A joint powers authority created to finance the San Diego Convention Center expansion can issue revenue bonds without voter approval, the California Supreme Court has ruled.
The $205 million bond issue was challenged in court by Richard Rider, a taxpayer activist who has frequently filed lawsuits against public agencies in San Diego claiming that two-thirds voter approval is required for financing public projects. Most famously, Rider won a state Supreme Court ruling that a sales-tax increase to finance new jails in the county required two-thirds voter approval. (Rider v. County of San Diego, 1 Cal.4th 1 (1991)).
In the case of the convention center expansion, however, Rider lost at the appellate court level.
To finance the convention center expansion, the San Diego Unified Port District and the City of San Diego created a joint-powers authority called the Convention Center Expansion Financing Authority. Then the Port District agreed to lease the existing convention center and the site of the proposed expansion to the Financing Authority for $2 per year. The Financing Authority then agreed to issue $205 million in revenue bonds to pay for the expansion of the convention center.
The next step was for the Financing Authority to sublease the expanded convention center to the city, which then paid rent equal to the bond payments. In addition, the Port District agreed to pay the city $4.5 million a year to help make those "rent" payments. In return, the Financing Authority agreed to return ownership of the expanded convention center to the Port District when the bonds were paid off.
In his lawsuit, Rider argued that the Financing Authority was not an independent entity but merely a "shell" established to avoid the two-thirds vote requirement. (Rider made a similar argument in the sales-tax case, which challenged a jail financing entity.) But the appellate court concluded that creating such a shell, even for the explicit purpose of avoiding the two-thirds vote requirement, was not illegal.
"The short answer to plaintiffs' argument," wrote Justice Ming Chin for a unanimous court, "is that the Constitution and the City's charter permit the City to avoid the two-thirds vote requirement by creating a joint-powers agency to finance public works projects. Therefore, however we might characterize the financing plan at issue here, we cannot characterize it as unlawful." In support of this conclusion, the appellate court noted that the taxpayers of the city are not ultimately responsible for the bond payments; rather, only the Financing Authority can be called upon to repay the debt.
Rider also argued that the state joint-powers law (Government Code §6500 et. seq.)
requires a two-thirds vote because the Financing Authority must comply with the same debt limitation provisions that apply to the city. But the appellate court rejected this argument. While acknowledging that a joint-powers agency can only have the same authority that all of its member agencies have, the court also noted that, according to the law, a JPA has debt-issuance power "in addition to the powers common to the several parties" that make up its membership. "When the Financing Authority issues bonds, it does so independently of any common powers," the court concluded.
Finally, the court concluded that the Financing Authority's issuance of debt without a vote was not a violation of the California constitution's home rule doctrine. But the court concluded that this argument rested on the assumption that there was no legal difference between the city and the Financing Authority. "We agree that the City and the Port District are the motivating forces behind the transaction here, but we do not agree that in substance the city is issuing the bonds."
In conclusion, Chin said: "We are not naive about the character of this transaction....[T]he City and the Port District have created a financing mechanism that matches as closely as possible ... a city-financed project, but avoids the two-thirds vote requirement. Nevertheless, the law permits what the City and the Port District have done."
Rider v. City of San Diego, No. S058956, 98 Daily Journal D.A.R. 8535 (filed August 6, 1998).
For Rider: Carl Fabian, (619) 692-0440.
For City of San Diego: Leslie J. Girard, Deputy City Attorney, (619) 236-7726.
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