In 2011, in the midst of a state and local fiscal crisis, the Legislature enacted Assembly Bill 26 which dissolved all redevelopment agencies (RDAs) throughout California. Before their dissolution, the operations of RDAs were funded by "tax increment" financing. The purpose of AB 26 was to alleviate the fiscal crisis by eliminating RDAs and transferring to municipalities and school and community college districts, the tax increment revenue RDAs would otherwise collect.

AB 26 provided a detailed scheme for winding down the operations of RDAs. In particular, AB 26 created "successor agencies" that were given responsibility over certain obligations of each dissolved RDA. Importantly, the liability of successor agencies was limited to the value of the assets they received from their respective predecessor RDAs.

Shortly before the enactment of AB 26, Virginia Macy, a low-income resident of the City of Fontana, and others, filed a lawsuit against the Fontana Redevelopment Agency ("Agency"). The lawsuit claimed that the Agency had failed on its obligation to provide low and moderate-income housing. Macy demanded that the Agency deposit $27 million into the Agency's low and moderate-income housing fund.

After the enactment of AB 26, Macy added the City of Fontana as a defendant to the lawsuit. The City was added in its capacity as the "successor agency" and its separate capacity as a municipality. The City challenged Macy's lawsuit against the City in its municipal capacity. The City argued that under AB 26, only a successor agency may be held liable for the preexisting obligations of an RDA. The trial court agreed and dismissed Macy's lawsuit against the City in its municipal capacity.

On appeal, Macy argued that the City's control over the Agency supports a claim against the City in its municipal capacity. The Court of Appeal rejected Macy's argument and affirmed the trial court's decision. The Court emphasized that under AB 26, the liabilities of dissolved RDAs are limited to the assets transferred to successor agencies and that nothing extends those liabilities to municipalities and their general funds. As the Court explained: "AB 26 and [later amendments] do not lend themselves to an interpretation under which municipalities, although among the local agencies intended to benefit from dissolution of RDAs, would have their liabilities expanded beyond the assets transferred to them when acting as successor agencies."

Note:

In post-redevelopment litigation, this is a valuable case for local agencies to have in their defense arsenal. The decision affirms that under dissolution legislation, neither a municipality nor its general fund are liable for the preexisting obligations of a dissolved redevelopment agency.

Macy v. City of Fontana (2016) 244 Cal.App.4th 1421.