• California Redevelopment Law Requires a County to Accept a Revised Statement of Indebtedness from a Redevelopment Agency and Pay Additional Tax Increment to the Agency
  • June 30, 2010 | Authors: Mona Ebrahimi; Jon E. Goetz; Brett L. Price
  • Law Firms: Kronick Moskovitz Tiedemann & Girard A Law Corporation - Sacramento Office ; Kronick Moskovitz Tiedemann & Girard A Law Corporation - San Luis Obispo Office ; Kronick Moskovitz Tiedemann & Girard A Law Corporation - Bakersfield Office
  • In Glendale Redevelopment Agency v. County of Los Angeles, (--- Cal.Rptr.3d ----, Cal.App. 2 Dist., May 25, 2010), a court of appeal considered whether the California Redevelopment Law prohibits a county from accepting revised statements of indebtedness (“SOI”) from redevelopment agencies. The court held that the Redevelopment Law does not require a county to refuse a revised SOI and requires a county to pay a redevelopment agency who submits a revised SOI all tax increment to which it is entitled.

    In September 2006, the Glendale Redevelopment Agency (“Glendale”) submitted an SOI to the County of Los Angeles (”County”) for the San Fernando Road Corridor Redevelopment Project that showed an indebtedness of $11,645, 880 and $7,069,024 in available revenue. County, over a ten-month period, distributed $4,576,856, to Glendale, an amount $2.2 million less than the total tax increment that the redevelopment project created. County distributed the $2.2 million to other agencies, including its own general fund. In May 2007, Glendale realized the SOI it had submitted to County omitted a debt from an agreement between Glendale and the Walt Disney Company. On May 24, 2007, Agency submitted to County a revised SOI which would have entitled Glendale to additional tax increment. County refused to accept the revised SOI or remit the additional funds Glendale claimed were due.

    Separately, the Redevelopment Agency of Compton (“Compton”) submitted an SOI to the County for the 2006-2007 fiscal year that overstated revenue and understated debt. County distributed to Compton, pursuant to the SOI, $13,351,015 in tax increment payments which left a tax increment of $4.3 million. After County distributed the $4.3 million to other entities, Compton submitted a revised SOI on January 16, 2007, which showed it was entitled to the entire tax increment. County refused to accept the revised SOI.

    Glendale and Compton filed a petition for writ of mandate asking the trial court to order County to accept the revised SOIs and pay the sums they claimed were owed to them. The trial court denied both petitions.

    Pursuant to California Redevelopment Law, a redevelopment agency does not have the power to tax but can finance redevelopment projects through the issuance of bonds and other indebtedness. After property values increase in the redevelopment project, the property taxes attributable to the increase in value (“tax increment”) is allocated to the agency to pay the principal and interest on the debt. A redevelopment agency is only entitled to the portion of the tax increment necessary to repay its indebtedness. Any tax increment that is in excess of the amount to which the agency is entitled must be distributed to the other taxing agencies in the same manner as other property taxes are distributed. Pursuant to California Health and Safety Code section 33675(b), an agency must file an SOI no later than October 1 of each year and also a reconciliation statement that has been certified by the agency’s chief financial officer.

    County argued that the Legislature in section 33675 “limited the time within which an agency can claim a given year’s tax increment.” The court concluded that because section 33675 allows an SOI to be challenged, this also means an SOI may be corrected. Furthermore, the fact that the statute allows estimates in the amount of principal, interest, interest rate, terms of loans, advances, or indebtedness when precise data is not available “clearly contemplates that an estimate may be corrected when the data is available.”

    The court found that “Section 33675 does not prohibit the County from accepting a revised SOI. To the contrary, on receipt of a revised SOI, it is required to pay redevelopment agencies all the tax increment to which they are entitled.” The court held that County’s duty to distribute tax revenue pursuant to the California Redevelopment Law is mandatory. The court concluded that “section 33675, subdivision (b) is a procedural provision which sets out the method through which a county is to perform its duty, . . . . not a limit on the county’s duty to distribute all the tax increment to which a redevelopment agency is entitled.”

    The court held “that nothing in section 33675 prohibits a redevelopment agency from correcting errors in an SOI by filing a revised document.” Any other reading of section 33675 “would mean, that if an agency errs in its SOI, tax increment revenues will be retained by entities which have no statutory entitlement to those revenues, to the detriment of the agency and its lenders and bondholders.”