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QUINN EMANUEL URQUHART & SULLIVAN, LLP Kathleen M. Sullivan (SBN: 24226 1 )
e . .·· "' ,..., �� . ., � �U[Qlenor CcllJllril '(�Y i-�:BJ It�·c._ �'!I�SJ�
St��;h 01me���� 2 kathleensul\ivan @quinnemanuel.com
Erica P. Taggart (SBN: 2 1 58 1 7) 3 ericatag0oart@quinnemanuel .com � th 865 S. Figueroa Street, I 0 Floor 4 Los Angeles, CA 900 1 7
Telephone: (2 1 3) 443-3000 5 Facsimile: (2 1 3) 443- 3 1 00
6 Jonathan E. Pickhardt (pro hac vice to be filed) [email protected]
7 Brad E. Rosen (pro hac vice to be filed) brad rosen @qui nnemanuel .com
8 51 Madison Avenue, 22"" Floor New York, New York 1 00 1 0- 1 60 1
9 Telephone: ( 2 1 2) 849-7000
1 0 Facsimile: (2 1 2) 849-7 1 00
II Attorneys for Plaintiffs/Petitioners Syncora Guarantee Inc. and Syncora Capital
1 2 Assurance Inc.
13
l.l8Hli� t21ill1 g
P-1!.��-------, [l,�IP Jf;� C2l5£� ��us����li:
14
15 SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SACRAMENTO 16
17 SYNCORA GUARANTEE INC. and SYNCORA CAPITAL ASSURANCE INC.,
1 8
19
20
Plaintiffs and Petitioners,
-against-
STATE OF CALIFORNIA; JOHN CHIANG, 2 1 i n his official capacity as State Controller;
ANA J . MA TOSANTOS, in her official 22 capacity as California Director of Finance;
LARRY WALKER, in his official capacity as 23 Auditor-Controller of San Bernardino County,
on his own behalf and as the representative of 24 all other County Auditors in the State of
California, 25
26
27
28
Defendants and Resnnndents.
CASE NO.
COMPLAINT AND PETITION FOR WRIT OF MANDATE
Trial Date: None Yet Set
SERVICE ON ATTORNEY GENERAL REQUIRED BY RULE 8.29(C)(l)
2
3
4 I.
5 II.
6 Til.
TABLE OF CONTENTS
NATURE OF THE ACTION . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .. . . . . I
THE PARTIES . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . ..... . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... . . . . . . . . . . . . . 3
VENUE .................... ................................ . . . . . . . ...................................................................... 5
7 MEMORANDUM OF POINTS AND AUTHORlTJES IN SUPPORT OF PETITION . . . . . . . . . . . ... . . . . 5
8 IV .
9
1 0
I 1
1 2
13
1 4
1 5 V.
1 6
1 7
1 8
1 9
20
2 1
22 Vl.
23
24
25
26
27
28
STATEMENT OF FACTS COMMON TO PETITION AND COMPLAINT . . . . . . . . . . ....... . . . . 5
A . California Redevelopment Agencies and the Constitutional System of Tax-Increment Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 5
B . Based o n the Irrevocable Pledge of Tax Increment Revenue, Syncora Agreed to Enter Into a Contract as Bond Insurer of Various RDA Bonds . . . . .. . . . . . . . . . 9
C. Dissolution of the Redevelopment Agencies and Redistribution of Their Tax Increment Revenue . ... . ........... ........... ........ . . ......... . ... ................ ................... ..... I I
D. Recent Clean-Up Legislation Leaves Bondholder Indebtedness in Doubt . . . . . .... .. . . I 3
E. Downgrade of RDA debt after passage of AB26 ............ .. ............................. ......... I 4
AB26 VIOLATES THE CONTRACT CLAUSES OF THE CALIFORNIA AND UNITED STATES CONSTITUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4
A. The Contract Clauses of the California and United States Constitution Prohibit States from Impairing the Obligations of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 4
B. The Redistribution Provisions Impa ir Contractual Obligations B y Materially Changing the Rights and Responsibilities of Contracting Parties, Including Syncora . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .... . . . . . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . . . 1 5
C. The Redistribution Provisions are not a Reasonable and Necessary Means to Further an Important Public Purpose . ... . . . . . . . . . . . . . ..... . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .. . . . . . . . . . 22
THE IMPAIRMENT OF CONTRACT ALSO CONSTITUTES A DIRECT TAKING JUSTIFYING COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---- _.... .. --·
TABLE OF AUTHORITIES
2
3
4
5 A llied Structural Sreel v. Span1wus,
CASES
·-····--·-
438 u.s. 234 ( 1 978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 4 6
Bd. of Admin. of Cal. Pub. Emps. Ret. Sys. v. Wilson, 7 52 Cai .App.4th I I 09 (Cal. Ct. App. 1 997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8, 22, 23, 24
8 Brown v. Ferdon, 5 Cal. 2d 226 (Cal. 1 936) . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9 California RedevelopmenT Ass 'n v. Matosantos,
1 0 5 3 Cal.4th 23 1 (Cal. 201 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 , 20, 23
I I California Redevelopmenl Assoc. v. Genest, No. 34-2008-00028334-CU-WM-GDS (Cal. Super. Ct. Cty. Sacramento, Feb. 6.
1 2 2009) ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . ..... . . . . . . . . .............................. . . . . . . ...... . . . . . . .................... 4
l 3 City of Dinuba v. County of Tulare, 4 1 Ca 1 .4th 859 n.7 (Cal. 2007) . . . . ... . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . 6
1 4 City of Oakland v. Oakland Raiders,
1 5 32 Cal. 3d. 60 (Cal. 1 982) . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1 6 Craig v. City of Poway, 28 Cai .App.4th 3 1 9 (Cal. 1 994) . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1 7 Holtz v. San Francisco Bay A rea Rapid Transit Dist.,
1 8 1 7 Cal. 3d 648 (Cal. 1 976) . . . . . . . . .... .. . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . 26
1 9 Lingle v. Chevron U.S.A. Inc., 544 u.s. 528 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
20 Omnia Commercial Co. v. United Stares,
2 1 261 U.S. 502 ( 1 923) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
22 Rose v. Slate, 1 9 Ca1.2d 7 1 3 (Cal. 1 942) . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 26
23 Sonoma Cnty. Org. of Pub. Emps. v. Cnty. of Sonoma,
24 23 Cal. 3d 296 ( 1 979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . 23
25 Teachers' Retirement Board v. Genest, 1 54 Cal.App.4th 1 0 1 2 (Cal . Ct. App. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... . . . . . . . . . . . . . . . .. . . . . . . . . . . 1 5, 1 8
26 U.S. TrusT Co. of N.Y. v. New Jersey,
27 43 1 U.S. I ( 1 977) . . . . . . . . . . . . . . . .... ............ .. . . . . . .. . . . . . . . . . . . . .... . ... . . . . . . ................. . . . . . . . . .............. passim
28
--· ·= ··-
-II-
Ll*
--·-
Valdes v. Cory,
... __ ·----· ._ .. .., •. _,, .
I 39 Cal.App.3d 773 (Cal. Ct. App. I 983) . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 4, 24 2
Webb's Fabulous Pharmacies, Inc. v. Beckwith, 3 449 U.S . 1 55 ( 1 980) . . . . . . . . . . . . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 26
4
5 STATUTES
6 Cal . Const. art. I ,§ 9 . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. 27, 28,30
7 Cal . Const. art. l, § 1 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 3 , 26, 3 I , 32
8 Cal . Const. alt. I , § 1 9(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9 Cal . Const. art. Xlli(A) ....................... . . . . . . . . . . . . . . . . . . ....... . . . . . . . . . . . . . . . . . .. . . . . . . . . . .. . . . . . . . . . . . ............... . . . . . . ....... 8
1 0 Cal . Const. art. XVI,§ I 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim
ll Cal . Const. art. XVl, § I 6(b) . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... I, 6, 7
1 2 Cal. Const. art. XVI,§ 1 6(c) . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1 3 H ealth & Safety C. § 3 1 4 77(1)(3) . . . . . . . . . . . . . . . .
