Opinion ID: 844233
Heading Depth: 1
Heading Rank: 5

Heading: Interpreting Proposition 22

Text: I conclude that, even assuming the circumstances most favorable to petitioners — applying the more lenient standard for facial challenges and broadly construing Proposition 22 — petitioners have failed to sustain their burden to show that Assembly Bill 1X 27 is unconstitutional. A. Proposition 22 and Assembly Bill 1X 27 Generally Proposition 22 prohibits the Legislature from requiring ―a community redevelopment agency . . . to pay, remit, loan, or otherwise transfer, directly or indirectly, taxes on ad valorem real property and tangible personal property allocated to the agency pursuant to Section 16 of Article XVI [i.e., its tax increment funds].‖ (Cal. Const., art. XIII, § 25.5, subd. (a)(7)(A).) Given the 6 rules of interpretation described ante, it is important to note what, exactly, this constitutional provision expressly prohibits: the Legislature cannot require a redevelopment agency to directly or indirectly reallocate its tax increment funds. In contrast, Assembly Bill 1X 27 does not require or compel any redevelopment agency to make any payment. It specifically provides that the community sponsor, whether it be a city, county, or other local government entity, ―may use any available funds not otherwise obligated for other uses‖ to make a payment. (Health & Saf. Code, § 34194.1, subd. (a).)5 The payments required by Assembly Bill 1X 27 to establish or continue redevelopment agencies are to be made by community sponsors, not redevelopment agencies. Although Assembly Bill 1X 27, through the enactment of section 34194.2, permits a community sponsor to enter into an agreement with its redevelopment agency to use its tax increment to fund the payment, such agreements are not compelled or required by Assembly Bill 1X 27.6 Moreover, nothing in Assembly Bill 1X 27 requires that a 5 Unless otherwise noted, all further statutory references are to the Health and Safety Code. 6 Petitioner County of Santa Clara argues that one of the statutes enacted by Assembly Bill 1X 27 is unconstitutional because section 34194.2 allows loans of tax increment funds to finance Assembly Bill 1X 27 payments in violation of article XVI, section 16, of the state Constitution, which mandates that tax increment funds be used to finance redevelopment projects. But section 34194.2 cannot be facially unconstitutional because its language is permissive — ―a city or county may enter into an agreement with the redevelopment agency‖ to make such loans of local tax increment funds. (Italics added.) This provision, therefore, does not ―inevitably pose a present total and fatal conflict with applicable constitutional prohibitions.‖ (Pacific Legal Foundation v. Brown, supra, 29 Cal.3d 168, 181.) Moreover, even under the more liberal standard for facial challenges, as I will explain in part II.D., petitioners have failed to show that section 34194.2 will generate potential violations of the state Constitution ― ‗in the generality or great majority of cases.‘ ‖ (Guardianship of Ann S., supra, 45 Cal.4th 1110, 1126.) 7 redevelopment agency‘s tax increment be reallocated, either directly or indirectly, to satisfy the payments. Instead, the measure is neutral as to the source of funds for the Assembly Bill 1X 27 payments.7 B. The Applicable Language of Proposition 22 Does Not Require a Liberal Construction The majority asserts that California Constitution article XIII, section 25.5, subdivision (a)(7) (as added by Prop. 22) is ambiguous, thereby requiring an examination of its history to ascertain its intended meaning. The majority identifies as ambiguous Proposition 22‘s use of the words ―indirectly‖ and ―directly,‖ especially in view of prior statutory shifts involving ERAF‘s pursuant 7 For this same reason, Assembly Bill 1X 27‘s revenue-neutral provision, clarifying that a community sponsor ―may use any available funds not otherwise obligated for other uses‖ to make the Assembly Bill 1X 27 payments (Health & Saf. Code, § 34194.1, subd. (a)), also forecloses petitioners‘ facial challenge based on other provisions of Proposition 22 and on Proposition 1A (as approved by voters, Gen. Elec. (Nov. 2, 2004)). Proposition 1A amended the state Constitution to limit the Legislature‘s ability to reallocate property taxes unless passed by a two-thirds vote, but nothing in Assembly Bill 1X 27 requires the payments to come from this source. In addition, the mere fact that section 34194.1, subdivision (b) labels its payments as ―property taxes‖ for a single fiscal year, for the purpose of offsetting the state‘s school funding obligations in that year, does not violate Proposition 1A as petitioner County of Santa Clara argues. No provision of Assembly Bill 1X 27 alters the existing distribution of local property tax revenue actually collected by counties, and section 34194.1‘s terminology is simply an extension of the ―accounting device‖ established by the Educational Revenue Augmentation Funds (ERAF‘s). (Los Angeles Unified School Dist. v. County of Los Angeles (2010) 181 Cal.App.4th 414, 426.) Similarly, another provision of Proposition 22 amended the state Constitution to ensure that the Legislature could not ―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 the local government‘s purposes.