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HomeMy WebLinkAboutNB1-City Attorney , JfI Col.. , ').,.q 1-' ,,' 1 [t] RRICK, HERRINGTON & SUTCLIFF~ LLP d' t R rd t tntere In 0 eco a (,uuncillCmyOevCms MtQ: MEMORAND~ re Agenda Item TO: California City Attorneys FROM: Paul A. Webber Richard I. Hiscocks City Clerk/COC Seey City of San Bernardino DATE: June 10, 1997 RE: ParticiDation in Amicus Brief: Rider v. San Dieqo We write to you at the request of the Legal Advocacy Committee of the League of California cities to urge your city to participate as amicus curiae in connection with Rider v. citv of San Dieqo, now pending in the California Supreme Court.Y As discussed below, the Rider case challenges the lease finance exception to the constitutional debt limit, so that an adverse decision could jeopardize many different types of city contracts with terms beyond the end of the fiscal year. In addition, Rider questions the use of joint powers authorities in certain charter city lease financings. An adverse decision in Rider could not only needlessly restrain this important financing vehicle but could also raise concerns on the activities of other local government entities (such as redevelopment agencies and housing authorities) that often have the same persons serving on their governing bodies as the city council. The current briefing schedule requires the amicus brief to be filed on July 23, 1997; therefore, your prompt attention to this matter is necessary. Please comDlete the enclosed authorization form and return it bv Julv 1, 1997. Y California Supreme Court Docket No. S058956; hearing granted April 2, 1997. The Court of Appeal decision, which was in favor of the City, may be found at 51 Cal.App.4th 1313 (4th Dist. 1996). Old Federal Reserve Bank Building . 400 Sansomc Strttt . San Francisco. California 91111.3143 Telephone: -+15 392 1122 . facsimile 115 m 5759 Los Angeles . Nt:W Yorlt . Sa.cnnntnto . SiJicon Vallty . Singrzport . Washington. D.C. /lg; f/fl7 SF2-748()1.3 , t [t]RRICK, HERRINGTON &: SUTCLIFFE LLP BRIEF DESCRIPTION OF RIDER In May 1996, a taxpayer filed an action against the city of San Diego ("San Diego") and the San Diego Convention Center Expansion Authority, a joint exercise of powers authority (the "San Diego Expansion Authority"), challenging the validity of a lease revenue financing involving a lease (the "San Diego Lease") having features similar to leases used by State and local governments throughout California in the financing of general purpose government facilities. In this action, the Plaintiffs maintain that voter approval is required for the San Diego Lease (i) since the lease constituted indebtedness prohibited by Article XVI, section 18 of the California Constitution without a two-thirds vote of the electorate, and (ii) since San Diego was prohibited under its charter from issuing bonds through a lease financing structure without a two-thirds vote of the electorate. The Plaintiffs further maintain that the power of the San Diego Expansion Authority, one of the members of which is San Diego, to issue such bonds is no greater than the power of San Diego. In response to San Diego's motion for summary judgment, the trial court rejected the Plaintiffs' arguments and ruled that the San Diego Lease was constitutionally valid and that the San Diego Expansion Authority'S related lease revenue bonds did not require voter approval. The Plaintiffs appealed the matter to the Court of Appeal for the Fourth District, which affirmed the trial court's rUling.Y The Plaintiffs then petitioned for review by the Supreme Court, which was granted. The Plaintiffs' opening brief in the Supreme Court was filed on May 2, 1997. San Diego's brief was filed on June 2, 1997. Although Plaintiffs' opening brief in the Supreme Court focuses primarily on the issue concerning the limitations in the San Diego Charter and the California Joint Exercise of Powers Act,~ it also contains an argument that the San Diego Lease is essentially "debt" that must be approved by the voters under the State Constitution.~ We understand that an amicus brief may be filed in support of the Plaintiffs by the Jarvis Taxpayers Association. Y See footnote 1. ~ See California Government Code sections 6500 and following (the "JPA Act"). ~ See California constitution, Article XVI, section 18 (the "constitutional debt limit"). SF2-74804.3 2 , lilRRICK, HERRINGTON &: SUTCLIFFE LLP OUTLINE OF ISSUES TO BE CONSIDERED Joint Powers Issues San Diego's brief covers in substantial detail the entire legislative history of the JPA Act and it need not be replicated in our brief. The nature of the lease revenue bond in Rider is such that it creates no obligation whatsoever on the part of San Diego. Rather, it merely packages a perfectly permissible McBean/Offner/Dean Lease.~ In terms of what San Diego (and any other city) would be empowered to do, it could create its own "package" for another obligation (such as a city bond backed by payments of a private enterprise) without running afoul of its charter and it is that power which is being exercised by the San Diego Expansion Authority. It does not matter whether this power is being exercised under Article 2 or Article 4 of the JPA Act, as both provide adequate authority. Offner/Dean Issues Again, San Diego'S brief covers the McBean/Offner/Dean and stare decisis arguments as well. These only need to be supplemented. 