14 Health & Safety C.§ 33020 . . . . . . . . . . . . . . . . . . . . . . . . .
. .............. ...... .. . .. . ....... . ........................... 2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I I
1 5 Health & Safety C. § 3302 1 . . . . . .. .. . . . . . . . . . . . . . . . . . . . . . . . . . ........................ ........... . . . . . . ..... . . . . . . . . . I 0, I I , 18 . 1 9
1 6 Health & Safety C.§ 33030(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 5
1 7 Health & Safety C.§ 33037(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1 8 Health & Safety C.§ 33670 . . . . . . . . . . . . . . . . . . . . . . ..... . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7, 28, 29
I 9 Health & Safety C. § 33670(b) . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 1 6
20 Health & Safety C.§ 33670(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6
2 1 Health & Safety C . § 33670.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim
22 Health & Safety C.§ 3367 1 .. . . . . . .. . ..... ... .......... . .......... .... . .......... ............. ........................ . . ... I, 6, 9, 1 6
23 Health & Safely C. § 3367 1 .5 . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6
24 Health & Safely C.§ 34 1 67(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2
25 Health & Safely C. § 34 1 68(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
26 Health & Safety C. § 34 1 72(a)( I) . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . ......... . . . ........ . . . . . . .. ..... . .. ............. .. II
27 Health & Safety C. § 341 72(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3
28 Health & Safety C. § 341 73(c)( l ) . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I I
-111-
Health & Safety C . § 3 4 1 73(d)(3) . . . ... . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . 12
2 Health & Safety C . § 34 1 74 . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . . . . . 2, 1 6, 17
3 Health & Safety C . § 34 1 7 4(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . . . 1 1
4 Health & Safety C. § 34 1 77 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3
5 Health & Safety C. * 3 4 1 77(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 1 2
6 Health & Safety C. § 34 1 77(e) . . .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . ... . . . . . . . . .. . . . . . ........ .... . . .. . . ... . . . . . . . . . . . . . . 12
7 Health & Safety C. § 3 4 1 77(m) . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... . . . . . . . . . . . . . . . . . . . . . . . 1 3
8 Health & Safety C. § 3 4 1 77 .3( c) . . . . . . . . . . . ... . . . . . . . . . . . . . . ... . . . . ... . . .. .. . . . . . . . ..... . . . . . . . . . . . . . . . . . . . . . . ..... . . . . . . . . .. . . . . .... 1 3
9 Health & Safety C. § 34 1 79(h) . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . ........ . . .. . . . . .. . . . . . . ... . .. . . . .. . . . ...... . . . . . ...... . . . . . . . . . . . 1 3
10 Health & Safety C. § 341 83(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3, 12 , 1 7
II Health & Safety C. § 34 1 88 . . . . . . . . . .. . . . . . ...... . . . . . .... . . . . . ........ ......................................... . . ...... . . . . . .......... . . 2
1 2 Health & Safety C . § 34325 .. . . . ........ . . . . . .... . . . . . . . ...... . . . . . . . ................ . .. . . . . ................... ..... . . . .................. 5
13 Health & Safety C. § 34350 .............................................................................................................. 5
1 4 Health & Safety C. § 34352 . . . . . . . . . . . . . . ... . . . . . . . . ......... . . . ........ . . . . . . . . . . . . . . . ....... . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... . . 6
1 5 Health & Safety C. § 34356 . . . . . . . . . . . . . . .. . . . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1 6 Health & Safety C. § 34359 . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... . ... . . . . . .... . . . ... . . . ... . . . . . . . . . . . . 6
1 7 Health & Safety C. § 34360 . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . .. . . . . . . . . . . . . . . . . . . . . .. . . . . . .. . . . . . . . . . . . . . . . 6
1 8 Health & Safety C . § 34365 ... . . . ...... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . ....... . . . . . . .. . . . . . . . . . . . . . . . ...... . . .. . . . . . . . 7
1 9 Health & Safety C . § 34373 . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . ............ 5
20 Health & Safety C . § 34377.4 . . . .. . . . . . . . .. . ...... ... . . ........ ........... . . .. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .... 5
2 1 Health & Safety C. §§ 33000 et seq . . . . .... . . .. . . . .. . . .. . . ..... . . .. . . . .. . . . . . .. . . . . . . . . ..... .. . . . . . . . ...... ... . . . . . ....... .... ... I , 5
22 Health & Safety C. §§ 34 1 77(d-e) . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . ... . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . 3
23 Health & Safety C. §§ 3 4 1 83(a)(2-3) ..... . . . . . . . . . . . . . .. . .. . . . . . . . . . . . .. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... . . . . . 1 7
24 U.S. Const. art. I, § 1 0, cl. 1 .... . . . . . . . . . . . . . . . . . . .... . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... . . . . ..... . . . . passim
25
26 OTHER AUTHORITffiS
27 Community Redevelopment Actions and Proceedi ngs- Indebtedness, 20 II Cal. Legis. Serv. 1 st Ex . Sess. Ch. 5 (A.B. 26) (WEST) . . ..... . .... . . . . . . . . ... . . . . . . . . ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2
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Fitch Downgrades San .lose Redevelopment Agency, CA 's TABS to '88' on Ratings Watch Negative, Reuters (. June 5, 20 1 2) . . . . . . . . . . . . . . . . . .... . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . 2 1
2 Moody 's Cuts $11.6 Billion California Redevelopment Debt,
3 James Nash, Bloomberg.com (Jun. 1 5, 20 1 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 , 22
4 Moody's Downgrades California Tax A llocation Bonds Due to Near-Term Cash Flow Risks A rising From. Redevelopment Agencies ' Impending Dissolution; All Tax
5 Allocation Ratings Remain On Review For Possible Further Downgrade,
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Moody's Investors Service (Jan. 1 7, 20 1 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1
SENATE R. COMM., Senate Floor Analysis of A B 1 484 (20 1 2 I st Ex. Sess.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SENATE R. COMM., Senate Floor Analysis of AB 26 (201 1 1 st Ex. Sess.) . . . ..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SENATE R. COMM. , Senate Floor Analysis of SB 1 290 (20 1 2 I st Ex. Sess.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
RULES
Civ. Proc. Code§ 393(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Civ. Proc. Code § 395 .............. .................. . . . . . . . . .. . . . . . . . . . .. . . . . . . . . ....... . . . . . . . . . . ........................ . . . . . .... . . . . . . . . 5
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'WMM ., ••
Plaintiffs/Petitioners, SYNCORA CAPITAL ASSURANCE INC. and SYNCORA
2 GUARANTEE INC., (collectively "Syncora,") by and through their attorneys, bring this action
3 against the STATE OF CALIFORNIA; JOHN CHIANG, i n his official capacity as State
4 Controller; ANA J . MATOS ANTOS, i n her official capacity as California Director of Finance;
5 and LARRY WALKER, i n his official capacity as Auditor-Controller of San Bernardino County,
6 on his own behalf and as the representative of all other County Auditors i n the State of California,
7 and allege as follows:
8 I. NATURE OF THE ACTION
9 l . Plaintiffs/Petitioners Syncora Guarantee Inc. and Syncora Capital Assurance lnc.,
1 0 (collectively "Syncora,") monoline financial guaranty insurers, bring this action to challenge
II certain provisions of the California Health and Safety Code that redistribute tax revenues
1 2 previously allocated to California's (recently dissolved) Redevelopment Agencies ("RDAs"). The
1 3 challenged prov isions substantially and unconstitutionally impair the rights o f parties to contracts
1 4 among the RDAs, the bondholders, and their bond insurers (and debt service reserve surety
1 5 providers), including Syncora.
1 6 2. Unti l recently, Cal i fornia law permitted certain municipalities, through use of a
1 7 statutori ly authorized public corporation (an RDA), to raise money via debt offerings i n order to
1 8 revitalize local communities and eliminate urban blight. Under California's Community
1 9 Redevelopment Law (Health & Safety C. �§ 33000 et seq. ("Community Redevelopment Law" or
20 "CRL")), and as expressly authorized by Article XVI, Section 1 6 of the Cal ifornia Constitution,
2 1 these RDAs were legally empowered to "i rrevocably pledge[]" certain property tax revenues ("tax
22 increment funding" or "TTF") for "the [re]payment of the principal of and i nterest on [the RDA 's]
23 loans, advances, or indebtedness." (Health & Safety C. § 3367 1 : Cal . Canst. art. XVI, § 1 6(c).)
24 3. With the backing of this statutory grant, RDAs issued debt (bonds) containing
25 irrevocable pledges of tax increment revenue. Many RDAs requested credit enhancement from
26 mun icipal bond insurers, including Syncora, i n order to make the debt more attractive to potential
27 bondholders and reduce their financing costs. Under the terms of the RDA bonds to which
28 Syncora was a party, security for repayment of RDA debt included a lien on the tax increment
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revenue allocated to the RDA. Moreover, RDA bond indentures typically included a pledge that
2 the additional tax increment and bond revenue would be used for redevelopment purposes only,
3 thereby enhancing the prospects for future tax increment revenue as additional security for
4 repayment of the bonds i n the future. The ex istence of the irrevocable pledge formed an integral
5 part of the RDA bonds, as well as the insurance policies among RDAs, bondholders, and Syncora,
6 which directly reference, incorporate, and insure those bonds.
7 4. Assembly B i l l 26 ("AB26" or the "RDA Dissolution B i l l") modified the CRL to
8 officially extinguish the RDA' s obligations to their bondholders, and transferred the obligation to
9 pay outstanding indebtedness to successor organizations, such as munici palities or bodies to be
I 0 established. (Community Redevelopment-Actions and Proceedings-Indebtedness, 201 1 Cal.
II Legis. Serv. I st Ex. Sess. Ch. 5 (A.B. 26) (WEST).) The successor agencies do not have the same
12 purpose, charter, or goals as the RDAs, and their authority to use tax increment funds materially
13 differs from the authority previously held by the RDAs. Pursuant to various provis ions of the
1 4 CRL as modilied by AB26, the amount of money available to repay bonds has been significantly
1 5 reduced, the security interest ensuring prompt repayment has been impaired, and the whole
1 6 framework of using tax increment financing to eliminate blight and revitalize communities, and
1 7 thereby increase future tax increment revenue (making repayment of RDA debt more likely), has
1 8 been eliminated.
19 5. Syncora specifically chal lenges the constitutionality of sections 34 1 72(d), 34 1 74,
20 34177(cl), 34 1 83(a)(4), and 34188 (the "Redistribution Provisions") of the Cal ifornia Health and
2 1 Safety Code. The Redistribution Provisions were added to the Health and Safety Code by AB26.
