State Pushing for More than $1 Million Even Though State Acknowledged a Clerical Error was Made
(APPLE VALLEY)–A judge granted a preliminary injunction halting the California Department of Finance from imposing stiff penalties on Apple Valley for a clerical error the state understood existed but nonetheless led to the Town’s redevelopment successor agency being billed for nearly $1.2 million.
Further, the judge said it is likely the Town will succeed in its legal challenge against the state, which refused to acknowledge the error, and will owe nothing to the State of California in the end.
“Having found that plaintiffs demonstrated a likelihood of success and that the balance of harms tips in their favor, the motion for preliminary injunction is granted,” Superior Court Judge Shelleyanne W. L. Chang wrote in her ruling issued Friday.
This is the first case in which a court has issued a preliminary injunction barring the state from imposing such penalties on a former redevelopment agency.
“Our assertion that this was an error needing a simple correction is one step closer to being rectified,” stated Mayor Barb Stanton. “Although the ruling is preliminary, this is a substantial success and we are heartened.”
The town filed a complaint on July 17 after the state’s finance director refused to approve a “correction of a clerical error” made on a state form. The error led to an improper demand for payment from the San Bernardino County Auditor-Controller.
The complaint alleged that the state’s failure to recognize the error would cause the town’s successor agency to pay an obligation it does not owe, be assessed penalties and possibly default on financial obligations it owes to bondholders. If the successor agency did not make the payment, the town itself would face losing sales tax equal to the demanded payment plus penalties.
The error occurred when the successor agency inadvertently misidentified on its Recognized Obligation Payment Schedule (ROPS) the funding source for debt service payments on outstanding bonds as “bond proceeds.” Rather, the complaint said, the funding sources should have been classified as part of the Redevelopment Property Tax Trust Fund. That fund, administered by the county auditor-controller, determines the amount of property taxes that should be allocated to the former redevelopment agency to pay for obligations listed on its ROPS unless another funding source is listed.
The misidentification of the funding source became a problem when the Legislature in June hurriedly passed AB 1484, a follow-up bill to last year’s bill dissolving redevelopment agencies, in an attempt to help solve the state’s budget deficit problems. That bill was challenged in the California Supreme Court, which subsequently determined the bill was constitutional, and all redevelopment agencies were deemed dissolved as of February 1, 2012. AB 1484 authorized the state to demand that the former redevelopment agencies make so-called “true-up” payments, based on numbers established by the Department of Finance. The bill provided that the payment demands be made on July 9 and that the successor agencies make the payments three days later, on July 12.
“The problem was that the amount of the true-up payment for Apple Valley was based on an erroneous number,” said Iris Yang, an attorney at Best Best & Krieger LLP the Town Attorney who represented the Town and the successor agency. “As soon as AB 1484 was passed, Apple Valley asked the Department of Finance and the San Bernardino County Auditor-Controller to allow it to correct the funding source shown on the ROPS, but the Department of Finance refused to do so. If it had, Apple Valley would have owed no true-up payment at all. The San Bernardino County Auditor-Controller agreed with us, but couldn’t do anything about the calculation.”
The former redevelopment agency issued three bond issues and must pay approximately $3.4 million each year in debt service. Every six months, the successor agency must file a ROPS in order to receive an allocation of property taxes to pay its obligations.
“Other than the Redevelopment Property Tax Trust Fund, the successor agency has no other source of funds to make these bond debt service payments,” said Apple Valley Finance Director Marc Puckett. “The Town is very gratified by the court’s ruling.”