A doughnut shop owner who remained in his place of business for six years after the city acquired the property for redevelopment still qualified for relocation benefits as a "displaced person," the Second District Court of Appeal has ruled. The fact that the business owner "did not vacate the premises for six years after the agency's initial acquisition of the premises is irrelevant. The critical factor is not when the property was vacated but why it was vacated," the Second District ruled in an opinion that the state Supreme Court ordered published. In February 1993, Veisna Kong signed a sublease with Frank Bartha, the primary tenant of property on Carson Street in Hawaiian Gardens. In July of that year, the Hawaiian Gardens Redevelopment Agency notified Kong that the city was considering acquiring the property and that he was eligible for relocation advisory assistance and possibly for relocation benefits. The city did purchase the property in August 1993. The following year, the city sold the property to Dr. Irving Moskowitz for development of a casino. Moskowitz, however, was not ready to pursue his project, so he and Bartha signed a new lease in June 1994. Kong remained as a subtenant and the city advised him that he would be eligible for relocation benefits when the contract extension expired. In April 1999, Moskowitz was ready to pursue his project. He gave Bartha six months notice that he was terminating the lease. Kong protested that the notice was improper, argued with Moskowitz and eventually as evicted from the premises in December 1999. In July 2000, Kong filed a claim with the city for $72,000 in relocation benefits, and, in September 2000, he filed a lawsuit demanding payment. (He also filed a separate lawsuit in federal court alleging inverse condemnation.) Los Angeles County Superior Court Judge Dzintra Janavs ruled for the city. Judge Janavs found that Kong had failed to prove that he vacated the property as a direct result of the city's acquisition six years earlier, so the city had no duty to pay relocation benefits. Kong appealed, arguing that he was a "displaced person" under the California Relocation Assistance Law (Government Code § 7260 et seq.). A unanimous three-judge panel of the Second District, Division One, agreed with Kong. The city argued that Kong did not qualify as a displaced person because he did not vacate the premises until after the expiration date of his original sublease with the Barthas. But the court ruled that the original sublease was terminated by the city's acquisition of the property. "Petitioner was able to continue operating his donut shop after Dr. Moskowitz acquired the property from the agency only because Frank Bartha entered into a new lease agreement with Dr. Moskowitz," Presiding Justice Vaino Spencer wrote for the court. "Thus, the only reasonable construction of the evidence is that the original master lease between the Barthas and the Veady Family Trust was terminated as a result of the agency's taking of the property and replaced with the Bartha/Moskowitz lease. … That petitioner ultimately was not required to vacate the premises until after what would have been the last day of his original sublease with the Barthas (December 31, 1998) does not compel a contrary conclusion. Had Dr. Moskowitz needed the premises earlier, he could have terminated his lease with Frank Bartha well before that date." The "crucial factor," Spencer wrote, "is the ‘causal connection between the acquisition by the public entity and the displacement.'" Spencer cited Peter Kiewit Sons' Co. v. Richmond Redevelopment Agency, (1986) 178 Cal.App.3d 435. "The bottom line is that petitioner was required to move and thus was displaced for a public project," Spencer wrote. This makes him eligible for relocation benefits as a displaced person. The appellate court sent the matter back to the trial court to determine the amount of relocation benefits to which Kong is entitled. The Case: Kong v. City of Hawaiian Gardens Redevelopment Agency, No. B149322, 02 C.D.O.S. 9416. Filed June 13, 2002. Ordered published September 11, 2002. The Lawyers: For Kong: Anthony Parrille, (626) 294-0010. For Hawaiian Gardens: M. Lois Bobak, Woodruff, Spradlin & Smart, (714) 558-7000.

An appellate court has overturned a jury's verdict on the fair market value of property that the City of Ripon took through eminent domain. The appellate panel ruled that the trial judge allowed the jury to hear inadmissible evidence about how the city allegedly blocked development of the property to diminish its value. "We conclude it is reasonably probable the City would have obtained a more favorable result in the absence of the challenged evidence, and the erroneous admission of the evidence constitutes a miscarriage of justice that requires reversal of the judgment," Justice Richard Sims wrote for the unanimous three judge panel of the Third District. In November 1998, the city filed an eminent domain complain to acquire 0.6 acres along Highway 99 owned by Marshall and Billie Sweetin, who lived on the property and operated an auto repair business there. The city said it needed the property for construction of a new interchange at Jack Tone Road. The Sweetins answered the eminent domain lawsuit by alleging that the city's "unreasonable and oppressive conduct and activities" had impaired their property value. In June 2000, the city sought to bifurcate the questions of precondemnation damages and fair market value. Precondemnation damages are commonly known as Klopping damages, in reference to the state Supreme Court decision in Klopping v. City of Whittier, (1972) 8 Cal.3d 39. In Klopping, the court ruled that a property owner must receive the chance to argue that a public agency that is taking property via eminent domain has acted improperly or has unreasonably delayed, causing a decrease of property value. At a hearing in August 2000, however, the Sweetins stipulated that they were not seeking Klopping damages. Instead, they argued that the city's activity was relevant to the question of their property's valuation, and that they should be allowed to show a jury the effect of that activity on the "highest and best use" of the property. The city objected, but San Joaquin County Superior Court Judge K. Peter Saiers agreed with the Sweetins. During the trial, the landowners argued that the value of their property should be based on highway commercial uses. A defense expert presented testimony that the city had known since 1988 that it would take the property for the interchange. If it were not for the interchange project, the expert testified, the city would have extended sewer, water and storm drain services to the Sweetins' property during a 1994 infrastructure project, allowing them to pursue development of a fast-food restaurant. The city argued that the property value should be based on light industrial uses. The property was zoned light industrial and nearby uses on that side of the freeway were light industrial. The city set a value of $190,000. The Sweetins' expert said the property was worth $365,000. The jury accepted the Sweetins' value, and Judge Saiers also awarded them $56,000 in attorneys' and other legal costs. The city appealed, arguing that the verdict was based on inadmissible evidence. The appellate panel agreed. The Sweetins' claim was "a classic Klopping claim," Sims wrote. "The appropriate procedure is to bifurcate the trial of the action so that the question of the liability of the public entity is first adjudicated by the court without a jury." " he evidence of the City's alleged unreasonable precondemnation conduct was not relevant to show the ‘highest and best use' of the property as that term is properly understood," Sims continued. Rather, highest and best use reflects the use to which the property would reasonably be put in the near future. " vidence of the City's past alleged unreasonable conduct did not tend to show that future use of the property for ‘highway commercial' purposes was reasonably likely in the reasonably near future," Sims wrote. "Admission of the evidence was in error. The erroneous admission of this evidence allowed the jury to adjudicate a question that should have been adjudicated by the court …" However, because the Sweetins stipulated they were not seeking Klopping damages, there was nothing for the court to adjudicate. Allowing this testimony into the jury trial "doubtless affected the jury's computation of the fair market value," the appellate court held. The Case: City of Ripon v. Sweetin, Nos. C036592, C037212, 02 C.D.O.S. 6855, 2002 DJDAR 8585. Filed July 30, 2002. The Lawyers: For Ripon: Thomas Terpstra, Herum, Crabtree, Dyer, Zolezzi & Terpstra, (209) 472-7700. For Sweetin: Joseph Fagundes, Cassel, Malm Fagundes, (209) 870-7900.

