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Court of Appeal Holds That County Must Include ERAF Revenue in Calculating Pass-Through Payments By Redevelopment Agency to School District

On January 27, 2010 the Court of Appeal filed its decision in Los Angeles Unified School District v. County of Los Angeles et al., in which the Court analyzed the overlap between the Educational Revenue Augmentation Fund (“ERAF”) legislation in the Revenue and Taxation Code and the pass-through legislation applicable to redevelopment agencies found in the Health and Safety Code.

In reversing the Los Angeles Superior Court and remanding for further proceedings, the Court determined that Los Angeles County had erroneously calculated the Los Angeles Unified School District’s percentage share of property taxes and thus subjected the District to an improper reduction in the amount of pass-through payments to which the District was entitled.

The Court noted that pursuant to Health and Safety Code Section 33607.5(a)(2) pass-through payments by redevelopment agencies must be allocated to affected taxing entities in proportion to the percentage share of property taxes each affected taxing entity receives during the fiscal year the funds are allocated. The County had consistently ignored the District’s ERAF revenue in calculating the District’s percentage share of property taxes, contrary to “plain and unambiguous” language in Revenue and Taxation Code Section 96.1(d)(5) stating that property tax revenue shifted to ERAFs under the Revenue and Taxation Code is deemed property tax revenue allocated to ERAFs. As a result the Court found that the County was required to increase its allocation of redevelopment agency pass-through payments to the District. However, the Court also found that Section 96.1(d)(5) contains an exception for “supplemental” ERAF deposits made under the Health and Safety Code by redevelopment agencies utilizing tax increment revenue or other revenue sources and that such deposits did not need be included in the allocation of pass-through payments. The Court did not address negotiated pass-through agreements in the opinion.

While acknowledging that including ERAF revenue in pass-through allocations could be at the expense of counties, cities and special districts, the Court determined that the Legislature’s failure to exclude ERAF revenue from the allocations was both intentional and authorized. The Court cited language from prior decisions to the effect that local governments have no “vested right” to receive property tax revenues and that “the Legislature may direct a local government to make any payment of its funds that it sees fit.” This case now returns to the Superior Court for litigation of the District’s right to reimbursement. The opinion’s greatest impact will be on local agencies (other than redevelopment agencies) in counties that have not been including ERAF revenue in their pass-through allocation determinations.

Meyers Nave’s attorneys are closely following the issues related to ERAF revenue and how Los Angeles Unified School District v. County of Los Angeles et al. will impact local agencies. The firm currently represents the Water Replenishment District of Southern California, as a respondent and real party in interest in this matter. If you would like more information on this decision or how it may affect your agency, please contact James Casso, Bianca Sparks or Robin Donoghue.