(May 7)  The city of Twentynine Palms’ intrepid foray to the forefront of California cities challenging the redevelopment agency-shuttering legislation passed by the state of California in 2011 has paid off, with a court ruling last month that overturned the California Department of Finance’s denial of the city’s claim that it could use $11,575,000 in redevelopment bond proceeds for an urban renewal project downtown.
Twentynine Palms, a city of  the 25,048 in San Bernardino County’s Mojave Desert Outback, in 2011 through its redevelopment agency gave final go-ahead to Project Phoenix, which is to include a community center, a 250-seat theater, classrooms, a civic plaza, a park, a paseo, residential units, a wastewater treatment plant, and improvements to the downtown fire station.
That action came just three months before the legislature passed AB X1 26 and AB X1 27, which shuttered more than 400 municipal and county redevelopment agencies up and down the state.
Despite warnings from the state that the city needed to dispense with its redevelopment efforts, the city nevertheless proceeded with the Project Phoenix initiative.
Twentynine Palms officials maintained that AB X1 26 and AB X1 27 are trumped by federal securities regulations, meaning the money the Twentynine Palms Redevelopment Agency bonded for in 2011 must be utilized only for the purpose that bondholders were told the money would be applied toward.
Twentynine Palms City Attorney A. Patrick Muñoz, of the law firm Rutan & Tucker, asserted in filings with the Sacramento Superior Court that the non-taxable bonds issued in 2011 created specific obligations between the city, as the issuer, and the bond purchasers, and as such are enforceable obligations. If the city allows the state  to use the money for a purpose other than what the city had specified in marketing the bonds to the bond buyers, that would constitute fraud, according to Munoz.
The city filed its paperwork in Sacramento Superior Court because AB X1 26 and AB X1 27 contained language requiring any legal challenges to the law take place there.
The city in 2012  followed Muñoz’s recommendation to have  the city’s successor agency lay claim to the redevelopment money and declare its intent to proceed with Project Phoenix.  AB X1 26 and AB X1 27 provided for the creation of locally based oversight boards to see to the discharging of remaining redevelopment money.  In  May 2012, Muñoz drafted a contract between the successor agency and the city by which the  successor agency is to  turn over the bond spending authority to the city with a directive that it go toward Project Phoenix. On a 4-1 vote on May 22, 2012,  the city council voted unanimously to transfer  the seven-member oversight board’s duties and obligations to administer the bond proceeds to “the city in its capacity as a municipal corporation.”
AB X1 26 and AB X1 27  passed in July of 2011 but were challenged by a confederation of cities.  Since the city of Twentynine Palms Redevelopment Agency originally issued the bonds on April 19, 2011, the use of the bond funds was put in abeyance as the city sought relief from the courts. The challenge to AB X1 26 and AB X1 27 was turned down by the California Supreme Court in January  2012 and the dissolution of redevelopment agencies statewide ensued on February 1, 2012.  The use of those bonds was prohibited by the California Department of Finance following the dissolution.
The city of Twentynine Palms, however, persisted in its separate challenge with regard to the Phoenix funds, however.  The key issue in the case was the question of whether an agreement between the city and the successor agency known as the bond proceeds agreement is valid in light of the laws which dissolved redevelopment agencies. The California Department of Finance asserted the agreement was not valid and as a result the city could not spend the bond proceeds on Project Phoenix. The department further asserted that the city acted in bad faith and hence the bond proceeds agreement should be invalidated.
Sacramento Superior Court Judge Michael P. Kenny disagreed, and instead held that the city acted appropriately, in good faith, and in compliance with the laws that existed at the time the bond proceeds agreement was adopted.
Kenny’s ruling states: “The court concludes that the bond proceeds agreement is a valid and enforceable agreement that constitutes an “enforceable obligation” within the meaning of the redevelopment dissolution laws. DOF’s determination to the contrary is not supported by the facts or the law and cannot be upheld.”
As a result, Kenny  ruled in favor of the city and its successor agency, summarizing its ruling as follows:
“For the reasons stated above, the court finds in favor of petitioners [The city and its successor agency] and grants their request for declaratory, injunctive and writ of mandate relief to invalidate DOF’s (Department of Finance’s) determinations regarding the bond proceeds agreement and the bond proceeds. The court finds that the bond proceeds agreement is an “enforceable obligation” within the meaning of the redevelopment dissolution laws, and that nothing in the redevelopment laws precludes petitioners from using the bond proceeds for Project Phoenix and related public improvements as provided in the bond proceeds agreement.”
Kenny continued, “A writ of mandate shall therefore issue directing DOF to vacate its determinations regarding the bond proceeds agreement and the successor agency’s transfer of bond proceeds to the city, along with an injunction directing DOF not to enforce those determinations, and a judgment declaring that the bond proceeds agreement is a valid and enforceable contract and an enforceable obligation under the redevelopment dissolution laws, and that the transfer of the bond proceeds from the successor agency to the city for the purposes of implementing the Bond Proceeds Agreement was a legally valid act that does not violate the redevelopment dissolution laws.”