In a case that pitted open space protection against eminent domain law, the First District Court of Appeal has ruled that a Sonoma County open space district did not need to get voter approval before granting an easement for a treated wastewater pipeline across district property. Opponents of the pipeline project contended that because the City of Santa Rosa only threatened to get the easement through condemnation proceedings, the district had voluntarily sold the easement. A voluntary sale without voter approval would violate the law on which the district's creation was based. But the appellate court ruled that the property transaction was indeed controlled by eminent domain law because the city had "expressed unequivocally by words and actions its intent to condemn if negotiations proved fruitless." The case is only one aspect of a long-running controversy over whether Santa Rosa should dispose of its treated wastewater by injecting it into the "Geysers Known Geothermal Resources Area" in the mountains 40 miles northeast of town. The project is also intended to generate steam, which would be used to create electricity. In 1990, Sonoma County voters approved creation of the Sonoma County Agricultural Preservation and Open Space District. Four years later, the National Audubon Society granted the district a "Forever Wild" easement on 1,400 acres the Society owned in the mountains between Healdsburg and the Geysers. The area is known as the Mayacamas Mountain Sanctuary. In 1998, Santa Rosa approved the wastewater disposal and power generation proposal — called the Geysers Research Project — over the objection of some environmental organizations. In April 2000, the city selected a route for the pipeline carrying treated wastewater to the Geysers. The city chose the route, in part, to settle a California Environmental Quality Act suit that the Audubon Society filed against the city regarding the pipeline project. The route crossed about 3 1/2 miles of the Mayacamas Mountain Sanctuary and required construction of a pump station on the sanctuary. The city then set about acquiring the property it needed to build the pipeline. The city reached settlements with 80 property owners and filed eminent domain actions against about 28 other landowners. In October 2000, the city asked the district to approve Audubon's conveyance of a utility easement across the sanctuary. The district's general manager and a county attorney then began negotiating with city representatives and the Audubon Society. They struck a deal in which the district would approve the utility easement in exchange for the city giving the district conservation easements to four city-owned properties comprising 1,400 acres. Additionally, the agreement called for the Audubon Society to use the $1.3 million the city had paid to settle the CEQA suit to "restore, preserve, protect and provide public access to" the sanctuary. In March 2001, the district's board backed the deal. In approving the deal, the board found that Public Resources Code § 5542.5 — which contains a presumption that open space was the best and most necessary use of the property — had been rebutted. The board further found that § 5540 — which requires either voter approval or state legislation for the district to transfer an interest in property used for open space — did not apply because the district's approval of the easement was not voluntary. Jack Johnston, a Sonoma County landowner, then sued, arguing that the district violated § 5540. Sonoma County Superior Court Judge Lawrence Antolini found that the transaction was governed by eminent domain law (Code of Civil Procedure § 1230.010 et seq.), not by the Public Resources Code, and he ruled for the district. The appellate court upheld that decision. In the appeal, Johnston argued that the "mere threat" of condemnation did not make the Public Resources Code mandate go away. He argued that the conveyance was a backroom deal made by public officials and should have been decided by voters. But the court found that the city had triggered eminent domain law, which allows for involuntary transfers of open space. "The law of eminent domain is triggered when there is ‘evidence of implied or actual threat of condemnation, so that the ultimate result is a foregone conclusion,'" Justice James Marchiano wrote, citing Pacific Outdoor Advertising Co. v. City of Burbank, (1978) 86 Cal.App.3d 5. "The conveyance of the sanctuary utility easement was done after an unequivocal expression of the intent to condemn, and thus in lieu of inevitable condemnation," Marchiano continued. " nder the law of eminent domain, the District had the right to negotiate a resolution of the looming threat of the easement's condemnation — and properly did so …" In fact, Government Code § 7267.1 required the city to enter negotiations with property owners, the court noted. And the district has "an obligation to achieve the best result for its members at the most propitious stage." Pointing to the new open space easement on 1,400 acres of city land and the dedication of $1.3 million to sanctuary management, the court found that the district "obtained settlement terms far out of proportion to any money judgment in an eminent domain proceeding, and of substantial public benefit. … No court sitting in an eminent domain would have the power to order these measures," Marchiano wrote. A court could have only compensated the district with about $100,000 to $150,000, he concluded. The Case: Johnston v. Sonoma County Agricultural Preservation and Open Space District, No. A097121, C.D.O.S. 6916, 2002 DJDAR 8645. Filed July 31, 2002. The Lawyers: For Johnston: Rachel Hooper, Shute, Mihaly & Weinberger, (415) 552-7272. For the district: Sue Gallagher, deputy county counsel, (707) 565-2421. For the City of Santa Rosa: Patrick Wilson, assistant city attorney, (707) 543-3040. For the Audubon Society: J. William Yeates, (916) 860-2000.

Three counties in the eastern Bay Area are in position to capitalize on a predicted boom in the biotechnology industry, according to a new report. Alameda, Contra Costa and Solano counties, in fact, could be in better position than other locales in the Bay Area to accommodate manufacturing and distribution of new biotech products. While the report provides good economic news, it also makes clear that future prosperity will not happen without the active involvement of local governments, economic development advocates, workforce training experts, industry insiders and educators ranging from high school science teachers to university researchers. The study's 60 recommendations fall into two areas — economic development, and workforce education and training. In the former, the study recommends development of a business assistance and promotion center, development of a business incubator, and better coordination between the industry and local planning and building officials. In the workforce category, the study recommends establishing formal ties between the industry and local schools, improving training programs at community colleges and universities, and development of a workforce training center. The Bay Area biotech study says that the region's expensive real estate, infrastructure and labor "will become a significant disadvantage" as the sector moves beyond the research and development stage and into manufacturing. To help make the area more competitive, the study recommends that local governments adopt common standards for industry buildings and familiarize planners and building officials with industry needs. The study also recommends zoning sites near freeways and public transit that have infrastructure and good telecommunications capabilities. "It is quite likely that local government and economic development agencies need to have a proactive and aggressive role in retaining and attracting facilities in the region," states the report, which notes that San Diego, Seattle, North Carolina and even Scotland try to poach Bay Area companies. The report, "A Critical Analysis of the Local Biotechnology Industry Cluster in Alameda, Contra Costa & Solano Counties," was prepared by three consulting firms for an industry trade group, and local economic development and workforce training organizations. The report, released earlier this summer, came out only two weeks after the Brookings Institution released a study ("Signs of Life: The Growth of Biotechnology Centers in the U.S.") that found most communities that are chasing the biotech pot of gold are wasting their time. One of the few exceptions was the Bay Area, which, by most measures, has the oldest, largest and best-funded biotech cluster in the world. Proximity means everything in the biotech industry, said Sue Markland Day, executive director of the Bay Area Bioscience Center. "Life sciences are unique. The more people per square foot you have in a lab, the more ideas you get," she said. The Brookings study concluded that the Bay Area is a prime location: "The Bay Area benefits from an impressive combination of intellectual and financial capital. Biotech firms have spun off from each of the region's three major research institutions (Stanford, Berkeley and University of California, San Francisco). Silicon Valley continues to have the largest concentration of venture capital investors in the world, as well as the greatest number of highly active biotech investors." Of course, much of this biotech activity occurs in the tech hotbeds of Silicon Valley, San Mateo County and San Francisco, whose UC campus is a national research leader. But the latest report found that the three counties in the study have about 14,500 people working in 164 biotech companies. The number of biotech jobs in the three-county region increased 150% from 1992 to 2000. In fact, Emeryville, in Alameda County, is home to one of the region's largest biotech company — the 1.700-employee Chiron Corporation. And another giant, South San Francisco-based Genentech, has built major manufacturing facilities in the Solano County city of Vacaville. Still, there is not much local government can do about the two issues Bay Area company executives say are the two biggest obstacles to growth — the cost of living and the expense of space. Solano County Economic Development Corporation President Linda Brown believes her county can get past the real estate and development issues. Solano County has larger sites and cheaper real estate than most places in the Bay Area, and Vacaville, which is on the western edge of the Central Valley, has proven accommodating to biotech manufacturers. "We have strength in attracting manufacturing." Brown said. "We're well-positioned between UC Davis, which is just beyond the county line, and UC Berkeley, down Interstate 80." Day, of the Bioscience Center, seemed to think the development hurdles were not too tall, although she would like to see local government assist with redevelopment of vacant industrial sites that are ideal for the biotech industry. Already a number of Peninsula start-ups have located their manufacturing plants in the East Bay, partly because most of the industry's workforce already lives in the East Bay's less-expensive housing. Plus, she said, these types of companies grow out of existing businesses and universities, and they like to keep close track of production. So it is unlikely a company would build its manufacturing facilities in another locale. The bigger issue, at least in Solano County, might be a potential shortfall of skilled workers, Brown said. To address this, Solano Community College has established a biotech production training program and has big plans for expansion. Furthermore, said Day, California State University, Hayward offers "nuts and bolts" degrees on running a biotech company. The study recommends more of these sorts of programs and even modifying high school curricula "to meet the basic needs" of the industry. Day would like to see stronger links between UC Berkeley and the industry. "We know there are a lot of ideas on the campus that have not been commercialized," she said. Indeed, the study found that the industry is not as well connected as it could be to schools and the community in general, and the report suggests strengthening ties so that everyone understands the evolving industry's needs. Contacts: Sue Markland Day, Bay Area Bioscience Center, (415) 834-1401. Bioscience Center website (contains report), www.baybio.org. Linda Brown, Solano Economic Development Corporation, (707) 864-1855. Brookings Institution report, www.brookings.org/dybdocroot/urban/publications/biotech.htm.

