29 Palms Prevails In Fight With State Over RDA Money

TWENTYNINE PALMS — (May 20) The long twilight battle between the city of Twentynine Palms and the state of California over Project Phoenix has concluded in the city’s favor.
Project Phoenix was an undertaking by the Twentynine Palms Redevelopment Agency aimed at constructing 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. The project was put in jeopardy in 2011, however, when 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. The state sought to reroute redevelopment money to law enforcement and education efforts in that closure.
Twentynine Palms, however, intrepidly pushed ahead with the project, based upon Twentynine Palms City Attorney A. Patrick Muñoz’s assertion that the project had been initiated prior to AB XI 26 and AB XI 27 going into effect. According to Muñoz, the state law ending redevelopment function is 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.
The city then used the locally composed bond oversight board that was formed by the state legislation to recommit the bond money to the Phoenix project. Subsequently, however, the state Department of Finance used its authority to disallow the recommitment. In response the city appealed and when that appeal was turned down, filed legal action in Sacramento Superior Court, the venue where the legislation required any litigation pertaining to cities’ use of redevelopment money had to be filed. The case was heard by Sacramento Superior Court Judge Michael P. Kenny.
Muñoz 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 and any use of the money for a purpose other than what the city had specified in marketing the bonds to the bond buyers would constitute fraud.
The state Department of Finance in December 2013  told Kenny that the Twentynine Palms Redevelopment Agency, like several others, “rushed to encumber future tax increment revenues” ahead of their legislated demise in December 2011. The department alleged that in March 2011, Twentynine Palms “conceived, authorized, issued and sold” $12 million in tax allocation bonds for the Project Phoenix downtown development and an affordable housing plan without contracts to build or a definite plan for spending the proceeds.”
Ultimately, however, Kenny ruled against the Department of Finance in April 2014 and granted the petition for a writ of mandate on behalf for the city of Twentynine Palms as successor agency, allowing the city to utilize the bond money for the fulfillment of Project Phoenix. In June 2014, the Department of Finance filed an appeal of Kenny’s ruling.
Since that time, the Department of Finance has suffered multiple setbacks with regard to several cities efforts to control the spending of redevelopment agency money appropriated in 2011. On May 14, 2015, the department sent a letter to several cities, Twentynine Palms among them, announcing it was throwing in the towel on opposing the cities’ moves to preserve their last remaining redevelopment agency projects.
At stake in the case involving Twentynine Palms was the more than $10 millionof the $12 million in bond proceeds  for Project Phoenix which has yet to be spent and which the city is now free to apply toward completing the project.
“Consistent with recent appellate decisions, the Department of Finance will no longer seek to reverse lower court rulings upholding ‘reentered’ agreements that oversight boards authorized between Feb. 1, 2012 and June 27, 2012,” the letter, dated May 14 from California Department of Finance Program Budget Manager Justyn Howard , states. “Accordingly, Finance will comply with applicable court orders and has instructed the [California] Attorney General’s Office to cease litigation on this issue.”
Muñoz resisted gloating in his report back to the city council. “The department has decided that it will no longer fight the various cities that were challenging its stance on re-entered agreements,” Muñoz wrote in a memo.

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