‖ (Cal. Const., art. XIII, § 24, subd. (b).) But nothing in Assembly Bill 1X 27 redirects the proceeds of an otherwise dedicated local tax toward making the Assembly Bill 1X 27 payments. 8 to which the Legislature diverted redevelopment agency tax increment revenue to fund schools. The majority notes that a distinct provision in each of those prior ERAF shifts, going back to 2003, allowed the shift to be funded in a revenue-neutral and source-neutral manner and without necessarily using tax increment funds. For instance, in the legislation enacting the last ERAF shift, which directly led to Proposition 22‘s placement on the November 2010 ballot, the Legislature included statute that did not require the ERAF shift payment to come specifically from tax increment funds, but instead provided that in order ―[t]o make the allocation required by this section, an agency may use any funds that are legally available and not legally obligated for other uses, including, but not limited to, reserve funds, proceeds of land sales, proceeds of bonds or other indebtedness, lease revenues, interest, and other earned income.‖ (Health & Saf. Code, § 33690.5, subd. (b), italics added.) It also included a ―catch-all‖ statute that allowed a local legislative body, in lieu of the redevelopment agency, to make the ERAF payments ―from any funds that are legally available for this purpose.‖ (Health & Saf. Code, § 33692, subd. (c), italics added.) Accordingly, the majority reasons that Proposition 22‘s language, prohibiting the direct or indirect transfer of tax increment funds, is specifically intended to stop the kind of payments described by Assembly Bill 1X 27. However, Proposition 22‘s plain language simply does not prohibit the kind of payments described by Assembly Bill 1X 27. Proposition 22 prohibits the Legislature from requiring ―a community redevelopment agency . . . to pay, remit, loan, or otherwise transfer, directly or indirectly,‖ its tax increment funds. (Cal. Const., art. XIII, § 25.5, subd. (a)(7)(A), italics added.) As previously described, however, the Assembly Bill 1X 27 payments must be made by community sponsors, not redevelopment agencies. 9 Nothing in Assembly Bill 1X 27 requires a redevelopment agency ―to pay, remit, loan, or otherwise transfer, directly or indirectly,‖ its tax increment funds. If Proposition 22 intended to prohibit the payments described by Assembly Bill 1X 27, it could have been written to prohibit the Legislature from requiring a local government body or community sponsor ―to pay, remit, loan, or otherwise transfer, directly or indirectly,‖ its tax increment funds. But it was not drafted that way. Additionally, nothing in Proposition 22 restricts the Legislature from using tax increment funds as the basis for a particular calculation. Certainly, Assembly Bill 1X 27 uses the size of tax increment funds as a ―yardstick‖ or, as the majority characterizes it a ―levy,‖ to determine the size of the described payments, but such use is not prohibited by Proposition 22‘s plain language. Pointedly, the word ―levy‖ appears nowhere in Proposition 22. Instead, the drafters of Proposition 22 listed a very specific catalog of actions, prohibiting the Legislature from requiring a redevelopment agency ―to pay, remit, loan, or otherwise transfer‖ its tax increment funds. (Cal. Const., art. XIII, § 25.5, subd. (a)(7)(A), italics added.) ― ‗[W]hen a statute contains a list or catalogue of items, a court should determine the meaning of each by reference to the others, giving preference to an interpretation that uniformly treats items similar in nature and scope. [Citations.] In accordance with this principle of construction, a court will adopt a restrictive meaning of a listed item if acceptance of a more expansive meaning would make other items in the list unnecessary or redundant, or would otherwise make the item markedly dissimilar to the other items in the list. [Citations.]