A new requirement that nearly every California development project built with any public subsidies — including many affordable housing projects — must be constructed with prevailing wage labor appears to be having an impact. But the effects may not be as substantial as some people fear, at least not yet. No one disputes that the law will raise the cost of many subsidized affordable housing projects; the ironic impact of the measure is to increase wages for workers on subsidized projects but not on private developments for affluent residents. Whether the law has actually forced a reduction in the number of units built is unclear. The law also applies to many local economic development and redevelopment efforts, but local officials say the new requirement in and of itself will not cause businesses to flee to other states. "Our projects are going to be more costly," summed up Ken Emanuels, a lobbyist for the California Redevelopment Association (CRA). Last year, the Legislature approved SB 975 (Alarcon) —amending the Labor Code and the Government Code — on votes that fell along party lines. Some of the key parts of the bill were added late in last year's legislative session, and there was only one hearing on those amendments, Emanuels recalled. Stopping or greatly amending SB 975 was a top priority for the CRA, which was joined in its opposition by local governments, economic development organizations and business interests. But, Emanuels said, the die was cast. "Labor wasn't willing to give an inch. Why would they? They got exactly what they wanted," said Emanuels, noting that no lawmakers or members of the Davis administration requested amendments. The bill was a tough one for affordable housing advocates, who often sing from the same hymnal as labor leaders. "There was a split in strategy and probably in policy, too," said Marc Brown, of the California Housing Law Project. "I was one of those who thought it was not absolutely crazy not to oppose SB 975. … I think in the end, they (labor) will bring more to the table than they will take away." The San Francisco-based California Housing Partnership Corporation (CHPC), which serves as a consultant to affordable housing developers, was among those who thought Brown was crazy. "I understand the unions want to make a decent wage," said Janet Falk, CHPC executive director, "but they are doing it on the backs of the poorest people, not on the market. People building luxury housing don't have to do a thing." Defining terms The prevailing wage is typically a union-level, big-city pay scale. The state Department of Industrial Relations establishes prevailing wage. It is the basic hourly rate paid to the majority of workers in a particular trade or craft within a defined geographic area, explained Dean Fryer, a department spokesman. When setting the prevailing wage, the agency looks at the nearest big city "labor market." Thus, for example, the agency uses San Francisco rates to determine the prevailing wage for the nine-county Bay Area, and uses Sacramento rates for a huge area stretching from the Oregon border to Tulare County. The agency sets new rates or adjusts existing rates only on request, Fryer said. In general, contractors who receive public works contracts for projects like building roads and courthouses have long had to pay prevailing wage. Senate Bill 975 closed a loophole that allowed projects financed with Industrial Development Bonds issued by the California Infrastructure and Economic Development Bank to be built without prevailingwage labor. Few people argued with that new requirement. However, SB 975 also extended prevailing wage requirements to many private developments that receive public funds. The legislation defined "public funds" to include grants, fee waivers, tax reimbursement plans, and even the installation of infrastructure — nearly every financial incentive local government offers to business. While SB 975 applies to the entire state, many of its provisions are no stricter than ordinances already adopted by local officials in Los Angeles, San Jose, San Francisco and elsewhere. Most affordable housing projects receive some kind of "public funds." The legislation exempted some housing projects, but the biggest exemptions expire at the end of 2003. A bill to increase the housing exemptions to the prevailing wage requirement, SB 972 (Costa), appeared headed toward approval at the end of the legislative session. As of late August, it had received the backing of labor and the Davis administration. That bill would exempt sweat-equity projects, mortgage and down payment assistance programs for single-family homes, and some emergency or transitional housing projects. (See CP&DR in October for a full wrap up of the legislative session.) Housing advocates hoped for more expansive clean-up legislation. But it appears that labor interests were unwilling to budge. Representatives of the California Building and Construction Trades Council, SB 975's primary backer, did not return CP&DR telephone calls. "It's an extremely narrow and extremely modest bill," CRA lobbyist Emanuels said of SB 972. "It doesn't solve any of the problems we have with prevailing wage." The real impact How much the prevailing wage regulations truly affect housing and economic development projects remains to be seen. Falk, of the CHPC, figures that after SB 975's exceptions sunset in 2003, 85% to 90% of affordable housing projects will be affected. If the amount of available subsidies is fixed, she said, then the final result will be fewer units. The impact could be largest in rural areas, where construction laborers often work for considerably less than prevailing wage. Brown agreed that projects will require greater subsidies than in the past. But, he noted, Los Angeles affordable housing developers have been able to complete projects within the confines of local prevailing wage mandates. In the area of economic development, the picture is equally muddy. Again, the greatest potential impact is in rural areas. Emanuels said redevelopment projects of all kinds will cost more, as trade unions saw redevelopment as "the last great loophole." Craig Johnson, vice president of the California Association of Enterprise Zones, noted that manufacturers' tax credits — in which businesses get income tax credits in exchange for projects that add jobs — are not subject to SB 975. Other tax breaks that enterprise zones offer could be subject to the prevailing wage requirements, but the law is vague and there appears to be no enforcement mechanism, he said. "From an enterprise zone standpoint, we kind of shrug," Johnson said. "But for the people who have bricks and mortar projects, they have concerns." John Lehn, president of the Kings County Economic Development Corporation, said the prevailing wage mandate by itself will not cause growing businesses to look outside of California. Rather, the requirement is simply another factor businesses need to consider when making location choices. "It certainly has an impact on our overall attractiveness," Lehn said. Still, many of the largest businesses in the Central Valley need to be close to farms, and government financial incentives mean little in the end, he said. Because of SB 975, the City of Redding has dropped its primary financial incentive program, in which the city offered development fee discounts or waivers in exchange for new jobs, said Economic Development Director Mike Mitchell. "It's too bad that what little incentive package we had has gone by the wayside," he said. Still, the incentives were never a big factor in private enterprise location decisions, Mitchell said. To induce economic growth now, Redding is considering putting in some infrastructure for areas where businesses could locate in the future, Mitchell said. City officials are also studying the local job market to determine whether the official prevailing wage is substantially greater than laborers would earn in Shasta County anyway. Depending on what they find, officials might reinstate the incentive program. Some housing advocates plan to press for legislation next year that would exempt more projects from the SB 975 requirements. But Emanuels said he sees no reason to go the legislative route. "I think the policy has been set. Democrats in the Legislature won't consider it. Prevailing wage is an article of faith with them," he said. Instead, redevelopment supporters plan to work with the Department of Industrial Relations on clear administrative regulations. Contacts: Ken Emanuels, California Redevelopment Association lobbyist, (916) 444-6798. Marc Brown, California Housing Law Project, (916) 739-6293. Janet Falk, California Housing Partnership Corporation, (415) 433-6804. Craig Johnson, California Association of Enterprise Zones, (323) 890-7107. Mike Mitchell, City of Redding, (530) 225-4060. John Lehn, Kings County Economic Development Corporation, (559) 585-3536.