22 6 The Redistribution Provisions directly revoke the supposedly irrevocable pledge of
23 tax increment revenue as security for RDA debts. In doing so, they impair the tripartite contracts
24 between the RDAs, bondholders, and Syncora. First, the Redistribution Provisions eliminate the
25 lien on tax increment revenue. which was established by law and reiterated in the terms of the
26 contracts. Second, the Redistribution Provisions prohibit successor agencies from keeping surplus
27 tax increment revenue for the benefit of potential debt obligations that may become payable more
28 than six months in the future. Health & Safety C.§ 31477(1)(3). Third, the Redistribution
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Provisions require that tax increment revenue not needed for debt service i n the next six months be
2 "distribut[ed] to the taxing entities [as] property tax revenues . . . ," rather than being held by the
3 RDAs or invested in community development projects that strengthen future revenues, and thus
4 security, for the bonds. (Health & Safety C . §§ 34 1 77(d-e) (present unencumbered balances); id. §
5 341 83(a)(4) (every six months); see also id. § 34172(d) (remainder deemed "property tax
6 revenue").) I n sum, the Redistribution Provisions take RDA funds previously held for the
7 exclusive purposes of RDA debt service and project area redevelopment, and give those funds
8 away to the public coffers.
9 7 . ln this way, the Redistribution Provisions violate the "Contract Clauses" of the
I 0 United States and Cal i fornia Constitutions (U.S. Con st. art. I, § 1 0, cl. I ; Cal. Const. art. I , § 9)
I I because they unconstitutional ly impair the contracts among the RDAs, bondholders, and Syncora.
1 2 8. Moreover, the Redistribution Provisions also violate the "Takings Clauses" of the
13 United States and California Constitutions (U.S . Const. amend. Y; Cal. Const. art. I ,§ 19) because
1 4 they unconstitutionally take and appropriate bondholders' (and Syncora's) contractual right to
1 5 critical security mechanisms without just compensation.
1 6 9. Syncora thus brings the current action for a Writ of Mandamus, declaratory relief,
1 7 injunctive relief, and damages i n order to vindicate its constitutional rights to be free of the
18 contractual impairment resulting from actions by the State of Cal i fornia and to receive just
19 compensation for the taking of its contractual rights.
20 II.
2 1
22
THE PARTIES
I 0. Except as noted, all public officials are being sued i n their official capacity only.
The Plaintiffs/Petitioners
23 1 1 . PlaintifffPetitioner Syncora G uarantee lnc. ("SGI'') is an insurance company
24 formed under the laws of and domiciled in the State of New York, with its principal place o f
25 business in New York, New York. SGI is a wholly-owned subsidiary of Syncora Holdings Ltd., a
26 holding company organized under the law of Bermuda.
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1 2 . Plaintiff/Petitioner Syncora Capital Assurance Inc. ("SCAI") i s an insurance
2 company formed under the laws of and domiciled i n the Stale of New York, with its principal
3 place of business in New York, New York. SCA! i s a wholly-owned subsidiary of SGI.
4 1 3. Syncora (SGl and SCAI collectively) i s a financial guaranty insurance company-
5 commonly referred to as a "mono l ine i nsurer" because it does not sell other kinds of insurance
6 such as l ife, health, or property insurance. Generally, the mono l ine insurers provide credit
7 enhancement on bonds issued by state and local governments, by insuring against the risk of
8 municipal bankruptcy or default. The insurance specifically protects bond purchasers from the
9 risk that RDAs, backed by the irrevocable pledges of the state, wi l l nevertheless fail to make bond
1 0 payments. Syncora provided bond insurance (and other, related insurance policies) for bonds
I I issued by Califomia·s RDAs. lt is a party to contracts among the RDAs and bondholders relating
1 2 to the specific RDA bonds covered by the relevant contracts it insures. A list of such contracts is
13 attached as Exhibit A.
1 4 The D�fendants
1 5 1 4 . Defendant State o f Cal i fornia i s a sovereign state o f the United States.
1 6 1 5 . Defendant John Chiang i s the Controller for the State of California.
17 1 6. Defendant Ana J . Matosantos is the D irector of Finance for the State of Cal ifornia.
1 8 1 7. Defendant Larry Walker is the Auditor-Control ler for the County of San
1 9 Bernardino County. A s the Auditor-Controller of San Bernardino County, Defendant Walker has
20 ministerial duties related to bonds issued by the Southern California Logistics Airport Authority
2 1 and the Hesperia Community Redevelopment Agency, both of which issued bonds insured by
22 Syncora. In addition to being sued in his official capacity, he is being sued as a representative of
23 all Auditor-Controllers in the slate of California under California Code of Civi l Procedure§ 382.
24 Such a class has previously been certified in California Redevelopment A ssoc. v. Genest, No. 34-
25 2008-00028334-CU-WM-GDS (Cal. Super. Ct. Cty. Sacramento, Feb. 6. 2009) (Order certifying
26 class).
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IJI. VENUE
18. Venue is proper in the Superior Court for the County of Sacramento on multiple
3 statutory grounds, including Cal ifornia Code of Civil Procedure § § 393(b) and 395, and Cal ifornia
4 Health and Safety Code § 34 1 68(a).
5 MEMORANDUM OF POINTS AND A UTHORITJES TN SUPPORT OF PETITION
6 TV. STATEMENT OF FACTS COMMON TO PETITION AND COMPLAINT
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A. CaliFornia Redevelopment Agencies and the Constitutional System or TaxIncrement Financing
19. In 1945, the California Legislature granted local municipalities the authority to
form RDAs. (Health & Safety C. § 33000 el seq (2006).) The 1 945 enactment was titled the
Community Redevelopment Act (or "CRA"). In 195 1 . the CRA was amended, codified, and
renamed the Community Redevelopment Law (or "CRL").
20. The purpose of the CRL was to authorize the creation of redevelopment agencies
that had incentive to improve blighted communities through privately funded redevelopment
projects. Specifically, RDAs were created "to protect and promote the sound development and
redevelopment of blighted areas and the general welfare of the inhabitants of the communities in
which they exist." (/d. § 33037(a) (declaring the state policy for redevelopment of blighted areas);
see also id. § 33030(a) (fi nding that "there exist[s] in many communities blighted areas that
constitute physical and economic liabil ities requiring redevelopment in the i nterest of the health,
safety, and general welfare of the people of these communities and of the state.").) The CRL
provided that counties and cities were authorized to establish RDAs that could buy and sell
property, implement land use and development controls, borrow money, and issue debt, in order to
meet approved redevelopment goals. (See, e.g., id § 34350 (authorizing RDAs to acquire and
dispose of real property, insurance, and loans); id. § 34377.4 (authorizing RDAs to "aquir[e] . . .
commercial property for lease"); id. § 34325 (authorizing RDAs to acquire real property by
eminent domain); id. § 34373 (authorizing RDAs to invest its funds).)
2 1 . The CRL specifically authorized RDAs to issue bonds in order to raise revenue for
community redevelopment projects. (!d. § 34350 ("An authority shall have the . . . power[] . . . to 28
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issue bonds for any of its corporate purposes.").) Bonds issued pursuant to the CRL and
2 containing a recital to that effect are presumed valid. (!d. § 34356 ("The resolution authorizing the
3 bonds may provide that the bonds shall contain a recital that they are issued pursuant to this
4 chapter and the recital shall be conclusive evidence of their validity and of the regularity of their
5 issuance.").)
6 22. In 1 952, California's voters added what is now Article XVI, Section 1 6 to the
7 Cal ifornia Consti tution. This amendment. along with the 1 95 1 amendments to the CRL, (see. e.g.,
8 id. §§ 33670, 33670.5,) authorized cities and counties to irrevocably pledge incoming property tax
9 revenue (which otherwise would have been distributed to local agencies) "to pay principal and
10 interest on loans . . . or indebtedness" i ncurred to finance and refi nance redevelopment projects.
II (Cal. Con st. art. XVI, § 1 6(c) ("The Legislature may also provide that in any redevelopment plan
1 2 or i n the proceedings for . . . the i ncurring of any i ndebtedness . . . by the redevelopment agency to
1 3 finance or refinance, i n whole or i n part, the redevelopment project, the portion of taxes identified
1 4 i n subdivision (b) . . . may be i rrevocably pledged for the payment of the principal of and interest
1 5 on those loans, advances, or indebtedness."); see also id. § 33670(b); Cal. Const. art. XVI, §
1 6 1 6(b); Health & Safety C . § 3367 1 (providing that a pledge of taxes paid into a special fund "shall
1 7 have priority over any other claim to those taxes not secured by a prior express pledge of those
18 taxes"); City of Dinuba v. County of Tulare, 4 1 Cal.4th 859, 866 n.7 (Cal. 2007).) The CRL
1 9 further provided that the bonds could be secured by an immediate lien on the revenues of the
20 RDAs and that the RDAs could agree to restrictive covenants prohibiting further impairment of
2 1 that security. (See Health & Safety C. § 34352 ("any pledge made to secure bonds shall be valid
22 and binding from the time when the pledge is made"); id. § 34359 (authorizing RDAs to "[p] ledge
23 all or any part of its gross or net rents, fees, or revenues to which its right then exists or may
24 thereafter come into existence"); id. § 34360 (authorizing RDAs to "[c]ovenant against pledging
25 all or part of its [funds], against mortgaging all or part of its real or personal property, to which its
26 right or title then exists or may thereafter come into existence, or against permitting or suffering
27 any lien on such revenues or property").) More generally, the RDAs were granted broad
28 discretion to "make covenants and do any and all acts and things necessary, convenient, or
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desirable to secure its bonds, or which wil l tend to make them more marketable notwithstanding
2 that such covenants, acts, or things [were] not enumerated in [the CRL]." (/d. § 34365.)
