City of Bellflower v. Michael Cohen, Director of the Department of Finance (245 Cal. App. 4th 438)

Why It Matters: Under the redevelopment dissolution law, the State directed former redevelopment agencies to distribute agency funds to the county auditor-controller for allocation to local taxing entities except to the extent required to meet agency enforceable obligations. If an agency fails to do so, the remedies include authority for the Board of Equalization to withhold sales and use tax revenues from the agency and for the county auditor-controller to withhold property taxes. Both of these remedies were held to be unconstitutional by the Court of Appeal as violating the provisions of Proposition 22 (2010).

Facts: This challenge is a facial challenge to these collection provisions. A facial challenge is different from an as-applied challenge (i.e., challenging how the law is applied to a specific situation). Facial challenges are more difficult in that the party challenging the law bears a heavier burden of proof than that applicable to an as-applied challenge. Here, several cities, joined by the League of California Cities, elected to pursue the facial challenge. The basis of their challenge was voter-enacted Proposition 22 which limited the power of the Legislature to "reallocate, transfer, borrow, appropriate, restrict the use of, or otherwise use the proceeds of any tax imposed or levied by a local government solely for local government purposes." Cal. Const. Article XIII, Section 24.

Proposition 22 was proposed by California cities in 2010 as a result of the fact that the State has previously raided local tax revenues to cover revenue shortfalls at the State level. While the dissolution of redevelopment agencies was designed to achieve this result to some degree, the California Supreme Court upheld the authority of the Legislature to dissolve the agencies. The statute in question, Health and Safety Code Sections 34179.5 and 34179.6, established a procedure where the Department of Finance ultimately determined what obligations were enforceable under the law and what revenues must be allocated to local taxing entities, and established the challenged remedies for a failure to comply with the Department's determination.

Two trial courts had reached different conclusions as to the constitutionality of these remedies. The Court of Appeal sided with the unconstitutional side of the issue, finding that the language of Proposition 22 was an unambiguous prohibition of the State's ability to divert local taxes for any purpose whether or not the taxes may have been wrongfully withheld. In its ruling the Court noted that these two remedies were not the exclusive means of enforcing the provisions of the dissolution of redevelopment agencies.

Practice Pointers: This is clearly not the end of the dispute. What other remedies the State may seek to employ or enact are unknown at this time but are a virtual certainty.