An infrastructure fee shortfall for an 1,840-acre project in the City of Modesto could reach into the tens of millions of dollars and has become a major controversy in the Central Valley city. No one knows for sure just how large the deficit is, but there is little doubt that the revenue available to the city does not match the amount needed for roads, storm drains, parks and other infrastructure promised in the Village I Specific Plan. And the potential solutions � ranging from increasing fees on future development to asking current residents to pay more taxes to whittling away at planned infrastructure � are all unpalatable. The reasons for the mess are many. A consultant concluded that fee reductions for the Village I Community Facilities District (CFD) � which the City Council approved in 1994 and 1997 to induce development � created a deficit. The city has compounded the problem by failing to increase fees to account for inflation and rapidly rising land costs. This issue is frequently a front page story in local newspapers and has even drawn the interest of the district attorney. In a May report for the city, Goodwin Consulting of Sacramento estimated the shortfall in the CFD and in the Village I portion of a separate capital facilities fee (CFF) to be nearly $47 million. The consultant and city officials have since backed away from that estimate and are now working to identify the deficit precisely. "The initial report was a good way to test whether there was a problem," consultant Susan Goodwin said. "We found that there was one, and that got everybody focused." Mayor Carmen Sabatino figures the shortfall is at least $35 million. Builders, however, are not ready to concede to any amount until there is further investigation. The city intends to hire an outside auditor this month to determine how much money the city has received, how it has spent the funds, and how the city went about crediting developers for building infrastructure during the 1990s. "We don't have people here who were necessarily responsible or accountable for that period of time," Councilman Denny Jackman said. The remedies being considered by city officials include increasing annual taxes on existing residents, raising the CFD and CFF fees on future Village I development (the area is about half built), reducing amenities such as parks, and shifting annual maintenance taxes to capital projects. In the meantime, the city has placed a one-year moratorium on new developments in Village I, although vested projects can still proceed. "If there's a lesson to learn here," Mayor Sabatino said, "it's that infrastructure goes in first, and then you build the houses." A new style of development The history of Village I, on the city's northeast side, dates to the late 1980s, when the city began work on a specific plan and a number of precise plans within the nearly three-square-mile specific plan area. The specific plan calls for about 6,200 housing units, 220 acres of industrial development and 15 acres of commercial development. Village I was designed as a neo-traditional development, with fairly high densities, and neighborhood stores and parks within walking distance of many homes. To date, about half of the housing units have been built, but Village I still awaits its first nonresidential construction. In October 1990, city officials adopted the first Village I finance plan. The following month, Modesto voters approved extension of a sewer trunk line to the area. A 1980 initiative requires voters to decide on sewer extensions. Then, in 1992, the 219 registered voters in the specific plan area approved annexation to the city. At that point, development could proceed. However, a recession � which would last about six years � was just settling into the region. With the Village I Specific Plan collecting dust, city officials in 1994 approved a revised finance plan with lower fees. There was little market response, so the city cut fees again in 1997. That's where fees have remained, despite inflation and right-of-way acquisition costs that have risen at least 40%. "We failed to raise the fees when the construction got hot," Mayor Sabatino said. "You had developers making $50,000 to $60,000 a house, but the fees were $10,000 too low." Bill Zoslocki, a Village I developer, said the city made several decisions in 1997 that helped spur construction. The city eliminated some parks from the plan and shifted the cost for some planned roads to adjacent property owners. Both moves reduced the fees, and the different approach to roads made developers feel more comfortable. Still, larger market factors were clearly an influence on Village I activity. In 1998, the recession started to ease, and by 1999 Modesto began to ride the swell of prosperity that swept across Northern California. Silicon Valley created hundreds of thousands of jobs, and many of the people who filled those jobs sought affordable housing in the Central Valley. However, not long after Village I development began getting serious, storm drainage problems arose. The city chased those gremlins for a couple years and eventually decided the system needed about $5 million in upgrades. But officials also detected other shortcomings, so they hired Goodwin to get a handle on the situation. The Goodwin report of May estimated the average CFD fee of $7,700 per residential unit is less than half the amount needed to pay for infrastructure required by the specific plan, and the average CFF fee of $5,380 per unit is about two-thirds of what is necessary. Goodwin said financing plans for any large project often contain assumptions regarding the pace and cost of construction, land values and regulations that do not hold true over the many years of development. "It's not completely unique to Modesto by any means. It points out the need for regular updates to any financing plan for a major development," she said. Who was in charge? No one disputes that the City Council slashed fees in hopes of encouraging development during poor economic times. But whether the fee reductions were the result of simple policy choices or of political shenanigans is an open � and touchy � question in Modesto. The District Attorney's Office is investigating campaign donations by Mid-Valley Engineering to Modesto city councilmembers, as well as the city's contracts with Mid-Valley. Mid-Valley engineered some of the infrastructure in Village I and prepared reports on which the council based the 1997 fee reductions. Two years ago, the Fair Political Practices Commission fined Mid-Valley $185,000 for laundering campaign contributions to candidates for the Modesto and Oakdale city councils. Councilman Jackman, who was a slow-growth activist in Modesto for years before winning election in 2001, said the building industry had a great deal of influence on the City Council at the time of the fee reductions. Only one of seven councilmembers remains from that time. "I'm hopeful that there wasn't malfeasance. I hope it was a response to the ills of the day," Jackman said of the fee cuts. Zoslocki said Jackman and others have exaggerated the industry's influence. The city conducted a public process, hired professionals for their expertise and made documents available. "We never had control of the process � ever," said Zoslocki, a member of the Building Industry Association of Central California board who insisted he was only speaking for himself. "Everybody needs to get off their soap box." That seems unlikely to happen soon. But city officials clearly want to learn more about the situation before making some difficult decisions. "The only thing we seem to know for sure is what parcels are vested, and what parcels are not vested," said Jackman. Sabatino said he "not optimistic" about what the outside auditors will find. By his reckoning, Village I needs $68 million worth of infrastructure. So far, the city has collected $12 million, but the portion is already half-built. Sabatino does not like any of the options for resolving the issues, although he concedes the council majority might try to recover some of the last money by substantially increasing fees on undeveloped and unvested portions of Village I. Backers of that idea say it is the best way to raise revenue, but Sabatino considers it discriminatory. Plus, Sabatino said, Village I development could soon slow. The undeveloped portions of the project area have more than 100 property owners. Many of them live on ranchettes and, a city survey found, have no short-term plans to sell. A proposal to ask property owners citywide to pay a special tax has few supporters. And either a citywide tax or an increase in annual assessments on existing Village I residents would need two-thirds voter approval. Zoslocki urged city officials to identify fully the problem before going any further. He, for one, cannot believe that the highest development fees in the city were off by half. "There's a lot of discovery that needs to be done," he said. Goodwin and city officials hope by April to prepare a new infrastructure financing plan and formulate a financing district to bridge the funding gap. "I don't believe that there are fatal flaws. There are solutions that can be implemented," Goodwin said. But, she added, the city ought to have those solutions in place when the current moratorium expires in June 2003. Contacts: Modesto Mayor Carmen Sabatino and Councilman Denny Jackman, (209) 571-5169. Bill Zoslocki, Bill Zoslocki Construction Company, (209) 579-1221. Susan Goodwin, Goodwin Consulting Group, (916) 561-0890. Village 1 Specific Plan, http://www.ci.modesto.ca.us/cdd/Planning_Division/plng_spec-plans.htm#village-one Village 1 finance documents, http://www.ci.modesto.ca.us/cmo/cfd/villageone.htm