3 23. The revenues al located to the RDAs under the California Constitution and the CRL
4 are commonly known as "tax increment" financing or "TIF." (See, e.g., Cal. Canst. art. XVI, §
5 1 6; Health & Safety C. § 33670 (authorizing the use of TlF); id. § 33670.5 (providing for an
6 interpretation of Section 33670 that is consistent with Article XVI, Section 1 6 of the California
7 Constitution because Section 33670 "fulfills [the Amendments'] intent").) TIF revenue consists of
8 a portion of the local property taxes generated from within a designated redevelopment project
9 area. (Cal. Canst. art. XVI, § 1 6(b); Health & Safety C. § 33670; Craig v. City of Poway, 28
1 0 Cai.App.4th 3 1 9, 325 (Cal. 1 994).) TlF is calculated by looking at the current assessed tax
I I revenue for the area under redevelopment, and then subtracting the assessed tax revenue prior to
1 2 the effective date of the redevelopment plan. (See California Redeveloplllent Ass 'n v. Matosantos,
13 53 Cal. 4th 23 I, 246-247 (Cal. 20 II).)
1 4 24. Through the use of TIF, the RDA bondholders received the benelit of tax revenue
1 5 increases attributable to redevelopment in any of three ways: (I ) the debt held a lien on the TlF to
16 secure prompt repayment; (2) TIF could permissibly be used to reserve against future debt
1 7 obligations, thereby further securing their investment; or (3) TIF could be reinvested i n the
1 8 development of the project area, thereby increasing future tax increment revenue that was also
1 9 pledged to secure the debt. Regardless of whether TrF was held i n reserve, paid out to
20 bondholders, or reinvested in the project area, its benefits accrued as security on the RDA debt.
2 1 The security mechanism created by the irrevocable pledge of TIF to repay the RDA debts was a
22 critical feature of the RDA bonds' marketabil ity. Absent the lien on TrF, RDA bondholders and
23 insurers l ike Syncora would not have been able to enforce prompt repayment of debt by defaulting
24 issuers. Absent the pledge of TIF for debt service, RDAs would have had no other source of
25 repayment. And absent the use of excess TIF to either reserve against future payments or to fund
26 additional redevelopment, RDA bondholders and i nsurers like Syncora would not have had the
27 same assurance that future tax revenues would be sufficient to cover the debts incurred by the
28 RDAs.
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25. Although the CRL had been amended regularly since 1 95 1 , its purpose-
2 addressing urban blight and revitalizing Californ ia's communities, and its function-authorizing
3 an agency with special fi nancing authority to execute community improvements, had remained
4 intact up until the passage of A B26. The number of RDAs expanded signi ficantly in the 1 970s
5 and 1 980s fol lowing two major changes to state policy. First, the "Propeny Tax Relief Act" was
6 enacted. (SB 90. Stats. 1972, ch. 1406 ("SB90").) It imposed "revenue l imits" on school districts
7 that were guaranteed by the Stale. (!d.) Under SB90, if a school district's propeny tax revenues
8 were insufficient to meet it1S required "revenue l imit,>� the Swte was required to provide the
9 additional funding. (/d.) Second, Proposition 1 3 was passed in 1 978; the constitutional
1 0 amendment pursuant thereto capped real estate taxes, fixed propeny values, and restricted
1 1 assessment increases, significantly dimin ishing the ability of local authorities to contribute to
1 2 public school fund ing guaranteed by the stale while still financing other local projects.' (Cal.
1 3 Canst. art. XITI(A).) Because the State guaranteed local school funding, cities began declaring
1 4 more areas to be i n "blight" i n order to capture tax funds through the TTF mechan ism; those funds,
I 5 which would have gone to education (i.e., a funding obligation otherwise guaranteed by the State)
I 6 were thus redirected toward alternative local projects. The n umber of redevelopment agency
1 7 projects increased to take advantage of this structure. In order to lessen the increasing financial
I 8 burden of the State's guarantee of education funding, the State made changes to the CRL i n I 994
1 9 and 2006 to more narrowly circumscribe the use of redevelopment projects and coincident
20 diversion of tax revenue. (See AB 1 290, Stats. 1993, ch. 942 (statutorily defin ing "blight" for the
2 1 first time and replacing the practice of RDA-Iocal agency negotiated pass-through agreements
22 with a schedule of payments to alleviate the effect of redevelopment on other local agencies); SB
23 1 206, Stats. 2006, ch. 595 (narrowing the definition of "blight").)
24 26. I n 20 1 0, responding to additional attempts by the State legislature to re-appropriate
25 TIF revenue from the RDAs, voters approved Proposition 22, which prohibited the Legislature
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from requiring RDAs to make payments from TIF to supplement school and other local agencies'
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B. Based on the Irrevocable Pledge of Tax Increment Revenue, Syncora Agreed to Enter Into a Contract as Bond Insurer of Various RDA Bonds
27. Based on the grant of authority provided in the CRL and California Constitution,
the RDAs issued debt governed by various indentures. Mu ltiple such i ndentures were executed
among the RDAs as principal, bondholders as creditors, and Syncora as bond i nsurer. These
indentures provided that the RDA bonds were secured by an irrevocable pledge of T I F and liens
on tax increment revenue-as authorized by the Cal i fornia Constitution and expressly provided
for by the Legislature in the Health and Safety Code. (Cal. Const. art. XVl, § 1 6; Health & Safety
c.§ 3367 1 .)
28. For example, the Southern California Logistics Airport Authority ("SoCal
Logistics") issued $62,780,000 of debt in 2006 and Syncora (then known as XL Capital
Assurance) insured the SoCal Logistics bonds. (Excerpts from the SoCal Logistics Indenture arc
attached hereto as Exhibit B at I , the "SoCal !dent.").) The indenture that sets forth the rights and
obligations of SoCal Logistics, Syncora, and the bondholders provides that "[a]ll the Pledged Tax
Revenue and all money in the [named funds specified i n the indenture], whether held by [SoCal
Logistics] or the Trustee, are hereby i rrevocably pledged to the punctual payment of the interest on
and principal of and redemption premiums, i f any, on the Bonds . . . . " (SoCal Indent. at 32.) The
pledge "conslitute[s] a first lien on the Pledged Tax Revenues . . . . " (/d.)
29. Likewise, the Hesperia Community Redevelopment Agency ("Hesperia") issued
$40,500,000 of debt in 2005, with Syncora as the bond i nsurer. Those bonds provided that "all of
the Tax Revenues are irrevocably pledged" for repayment of the bonds. (Excerpts from the
Hesperia Indenture are attached hereto as Exhibit C at A-2 (the "Hesperia Indent.").) The
Indenture further emphasized that the bonds "shall be secured by a pledge of and lien on al l of the
Tax Revenues . . . . " (Hesperia Indent. at 3 1 .)
30. The pledges, serving as security for the bonded debt, protected not only the
bondholders, but Syncora as well. Accord ing to the terms of the contracts, "[Syncora] is a third-28
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party beneficiary hereunder and shall have the power to enforce any right, remedy or claim
2 conferred, given or granted u nder this Indenture." (Hesperia Indent. at 26; see SoCal Indent. at 57
3 ("[Syncora] is a third-party beneficiary to this Indenture, with the power to enforce any right,
4 remedy or claim conferred, given or granted hereunder.").) Indeed, Syncora was a party to the
5 contracts. (Hesperia Indent. at 3 1 ("Indenture shall be deemed to be and shall constitute a contract
6 between the [RDA], [Syncora,] and the [Bondholders] . . . . ") .)
7 3 1 . In addition, according to the terms of the indentures, if Syncora is ever required to
8 make a payment under its contractual obligations, the pledge of tax revenue continues and runs
9 directly to Syncora. (See, e.g., SoCal Indent. at 57 ("If [Syncoraj makes any payment . . . the
I 0 assignment and pledge of the Tax Revenues [and other covenants] shall continue to exist and shall
II run to the benefit of [Syncora] .").) Thus, under the existing law and contractual relationships at
1 2 the time the bonds were issued, Syncora had the protection o f an i rrevocable pledge of tax revenue
1 3 standing as security for the debts i t agreed to insure. Moreover, the RDAs were the entities with
14 principal liability. They, un l ike the successor agencies that have replaced them, were supported
I S by the legislative and constitutional pledge of tax increment revenue and the abi lity to invest i n
1 6 additional projects that would raise more tax revenue in the future.
1 7 32. Another term of the debt contracts was that the RDA revenues, both from taxes and
1 8 bond payments, would be used for the lawful purposes o f the RDAs under the CRL. Those
1 9 purposes were set out i n the Health and Safety Code and included investment in various projects
20 for community development to improve the community and increase tax revenues in the future.
2 1 (See, e.g., Health & Safety C . § 33021 (redevelopment includes modernization, reconstruction, or
22 rehabilitation of existing structures, provision for open-space types o f use, such as streets or other
23 public grounds, improvement of public recreation areas, and re-planning or re-design of areas that
24 are stagnant or improperly used).) To the extent that incoming tax increment revenue was greater
25 than the amounts needed to make upcoming debt payments and meet set aside reserve
26 requirements, the indentures permitted the RDAs to use these funds for their development
27 projects. Critically, these funds were not redistributed to local agencies or the state as general tax
28 revenue. Instead, they were either held in reserve or used by the RDA for redevelopment, thereby
-I 0-
raising property values and the tax revenues allocable to the RDAs in future years. (See, e.g. ,
2 SoCal Indent. at 35 (upon written request, the RDA can withdraw surplus funds "to be used for
3 any lawful purpose of the [RDA]"); Hesperia Indent. at 32 (surplus funds may be used by the
4 RDA for "any lawful purpose of the Redevelopment Law").) Simi larly, the revenue from the
5 bonds themselves was pledged to lawful RDA development purposes. (See, e. g . , SoCal Indent. at
6 2 ("[A]II tax increment revenues . . . and al l such bond or note proceeds are requi red to only be
7 used for the redevelopment and development of [the project area].").)
