CaliforniaCityNews.org

Judge Rules State Can’t Raid First 5 Funds from Counties; Deemed Illegal Maneuver

Among the “legally questionable maneuvers” the governor considered under the state budget was not only the elimination of redevelopment but also the taking of $1 billion from First 5 commissions. The First 5 programs are funded by Proposition 10, a 50 cents-a-pack cigarette tax voters approved in 1998. While lawsuits from various counties ultimately caused legislators to back away from the idea as a budget solution, the governor has been defending the proposal in court. If the law had been enacted, counties would have had to turn over millions of dollars to the state. Well, a judge has now ruled that taking millions in these local funds to patch up the state budget is illegal (do those arguments sound familiar?). The judge wrote, “To claim that transferring decision-making from local communities to the state legislature is 'consistent with' Prop 10 is like asking the court to find that black means white.” Perhaps in a small way the ruling bodes well for Prop 22 and the fate of the redevelopment lawsuit, as the state's hands have been slapped away from the cookie jar. The governor’s administration has not announced yet whether it will appeal the ruling.

Costa Mesa to Consider a Charter as a Way to Untangle City from Outsourcing Lawsuit

The city of Costa Mesa is currently a general law city, but Mayor Pro Tem Jim Righeimer proposed earlier this month that Costa Mesa should become a charter city. The councilman commented, “In the end, what the city needs to do is be able to have control of its own destiny.” Righeimer also commented that it was time for Costa Mesa to be a “grown-up city.” City Attorney Tom Duarte has been directed to write a report for the council on the process of how Costa Mesa could become a charter and it’s likely the report will be ready by early December. If the city does decide to restructure by pursuing a referendum on the June 5 primary election ballot, then a majority of voters will have to support it for ratification.

While the idea is only in the initial stages, it has already faced major pushback. You’ll recall that Costa Mesa is facing a lawsuit over outsourcing city positions and critics argue the charter proposal is just an attempt to get around the legal fight. Righeimer admitted as much, stating that the charter would allow the city to cut off the litigation and avoid leaving the outsourcing decision to a judge. The OC Register reports:

“The idea behind the charter is to circumvent a lawsuit and injunction currently stopping the city from outsourcing services to private companies. While the councilman argues that any other city can legally outsource, an Orange County union representative says Righeimer is trying to change the rules.”

Jennifer Muir, spokeswoman for the Orange County Employees Assn. (OCEA), commented the following about the charter idea: “This is just another example of how these politicians will ignore the rules to advance their own political agenda. A judge already told them they can't do something, so instead of following the law, they try to change the laws."

The local newspaper The Daily Pilot has printed an op-ed against the charter idea as well as a letter to the editor. An excerpt from the op-ed reads:

“Considering the handling of the Costa Mesa's city employee layoffs, the certainty that they would dissolve the dispute with OCEA and the risk, among many possible risks, that they would construct the city charter in a manner that would make their recall harder or their reelection easier, do we really want to give more power to this council for deciding the issues mentioned above?”

Read the full piece here and the letter to the editor here.

Wal-Mart Putting Cities in a Bind? Costly Special Elections Create a Disadvantage

Here at CityNews on numerous occasions we’ve highlighted resistance to Wal-Mart from residents and councils in many cities across the state, whether opposition is in the form or protests, regulations, petitions, ordinances, or spirited town hall debates. In the past Wal-Mart was often the target of ballot initiatives in California as a way to block stores, but now the retail giant is giving cities and residents a taste of their own medicine by bankrolling various ballot measures and/or petition drives and it hasn’t lost in the past few years. In these difficult economic times, cash-strapped cities often simply can’t afford the costs of a special election, so the company appears to get its way when it fights against an ordinance or regulation it doesn’t like. CA Watch has released an article on the store’s tactics and argues that when Wal-Mart pays petition-gatherers to repeal some city action, the city is ultimately left with two choices: pay for a costly special election or repeal the measure Wal-Mart doesn’t like (or approve a Wal-Mart-drafted measure depending on the particular fight at stake).

Case in point: this very scenario played out in the city of San Diego; the council approved new regulations on big box retailers like Wal-Mart, but the council’s efforts fizzled out when Wal-Mart spearheaded a campaign battle through the collection of signatures, which lead the council to repeal the ordinance due to concerns about covering a costly election. The San Diego Council was ultimately unwilling to incur over $3 million in costs for an election. Direct democracy through initiatives is expensive, but when you’re a company like Wal-Mart, you can afford to be far more aggressive in multiple communities, as well as circumvent CEQA through the process.