A water district in Fresno County has the authority to pursue incorporation as a city, the Fifth District Court of Appeal has ruled. The court rejected arguments from Fresno County that the Malaga County Water District needed special legislation to proceed with creation of a new city. The court ruled that prohibiting the water district from pursuing incorporation could be inconsistent with the Cortese-Knox Local Government Reorganization Act (Government Code § 56000 et seq., since amended as the Cortese-Knox-Hertzberg Act). The Cortese-Knox Act provided the district with specific authority for incorporating a new city, the court held. In 1998, the water district, which serves a mostly industrial area just outside the City of Fresno, filed an incorporation resolution and petition for change of organization with the Fresno County Local Agency Formation Commission (see CP&DR, May 1999). The district paid a $14,000 filing fee and agreed to fund a LAFCO study estimated to cost $80,000 to $150,000. Fresno County filed a lawsuit arguing that the water district was acting beyond its statutory powers and that its expenditures were unconstitutional gifts of public funds. Fresno County Superior Court Judge Jane York ruled for the county, finding that the water district's authority was limited to that in its specific enabling statute. Therefore, she held that the expenditures with LAFCO were unconstitutional. The water district appealed and a unanimous three-judge panel of the Fifth District reversed the lower court. The water district provides water and sewer services typical of water districts. It also has specially legislated authority to own parks and to run parks and recreation programs. The district qualifies as both a "special district" and as a "district of limited powers" under Cortese-Knox. The issue, the appellate court explained, was whether a district of limited powers could reorganize itself and incorporate as a new city. Fresno County pointed to statutory language that addressed how districts of limited powers may merge with, or become subsidiaries of, cities. The county argued, therefore, that a district of limited powers could only pursue a merger. But the appellate court ruled that the merger option must be considered in context. "The district of limited powers can, but is not required to, merge with or become a subsidiary district of the city," Justice Herbert Levy wrote for the court. "It does not follow that the existence of this option for districts of limited powers excepts those districts from the statute that grants any district the ability to make any change of organization (Government Code § 56119). Rather, construing the 1985 Act in this manner runs counter to the rules of statutory interpretation." Cortese-Knox was intended to allow cities and districts to provide for the needs of a county and its communities. Fresno County's restrictive interpretation "would result in a district of limited powers being unable to adapt to social and economic developments occurring within its territory. Rather, a district of limited powers would not be able to change its organization in any manner unless its territory overlapped the boundaries of a city," Justice Levy wrote. The court also dismissed the county's argument that because a different community services district in the past had received special legislative authority to incorporate as a city, Malaga needed similar legislation. "The fact that special legislation has been employed previously does not establish such legislation as a condition to incorporation," Levy wrote. The Case: County of Fresno v. Malaga County Water District, No. F038163, 02 C.D.O.S. 6934, 2002 DJDAR 8663. Filed July 31, 2002. The Lawyers: For the county: J. Wesley Merritt, chief deputy county counsel, (559) 488-3479. For the water district: Neal Costanzo, Hargrove & Costanzo, (559) 261-0163.

The tortured history of a development in downtown Oakland added another chapter when a state appellate court overturned a lower court decision against Citicorp Real Estate, which had foreclosed on the project. The appellate panel found that the jury had been instructed incorrectly and that Citicorp had done nothing legally wrong in respect to its handling of the "Old Oakland" project. A jury had awarded the project developers $41.82 million. However, the trial court judge threw out all but $900,000 of the award because of a technicality. The latest setback for the developers came when the First District Court of Appeal overturned the trial court decision in full. The Old Oakland project has been around since the early 1980s. It involved restoration of 19th century buildings and other construction on a strip of land bordered by Broadway, Clay, Eighth and Tenth streets. Acting as architects, developers and building managers, brothers Glenn and Richard Storek pursued redevelopment of the area as an office, retail and nightclub district. In 1984, the Storeks borrowed $30 million from the City of Oakland, which raised the money by issuing bonds backed by letters of credit from Citibank. Over time, it became clear the Storeks needed more money to complete the project. In 1989, they signed an agreement with Citicorp, which loaned them an additional $8.9 million. Citicorp, however, placed a number of conditions for when it would disburse the loan funds: the project could not go over budget, the developers had to deliver executed leases, and there could be no default or potential default by the Storeks. From August 1989 through August 1990, Citicorp disbursed $8 million. However, the bank's construction monitor found millions of dollars of cost overruns, and the developers never raised $1 million in equity capital that they had promised to deliver as part of the second loan deal. The Storeks said they would get $5.6 million from other sources, but they did not deliver that either. By August 1990, a Storek partnership that owned property in San Francisco � which had secured the original loan � was in bankruptcy. By December of 1990, a court had found the developers in default and appointed a receiver. The development partnership filed for bankruptcy, and Citibank foreclosed on Old Oakland. A Citibank affiliate purchased the property for $6 million, Citibank put more money into the project, and much of it was completed � although the project has never reached its initial promise. The developers sued Citicorp, alleging that Citicorp deliberately engineered the project's collapse so that the bank could foreclose. They contended the bank never had any intention of fully financing the development. One trial resulted in a hung jury. After a second trial, a jury awarded the developers the $900,000 that Citicorp never disbursed from the second loan, and $40.92 million in punitive damages for fraud. Later, Alameda County Superior Court Judge Richard Hodge ruled that the plaintiffs (Glenn Storek and 39 limited partners) were not eligible to receive punitive damages because they were assignees of the original plaintiffs (Storek & Storek, Inc.). Both Citicorp and the plaintiffs appealed. At issue was whether Citicorp had breached an implied covenant of good faith and fair dealing. Citicorp argued that there could have been no breach because it acted based on the express terms of the contract. A three-judge panel of the First Circuit essentially agreed with Citicorp. The court held that Citicorp only had to act reasonably. "Citicorp owed no duty of good faith in determining whether the conditions precedent to its performance had been fulfilled," Justice Lawrence Stevens wrote for the court. "The loan agreement was a freely negotiated contract entered into by sophisticated business entities. Under the terms of that contract, expressly agreed to by Old Oakland, Citicorp's obligation to disburse the loan funds was conditional on its objectively reasonable determination that the project budget was in balance. No obligation to act in good faith can be implied to contradict or limit that express condition precedent. No inquiry into good faith can be made. In our view, the jury was incorrectly instructed to evaluate Citicorp's determination regarding the loan balance for both reasonableness and good faith." If the developers wanted to claim Citicorp breached an express obligation � not simply an implied obligation � they should have said so, the court ruled. However, the plaintiffs dropped that claim from the lawsuit early on. Because there had been no breach of the contract, there was no fraud on which the jury had based the punitive damages, the court concluded. The Case: Storek & Storek, Inc., v. Citicorp Real Estate, Inc., Nos. A092772, A093724, 02 C.D.O.S. 6284, 2002 DJDAR 7838. Filed July 15, 2002. The Lawyers: For Storek: Elliot Bien, Bien & Summers, (415) 898-2900. For Citicorp: Jerome Falk Jr., Howard Rice Nemerovski, Canady, Falk & Rabkin, (415) 434-1600.