8 33. Paying for the obligations of the Stale of California, or covering California 's
9 obligations to local taxing agencies, was never a purpose of the Community Redevelopment Law
1 0 or the RDAs. (See Health & Safety C. § 33020; id. § 3302 1 .) And i n any event, Proposition 22
I I was expressly enacted to prevent the Legislature from "circumventin g" Section 1 6 of Article XVI
1 2 of the Constitution. (Prop. 22, Gen. Elec. (Nov. 2, 20 1 0) §9.)
1 3
1 4
1 5
1 6
1 7
1 8
1 9
20
2 1
22
23
24
25
c. Dissolution of the Redevelopment Agencies and Redistrihution of Their Tax Increment Revenue
34. In June 201 1 , the Legislature passed and Governor Jerry Brown signed the RDA
Dissolution Bill (AB26). The bi l l was designed to increase available State revenue by diverting
sign ificant funds previously pledged to the RDAs to cover State obligations to local taxing
agencies. It dissolved al l RDAs, effective February 1 , 2012 . (Health & Safety C. § 34 1 72(a)( l ).)
As for the outstanding bonds, the law deemed them extinguished, albeit for "constitutional
purposes only." (!d. § 341 74(a) ("Solely for the purposes of Section 16 of Article XVI of the
California Constitution . . . all . . . indebtedness, and i nterest thereon, shall be deemed
extinguished and paid . . . . ").)
35. In place of the now-extinguished debt, the law required "successor agencies" to
continue to pay enforceable obligations, which included bond indebtedness. However,
notwithstanding the name, the law did not actually establish any successor agencies. Instead it
merely l isted the types of organization that could voluntarily choose to take on the role of 26
27
28
successor organizations, such as the local joint powers authority that previously managed an RDA.
(!d. § 34 1 73(c)(1 ) .) And i f no local agency chose to be a successor agency, then the Governor was
- 1 1 -
required to appoint a public body (called a "designated local authority") comprised of three
2 members of the community to act as the successor agency. (/d. § 34 173(d)(3).)
3 36. None of the successor agencies were or are parties to the bondholder contracts
4 among RDAs, bondholders, and Syncora (or other bond insurers). Thus, AB26 1eft Syncora and
5 the bondholders without a contractually bound principal that was entitled to receive all pledged
6 assets while bearing primary liability on the debt.
7 37. Upon dissolution of the RDAs, the Redistribution Provisions of AB26 instructed
8 successor agencies to "[rjemit unencumbered balances of redevelopment agency funds . . . for
9 distribution to the [local) taxing agencies . . . . " (/d. § 34 1 77(d); see olso id. § 34 172(d)
I 0 ("Amounts i n excess of those necessary to pay obligations of the former redevelopment agency
I I shal l be deemed to be property tax revenues with in the meaning . . . of Section I of Article Xl l l A
1 2 o f the California Constitution.").) Simi lar remittances are required every six months thereafter.
1 3 (Id. § 34 1 83(a)(4).) In other words, the Redi stribution Provis ions require any tax revenues not
14 needed to satisfy debt obligations due within six months to be redistributed as tax revenue-rather
1 5 than either being retained as surplus to cover future indebtedness or invested into the community
1 6 to increase tax revenue going forward. Proceeds from asset sales are l ikewise required to be
1 7 remitted. (/d. § 34 1 77(e).)
1 8 38. The purpose of AB26 generally, and the Redistribution Provisions specifically, is
1 9 clear from the express provisions and structure of the bil l . The declared intent was to l imit
20 expenditures by the RDAs wherever possible so that TIF funds could be real located to cover
2 1 shortfalls on local debts that would otherwise be the responsibility of the State government. (/d. §
22 34167(a) ('This part is intended to preserve, to the maximum extent possible, the revenues and
23 assets of redevelopment agencies so that those assets and revenues that are not needed to pay for
24 enforceable obligations may be used by local governments . . . . ").) And in fact, the Redistribution
25 Provisions provide a steady stream of funds diverted from the successor agencies to local taxing
26 agencies, which replace obligations that would otherwise be owed by the State.
27
28
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D. Recent Clean-Up Legislation Leaves Bondholder Indebtedness in Doubt
2 39. ln June 20 1 2. the Legislature passed and Governor Jerry Brown signed Assembly
3 B i l l l 484 ("A B 1484" or the "Clean-Up B ill"). (Community Redevelopment, 201 2 Cal . Legis.
4 Serv. 1 st Ex. Sess. Ch. 5 (A.B. 1 484) (WEST).) The purpose of the Clean-Up Bi l l was to clarify
5 the RDA dissolution and wind down process as set forth in AB26 and to strengthen the State's
6 abi l i ty to enforce compliance based on experiences from the past year. A B 1 484 does not alter the
7 purpose of AB26 or the substance of the Redistribution Provisions. Rather it advances the
8 purposes of AB26 first, by imposing new requirements on successor agencies, particularly with
9 regard to submission of Recogni zed Obligation Payment Schedules ("ROPS"), and second, by
I 0 empowering the Department of Finance to ensure compliance with the Redistribution Provisions
1 1 by, among other mechanisms, authorizing it to review and reject any oversight board-approved,
1 2 successor agency-proposed action. (See, e.g., Health & Safety C. § 34177 (duties o f successor
1 3 agencies: ROPS): id § 34 1 79(a)(h) (Department of Finance oversight).)
14 40. Pursuant to AB 1 484, the Department of Finance "determin[es] . . . the enforceable
I 5 obligations and the amounts and funding sources of the enforceable obligations" upon receipt of a
16 proposed Recognized Obligation Payment Schedule from a Successor Agency. (Health & Safety
1 7 C . § 34 1 77(m).) Furthermore, the State has empowered itself to prevent and/or order the return of
1 8 any payment on a bond's principal or interest not approved by the Department of Finance and
1 9 State Controller. (!d. § 341 77.3(c) ("Any . . . transfers of authority or revenues that are not made
20 pursuant to an enforceable obligation on a Recognized Obligation Payment Schedule approved by
2 1 the Department of Finance are hereby declared to be void, and the successor agency shall take
22 action to reverse any of those transfers.").)
23 4 1 . Under the new mechanisms of A B 1 484, successor agencies are entirely precluded
24 from acting until the Department of Finance determines that the successor agencies have met
25 ce1tain requirements. (/d. § 34 1 79(h) (providing inter alia that Oversight Board actions shall not
26 become effective until the time provided for Department of Finance review has passed, extending
27 the time previously provided under AB26 i n which the Department of Finance has to object to any
28
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Oversight Board action, and specifically permitting the Department of Finance to "eliminate or
2 modify any item on [a Recognized Obligation Payment Schedule] prior to its approval").)
3 E. Downgrade of RDA debt after passage of AB26
4 42. In response to AB26, including the Redistribution Provisions, Moody's Investors
5 Service has downgraded I I .6 bi l l ion dollars in RDA bonds to junk status. (James Nash, Moody 's
6 Cuts $11 .6 Billion California Redevelopment Debt, Bloomberg.com (Jun. 1 5 , 201 2),
7 http://www.bloomberg.com/news/20 1 2-06- 1 5/moody-s-cuts- 1 1 -6-billion-cali fomia-
8 redevelopment-debt.html.)
9 V.
1 0
I I
1 2
AB26 VIOLATES THE CONTRACT CLAUSES OF THE CALIFORNIA AND UNITED STATES CONSTITUTIONS
A.
43.
The Contract Clauses of the California and United States Constitution Prohibit States from Impairing the Obligations of Contract
The Contract Clauses of the United States and Cal ifornia Constitutions l imit the
1 3 power of the Stales to modify contracts-both their own and those of private panics. According
1 4 to the United States Constitution, "[n]o State shall . . . pass any . . . Law i mpairing the Obligation
1 5 of Contracts . . . . " (U.S. Con st. art. l, § 1 0, cl. I .) According to the California Constitution, a
1 6 "law impairing the obligation of contracts may not be passed." (Cal. Con st. art. I , § 9.)
1 7 44. Under settled and binding precedent, a legislative act violates the Contract Clauses
1 8 i f it substantially impairs the rights and responsibilities of contracting parties and either ( I ) lacks
1 9 an important public purpose or (2) is not necessary and appropriate to the public purpose justifying
20 its adoption. (U.S. Trust Co. of N. Y. v. New Jersey, 431 U.S. l, 22-23 ( 1 977).) "The severity of
2 1 the impairment measures the height of the hurdle [that] the state legislation must clear." (Allied
22 Stntctural Steel v. Spannaus, 438 U.S. 234, 245 ( 1 978).)
23 45. A contract is impaired where "an important security provision" is el iminated. ( U.S.
24 Trust Co. , 43 1 U.S. at 1 9.) Specifically, the United States and California Supreme Courts have
25 repeatedly held that acts authorizing or directing the material reduction of contractual ly pledged
26 security on a debt substantially i mpair the creditor's contract. (See, e.g., id. at 1 9 ; Valdes v. Cory,
27 1 39 Cai.App.3d 773, 789 (Cal. Ct. App. 1 983) (improper use of resources pledged to the benefit of
28 the California Public Employee Retirement System impaired the contractual rights of public
- 1 4-
employees because i t reduced the security protecting the government's benefit obligations);
2 Teachers ' Retirement Board v. Genest, ! 54 Cai.App.4th 1 0 1 2, 1 036 (Cal. Ct. App. 2007) (statute
3 reducing state's obligation to fund a portion of a retirement fund impermissibly reduced
4 contractual ly required security).)
