Legal Aid Society of San Mateo v. Dept. of FinanceAnnotate this Case
In 1990, as the result of a dispute involving concerns about affordable housing for clients of plaintiff Legal Aid Society of San Mateo County (LAS), plaintiff City of Redwood City (Redwood City), the former redevelopment agency (RDA) formed by Redwood City, and LAS entered into an agreement. Pursuant to the agreement, the former RDA agreed to deposit $11,917,200 in tax increment funds into the Low and Moderate Income Housing Fund (LMI Housing Fund) it maintained pursuant to the requirements of the Community Redevelopment Law (CRL) to be used as housing funds consistent with the CRL. In 2011, faced with a state fiscal emergency, the California Legislature enacted the Dissolution Law, dissolving RDAs, eliminating tax increment financing, and transferring property taxes, including unencumbered funds in Low and Moderate Income Housing Funds, back to local governments and schools. Following the enactment of the Dissolution Law, plaintiffs’ position was that the $10,272,916 then on deposit in the LMI Housing Fund specifically attributable to the 1990 agreement, constituted an encumbered housing asset and thus was not subject to remit to the county auditor-controller. However, defendant Department of Finance (DOF) concluded these funds were unencumbered and directed the funds be remitted. Plaintiffs each filed writ petitions and complaints against DOF asserting that the funds were encumbered assets under the 1990 agreement and various provisions of the Dissolution Law and the CRL. The trial court denied the petitions, concluding that the subject funds were unencumbered, were not enforceable obligations within the meaning of the Dissolution Law, and were available for distribution to the local taxing entities. Plaintiffs separately appealed and the Court of Appeal granted plaintiffs’ motion to consolidate the appeals. Together plaintiffs asserted: (1) the 1990 agreement constituted an enforceable obligation; and (2) the $10,272,916 on deposit pursuant to the agreement could not be transferred to the taxing entities because the funds “are legally restricted as to purpose” within the meaning of Health & Safety Code section 34179.5 (c)(5)(B) and “are legally or contractually dedicated or restricted for the funding of an enforceable obligation” within the meaning of section 34179.5 (c)(5)(D). After review, the Court of Appeal agreed with plaintiffs and reversed.