Financing Tool OKd for Renewal Programs

SAN FRANCISCO â€”  In an important victory for redevelopment agencies, the state Supreme Court on Thursday upheld a method widely used to finance multimillion-dollar urban renewal projects in California.

The justices, ruling in a Napa County case, overturned a state appellate court decision that had barred redevelopment agencies from receiving local tax revenue for anticipated--rather than actual--indebtedness they incur under agreements with developers.

With the steady decrease in the availability of federal funds in recent years, these local tax revenues--provided by the increased value of property in a renewal area--have become the principal source of funding for redevelopment programs.

The appellate court ruling had caused widespread concern among redevelopment officials. In numerous counties--including Los Angeles--agencies have obtained tax revenue based on their projected costs in development programs.

Attorneys for the agencies had warned the court that if the appeal court ruling were not overturned, it could stymie projects and open the way to legal challenges to previous agreements with developers.

In Thursday’s ruling, the justices held unanimously that the appellate court had misinterpreted the applicable state laws and that agencies could continue to receive revenue for indebtedness they expect to incur in renewal projects.

“The manifest legislative intent is that available (tax revenues) be furnished to redevelopment agencies so they have a reliable source of funds to pay for all indebtedness incurred in the process of redevelopment,� Justice Marcus M. Kaufman wrote for the court.

“To hold otherwise, we are persuaded, would disrupt the orderly scheme of redevelopment financing in California.�

The decision was described as “correct� by Lee C. Rosenthal of San Francisco, an attorney for the 230-member Community Redevelopment Agencies Assn. Had the appellate ruling been upheld, Rosenthal said, redevelopment agencies might have been encouraged to become “more fiscally irresponsible� by incurring greater debt to assure the receipt of tax money.

The case before the court arose in 1981 after the Napa Community Redevelopment Agency entered into an agreement with a private developer to construct a 10-acre shopping mall in downtown Napa in 1980.

The agency sought to supplement $10 million in federal grants it received with $1.1 million in “tax increment� revenues--local property tax money generated by the project--to pay for its obligations to acquire land, build streets and provide parking under the agreement with the developer.

Such plans--called “disposition and development agreements�--enable agencies to plan a project with a developer before actually incurring costs.

However, the county auditor, James H. Marek Jr., refused the agency’s claim, contending that because the agency then owed no specific sum to specific creditors, it was not actually in debt and thus could not qualify for the tax revenues.

In an ensuing lawsuit, the auditor’s contention first was rejected by a Napa Superior Court judge but then upheld last year by a state Court of Appeal in San Francisco. Kaufman, writing for the state Supreme Court, said that under the auditor’s interpretation of the law, agencies would be improperly forced to borrow money or sell bonds to meet the requirement for “indebtedness� that would gain them tax revenue.

“Such a ruling would compel an agency to incur substantial interest expense unnecessarily,� Kaufman wrote. “No legitimate redevelopment objective or fiscal policy would be served. . . .