Judge rules state must pay Huntington Beach at least $5.2 million in redevelopment loan reimbursements

A California Superior Court judge in Sacramento has ruled the state Department of Finance must repay the city of Huntington Beach for millions of dollars for a redevelopment agency loan.

The city sued the state in 2018, seeking $75 million in reimbursement for several different loans procured for various developments in Surf City from the 1980s through the 2000s, largely to upgrade blighted properties and incentivize developers to build both commercially and residentially. When officials in Sacramento ended local redevelopment agencies in 2011, tens of millions of dollars were still owed to cities.

In a decision issued Friday, Judge James P. Arguelles said the state is on the hook for at least $5.2 million to Huntington Beach and possibly owes the city $22.4 million more.

“It’s a pretty massive win for the city, with regard to the money owed by the state to the city,” Huntington Beach City Atty. Michael Gates said. “It’s particularly significant in light of the fact that other cities have sued the state in similar cases and have not prevailed. For us to get this kind of money, it’s a really significant victory for the city of Huntington Beach and the taxpayers.”

The $5.2-million loan was used in 2009 for the sale of the Emerald Cove senior citizen apartment complex, located on Parktree Circle. It was authorized by the City Council, which was at the time designated as Huntington Beach’s redevelopment agency.

A 2009 cooperation agreement including a promissory note, provided by the city, memorializes the restructuring of the debts. The Department of Finance argued in 2017 the note was an “unenforceable obligation” because the set aside funds were not available to the successor agency (the city) post-dissolution of redevelopment agencies.

“This was not a valid basis on which to disapprove the note,” Arguelles wrote in his opinion. “Whereas the [Department of Finance] predicates the note’s enforceability upon the current availability of set aside funds, Section 34194.4, subdivision b2B, defines enforceability by reference to circumstances as they existed before the former RDA was dissolved.”

Gates said the court has asked the city to submit further documentation to the Department of Finance on a $22.4-million loan made by the city for purchase of the Waterfront Beach Resort property in 1989. If that loan is also ordered repaid, the city would stand to gain in excess of $30 million including interest, Gates said.

“Contracts have to have some level of certainty and definiteness, and the court was a little unclear as to the terms of the loan contract,” Gates said. “It wanted us to procure some additional documentation to speak to those terms ... [but] I’m confident we’re going to be able to deliver on what it takes to get the other $22.4 million plus interest.”

As for the other nine property loans included in the city’s 2018 lawsuit, Arguelles ruled that the city failed to demonstrate that they qualified as enforceable loan agreements.

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