Challenges to a City of Indio redevelopment project area expansion from three other government agencies have been thrown out on a technicality by the Fourth District County of Appeal. The Coachella Valley Water District, the Coachella Valley Mosquito and Vector Control District, and the Valley Sanitary District contended that an area Indio added to its redevelopment project area in November 1999 was neither physically blighted nor predominately urbanized, as required by redevelopment law. The water district filed a "reverse validation" lawsuit against the mosquito control and sanitary districts, and other entities in early 2000. The mosquito control and sanitary districts filed cross-complaints soon thereafter. The public agencies accused Indio of making a "land grab" for financial gain. Indio and Riverside County, which was also named as a defendant in the litigation, asked a Riverside County Superior Court to dismiss the water district lawsuit because the water district published an incorrectly worded summons. The trial court denied the request, but the Fourth District reversed and directed the trial court to dismiss the lawsuit. In the latest go-round, Indio and Riverside County argued that because the court had dismissed the original lawsuit, the court could not hear the cross-complaints from the mosquito control and sanitary districts. The trial court agreed and ruled in favor of Indio and the county. The Fourth District upheld the decision. In the appeal, the special districts argued that the court should hear their cross-complaint because it was a separate action, was filed on time and was served personally to the defendants. Indio and the county countered that the court did not have jurisdiction to decide the cross-complaints related to the original reverse validation lawsuit, which had been tossed out. The unanimous three-judge appellate panel agreed with Indio and the county. The trial court could not decide the cross-complaints when it never had jurisdiction over the original reverse validation lawsuit, the court held. "Rather than take the risk of relying on another party to comply with the statutes, the Mosquito District and Valley Sanitary could have filed its own reverse validation actions," Justice Barton Gaut wrote for the court. The appellate panel never reached the merits of the controversy. The Case: Coachella Valley Mosquito and Vector Control District v. City of Indio, No. E029531, 02 C.D.O.S. 7340, 2002 DJDAR 9163. Filed August 9, 2002. The Lawyers: For the districts: Lisa Garvin Copeland, (760) 341-7773. For the city: Kevin Sullivan, Lounsbery, Ferguson, Altona & Peak, (760) 743-1201.

Two of the highest profile pieces of land use legislation died at the statehouse in mid-August. A bill to reform the housing element law, SB 910, died when the author, Sen. Joe Dunn (D-Santa Ana), refused to accept amendments watering down the measure. And Assemblyman Darrell Steinberg (D-Sacramento) threw in the towel on AB 680, which would have established a sales tax sharing arrangement and encouraged housing development in the six-county Sacramento region. The housing element bill would have permitted the state Department of Housing and Community Development (HCD) to fine cities and counties if the agency ruled the local housing element inadequate. Local governments fought the bill since its introduction in early 2001. A committee of local government, state, housing, development and other interest group representatives met for months to work on language but in the end could agree on little, least of all the process for allocating housing units to regions and localities. In August, Assembly Housing and Community Development Committee Chairman Alan Lowenthal (D-Long Beach) and Assembly Local Government Committee Chairwoman Patricia Wiggins (D-Santa Rosa) insisted on amendments that would have required a judge — not simply HCD — to decide on housing element validity before fines could be levied. That change and others were enough for the League of California Cities, the California State Association of Counties (CSAC) and the California Chapter of the American Planning Association (APA) to drop their opposition to the bill, which had been written into SB 498. But Dunn aide Mark Stivers said the changes "would have significantly weakened current law with respect to HCD's authority to require implementation of a community's housing element and with respect to the standing of HCD's review in court." Local government lobbyists disagreed. The sales tax bill died because the League of California Cities and CSAC marshaled opposition from local governments across the state, even though the bill pertained to the Sacramento region, said Sande George, a lobbyist for the state APA. Steinberg conceded AB 680 did not have enough votes in the Senate, but most people expect him to try a new bill in 2003. The state Department of Housing and Community Development (HCD) won the first-round in a lawsuit filed by the Southern California Association of Governments (SCAG) and six of its members over the regional housing needs assessment process. In August, Riverside County Superior Court Judge Robert Spitzer ruled that HCD had the authority to reject SCAG's attempt to slash its housing allocation for the 1998-2005 planning cycle by 13% to 438,000 units (see CP&DR, February 2001). In the lawsuit, SCAG argued that HCD relied on old information and should have used the same growth forecast SCAG used for its 2001 regional transportation plan. But Judge Spitzer ruled that there has to be a cut-off for data collection to avoid rendering statutory deadlines meaningless. The judge did find that HCD exceeded its authority when it invalidated some city and county housing allocation reductions that SCAG had granted to inland jurisdictions, while at the same time HCD approved revisions for coastal cities and counties. But the court called HCD's interference with the local appeals process "minor." More proceedings in the case remain ahead. Supervisors in Riverside and San Bernardino could meet before the year is over to discuss leaving the Southern California Association of Governments and possibly creating a two-county council of governments. The counties were frustrated by SCAG's handling of the regional housing allocation process and have other gripes with the agency. Some Riverside County officials say their county has more in common with San Diego than with Los Angeles. A growth-control initiative approved by Tracy voters in 2000 does not apply to projects approved before the election, a San Joaquin County judge has ruled. Superior Court Judge Michael Platt upheld city guidelines that essentially keep in place a building cap that Measure A sought to cut in half. The city's 1994 growth management ordinance limited annual residential building permits to a maximum of 1,500, and an average of 1,200. Measure A cut those limits in half (see CP&DR, December 2000, April 2000). In February 2001, the city approved implementation guidelines that allowed previously approved projects to proceed under the older cap. The Tracy Regional Alliance for a Quality Environment (TRAQC), which authored Measure A, sued, arguing that only projects with development agreements were entitled to proceed under the higher cap. The city contended that the Government Code required it to treat projects based on the ordinances in effect at the time the city approved the projects. Judge Platt agreed with the city, concluding that "Measure A has no application to the vested projects." The seismic retrofit of six Bay Area bridges could cost twice as much as Caltrans originally estimated and take five years longer than anticipated, according to a report by the State Auditor. Caltrans originally estimated the projects would cost $2.6 billion and be completed by 2004. The agency now says the work will cost $4.6 billion and will not be done until 2009 — a full 20 years after the Loma Prieta earthquake caused a portion of the Bay Bridge to collapse. But in a report released in August, the State Auditor questioned even those projections. The auditor cited a Metropolitan Transportation Commission study that estimated the work would cost an additional $250 million to $630 million, assuming Caltrans can keep to the latest schedule. "We were able to confirm that the consultant was correct with regard to the significant underestimating of a time-related overhead cost," the State Auditor wrote. "This seems to suggest that Caltrans may need additional funding to complete the Bay Bridge unless the contingency reserves it has planned for other retrofit projects are overstated. However, past experience has shown that Caltrans' planned costs for retrofitting its toll bridges are generally understated rather than overstated." State Auditor's report No. 2001-122 is available at www.bsa.ca.gov/bsa/index.html Environmentalists have sued the Town of Truckee over approval of a resort. The suit from the Mountain Area Preservation Foundation alleges that the city did not perform an adequate environmental review and that the project violates the city's general plan. Project opponents also submitted signatures on a referendum. City officials say they handled the project correctly, and they contended election officials should disallow the petitions because of defects. The Old Greenwood resort proposes 104 houses, 15 townhouses, 159 time share units and housing for 28 employees, a 20-unit lodge, more than 300,000 square feet of commercial space and exercise facilities, and a golf course. Most the 900-acre site, which straddles Interstate 80, would remain undeveloped. The project is one of two in Truckee being pursued by East West Partners, which has completed extensive resort development in Colorado (see CP&DR Local Watch, March 2002). The developer who owns nearly half the land in Sacramento County's 2,600-acre Sunridge Specific Plan area (see CP&DR Local Watch, August 2002) has lost a lawsuit seeking to shut down a nearby rendering plant. Sacramento County Superior Court Judge Loren McMaster struck down the suit filed by AKT Development as a SLAPP — Strategic Lawsuit Against Public Participation. The developer filed the lawsuit after Sacramento Rendering Company officials testified at public hearings regarding Sunridge and the larger Sunrise-Douglas Community Plan. AKT contended an agreement between itself and Sacramento Rendering that called for AKT to pay for odor-reduction equipment barred the rendering company from speaking publicly about the project. The lawsuit also called the plant a public nuisance. But Judge McMaster said the plant was not a nuisance when it opened in wide-open fields in 1956. The county approved the specific plan and community plan in July, but it cannot issue permits until the odor-reduction equipment is in place. AKT and Sacramento Rendering have not reached agreement on paying for the equipment, which could cost a few million dollars. The East Bay Municipal Utility District and Sacramento County have won a lawsuit filed by other water agencies over a proposal to divert water from the Sacramento River. Sacramento County Superior Court Judge Lloyd Connelly's ruling upholds the agreement among East Bay MUD, the county and the City of Sacramento to divert water from a