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Another Redevelopment Plan Gets Shot Down

A state appellate court has invalidated a City of Upland redevelopment plan because the city improperly manipulated the base tax year for one parcel, and because the area was neither predominately urbanized nor blighted. The decision by a unanimous three-judge panel of the Fourth District Court of Appeal, Division Two, was the latest in a string of published rulings against redevelopment agencies since 1998. Courts have also ruled against redevelopment plans in Murrieta, Mammoth Lakes and Diamond Bar. "It's important that redevelopment agencies do their jobs correctly to begin with," said Kathryn Reimann, an attorney who represented San Bernardino County in the lawsuit against Upland. "And they can't avoid the base year requirements." The court held that Upland could not move 77 acres from one redevelopment project area to a newly created project area simply to change the base year from which tax increment would be derived. The city moved the property out of the older project area because the property value had actually decreased, meaning there was no tax increment to fund renewal. The city "did what was legally permitted for an improper reason," Justice Thomas Hollenhorst wrote for the court. "[T]he reason was improper because the City was attempting to do indirectly what it could not do directly, i.e., change the base year assessment of the subject parcel and the time it was in redevelopment. Such a change would certainly upset the tax distribution balance between the redevelopment agency and other taxing jurisdictions." In 1999, the Upland City Council approved ordinances 1683 and 1684. The former amended the Town Center redevelopment plan by deleting 77 acres from the project area, while the latter established a new redevelopment plan incorporating the 77 acres and 15 other noncontiguous parcels. The county and a citizen filed separate lawsuits challenging the validity of the city's two ordinances. San Bernardino County Superior Court Judge Peter Norell ruled against the city, and the Fourth District upheld the decision. The city did not hide the reasons for its actions. Properties in the Town Center redevelopment project area, established during the early 1990s, had lost value, stymieing redevelopment efforts. The city wanted to reassign the properties with the lowest assessed values to a new project area to reflect the decline. In redevelopment, the lower the base year value, the greater the tax increment that redevelopment agencies receive. The county argued that the city was improperly manipulating the base year and that by moving land from one project area to another, the city was avoiding the 40-year sunset date for redevelopment activity for that land. "Although the issue is a close one," Justice Hollenhorst wrote, "the City's candid statement of its reasons for adopting ordinance 1683 makes it clear to us that the sole purpose of the ordinance was to avoid the base year limitations for the 77-acre parcel. We agree with the trial court that this is an improper purpose which conflicts with the statutory scheme." The court then reviewed the new redevelopment project area and found it did not meet the legal requirements of being "predominately urbanized" and blighted. At issue was "Subarea O" 380 acres that included 171 acres used previously for a garbage dump, a rock quarry, and a flood control and siltation basin. The quarry closed in 1985, and there had been almost no use of the land since then. Redevelopment law requires at least 80% of a project area to be developed for urban uses. Subarea O amounted to more than 20% of the project area. So if Subarea O were not considered urbanized, the entire project area would be invalid. The city argued that the dump, mine and flood control project qualified as urban uses because those sites were located within a large urban area, and proximity to urban uses is a factor that can be considered in making the urbanization determination. The court, however, was not persuaded. "[I]t seems that the question we must consider should be whether the rock mine and dump were developed for urban uses in the early 1980s," Hollenhorst wrote. "We therefore disagree with the City's argument that we must consider the current built-out condition of the City as showing the area is predominately urban. Indeed, it appears from the aerial photograph that the area was primarily vacant land which was surrounded by vacant land in the early 1980s. The area was also vacant at the time of a field survey in May 1998." Moreover, a quarry and dump are not inherently urban uses, the court ruled. Because Subarea O was not predominately urbanized, only 77.65% of the project area qualified as urbanized. Thus, the court ruled the whole project area invalid. Reimann, the county's attorney, said, "Courts understand there is no bright line between what's an urban use and what's a rural use. Just because it's a rock quarry that produces materials for a building 100 miles away does not make the rock quarry an urban use per se." The court also ruled that a city survey failed to provide substantial evidence that the new project area was blighted. The survey found that 85.5% of buildings were "deficient," meaning they at least had peeling paint or cracked fascia. That definition was too broad for the court, which instead pointed to the 0.2% of buildings that fell into the more serious category of "dilapidated." And 0.2% was not enough blight for the court, which cited County of Riverside v. City of Murrieta, (1998) 65 Cal.App. 4th 616 (see CP&DR Legal Digest, August 1998). In that case, the court ruled that a report identifying less than 5% of a project area's buildings as unsafe or unhealthy did not constitute substantial evidence of blight. The Case: Graber v. City of Upland, No. E029769, 02 C.D.O.S. 5416, 2002 DJDAR 6811. Filed June 18, 2002. The Lawyers: For Graber: C. Robert Ferguson, (909) 482-0782. For San Bernardino County: Kathryn Reimann, (831) 647-1430. For Upland: James Markman, Richards, Watson & Gershon, (714) 990-0901.
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