‘ ‖ (Commission on Peace Officer Standards & Training v. Superior Court (2007) 42 Cal.4th 278, 294, quoting Moore v. California State Bd. of Accountancy (1992) 2 Cal.4th 999, 1011-1012.) Placing aside the problem that the list of verbs applies only to redevelopment agencies, expansively reading the word ―levy‖ into the list of prohibited actions would conflict with the other words 10 in the list describing actions that ―otherwise transfer‖ tax increment funds, making the remaining words unnecessary or redundant. If Proposition 22 truly intended to prevent the Legislature from using tax increment funds as the basis for calculating certain payments or as the basis of a levy, it could have been written to prohibit the Legislature from requiring ―a community redevelopment agency to pay, remit, loan, or otherwise transfer, directly or indirectly,‖ its tax increment funds ―or to levy such revenues or use them as the basis for certain remittances.‖ But again, it was not drafted that way. C. A Liberal Construction of Proposition 22 Does Not Render Assembly Bill 1X 27 Facially Unconstitutional Even if Proposition 22‘s use of the words ―directly‖ or ―indirectly‖ is ambiguous and raises colorable questions of whether Proposition 22 might apply to community sponsors or whether it might prohibit the use of tax increment funds as a ―yardstick‖ or ―levy,‖ I still cannot agree with the majority‘s conclusion that Assembly Bill 1X 27 is unconstitutional. 1. A Broad Construction of the Word “Indirectly” The express obligation to make the payments to establish or continue redevelopment agencies rests on community sponsors, and not on redevelopment agencies themselves and Assembly Bill 1X 27 does not expressly compel the use of tax increment funds to make the Assembly Bill 1X 27 payments. However, the majority relies on the history of prior ERAF legislation and apparently infers that Proposition 22 intended its use of the word ―indirectly‖ to cover the entire scenario posed by the Assembly Bill 1X 27 payments. But a careful dissection of the 2009 ERAF legislation, much of which was the immediate trigger for Proposition 22, illustrates why this reasoning is erroneous. As relevant here, the 2009 ERAF shift legislation covered two fiscal years and was comprised of four different statutes. (Assem. Bill No. 26 (2009-2010 4th 11 Ex. Sess.) enacted as Stats. 2009, 4th Ex. Sess., ch. 21, §§ 6-9; §§ 33690 [for fiscal year 2009-2010], 33690.5 [for fiscal year 2010-2011], 33691, and 33692.)8 A review of the first three of these statutes reveals that the Legislature clearly targeted redevelopment agencies and their tax increments as the funding source for the ERAF shifts. But the fourth statute, section 33692, was a stand-alone, catchall provision that, unlike the other three statutes, expressed a revenue-neutral stance as to the money used to fund the ERAF shifts. As I will explain, no liberal construction of Proposition 22 can stretch to prohibit similar revenue-neutral provisions enacted by Assembly Bill 1X 27. The first two statutes specify that a redevelopment agency ―shall remit‖ the ERAF shifts, and that payments were to be based directly on a proportion of the redevelopment agency‘s net tax increment. (§§ 33690, subd. (a), 33690.5, subd. (a), italics added.) Both statutes state that the ERAF remittance for each fiscal year is ―declared to be an indebtedness of the redevelopment project to which they relate, payable from‖ tax increment funds. (§§ 33690, subd. (e), 33690.5, subd. (e).) Each statute also states, however, that the redevelopment agency could make the payment by using any of the redevelopment agency‘s other available revenue sources. (§§ 33690, subd. (b), 33690.5, subd. (b).) Each further declares, ―[i]t is the intent of the Legislature, in enacting this section, that these 8 Over a year later, the Legislature added a fifth statute, section 33691.5, that allowed indebted redevelopment agencies to enter into a long-term payment plan with the state to eventually pay off any outstanding ERAF remittances for fiscal years 2009-2010 and 2010-2011. (Sen. Bill No. 863 (2009-2010 Reg. Sess.) enacted as Stats. 2010, ch. 722, § 8.) Because this measure was signed into law on October 19, 2010, well after Proposition 22 qualified for placement on the November 2, 2010 election ballot, section 33691.5 could not have affected the intent of the drafters of Proposition 22. Accordingly, it bears no relevance to our analysis of what Proposition 22 intended to prohibit. 12 allocations directly or indirectly assist in the financing or refinancing, in whole or in part, of the community‘s redevelopment project pursuant to Section 16 of Article XVI of the California Constitution.