CA Watch reports the following:

“Wal-Mart’s use of the initiative process has angered elected officials who say the company’s political strategy effectively holds them hostage. ‘They circumvented the system and blackmailed the town,’ said Rick Roelle, a councilman in Apple Valley, where Wal-Mart pushed through a superstore proposal in April. ‘We’ve had controversial projects, but we were never bullied like Wal-Mart.’ Wal-Mart and its supporters argue that the strategy helps speed up development that can boost employment and tax revenue, as well as low-price shopping.”

While some officials clearly are no fans of the store and its tactics, Wal-Mart points out that using the initiative system is clearly legal and that the pressure it exerts on cities is proof that residents are supportive of new (and/or bigger) stores. The company also argues that cities greatly benefit from the jobs, tax revenues, and affordable products Wal-Mart stores provide. Even though there are already over 200 stores in California, the company shows no signs of curtailing expansion.

You can see just how much Wal-Mart has been spending on election lawyers, campaign consultants and public relations firms here.

Audit Says Lindsay Owes $1 Million for Misusing Measure R Funds; Third Recall Attempt

Back in 2006, voters in Tulare County approved Measure R to fund transportation projects with an increase in the sales tax. The measure ultimately has created a major dispute not only between the Tulare County Association of Governments (TCAG) and the city of Lindsay but also between the city and its residents. For awhile now, TCAG has accused the city of Lindsay of misusing taxpayer dollars and demanded that it pay back millions in Measure R funds. Over the course of 21 months, Lindsay submitted invoices for payments from the measure’s funds, but the bottom line is that many expenses were simply ineligible for reimbursements. We relayed back in September that an audit was released showing great mismanagement on the part of former City Manager Scot Townsend and former Finance Director/City Clerk Kenny Walker. TCAG has now received an audit of its own, which posits that Lindsay owes a little over $1 million due to overbilling for a downtown revitalization project.

The Times Delta points out that “The auditors also found that Lindsay had charged TCAG $317,000 in costs it had also billed to the state Department of Transportation or previously billed to TCAG.” In addition, the auditing firm found that TCAG was billed for many expenses that weren’t even related to the project. TCAG wants the city to return the $3.75 million that it received in Measure R funding (which could put the city in a precarious financial position). 

We’ve relayed previously that audits regarding the Measure R funds and TCAG’s demands further enraged residents in Lindsay who have railed against the management of the city. The Measure R dispute essentially tipped residents over the edge and they initiated a recall of all five council members. The recall effort initially hit some bumps in the road and stumbled from the outset, but the third attempt could pull through. The Recorder reports the following on the latest effort:

“The recall proponents have now reached a point where they only have to worry about getting the recall petition right. If it is declared to have deficiencies, they will have to work on correcting them. The entire process will not start over. ‘We’re looking forward to completing [the petition] so we can start with the recall,’ [recall proponent Yolanda] Flores said, adding that she feels she and the other recall proponents can gather enough signatures to have the situation settled at the voting booths. Councilman Danny Salinas said he believes the recall proponents should focus their efforts elsewhere because a special election will “cost the taxpayers and the city money. I feel like I’ve done a great job in my tenure so far,’ he said. ‘The majority of the people (in Lindsay) are still backing us.’”

If initial forms are approved, then proponents will have to gather 549 valid signatures from registered voters in the city on each council member’s recall petition.

CA Supreme Court Issues Key Ruling in Case on Health Benefits for Current Retirees

In what has been called one of the most important cases in years for public agencies, the California Supreme Court heard arguments on October 3, 2011 in Retired Employees Association of Orange County v. County of Orange. At stake is whether or not local governments can take away retirement health benefits from former public employees who are currently retired. The court has now issued its ruling and basically sided with the employees, but with the following stipulation: clear evidence is necessary to show that the county promised lifetime health benefits. Ernest Galvan, an attorney for the retirees in the case, commented that “This opinion sets up a seawall around people who have already retired.” Orange County basically wanted to shift higher health insurance premiums to existing retirees as a way to rein in costs. CNBC reports the following background to the case’s beginnings:

“Orange County eliminated a subsidy it had been paying for retiree health benefits, amounting to a cash value of more than $3,000 per year for each of its retirees, according to court documents. The Retired Employees Association of Orange County sued in 2007, arguing that the county violated an implied contract with the retirees. The county disagreed, saying in court filings that an unfunded liability of $400 million is at stake. In its unanimous opinion released on Monday, the California high court said the right to benefits could be implied from a county ordinance or resolution.”