1.(a) The Offner/Dean doctrine had its roots in McBean v. citv of Fresno in 1896. McBean was not a lease case, but rather concerned a multi-year contract for services. (b) The McBean/Offner/Dean doctrine has been applied to contracts other than leases in a variety of circumstances by cities, ~, multi-year service contracts for trash, multi-year service contracts for other types of services, multi-year employee and collective bargaining agreements. (cl The effect of overruling McBean/Offner/Dean would not only affect the ability of cities to engage in much needed infrastructure financing through leases, but also affect their ability to enter into other multi-year contracts. This in turn could be costly to cities in that they would be at risk of market vagaries in the demand pricing of services which can be avoided by multi-year contracts (such as wage schedules and benefit schedules for employees, independent contractor service contracts ~ A thorough discussion of the 101-year-old lease finance exception to the constitutional debt limit appears in Rider v. citv of San Dieqo, 47 Cal.App.4th 1473 (4th Dist. 1996) (concerning the Jack Murphy Stadium). SF2-74804.3 3 [lJRRICK, HERRINGTON &: SUTCLIFFE LLP such as waste hauling, purchases of materials and supplies and the like). 2.(a) At the time of McBean there were no constitutional limitations on the size of a particular General Fund project budget for a city in any given year which could be generated through property taxes and other types of taxes. Since that time, a number of measures have imposed limitations on General Fund sources, such as sections 2260 and following of the Revenue and Tax Code relying upon Article XIII, section 20, of the California Constitution; Article XIIIA, the "Jarvis-Gann Constitutional Initiative" which became law in 1978; Article XIIIB, the "Gann Constitutional Initiative," which became law in 1979; Proposition 62 (which does not apply to charter cities); Rossi v. Brown, 9 Cal.4th 688 (1993); and Proposition 218 (Articles XIIIC and XIIID). All of these items were constraints on sources of funding for cities' General Funds. Since at the time of McBean, Offner and Dean there were no such limitations on spending, a city could enter into a lease agreement and adjust property taxes or other General Fund taxes in order to bring its General Fund up to a sufficient level to support all expenditures from the General Fund including a lease or other mUlti-year contract expenditures. Nevertheless, even in the face of that power, the Court in McBean, Offner and Dean concluded as a matter of policy that multi-year contracts did not violate the constitutional debt limit. (b) What Rider is therefore seeking to do is to now impose vote requirements not only for sources for funding, but uses for otherwise lawful sources. (c) The approval of a McBean/Offner/Dean agreement is not an approval of the source of funding. Rather it merely approves entering into the contract and other legal principles govern the source of funding that contract. 3. If, based upon the constitutional debt limit, it is necessary to require voter approval for a use .of funds in the event that the lease payments are spread over more than one year, then what is to prevent that same rationale from requiring voter approval for any other use over more than one year? This approach would require cities to enter into only one year contracts and take the risk of increasing pricing since they could not lock into mUlti-year pricing agreements. This could prove very costly to cities. Moreover, seeking voter approval would be untenable given the needs of a city to have its General Fund budget approved more expeditiously than voting requirements would permit. Indeed, it would take out of the hands of elected officials one of the most important tasks of local government legislative bodies, namely, the establishment of budget priorities. SF2-74804.3 4 [IIRRICK. HERRINGTON &: SUTCLIFFE llP CONCLUSION The lease financing under review in Rider is the same type of financing that has been used by cities throughout California to finance many facilities that provide basic government services (~, city halls, courthouses, police and fire stations). The judicially created exception to the debt limit should not be overruled nor should the use of joint powers authorities in lease financings be needlessly curtailed. We urge your city to join others throughout California in protecting these critical interests. Kindly review and complete the enclosed "Authorization to Join Amicus Brief" and return it in the enclosed envelope 1lQ later than Julv 1. 1997. If you have any questions, please call Paul Webber at 213-612-2422 or Rick Hiscocks at 415-773-5416. Thank you for your prompt consideration. Enclosures - City Authorization Form, Return Envelope SF2-74804.3 5