5
6
7
B.
46.
The Redistrihutinn Prnvisions Impair Contractual Ohligations By Materially Changing the Rights and Responsibilities of Contracting Parties, Including Syncora
The Redistribution Provisions impair the contractual rights of parties to the RDA
8 indentures, including Syncora, in three ways: ( I ) they eliminate the bondholders lien on future
9 TIF, which assures the prompt repayment of debt. (2) they reduce the amount of i rrevocably
1 0 pledged TTF that successor agencies are authorized to hold as reserve against future debt
I I obligation to bondholder under the original terms of the bond i ndentures; and (3) they prohibit the
1 2 reinvestment of surplus TIF to develop the project area, thereby prohibiting the successor agency
1 3 from using redevelopment projects to drive increases i n future TIF revenue as required b y the
1 4 bond indentures. A s such, the Redistribution Provisions i nterfere with the vitality o f critical debt
1 5 security mechanisms created by the i rrevocable pledge of TIF in the bond indentures. Absent the
1 6 lien on TIF, RDA bondholders arc not able to enforce prompt repayment of debt i n the event of
1 7 default. Because TIF revenue constitutes the sole secured source o f repayment for bondholders
1 8 and Redistribution Provisions l imit the successor agencies' authority to hold surplus TIF, the
1 9 Redistribution Provisions increase the l i kelihood that debt wi l l default i n times of tax revenue
20 shortfall. And the Redistribution Provisions el iminate the main driving force behind future
2 1 increases in tax increment by prohibiting further redevelopment with TlF funds. Taken together,
22 the Redistribution Provisions severely impair the critical security mechanisms protecting
23 repayment of RDA debt, in direct contravention of bargained for contractual obligations between
24 the RDAs, the RDA bondholders, and the bond insurers.
25
26
27
28
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rr •••
2
3
4
5
6
47.
,._,.,___ ·-·
(a) The Redistribution Provisions eliminate the lien that ensured that whatever taxes were allocated would actuallv go to repay and otherwise secure bond indebtedness
Prior to the Redistribution Provisions' enactment, TIF revenue was to be "paid into
a special fund of the redevelopment agency to pay the principal of and interest on [RDA debts]" or
otherwise paid to the RDAs. (Health & Safety C. § 33670(b); id. § 33670(e).) To further enable
the RDAs to obtain financing for redevelopment projects, the RDAs were permitted to make TIF 7
8 revenue pledges "irrevocabl[e]." (Health & Safety C. § 3367 1 (funds under §33670(b) "may be
9 irrevocably pledged for the payment of I RDA debts]").) Under the bond indentures, the RDAs
1 0 granted liens on those col lected tax increment funds, subject to the terms and conditions of each
1 I individual indenture. (See, e.g., SoCal Indent. at 32. ("All the Pledged Tax Revenues and all
1 2 money i n the [named funds specified in the indenture], whether held by [the RDA] or the Trustee,
1 3 are hereby irrevocably pledged to the punctual payment of interest on and principal of and
1 4
1 5 redemption premiums, i f any, on the Bonds . . . . [T]his pledge . . . constitute[s] a first lien on the
1 6 Pledged Tax Revenues . . . . "); Hesperia Indent. at 32 (bonds "shall be secured by a pledge of and
1 7 lien on all of the Tax Revenues . . . . ").) The liens assured prompt repayment of the debt.
1 8 48. Moreover, the CRL provides that express pledges of TIF revenue were given
1 9 priority over other claims. (Health & Safety C . § 3367 1 .5 ("Whenever any redevelopment agency
20 is authorized to, and does, expressly pledge [T1F revenue] . . . to secure, di rectly or indirectly, the
2 1 obligations o f the agency including . . . bonded indebtedness . . . , then that pledge . . . shall have
22 priority over any other claim to those taxes not secured by a prior express pledge of those
23 taxes.").) The CRL thus bolstered the priority of the liens established to secure the RDA debts . .
24 49. The Redistribution Provisions expressly targeted such liens, by "deeming" the
25 underlying debts paid and extingu ished " [s [olely for the purposes of Section 1 6 of Article XV! of
26 the California Constitution." (Health & Safety C . § 34 1 74.) Thus, there are no longer first l iens
27 with express priority on the TIF revenue that stands as security for the RDA debts. Regardless of
28 any other contractual provision, the Redistribution Provisions el iminate the existence of the lien
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by the legal fiction that the bonds have been paid. Instead, the Redistribution Provisions provide a
2 framework where every six months, funds needed to pay only those debts coming due (in the six
3 upcoming months) are set aside. (Health & Safety C. § § 34 ! 83(a)(2-3).) Instead of all TIF
4 revenue being al located to the RDAs (and used to repay debt obligations or as otherwise specified
5 by the contractual terms of those debts), only money sufficient for the next s ix months is set aside,
6 unless the Depat1ment of Finance approves otherwise. As a result, the Redistribution Provisions
7 impair the security originall y promised i n connection with the RDA debts.
8 50. I n fact, the impairment of Syncora' s interest in TTF appears to be greater than the
9 impairment in U.S. Trust Co. v. New .Jersey. 43 1 U.S. I ( 1 977). There, the statute only threatened
1 0 future depletion of bondholder security by uneconomical investment. (U.S. Trust Co. , 43 1 U.S. at
I I 1 9.) I n the present case, the Redistribution Provisions not only threaten the health of future
1 2 security on the bondholders' i nvestments, but actually eliminate the l ien o n that security
1 3 immediately.
1 4
1 5
1 6 5 1 .
(b) The Redistribution Provisions substantially reduced the available tax revenue (or repayment of bonds insured bv Syncora. redirecting that money for impermissible uses
As a result of the Redistribution B i l l , there i s an actual impairment of cash flows
1 7 governed by the indentures of the RDA debts. Before the Redistribution B i l l was implemented,
1 8 the RDAs made "irrevocable" pledges to the bondholders. (See SoCal Indent. at 32 (taxes "are
1 9 hereby irrevocably pledged to the punctual payment [ of the bonds]"); Hesperia Indent. at A-2
20 ("[A] I I of the tax revenues are irrevocably pledged" for repayment.).) These pledges were
2 1 authorized by the California Constitution and expressly provided for by the Legislature in the
22 Health and Safety Code. (See Cal. Cons!. art. XVI, § 1 6; Health & Safety C. § 3367 1 .)
23 52. The Redistribution Provisions "deem[ed]" any RDA debts extingu ished for
24 constitutional purposes, presumably to side-step the constitutional authorization that RDAs had to
25 irrevocably pledge TIF. (Health & Safety C. § 341 74.) Under the Redistribution Provisions.
26 funds in excess of those needed to pay for RDA debts coming due in the next six months must he
27 redistributed to local taxing agencies. (Health & Safety C. §34 1 83(a)(4).) Prior to the
28 Redistribution Provisions, the RDA was authorized to hold those funds as reserve against debt
- 1 7-
service at its discretion. But now those funds are to be distributed for purposes not contemplated
2 by the original i ndentures. Simply put, the successor agencies cannot hold as much reserve on
3 hand as the RDAs were able to hold, and thus, the successor agencies are more l i kely to default.
4 To the extent that AB26 provides mechanisms to address shortfalls, these mechanisms, are
5 inadequate to compensate for Syncora's original contractual rights. (See Teachers ' Retirement Bd.
6 v. Genest, 65 Cai.Rptr.3d 326, 345 ("The replacement of an express obligation to pay a fixed sum
7 of money with a promise to pay the sum if you prove you need it and, even then, only if you need it
8 before a specific date. is not a comparable new advantage") (emphasis in original); Bd. of Admin.
9 (�( Cal. Pub. Emps. Ret. Sys. v. Wilson, 52 Cai.App.4th 1 1 09, 1 147 (Cal. Ct. App. 1 997) (courts
I 0 "may not properly speculate with regard to potential future mitigating factors" (quotations
I I omitted)).)
1 2
1 3
1 4
I S
1 6
1 7
1 8
1 9
20
2 1
22
23
24
25
26
27
28
(c) The Redistribution Provisions eliminated rhe reinvestment mechanism that facilira.ted repayment bv fostering increased taxes
53. Separate and apart from the reduction in the amount of tax revenues that RDAs are
authorized to reserve in order to repay debt, the Redistribution Provisions impair the contracts
among RDAs, bondholders, and Syncora by ignoring contractual provisions that dictate how
excess funds may be uti l ized, thus interfering with a reliable process for ensuring that bondholder
indebtedness is timely paid with whatever taxes are allocated.
