As expected, the city of Brentwood has appealed a major April 2 Sacramento County Superior Court ruling that upheld a "clawback" of former redevelopment agency funds by the state Department of Finance (DOF). It's uncertain how much tax money statewide could be affected by the decision; state officials have said $3 billion or more.

Judge Allen Sumner's decision in City of Brentwood v. California Department of Finance said the DOF properly told Brentwood to return $19.6 million in tax money that the city received from its own former redevelopment agency (RDA). Using tax increment funds collected under former redevelopment rules, the RDA made, and kept, an agreement that it would pay the city to work on a park, a community center, a "streetscape" project, and other public projects. DOF said $15.5 million of that money should be returned and redistributed among other local taxing entities such as schools, and another $4.1 million in bond proceeds should be returned to the RDA's successor agency.

Among the scores of lawsuits over ex-redevelopment funds, the Brentwood case is significant because it answers a widely asked question: whether an agreement between a local government and its own RDA was an "enforceable obligation" if the agreement was signed, and the money paid to the local government, after January 1, 2011 – the date that marked the beginning of the end for California's redevelopment agencies. If an RDA owes a legitimate "enforceable obligation", then its successor agency may properly pay off the obligation; if an obligation is not enforceable, clawback follows.

A DOF spokesman told the LA Times the decision affected about $3 billion at about 150 former RDAs. http://lat.ms/1fh1BvZ. A supplemental brief that DOF filed in January put an even higher value of $3.4 billion on transfers in "approximately 150 localities... from RDAs to their creator entities" between the start of 2011 and January 31, 2012, the day before redevelopment was abolished in California. But J. Leah Castella, who represented the city of Brentwood, questioned whether the total of genuinely similar transfers could be so high. "I have a lot of these cases," she said. "I feel like all of my cases are ones where the clawback was invalid but there are dozens of these cases around the state and I just don't know enough about the facts in each of those cases."

Sumner's especially ambivalent decision almost completely reversed his tentative ruling. "There are parts of it that are similar [to the tentative]" said Castella. But "it is really a 180." She said, "I have seen courts reverse tentatives before. I have not seen courts reverse tentatives that were this complex."

The opinion reads like a three-act drama: after setting out the basic conflicts, it descends into a tangled wood of procedural history and precedent. Just as all seems murky if not lost, the court turns for guidance to the ancients. Led by the words of John Marshall and Oliver Wendell Holmes, it adopts ringing phrases on constitutionally mandated deference to the Legislature. It arrives at a decision in the state's favor but leaves plenty for an appellate court to chew on.

Castella said the court did make clear from the start that the initial tentative ruling analysis was no more than tentative. "I think the court thought about this really hard," she said. While she saw a lot of reasons for the decision, she said, "at the end of the day they want the appellate court to decide the issue."

In the opinion, Sumner recounted Redevelopment's dissolution by AB 1X 26 in 2011, the landmark Matosantos case (53 Cal.4th 231) upholding its legality, and the Legislature's followup passage of the AB 1484 dissolution measure in mid-2012. He found AB 1484 made the previously legal RDA-to-city type of agreement unenforceable, retroactively to January 1, 2011.

Sumner found the Legislature both intended the clawback to be retroactive and had the power to make it so. As "subordinate political entities of the state," he wrote, the city or its former RDA could not object based on their respective constitutional contract rights.

The tough part seemed to be convincing himself that the clawback was not barred by Proposition 22, the 2010 measure limiting transfers from RDAs "to or for the benefit of the State" or to other "jurisdictions".

He reached that conclusion after first accepting several of the city's arguments: he noted that the transfers required by redevelopment dissolution would be solidly for the state government's benefit in that, for example, the largest share of the transfers would go to local school districts' budgets, allowing the state to pay correspondingly less. Further, he rejected several DOF arguments as unpersuasive because overly technical, and agreed there was a "fundamental difference" between funds still held by an RDA as of dissolution, and funds the RDA had already spent.

After granting so many points to the city, in part on close readings of the Matosantos ruling, Sumner got past Prop. 22 by backing up to look at the big picture: the Legislature's power to legislate, and the long-established heavy presumption that it does so constitutionally. This is where the quotations from Holmes and Marshall came in on judicial restraint, framing the choice to declare a legislative act unconstitutional as a court's "gravest and most delicate duty".

Braced with this new perspective, he found Matosantos "interpreted Proposition 22 more narrowly than the City argues," in that Matosantos found Prop 22's purpose was to stop legislative transfers from RDAs to county educational revenue augmentation funds (ERAFs) – and not to stop all reallocations of RDA funds. He wrote, "The clawback is not like the ERAF shift which Proposition 22 was adopted to end" in that it neither demanded a percentage of the tax increment, nor restricted transfers to schools. Further, "the clawback is directed only at the successor agency – not the RDA." Finally, Sumner found the Legislature had power to declare the agreements between the city and RDA unenforceable.

The DOF order, which took the form of a "Due Diligence Review" (DDR) letter, included other instructions as well, notably an attempt to rescind a transfer of nine land parcels to the city for $10 each. The court found the land transfer issue was not ripe for review. Castella said it would come up when the city prepared its long-range property management plan, which would not be until after a resolution to the current litigation resulted in a finding of completion on the repayments.

The Notice of Appeal was filed April 23, 2014. The case now goes to the Third District Court of Appeal.

The April 2 decision text is on CP&DR's site at http://www.cp-dr.com/sites/default/files/20140402%20jt%20after%20hearing.pdf.
The Sacramento Superior Court case number is 34-2013-80001568-CU-WM-GDS.
The online docket is currently available free at http://bit.ly/1kdSwmQ. The pleadings are currently available for free download with free registration but as of July 1 a new system of steep records fees will apply.
The DDR letter underlying the litigation is at http://bit.ly/1fc7drN
The Gibson Dunn firm's extensive April 16 summary of statewide post-redevelopment litigation is at http://bit.ly/1mMsrP9
A dated but even more detailed summary, as of February 18, is on the League of California Cities site via http://bit.ly/1jNWNdy.