Notably, the high court was not consulted to decide whether or not the county in fact promised lifetime benefits; instead, the case will return to a federal appeals court with the high court’s ruling in mind to decide whether a clear promise was made. The central state-law question that remains in the case is whether retired employees have a contract right to receive the aforementioned benefit. The county is arguing it is not a vested right and that reducing unfunded liabilities is paramount. The Register points out that “The decision on the case could have significant implications for local governments across California, many of which are struggling to get a handle on ever-increasing unfunded liabilities.” From the perspective of cities and counties, attorneys for local governments posited they were pleased the court established that clear intent must be evident for the creation of a lifetime benefit.

OC’s Payback Time: Tax Take-Back Faces Backlash from State and School Officials

We relayed recently that the Orange County Board of Supervisors basically told the state to drop dead when it came to grabbing $48 million from the County's coffers as a way to balance the state budget. Supervisors decided to fight back over the funds rather than let the state’s plans create layoffs and major cutbacks, so the county announced its plans to hold onto $73.5 million in local property taxes that are supposed to go toward public schools (the county contends the state will be required to backfill the reduction in local revenue due to a mandate). Supervisor John Moorlach stuck to his guns in a post on his blog about the county’s decision and wrote the following:

“The taxpayers of the OC are due the entire $73.5 million. We must keep our $49.5 million and we rightfully deserve the additional $24 million. The schools must be backfilled by the State. The State has to figure out how to come up with the $73.5 million. Had the Legislature and the Governor simply left the OC alone, it would have been $24 million ahead. Now we have to wait and see how Sacramento responds to our having informed them that we are following the law.”

The so-called "response" that OC is getting could be better characterized as backlash. So what about that claim that funding for schools will be guaranteed anyways? Here’s what H.D. Palmer, deputy director of the state Department of Finance, had to say about it, according to the Voice of OC:

“While the redirection of property tax revenue available from K-12 school districts in Orange County would be automatically backfilled with state general fund, the loss of property tax revenue available to community college districts would not. General apportionment funding for K-12 schools is continuously appropriated, and the state general fund makes up the difference between the amount of property tax revenue received by a school district and the ‘revenue limit’ it is entitled to by state statute. However, the state general-fund portion of community college revenue limits is appropriated each year in the budget act. Orange County's decision to redirect property taxes from schools will result in a funding reduction to community colleges unless the Legislature acts to backfill the money.”

The state has already announced that it is considering its legal options in light of Orange County’s decision. So it would appear a legal challenge is likely since the state argues the move is illegal. But the county has countered that it has accounted for legal issues by verifying the options with a private law firm in addition to the legal research that was conducted by county counsel.

But William M. Habermehl, superintendent of the Orange County Department of Education, is certainly not pleased by the county’s decision either. Habermehl fears the state will not make up the difference and commented, “I find it very disconcerting and almost a slap in the face. How can we assume the State of California with the financial difficulties it has will have the money to pay?” More on the response of school officials can be found at the OC Register.

Ex-Bell Officials Say City’s Charter Status Should Absolve Corruption Charges

Bell’s ragtag group of ex-officials are back in the news because they are trying to dismiss corruption charges by citing Bell’s charter status as the defining reason they should be absolved from any wrongdoing. A Superior Court judge has been asked to drop such charges against six former Bell council members and the officials are arguing that since voters approved turning Bell into a charter city, the authority to set annual salaries above state limits was technically legal. Prosecutors contend the salaries were illegal and officials were paid for essentially doing nothing when it came to sitting on various boards. Residents of the beleaguered city thirsty for justice are sure to be furious if any charges against the officials are ultimately dropped. But the chances are slim, according to the LA Times:

“The defense effort may be a long shot, however. When he bound them over for trial after a seven-day preliminary hearing last year, Judge Henry J. Hall, blasted the defendants and even suggested that prosecutors charge them with additional crimes. While Oscar Hernandez, Teresa Jacobo and George Mirabal were still on the council, Hall ordered them to stay away from City Hall.”

One official’s attorney commented the following on the charges: "This is unprecedented in the history of California. Nobody has ever done this, to try to prosecute somebody for making too much money on their salary. You kick these guys out of office if you think they make too much money. You don't prosecute them." A trial date has not been set yet.