54. The indentures do not permit the use of pledged funds for any purpose. To the
contrary, by their express contractual terms, they l imited the use of RDA funds to those purposes
authorized under the redevelopment law or those normally undertaken by the RDAs. (SoCal
Indent. at 35 (upon written request, an RDA may withdraw surplus funds and use them for "any
lawful purpose of the [RDA]") (emphasis added); Hesperia Indent. at 32 (lien released so that
excess funds may be used by the RDA "for any lawful purpose of the Redevelopment Law")
(emphasis added).) The "lawful purposes" of RDAs are l imited i n scope to the execution of
redevelopment in the defined project area. (See Health & Safety C. § 3302 1 i
2 Redevelopment includes:
(footnote continued)
- 1 8-
55 . Thus the framework established under the Redevelopment Law (Health & Safety
2 C. § 3367 1 ) and the terms of actual RDA debt provided bondholders and Syncora assurances that
3 surplus TTI0 revenues not reserved against future shortfal ls would be used for redevelopment
4 activity-which would. in turn. drive increases i n property values, thereby augmenting the future
5 TlF revenues securing R DA debt.
6 56. The Redistribution Provisions eliminated the contractual mechanisms that l imited
7 the use of TlF revenue to purposes of enhancing security on the RDA debt. Thus. the
8 Redistribution Provisions wi l l reduce the flow of funds available for repayment of debt insured by
9 Syncora in contravention of the debt i ndentures.
1 0
1 1
1 2
1 3
1 4
1 5
1 6
1 7
1 8
1 9
20
2 1
22
23
24
25
(d) The Express Purpose o[AB26. and the Redistribution Provisions. was 10 redirect m.onev away from. RDAs
57. The purpose of AB26 generally, and the Redistribution Provisions specifical ly, is
clear from the actual provisions and structure of the bi l l . AB26 expressl y declares its intent to
l imit expenditures by the RDAs wherever possible so that TlF funds can be real located to cover
shortfalls on local debts that would otherwise be the responsibility of the State government. (!d. §
34 1 67(a) ("This part is intended to preserve, to the max imum extent possible, the revenues and
assets of redevelopment agencies so that those assets and revenues that are not needed to pay for
enforceable obligations may be used by local governments . . . . ").) And in fact, the Redistribution
(a) The alteration, improvement. modernization, reconstruction, or rehabi l i tation, or any combination of these, of existing structures in a project area. (b) Provision for open-space types of use, such as streets and other public grounds and space around bui ldings, and public or private bui ldings, structures and improvements, and improvements of public or private recreation areas and other public grounds. (c) The replanning or redesign or original development of undeveloped areas as to which either of the following conditions exist.
(I) The areas are stagnant or improperly util ized because of defective or i nadequate street layout, faulty lot layout in relation to size, shape, accessibili ty, or usefulness, or for other causes.
26 (2) The areas require replanning and land assembly for reclamation or development in the interest of the general welfare because of widely scattered ownership, tax delinquency, or
27 other reasons. (Health & Safety C. § 3302 1 .)
28
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Provisions provide a steady stream of funds diverted from the successor agencies to local taxing
2 agencies, which replace obligations that would otherwise be owed by the State.
3 58. In other li tigations surrounding various provisions of AB26, the State of California
4 has advanced the position that the purpose of the Redistribution Provisions was to free up money
5 for Cal i fornia in order to satisfy other funding priorities. Specifically, i n defending the
6 constitutionality of AB26 and Assembly Bi l l 27 ("AB27"),1 Cal i fornia Director of Finance Ana
7 Matosantos represented that AB26 and AB27 were "a significant component of the Legislature's
8 plan to close the more than $25 bill ion budget gap and to solve ongoing revenue challenges."
9 (Cal. Redevelopment Assoc. v. Marosantos. Case No. S 1 9486 1 , Resp't Informal Opp'n to Pet. for
1 0 Writ o f Mandate Br. 6 (July 27, 20 1 1 ) (submitted by Cali fornia Attorney General Kamala D.
1 1 Harris).) In other words, the State of California sought to solve Cal ifornia's budget crisis by
1 2 taking funds contractually pledged to increase the security on bonded debt for purposes unrelated
1 3 to the funds' intended beneficiaries. Because the money diverted from the RDAs under the
1 4 Redistribution Provisions was an i mportant, contractually pledged security, achievement of the
1 5 explicit goals of the Redistribution Provisions will cause an i mpairment.
1 6 59. Matosantos challenged the ability of the Legislature to d issolve the RDAs-that
1 7 issue has been resolved. There i s no question that the Legislature had the power to dissolve the
1 8 RDAs and prevent any new pledges of TlF. However, the Redistribution Provisions i nte1fere with
1 9 existing pledges ofTIF, duly authorized by the California Constitution and the CRL when made.
20 The Legislature may have changed i ts mind (albeit, after more than half a century) about the
2 1 appropriateness of RDAs, but it was not entitled to extinguish contractual pledges already duly
22 made for the repayment of RDA debt. The United States and California Constitutions prohibit a
23 1 AB27 was a partner bi ll to AB26. (201 1 Cal. Legis. Serv. 1 st Ex. Sess. Ch. 5 (A.B. 27)
24 (WEST).) It permitted the RDAs to avoid being dissolved under AB26 if they agreed to make
25 specified payments to the county Educational Revenue Augmentation Fund and a new county special di strict augmentation fund. (Health & Safety C. § 34 1 94.) AB27 was invalidated in
26 Matosantos because it violated Proposition 22, which prohibits any act of Legislature from requiring "a community redevelopment agency . . . to pay, remit, loan, or otherwise transfer,
27 d i rectly or indirectly, taxes on ad valorem real property and tangible personal property allocated to the agency pursuant to Section 1 6 of Article XVI." (Cal. Cons!. art. Xl l l , § 25.5(a)(7)(A).)
28
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state from impairing existing contractual obligations i n order to redistribute money at its pleasure
2 and discretion.
3
4 60.
(e) RDA bonds have alreadv been downgraded
RDA bonds have been and continue to be downgraded as a result of the
5 Redistribution Provisions. Even before the Redistribution Provisions went into effect, Tax
6 Al location Bonds (bonds secured by TIF or "TABs") were downgraded "primarily" due to "near-
7 term cash flow risks arising from" the anticipated affect of AB26, including the Redistribution
8 Provisions. (Moody 's Downgrades California Tax Allocation Bonds Due to Near-Term Cash
9 Flow Risks A rising From Redevelopment Agencies ' Impending Dissolution; All Tax Allocation
1 0 Ratings Remain On Review For Pos.<ihle Further Downgrade, Moody's Investors Service (Jan.
I I 1 7 , 20 1 2), http://www.moodys.com/research!MOODYS-DOWNGRADES-CALIFORNIA-TAX-
1 2 ALLOCA T!ON-BONDS-DUE-TO-NEAR-TERM--PR_235458 )
1 3 6 1 . Recent events surrounding the dissolution and wind down o f the San Jose RDA
1 4 present a prime example of this concern. Tn early June 20 1 2, San Jose's Auditor-Controller
1 5 decided to subordinate the bondholders' claims to the county's pass-through obligation, denying
1 6 the successor agency $ 1 5.7 mi ll ion in property tax proceeds that i t expected to receive. The
1 7 successor agency then filed notice with the Electronic Municipal Market Access (EMMA) system
1 8 that it projected that i t would not be able to satisfy its August I , 20 1 2 debt service obligations
1 9 without these funds. One day later, Fitch downgraded the San Jose RDA ratings, directly citing
20 the successor agency's announcement of its projected shortfal l . (Fitch Downgrades San Jose
2 1 Redevelopment Agency, CA ' s TA BS to 'BB ' on Ratings Watch Negative, Reuters (June 5, 20 1 2),
22 http://www .reutcrs.com/a rticlc/20 1 2/06/05/markets-rati ngs-san-jose-redevelopment -a-
23 idUSWNA885720 1 20605 .) Although the issues surrounding San Jose were ul timately resolved
24 without a default, the situation nonetheless demonstrated the issues created by the Redistribution
25 Provisions.
26 62. Moody's Investors Service has since cut the rating on at least 1 1 .6 bi l l ion dollars in
27 RDA bonds to junk status. (James Nash, Moody's Cuts $1 1.6 Billion California Redevelopment
28
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Debt, Bloomberg.com (Jun. 1 5, 20 1 2), http://www .bloomberg.com/news/20 1 2-06-1 5/moody-s-
2 cuts- 1 1 -6-bill ion-california-redevclopment-debt.html .)
3 63. Credit downgrades on RDA debt reflect the increased risk of RDA debt investment
4 resulting from AB26, including the Redistribution Provisions. Syncora relied on contractual
5 pledges that should have precluded these increased risks. By impairing these contractual pledges,
6 the Redistribution Provisions have material ly harmed Syncora.
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c. The Redistribution Provisions are not a Reasonable and Necessarv Means to Further an Important Public Purpose
64. Because the Redistribution Provisions substantially impair Syncora's rights under
its contracts by el iminating critical security interests, the Redistribution Provisions violate the
Contract Clause un less they are "reasonable and necessary to serve an important public purpose"
(U.S. Trust Co., 43 1 U.S. at 25.) In undertaking this analysis, "complete deference to a legislative
assessment of reasonableness and necessity is not appropriate because the State's self-interest is at
stake." (!d. at 26.) Indeed, "a governmental entity can always find a use for extra money . . . . lf
a state could reduce its fi nancial obligations whenever i t wanted to spend the money for what it
regarded as an important public purpose, the Contract Clause would provide no protection at al l ."
(/d. ; see also Wilson, 52 Cai.App.4th at 1 1 55 ("[U.S. Trust] places the justification for an
impairment of a contractual funding obligation under the l ight of strict scrutiny. It requires the
state assert a compell ing interest for the impairment" (quotations omitted) (emphasis added)).)
65. The stated purpose of the RDA Dissolution B i l l (and by extension, the
Redistribution Provisions contained therein) is to divert money from RDAs to fi l l the State's
budget gaps ' (See, e.g., Health & Safety C. * 34 1 67(a) ("This part is intended to preserve, to the
maximum extent possible, the revenues and assets of redevelopment agencies so that those assets
and revenues that are not needed to pay for enforceable obligations may be used by local
governments to fund core governmental services including policy and fire protection services and
27 4 And to reduce the State 's funding obligations to localities under the Property Tax Relief Act.
28 (SB90).