point downstream of the city (see CP&DR Environment Watch, December 2001). East Bay MUD considers the diversion an emergency backup, while Sacramento County intends to supply new homes with the water, including homes in the Sunrise-Douglas Community Plan area. But two water contracting coalitions contend the diversion would threaten supplies for numerous water agencies and harm San Francisco Bay Delta water quality. An environmental impact report is pending. Less than two years after signing on to the Williamson Act farmland protection program, Sutter County is taking steps to drop out. County leaders fear the state in the future will not cover revenue losses the county sustains under the Williamson Act. The Williamson Act provides property tax breaks for landowners who agree to preserve their farmland or open space for 10 years. The state makes up for the lost county tax revenue. But this year, Gov. Davis proposed eliminating the subventions permanently. Lawmakers placed this year's funding — totaling about $38 million — back into the budget. Sutter County officials remain worried about the future and figure the county better get out of the program before the tax liability gets greater, said Dale Follas, a planner for the county. Owners of 38,700 acres in Sutter County have enrolled in the Williamson Act, earning tax breaks of about $165,000 this year. If the county opts out of the Williamson Act, those tax breaks would phase out over nine years, Follas explained. Local farmers oppose the county's intentions. The Board of Supervisors is scheduled to decide in October. The City of Cypress's attempt to acquire through eminent domain 18 acres owned by a church has been blocked at least temporarily. U.S. District Court Judge David Carter granted Cottonwood Christian Center's request for a preliminary injunction against the city. The property lies within a redevelopment project area, and the city wants the land for retail development. But Cottonwood hopes to build a large sanctuary, school and related facilities on the site. Carter based his August 6 decision in part on the Religious Land Use and Institutionalized Persons Act, which restricts government's ability to regulate churches (See CP&DR, May 2002). Restrictions on cyber cafes in Garden Grove have been put on hold by an Orange County judge. The rules adopted in July require the businesses to close by 10 p.m. on weekdays, expel minors at 8 p.m., track the names and addresses of patrons, and hire security guards. The city, which placed a moratorium on new cyber cafes early this year, has seen two slayings and numerous assaults related to activity at the approximately 20 businesses that rent Internet time (see CP&DR In Brief, February 2002). Cyber cafe owners said the rules were unworkable and asked for an injunction, which Orange County Superior Court Judge Dennis Choate granted in August. A tax-sharing agreement between San Bernardino County and the City of Redlands to allow development of a 1,100-acre island of unincorporated territory has died. The county pulled out of the "Donut Hole" agreement, blaming a citizen lawsuit and potential referendum over the contract. The agreement called for Redlands to provide sewer and water to the land in exchange for a portion of sales taxes from new development (see CP&DR In Brief, February 2002, Deals, June 2001). The county is now talking with City of San Bernardino officials about providing sewer and water service to the Donut Hole, where extensive commercial development is planned. Redlands officials, however, say they are still interested in working with the county. A federal judge has withdrawn a recent consent decree that resulted in the U.S. Fish & Wildlife Service rescinding designation of 3.9 million acres of critical habitat for the red-legged frog. U.S. District Court Judge Richard Leon of Washington, D.C. agreed with environmental groups that argued they should have been heard in court before the judge approved the settlement between the Home Builders Association of Northern California and the Fish & Wildlife Service. The builders had sued over the designation of 4.1 million acres of critical habitat in 28 counties for the disappearing amphibian. State Senate President Pro Tem John Burton (D-San Francisco) has called for creation of yet another commission to review the state-local fiscal relationship. Burton insisted that "everything is on the table," including Proposition 13, and the shift of property taxes from city and counties to schools.

A ferocious debate that has raged for more than three decades over the fate of a river in the Sierra Nevada foothills appears likely to end soon with a whimper. Within the next few months, the U.S. Bureau of Reclamation (USBR) expects to conclude its environmental review and begin seeking a contractor to build a gate of steel plates across the mouth of a diversion tunnel bored through a ridge in the American River canyon northeast of Sacramento. When that gate closes — probably within two years, according to Jeff McCracken, a USBR spokesman — the river will return to its natural course through the long-idle construction site of the Auburn Dam. By agreeing to block the 2,400-foot diversion tunnel and restore the river to its channel, the USBR likely has sounded the death knell for what would have been the biggest concrete dam in the United States at 800 feet high and 4,000 feet wide at its crest. The agreement also means a new era in flood-control planning for the Sacramento Valley. Founded more than 150 years ago in the floodplain at the confluence of the American and Sacramento rivers, California's capital city is protected today by a system of levees, bypass channels and dams. The most prominent of these protective structures is Folsom Dam, completed in 1957 about 25 miles upstream from the Capitol. Folsom is a multipurpose dam designed to generate electricity, hold back floods and impound a water supply for farms and cities. Its effectiveness is hampered, however, by the contradictory natures of these tasks. To capture spring floods, the reservoir behind the dam must be drawn down during the winter, when demand for irrigation water and electricity are low. If spring runoff is sparse, however, the reservoir will greet the beginning of the dry season with depleted storage. But if the dam's operators hold back too much water, they will not have room to capture the runoff from a giant storm. Folsom's operational shortcomings are exacerbated by its designers' unwitting reliance on inaccurate estimates of the river system's flood potential. Folsom was designed to protect Sacramento from a 250-year storm, but floods in 1955, 1963 and 1965 demonstrated that the hydrologists' estimates of potential runoff were far too low. When the federal government subsequently redrew its floodplain maps of the area, thousands of residents — and numerous proposed developments — became subject to flood insurance requirements and building restrictions. To many Sacramento-area politicians, business owners and community leaders, the solution to the city's floodplain woes was another dam upstream from Folsom. Congress authorized Auburn Dam in 1965 and the USBR began construction in 1967. In 1975, however, an earthquake struck about 45 miles away near Oroville Dam. At magnitude 5.7, the quake was five times more powerful than Auburn Dam had been designed to withstand. Construction halted while geologists conducted new seismic surveys and engineers redesigned Auburn, which was being constructed directly atop a fault. Work never resumed. Instead, the project fell victim to rising costs (estimates of which exceeded $1 billion), public concern about quake safety, opposition by the increasingly powerful environmental movement and the growth of a lucrative recreational rafting industry. Auburn Dam would drown more than 40 miles of the Middle and North Forks of the American River, an area that records more than 500,000 visitor days per year, according to the California Department of Parks and Recreation. Still, Sacramento politicians and business leaders maintained their faith in Auburn Dam, encouraged by a destructive flood in 1986 that nearly brought disaster to the capital. Led by Republican Rep. John Doolittle, who has fought doggedly for the dam for more than a decade, the region's congressional delegation pressed hard for funding. But their bills failed on the House floor in 1992 and in committee in 1996. The delegation fragmented after that, with Democrat Rep. Robert Matsui and Republican Rep. Doug Ose throwing their support behind plans to improve levees and raise the height of Folsom Dam by 7 feet. The Senate Appropriations Committee in July approved initial funding for a study of the Folsom project, which has been endorsed by the U.S. Army Corps of Engineers and the Sacramento Area Flood Control Agency. The USBR began considering closing the tunnel bypassing the moribund dam site after California Attorney General Bill Lockyer sent federal officials a letter in 1999 warning that they had a public-trust obligation to restore the American River, and threatening litigation if they did not do so. In March 2000, the USBR and the state began negotiating a deal, which they signed in January 2001. The tunnel closure will follow construction of a permanent pumping station for the Placer County Water Agency (PCWA), enabling it to withdraw up to 35,000 acre-feet from the river each year. (The bureau had removed the PCWA's original pumping station when dam construction began in 1967, providing temporary pumps so PCWA could withdraw as much as 25,000 acre-feet annually.) The USBR released the final environmental impact statement for the project on June 20. Once the river reoccupies its original channel and begins supporting fish and wildlife, odds are slim that anyone will be able to force it out again, McCracken said. Laws passed since the dam's 1965 authorization — the Clean Water Act, the National Environmental Policy Act and the Endangered Species Act among them — would hamper efforts to once again divert the river's entire flow. Doolittle, whose suburban district needs water more than flood control, remains convinced that Auburn Dam should be built. He argues that the federal government will have spent almost as much on the Folsom project and levee improvements as it would have to build the dam, without providing nearly as much protection. "As long as there are people living in harm's way there will be a need for Auburn Dam," said Richard Robinson, Doolittle's press aide. To spend millions of dollars on projects that will not assure Sacramento's safety from a catastrophic flood, he said, "is a misuse of federal funds." To opponents of the dam, however, the USBR's plan to block the tunnel is reason to rejoice. "We talk of it as putting another nail in the coffin of Auburn Dam," said Betsy Reifsnider, executive director of Friends of the River, which has been battling the project almost since its inception. "I think that when they put the water back in that river, there will be lots of people watching from the bank with tears in their eyes." Contacts: Jeff McCracken, U.S. Bureau of Reclamation, (916) 978-5100. Rep. John Doolittle, (202) 225-2511. Betsy Reifsnider, Friends of the River: (916) 442-3155.

