Wednesday, November 2, 2016
C.A. Partially Upholds City’s Plan to Fund Road Repairs Without Public Vote
By a MetNews Staff Writer
A city’s plan to use “special funds” to fund road improvements, without the two-thirds public vote required to incur indebtedness, is valid to the extent that it does not rely on gas tax revenues, the Fifth District Court of Appeal has ruled.
The court Monday partially affirmed, and partially reversed, Kern Superior Court Judge David Lampe’s ruling in favor of the City of Bakersfield. Lampe found the plan to be valid in its entirety.
In July 2013, the city created the Bakersfield Public Benefit Corporation, an entity with a legal identity separate from that of the city, with authority to “borrow the necessary funds” to develop public improvements. Two months later, the City Council approved several agreements, including a certificate purchase agreement authorizing the city and the corporation to sell certificates of participation to raise funds for the projects.
Another agreement provided that the corporation would create the projects and sell them to the city, and that the city would pay for the projects in installments, based on a schedule attached to the agreement. The agreement specifically defined the city’s obligation to make the payments as being limited to specified revenues, and declared that the obligation ”does not constitute a debt of the City…within the meaning of any constitutional or statutory debt limit or restriction.”
The city identified three sources of “special fund” revenues to be used to make the payments—gas tax revenues received from the state, transportation impact fees paid by developers to mitigate the effects of development on local traffic, and franchise fees and surcharges paid by public utilities.
After completing the agreements, the city filed a validation proceeding. The West Park Home Owners Association answered the complaint, alleging that the plan violated the referendum requirement of Art. VI, §18 of the state Constitution.
Lampe conducted a hearing and granted judgment in favor of the city.
Merced Superior Court Judge Brian L. McCabe, sitting on assignment in the Court of Appeal, rejected the association’s argument that the city’s general fund would be at risk if the special fund revenues were inadequate. The installment sale agreement clearly prohibits that from happening, the jurist said.
With respect to gas tax revenues, however, the city’s plan violates Art. IX, §6 of the Constitution and Street and Highways Code §2107.4, McCabe concluded. Those provisions, McCabe said, bar the city from pledging gas tax revenues for payment on bonds that have not been approved by the voters.
The jurist rejected the city’s argument that the installment payments aren’t payment on bonds. Because the installment payment agreement legally binds the city to make the payments, it is a “bond” in the legal sense, he said.
He acknowledged that a number of trial courts have ruled otherwise. But trial court rulings “have no precedential value,” he said.
The case is City of Bakersfield v. West Park Home Owners Association and Friends, F071869.
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