An appellate court has overturned a Superior Court decision requiring the City of Escondido to reimburse the city redevelopment agency's housing fund for 13 years worth of underpayments. The appellate panel instead ruled that, because of the statute of limitations, the city had to reimburse the housing fund for only three years worth of underpayments. From 1985 to 1998, the city's redevelopment agency designated only 20% of net tax increment for the low and moderate income housing fund — not 20% of gross tax increment, as required by state law. The Superior Court ordered the city to reimburse the housing fund about $5.6 million for all of the years of underpayments and lost interest. The Fourth District Court of Appeal overturned that decision, saying a three-year state of limitations applied. The ruling is an important one for government agencies, said Jennifer McCain, Escondido assistant city attorney. "It's a novel concept to say there is no statute of limitations," she said. "You need to have certainty. Otherwise, it could be fiscally unsettling for the agency." But Catherine Rodman, the housing attorney who brought the suit, called the decision a "horrible" precedent and vowed to seek a state Supreme Court review. When Escondido's redevelopment agency came into existence in 1985, the city signed a contract with the county under which the county kept a percentage of the gross tax increment before remitting the rest of the revenues to the redevelopment agency. The contract called for 20% of net tax increment to flow into the housing fund. As early as 1989, the agency's own attorney warned that this method of calculating the housing set-aside was improper. When the city refused to amend the contract, the city sued the county. But in 1992, a trial court upheld the contract because there was no third party seeking relief. In 1998, Hogar Dulce Hogar (Home Sweet Home), a group of poor people who live in the redevelopment project area, sued the city over the miscalculated housing set-aside. The city agreed it had been shorting the housing fund but disagreed with Hogar Dulce Hogar over the amount that had to be reimbursed. The city also argued against other requests of the group for a court order limiting the redevelopment agency's planning and administrative expenses, requiring the city to maintain housing funds in one account, and repay interest on a debt for the 1991 purchase and rehabilitation of a mobile home park whose residents may or may not have been low- or moderate-income. San Diego County Superior Court Judge Michael Anello ruled for Hogar Dulce Hogar on reimbursing the housing fund but otherwise sided with the city. The group and the city appealed portions of the decision that they lost. A unanimous three-judge panel of the Fourth District, Division One, ruled for the city. In the appeal, Hogar Dulce Hogar argued that the three-year statute of limitations in Code of Civil Procedure § 338, subdivision (a) did not apply under the rule of "delayed discovery." That rule suspends the statute of limitations, often in fraud cases, to protect plaintiffs who are ignorant of their right to sue. But the appellate court ruled that delayed discovery only applied in instances where the plaintiff could not know the facts. That was not the case here because the city had discussed the situation numerous times in public meetings. "A discovery rule is not appropriate, where, as here, a public agency's violation of a statute is a matter of public record and the violation is being asserted by a plaintiff which has no direct beneficial interest in the outcome of the litigation," Justice Patricia Benke wrote for the court. "As the agency points out, the deficiency in the agency's payments to its housing fund were the subject of public meetings and public records," Benke continued. "There was no attempt by the agency to conceal its payment to the housing fund." "Moreover," Benke wrote, "redevelopment agencies could not operate with any fiscal certainty if, by virtue of application of a discovery rule, there was essentially no limit on the time in which their calculation of amounts due their respective housing funds could be challenged." The court remanded the case to the Superior Court for recalculation of the amount to be reimbursed to the housing fund. McCain said the amount will probably be in the neighborhood of $1 million. She noted that the county agreed to amend the contract in 1998 and the city has contributed 20% of gross tax increment to the housing fund ever since. In the unpublished portion of the case, the Fourth District upheld the lower court's rulings in favor of the city regarding planning and administrative costs, keeping three separate accounts for various housing revenues and obligations, and the mobile home park purchase. The court also ruled that the city was not responsible for obligations of the redevelopment agency, which is actually a state agency. The Case: Hogar Dulce Hogar, v. Community Development Commission of the City of Escondido, No. D039163, 03 C.D.O.S. 6724, 2003 DJDAR 8411. Filed July 29, 2003. The Lawyers: For Hogar Dulce Hogar: Catherine Rodman, San Diego Advocates for Social Justice, (619) 233-8474. For the city: Jennifer McCain, (760) 839-4608.