Appeals Court Upholds Local Govt Authority in Major Ruling on Pot Dispensary Bans

A state appeals court has now ruled that cities and counties can ban medical marijuana dispensaries within their borders, thereby upholding local government authority when it comes to outright prohibition. This ruling was the first of its kind to address the legality of a citywide ban in direct and clear language. In previous cases there has been some level of ambiguity, as the issue has been tossed around in state courts for many years. The notable case originated out of Riverside. Impacted interests are already wondering whether the ruling will empower more cities and counties to change their approach to medical marijuana dispensaries and impose a ban of their own. That being said, the ruling is likely to be appealed to the state Supreme Court. While under state law patients are clearly allowed to use marijuana medically, the appeals court ruling essentially said that collectives who supply pot cannot be exempt them from local government’s authority to regulate land use. The LA Times reports:

“In the case, a three-judge panel in the 4th District Court of Appeal in Riverside rejected an appeal from Inland Empire Patient's Health and Wellness Center and concluded that the state's medical marijuana laws do not prevent cities and counties from passing regulations on dispensaries, including bans. The judges also issued a nearly identical unpublished opinion Wednesday, upholding Upland's ban. The decisions closely follow another appellate court ruling that said Long Beach could not adopt any regulations that amount to authorizing dispensaries because marijuana remains illegal under federal law.”

One expert believes that recent rulings show the tide is turning against medical marijuana operations and that local governments are leading the way. While plenty of entities will push for more answers on this contentious issue, Riverside officials got the answer they wanted to hear and will now move to shut down any dispensaries operating in the city’s boundaries. City Atty. Gregory Priamos commented that "We're extremely pleased that the court recognized and respected local land use and zoning authority."

Many city officials have alreaday noted that the case will cause them to rethink their approach to dispensaries when it comes to enforcing bans. Take Rancho Mirage--coverage can be seen here.

RDA Lawsuit Hearing Set for This Week; Online Streaming of Oral Arguments

As a reminder, this week the California Supreme Court will hear oral arguments on the redevelopment lawsuit, which was filed on July 18 by the California Redevelopment Association (CRA), the League of California Cities, and the cities of San Jose and Union City. The hearing is on Thursday, November 10th at 9 am in San Francisco. And if you’re interested, the hearing will be broadcast live on California Channel’s website, so mark your calendars. Online streaming on the Cal Channel website can be viewed here.

St. Controller’s Third Audit of Montebello Released; Scrutinizes Management Practices

For the past couple of months, the city of Montebello has been slogging through the dirty work of righting its fiscal and management missteps with the help and discipline of interim city administrator Larry Kosmont and a new budget plan. But bad news and light shone on past misdeeds continue to plague the city’s road to recovery. Take an investigation by the FBI and federal prosecutors over allegations of misuse of funds and fraud involving federal housing money, not to mention threats of insolvency and a downgraded credit rating. The Los Angeles County District Attorney’s Office has also been investigating the city over” off the books" city bank accounts. And then there is the four-part audit being conducted by State Controller John Chiang. The Controller recently released part three of his audit, which has revealed problems with the city's use of state and federal funds. For instance, engineering work was awarded to a single company without any competitive bidding or independent project oversight. The contract in question is with a private firm, AAE, which serves as the City's engineer.

Chiang commented the following about the latest findings:

“This latest audit reveals troubling management practices which invite self-dealing, the misuse of taxpayer resources, and the unlawful borrowing of restricted funds. The fiscal duress now facing Montebello is, in part, self-inflicted due to years of poor fiscal oversight and inattention to basic principles of public accountability."

Basically, the engineering firm contracted all projects to itself and it was never subjected to any oversight. In just one year, the firm was paid $500,000 and an additional $2 million was dished out for projects. Contracts worth a certain amount of money must be bid competitively, according to a city ordinance, but that stipulation was not followed with AAE. The controller recommends the following actions for Montebello:

• use competitive bidding for all its future capital improvement projects;
• conclude the current engineering contract and employ a competitive bid process to award a new contract
• establish a stronger form of oversight so that the contractor is not in the position of being able to rubber-stamp its own work.

In response to the findings, the LA Times reports the following on AAE’s interpretation:

“Sid Mousavi, AAE's chief executive, disputed Chiang's findings, saying the company had not awarded any contracts to itself. Rather, he said, the company had solicited bids for construction work, and, as the manager of those contracts, received a fee. He also said that every deal his company entered into had been approved by Montebello officials. He added that his company saves Montebello money because it is able to hire experts, such as traffic engineers, for just a few hours a week rather than paying full-time salaries.”

The audit also found that $1,700 in state funds were used to take city employees to a Dodgers game and that incorrect cost formulas were used for state dollars. You can read the full third audit here. Info on audits one and two can be seen here.