‖ (§§ 33690, subd. (f), 33690.5, subd. (f), italics added.) Under both the plain language of Proposition 22 and a liberal construction of its use of the word ―indirectly,‖ the Legislature is clearly prohibited from enacting future legislation identical to these first two statutes. Because these first two statutes, sections 33690 and 33690.5, compelled redevelopment agencies to make the ERAF remittances and defined the revenue shifts, whether from tax increment funding or other available revenue, as part of the redevelopment agency‘s indebtedness, payable from tax increment funds, the drafters of Proposition 22 responded by including language that would prohibit the Legislature from enacting future legislation requiring ―a community redevelopment agency . . . to pay, remit, loan, or otherwise transfer, directly or indirectly,‖ its tax increment funds. (Cal. Const., art. XIII, § 25.5, subd. (a)(7)(A), italics added.) To the extent that sections 33690 and 33690.5 also provide that the redevelopment agency could make the ERAF remittances by using any of the agency‘s other revenue sources not related to tax increment funds, a liberal construction of Proposition 22 also would forbid similar measures in the future. Although a redevelopment agency‘s use of otherwise available, non-tax-increment revenue cannot be a compelled direct remittance of its tax increment funds, such use may constitute an indirect remittance of its tax increment funds by imposing an additional, immediate financial obligation on the redevelopment agency‘s otherwise fixed budget. Thus, the provisions in these first two statutes allowing the ERAF remittance to be funded by other redevelopment agency revenue would be prohibited by Proposition 22 because such a provision would require ―a 13 community redevelopment agency . . . to pay, remit, loan, or otherwise transfer, directly or indirectly,‖ its tax increment funds. (Cal. Const., art. XIII, § 25.5, subd. (a)(7)(A), italics added.) A third statute from the 2009 ERAF legislation allows a redevelopment agency to make partial ERAF remittances if its existing indebtedness made it impossible for the agency to fund the entire ERAF shift. (§ 33691.) ―Existing indebtedness‖ is defined in this section as a financial obligation incurred by the redevelopment agency that required ―the payment of which is to be made in whole or in part, directly or indirectly, out of‖ tax increment funds. (§ 33691, subd. (a)(1), italics added.) This section contains a provision allowing the redevelopment agency to obtain a loan from its local government for the ERAF payment, but it also specifies that this loan becomes part of the agency‘s indebtedness that ―shall be payable from tax revenues apportioned to the agency pursuant to Section 33670 [i.e., tax increment funds], and any other funds received by the agency.‖ (§ 33691, subd. (d)(2), italics added.) Again, both the plain language of Proposition 22 and a liberal construction of it would prohibit this kind of statute in the future. The loan anticipated by section 33691 must be directly tied into a redevelopment agency‘s tax increment funds, and the loan also is indirectly tied to tax increment funding by virtue of continued reliance on ―other funds received by the agency.‖ (§ 33691, subd. (d)(2).) Pointedly, Proposition 22 mirrors the same ―directly or indirectly‖ language used by section 33691, subdivision (a)(1). A future version of this third statute, therefore, would be prohibited under Proposition 22 because it would require ―a community redevelopment agency . . . to pay, remit, loan, or otherwise transfer, directly or indirectly,‖ its tax increment funds. (Cal. Const., art. XIII, § 25.5, subd. (a)(7)(A), italics added.) 14 Finally, a fourth statute from the 2009 ERAF legislation is markedly different from its sister statutes. This fourth statute contains a catch-all phrase allowing a local ―legislative body‖ to make the ERAF remittances on behalf of the redevelopment agency using ―any funds that are legally available for this purpose.‖ (§ 33692, subd. (c).) The statute‘s revenue source is neutral and allows payment with ―no strings attached,‖ in the sense that it contains no provision, unlike section 33691, subdivision (d), that converts the payment into an redevelopment agency debt that is payable, either directly or indirectly, through its tax increment funds. To use the majority‘s terminology, this fourth statute acts as a kind of ―levy‖ on tax increment funds that can be paid by a local government body using any available revenue source. Here, I expose the Achilles‘ heel of the majority‘s reasoning concerning the unconstitutionality of Assembly Bill 1X 27. Proposition 22‘s plain language simply says nothing about the ―yardstick‖ or ―levy‖ scenario posed by this fourth statute in section 33692. The language of Proposition 22 constrains the Legislature from requiring ―a community redevelopment agency‖ from making certain allocations of its tax increment, either ―directly or indirectly.