Landowners who filed a lawsuit contending that Santa Cruz County's second unit ordinance conflicted with state law should have filed suit when the county most recently amended the ordinance, not when the county applied the ordinance to conditional use permits, the Sixth District Court of Appeal has ruled. The ruling came in a 2-1 decision, with Acting Presiding Justice Patricia Bamattre-Manoukian dissenting. She concluded that a new statute of limitations arose every time the county applied the contested ordinance. The substantive issue in the case was whether Santa Cruz County's ordinance — which limits who may live in second units and what rent can be charged — conflicts with the Costa-Hawkins Rental Housing Act (Civil Code § 1954.50 et seq.). The state law, approved in 1995, limits local rent control efforts. The court hinted that the local ordinance might run afoul of Costa-Hawkins, but neither the majority nor the dissent ever fully addressed the merits of the case. The majority said the lawsuit was too late, and the dissenter urged a remand to the trial court for a decision on the merits. The court also split over the question of whether a potentially invalid ordinance could be challenged anew every time a local government enforced the ordinance. Santa Cruz County first adopted a second unit ordinance in 1981. Over the years, the county has amended the ordinance several times, permitting larger units, reducing the minimum lot size and relaxing occupancy standards. In its most recent form, approved in November 1997, the ordinance restricted second unit occupancy to low-income households, seniors or family members of the landowner. The law also restricted rent based on a sliding scale. In April 1999, Steven Travis applied for a permit to convert a single-family dwelling that was already under construction into a second unit, and to construct a primary dwelling unit on his property in the unincorporated community of Boulder Creek. The county approved the permit subject to the occupancy and rent conditions. Travis appealed the conditions, but he lost. So he filed a lawsuit in September 1999 and was joined by Stanley and Sonya Sokolow. In 1996 and in 1998, the Sokolows had received permits to build second units on two parcels they owned outside the Santa Cruz city limits. They did not administratively appeal the permit conditions but instead protested to the county counsel and the Board of Supervisors that Costa-Hawkins preempted the local ordinance. In their lawsuit, Travis and the Sokolows argued the second unit ordinance was preempted by state law, was discriminatory, violated state planning and zoning law, was an unconstitutional taking and was invalid because of the county's lack of a valid housing element. Santa Cruz County Superior Court Judge Robert Yonts ruled that the landowners' challenge of the ordinance itself was too late, as was the Sokolows' challenge to their particular permit conditions. Judge Yonts found that Travis's constitutional challenge was timely, but that there had been no taking. Acting as their own lawyers, the landowners appealed. The split appellate panel upheld the trial court's decision, although on slightly different grounds. The first question for the court was whether the lawsuit was a "facial" challenge — meaning the entire ordinance was brought into question — or an "as-applied" challenge — meaning only the county's application of the law to the landowners' particular situations was at issue. The landowners said their lawsuit was both. They argued that the ordinance was unlawful, and each time the county enforced the ordinance, it could be contested again. The court ruled that the lawsuit was strictly a facial challenge. "Petitioners do not contend that the conditions attached to their particular second unit permit applications differed in any way from the conditions imposed on other applicants for such permits," Justice William Wunderlich wrote for the majority. "Petitioners' essential claim is that the Ordinance is invalid no matter how, when or to whom it is applied, because state law preempts it." The court then moved on to the question of which statute of limitations applied. The landowners, of course, argued for the longest statute of limitations possible. They also argued that a new time limit commenced every time the county applied the ordinance — a "continuous accrual." The court, however, said the 90-day statute of limitations in Government Code § 65009, subdivision (c) applied. The state law gives those who seek to "attack, review, set aside, void, or annul the decision of a legislative body to adopt or amend a zoning ordinance" 90 days to commence legal action. That was precisely what Travis and Sokolows sought to do, so they should have sued within 90 days of the Board of Supervisors' decision to amend the ordinance in 1997, the court ruled. "The Legislature has enacted short statutes of limitation for attacks on conditional use permits, and for challenges to zoning ordinances that conflict with the governing general plan, as well as for attacks on the adoption or amendment of zoning ordinances," Wunderlich wrote. " t is clear that the Legislature intended that local land use decisions would be reviewed quickly or not at all." And the majority rejected the idea of continuous accrual: "The case before us is governed by a specific limitation statute, § 65009, subdivision (c)." In her dissent, Bamattre-Manoukian wrote that she "cannot accept the result that a local ordinance that may be void due to the preemptive effect of state law is rendered immune from challenge." Giving the landowners 90 days starting with the county's 1997 decision was wrong, Bamattre-Manoukian wrote. First, the amendments approved in 1997 were not the ones the landowners contested, Bamattre-Manoukian noted. The restrictions in question already existed and the county did not change them in 1997. Second, the challenged restrictions "appear to intrude into the area of landlord/tenant relations," she wrote. "Courts have found similar ordinances regulating the users of property to be ‘suspect' as zoning law." She cited City of Santa Barbara v. Adamson, (1980) 27 Cal.3d 123, and Coalition Advocating Legal Housing Options v. City of Santa Monica, (2001) 88 Cal.App.4th, 451. Moreover, Bamattre-Manoukian accepted the argument of continuous accrual. She pointed to the state Supreme Court's decision in Howard Jarvis Taxpayers Assn. v. City of La Habra, (2001) 25 Cal.4th 809 (see CP&DR Legal Digest, July 2001), in which the court found that a new statute of limitations arose every time a city collected a tax under an invalid ordinance that was several years old. "I would apply the same reasoning to our case and find that a cause of action arises, and a corresponding statute of limitations begins, each time the county acts to enforce its ordinance by issuing a permit imposing the challenged conditions," Bamattre-Manoukian wrote in her dissent. The Case: Travis v. County of Santa Cruz, No. H021541, 02 C.D.O.S. 6718, 2002 DJDAR 8391. Filed July 25, 2002. The Lawyers: Steven Travis in pro per. For the county: Dwight Herr, assistant county counsel, (831) 423-5800.