.2 million payment to developers on an affordable housing project called Monte Vista. 

San Bernardino County announced on January 9 that it would sue over two funding disputes. The first is approximately $10 million for reconstruction of infrastructure in the Cedar Glen area near Lake Arrowhead. Redevelopment funds were used to rebuild roads and water systems after a huge fire there in 2003. The second is for redevelopment of the industrial area of San Sevaine near Fontana. 

And in early February, Rancho Cordova – east of Sacramento – sued DOF to recup $6 million in funds the city loaned to the former RDA. 

Palmer of the Department of Finance pointed to the San Bernardino County's lawsuit as an example of each entity misunderstanding what the other is doing. Palmer said the San Sevaine project was not denied, and the Cedar Glen project could still be eligible for funding after a more thorough review.  

Some of the other cities listed on the League of Cities litigation report include National City, Oceanside, Palmdale, Glendale, Walnut, Pittsburg, San Diego, Fresno, San Jose, Morgan Hill, Apple Valley and Brea.

In addition, the League itself filed suit in September challenging the constitutionality of parts of AB 1484. A separate suit by a coalition of cities, including the city of Bellflower, is also challenging some of the same issues, said Patrick Whitnell, general counsel for the California League of Cities. The main issue is over provisions in the law that allow the Department of Finance to withhold sales tax and property tax revenues from local governments that don't meet its payment requests related to redevelopment. A hearing on the League's lawsuit is set for April 19. 

In November, the city of Petaluma in Sonoma County sued the Department of Finance for denying its use of $22 million in transportation projects. The first was a denial of $15 million for two Highway 101 interchange projects, and the second project was $7.5 million earmarked for a cross-town connector project. 

Both McKenzie and Department of Finance agree that meet-and-confer provisions  passed in 2012 as part of AB 1484 have helped avoid even more lawsuits.  The law provides an appeal process for cities when the department rules against it on such matters as ROPS.

Several suits have been filed by housing developers as well. 

Rutan & Tucker succeeded in mid-January in a suit on affordable housing in Oxnard, where its private developer client CRFL Family Apartments succeeded in a ruling on a 120- unit development near Highway 101.  Sacramento County Superior Court Judge Timothy Frawley ruled that the state must recognize a $14.2 million contract for an affordable housing project. The city had pledged that money for a $44 million project in an agreement in 2010 with Oxnard Family Apartments. The project was later transferred to CRFL Family Apartments. 

One area of contention between the cities and the Department of Finance is that some of the ROPS were questioned in the third round of review last fall, after escaping notice in early rounds of review by the state. But Palmer said his department had a huge volume of ROPs to review in early 2012 after the Supreme Court's ruling allowing the state government to dissolve redevelopment agencies. He said the department can continue to review ROPs that escaped scrutiny in earlier rounds. 

Contacts: 

H.D. Palmer, Department of Finance (916)323-0648

Chris McKenzie, California League of Cities (916)658-8200

Patrick Whitnell, general counsel, California League of Cities (916)658-8281  

Jennifer Farrell, Rutan & Tucker (714) 641-5100

The California League of Cities report is updated every few weeks.