‖ (Cal. Const., art. XIII, § 25.5, subd. (a)(7)(A).) Proposition 22 does not address a local ―legislative body‖ nor does it address in any respect the use of otherwise unrelated local revenue to pay a ―levy‖ on tax increment funds. Even a liberal construction of Proposition 22 yields no different conclusion. The only possible ambiguity in the relevant language concerns the use of the word ―indirectly,‖ but that word is bound to the otherwise precise transitive verbs, ―pay,‖ ―remit,‖ ―loan,‖ and ―transfer,‖ all of which are bound to the subject, ―a community redevelopment agency,‖ and the constitutionally protected object, tax increment funds. Simple rules of grammar, therefore, necessarily limit how liberally we may construe the word ―indirectly.‖ (Civ. Code, § 13; Busching v. 15 Superior Court (1974) 12 Cal.3d 44, 52 [―ordinary rules of grammar‖ normally ―must be applied unless they lead to an absurd result‖].) Therefore, the word ―indirectly‖ in plain language prohibits any compulsion being placed on a redevelopment agency to make certain reallocations (not levies) of its tax increment funds (but not other sources of local revenue). As petitioner California Redevelopment Association conceded at oral argument, there are several sources of local revenues not protected by either Proposition 1A or Proposition 22, including, among other things, rental income, lease income, interest income, sales of government-owned assets, sales of bonds, investment income, and fines, fees, and penalties. Given that such revenues bear no relation to any financing received by a redevelopment agency, it seems impossible to conclude on a facial challenge, as the majority does, that Assembly Bill 1X 27 payments funded by these revenues could ever cause a redevelopment agency to indirectly transfer tax increment funds already allocated to it. Certainly, as previously described, a liberal construction of the word ―indirectly‖ can be applied to prohibit the first three statutes of the 2009 ERAF legislation because they each contained mandates directed at redevelopment agencies and either directly targeted agencies‘ tax increment funds or indirectly targeted their tax increment funds by assigning the ERAF shift as indebtedness payable from the redevelopment agency‘s revenue sources. Sections 33690 through 33691 express the premise that the ERAF remittances must come from the redevelopment agency, and, to the extent they do not, the nonpayment becomes part of the redevelopment agency‘s debt. In fact, the legislation specifically defines a redevelopment agency‘s preexisting debt as redevelopment agency payments that have to be made, directly or indirectly, out of tax increment funds. Further, the 2009 ERAF legislation asserts that the ERAF remittances were intended to directly or indirectly further redevelopment projects within the 16 meaning of article XVI of the Constitution. Accordingly, article XVI, section 25.5, subdivision (a)(7)(A) of the Constitution, as enacted by Proposition 22, is completely responsive to the circumstances contemplated by sections 33690 through 33691 by prohibiting the Legislature from requiring ―a community redevelopment agency . . . to pay, remit, loan, or otherwise transfer, directly or indirectly, taxes on ad valorem real property and tangible personal property allocated to the agency pursuant to Section 16 of Article XVI [i.e., its tax increment funds].‖ But the fourth statute — section 33692 — poses an entirely different scenario, one that does not require a redevelopment agency to do anything, let alone require it to reallocate its tax increment funds, either directly or indirectly. It contemplates a situation not addressed by Proposition 22, even under a broad construction of that measure. Nevertheless, simply because section 33692 has an analog in Assembly Bill 1X 27 in the form of section 34194.l,9 the majority hastily concludes that Proposition 22 prohibits similar levies on tax increment funds. The plain language, however, of section 25.5, subdivision (a)(7)(A) of article XIII of the California Constitution, as enacted by Proposition 22, does not support such a conclusion, even when liberally construed. The majority criticizes my reliance on the grammar and syntax of Proposition 22 and cites our decision in Burris v. Superior Court (2005) 34 Cal.4th 1012 (Burris) for the notion that the normal rules of grammar must yield to the drafters‘ intent ― ‗to solve human problems‘ ‖ and that we should approach 9 Like section 33692 from the 2009 ERAF legislation, section 34194.1 likewise explains that the Assembly Bill 1X 27 payments can be funded from any available city or county ―funds not otherwise obligated for other uses.‖ (§ 34194.1, subd. (a).) 17 ― ‗an interpretive problem not as if it were a purely logical game, like a Rubik‘s Cube, but as an effort to divine the human intent that underlies the statute.‘ ‖ (Id. at p. 1017, quoting J.E.M. AG Supply v. Pioneer Hi-Bred (2001) 534 U.S. 124, 156 (dis. opn. of Breyer, J.).) Placing aside the fact that the quote originally came