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schools.").) But the State has already conceded, as part of the bi l l itself, that California i s
2 recovering slowly from a recession, even without this measure. (AB26 (stating that the
3 Legislature had found that "[t]he economy and the residents of this state are slowly recovering
4 from the worst recession since the Great Depression").) In the words of Cal ifornia Attorney
5 General Kamala D. Harris, the RDA Dissolution Act is one of the "choices [the Legislature]
6 made" to "close [California's] more than $25 bil l ion budget gap and to solve ongoing revenue
7 challenges." (Cal. Redevelopment Assoc. v. Matosantos, Case No. S 1 9486 1 , Resp't Informal
8 Opp'n to Pet.. for Writ of Mandate Br. 6 (July 27, 201 1 ) (submitted by Cal i fornia Attorney General
9 Kamala D . Harris) (emphasis added).)
1 0 66. The mere desire to preserve government revenue for other pu rposes does not justify
1 1 a substantial i mpairment of the government's contractual obl igations. "Thus a State cannot refuse
1 2 to meet its legitimate financial obligations simply because it would prefer to spend the money to
1 3 promote the public good rather than the private welfare of its creditors." (U.S. Trust Co., 43 1 U.S.
1 4 at 29; see also Brown v. Ferdon, 5 Cal. 2d 226, 234 (Cal. 1 936) (holding that a statute is not
1 5 legitimate where "l.i.Jt simply gives a debtor preference without any consideration of the rights of
1 6 the creditor").) The burden lies with the government to show extraordinary measures were truly
J 7 necessitated by a fiscal crisis. (See Wilson, 52 Cai.App.4th at 1 1 55 ("The party claiming
1 8 justi fication has the burden of establishing it."); Sonoma Cnty. Org. of Pub. Emps. v. Cnty. of
1 9 Sonoma, 2 3 Ca1.3d 296, 3 1 0 ( 1 979) (finding that "the government had not met [ i ts] burden of
20 establishing that" the "fiscal crisis" on which it relied as "justification for the impairment" actually
2 1 existed).)
22 67. The State's "fiscal crisis" justification rings hollow in light of recent spending
23 decisions such as the State's approval of in itial funding for a $68 bi l l ion high-speed rail project
24 last month 5 While state lawmakers may prefer to spend money on controversial, expensive
25
26 5 "California's Senate on Friday [J uly 6, 20 1 2] approved funding for the first chunk of a highspeed rail system that is expected to eventually link Los Angeles to San Francisco. In a vote of 2 l -
27 1 6, lawmakers gave the go-ahead for the issuance of $2.6 bil l ion in bonds, while Washington wil l
28 provide an additional $3.2 bil lion. The bi l l also includes close to $2 b i l l ion in fund ing for local
(footnote continued)
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projects such as high-speed rail (rather than meet their obligations to provide funding to localities),
2 the whims and preferences of state legislature do not justify the slate's impairment of contractual
3 obligations to Syncora. (See U.S. Trust Co., 43 1 U.S. at 29.) Indeed, the approved expenditure
4 itself undercuts the State's assettion that a "fiscal crisis" existed that justified the red istribution of
5 RDA funds to provide "core government services." (Health & Safety C. § 34 1 67(a) (slating the
6 purpose of the RDA Dissolution Act).)
7 68. Even if re-directing money to the state's budget gaps constituted a sufficiently
8 imp011ant public purpose, the impairment of Syncora's security i nterest is unconstitutional unless
9 it is reasonable and necessary to meet its purpose. (U.S. Trust Co., 43 1 U.S. at 26, 3 1 ("[A] State
1 0 i s not free to impose a drastic i mpairment when an evident and more moderate course would serve
I I its purposes equally well."); see also Valdes v. Cory, 1 39 Cal.App.3d 773, 79 1 (Cal. 1 983) (stating
1 2 that California must show that i t "gave considered thought to . . . the possibility of alternative, less
1 3 drastic, means of accompl ishing its goal."); Wilson, 52 Cai.App.4th at 1 1 6 1 (rejecting n ecessity
1 4 defense because defendant did not show consideration of or lack of other alternative means, did
1 5 not get input from impaired party, and did not show that i t gave considered thought to the effect of
1 6 the challenged provisions on the impaired party).)
1 7 69. The mechanisms of the Redistribution Provisions are neither necessary nor
1 8 appropriate. For example, the Redistribution Provisions provide that funds i n excess of RDA debt ·
1 9 obligations due within successive s ix month periods must be distributed to local agencies. As a
20 result, even i f an agency is in relatively good fiscal health, revenues that previously could have
2 1 constituted a security interest for Syncora must sti l l be transferred to that agency. Moreover, the
22 Redistribution Provisions have no temporal component or budgetary guideposts for when they
23 apply. In two years, or ten years, i f California's budget is balanced and its deficit significantly
24 reduced, Syncora's contractual rights wil l remain impaired under the Redistribution Provisions.
25 projects . . . . The cost of the completed project is estimated at more than $68 bil lion." (CNN Wire
26 Staff, California Senate Approves Funding for High Speed Rail, CNN.com (July 7, 20 1 2, I 0:3 1 AM), http://www .cnn.com/20 1 2/07 /06/travel/california-high-speed-rai IIi ndex. html ?hpt=hp_t2; see
27 also SENATE R. COMM., Senate Floor Analysis of SB 1 290 (20 1 2- 1 3 1 st Ex. Sess.).)
28
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- ••• ' •• ·-��·----··!-··-· ._ .... _.._..
Had legislators sought to tailor the impairment of rights to make it more reasonable and less
2 drastic, they might have incorporated limiting measures such as these.
3 70. Notably, however, the entire text of AB26 (which includes the Redistribution
4 Provisions), including the findings set forth therein, lack any indication that the State even
5 considered any alternative, more reasonable means such as those above. The legislative h istory
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6 similarly speaks of the tax revenue that lawmakers expect to wi thdraw from the successor agencies
7 each year, but-like the statutory text-lacks any consideration of other, narrower methods to
8 accomplish th is purpose. (See, e.g., Senate R. Comm., Senate Floor Analysis of A B 26, at I
9 (20 1 1 - 1 2 l sl Ex. Sess.); Senate R . Comm., Senate Floor Analysis of A B 1 484, at l -2, 8-9 (20 1 2-
I 0 1 3 I st Ex. Sess.).)
I I 7 1 . Because the legislation is not tailored to l imit the impairment on Syncora's
1 2 contractual rights to that which is reasonable or necessary, and because the S tate cannot show that
1 3 i t considered alternative, less drastic means, the substantial impairment of Syncora·s contractual
1 4 rights by the Redistribution Provisions violates the Contract Clause even i f the stated purpose of
1 5 the legislation - fi l l ing budget gaps - were a sufficient public purpose (which i t is not).
16 VI. THE IMPAIRMENT OF CONTRACT ALSO CONSTITUTES A DIRECT TAKING .JUSTIFYING COMPENSATION
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72. For the reasons described above, the Redistribution Provisions i mpaired Syncora's
contractual rights. To the extent that the Redistribution Provisions have already appropriated and
taken Syncora 's property interest in critical contractual rights for the period that the Redistribution
Provisions have been in operation, and to the extent that they may continue to appropriate and take
that property imerest for such additional time as they may remain in operation. the State has
effected a taking of Syncora's property and Syncora is entitled to just compensation.
73. The United States Constitution prevents "private property [from] be[ing] taken for
public use, without just compensation." (U.S. Const. amend Y.) The California Constitution
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provides that "private property may be taken or damaged for a public use and only when just
2 compensation . . . has first been paid to . . . the owner." (Cal. Con st. art I , § 1 9(a).)6
3 74. It has long been established that contractual rights can be "property within the
4 meaning of the Fifth Amendment." (Omnia Comm. Co. v. United Stales, 26 1 U.S. 502, 508
5 ( 1 923) (citations omitted): see also City r!f Oakland v. Oakland Raiders, 32 Cal. 3d. 60, 67 (Cal.
6 1 982) (recognizing contractual takings u nder Section 1 9 of the California Constitution).) In the
7 present case, bondholders (and bond insurers) have a property interest in the security contractually
8 pledged by the RDAs to the bondholders.
9 75. "[Djirect government appropriation or physical i nvasion of private prope1ty" is the
1 0 textbook example of a taking requiring just compensation. (Lingle v. Chevron U.S.A. Inc. , 544
1 1 U.S. 528, 537 (2005).) Direct takings i nclude takings of assets other than real property, such as
1 2 cash-assets. (See Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 1 55, 1 64 ( 1 980)
1 3 (holding that a state could not appropriate interest on money held i n trust for creditors because "a
1 4 State, by ipse dixit, may not transform private property into public property without compensation,
1 5 even for [a] l imited duration . . . . ") (emphasis i n original).) The Redistribution Provisions
1 6 constitute a direct taking of unused security pledged to bondholders. At the most basic level, the
1 7 Redistribution Provisions authorize and instruct local taxing agencies to make direct withdrawals
1 8 from bondholder trust accounts. Similar to Webb's Fabulous Pharmacies, the Redistribution
1 9 Provisions appropriated property held for the ultimate benefit o f private parties and used it,
20 without permission, to cover general governmental debts.
2 1
22
23 6 Cal i fornia has a well developed doctrine providing for the availability of damages for takings clause claims. The Supreme Court of Cal i fornia has long held Section 1 9 of the Cal ifornia
24 Constitution (and its predecessor) to be "self-enforcing." (Rose v. Srate, 1 9 Cal.2d 7 1 3, 720 (Cal.
25 1 942).) Self-enforcing here means that the legislature need not take further action: the legal consequence of a "self-enforcing" constitutional provision is the automatic creation of a eommon-
26 law right (inverse condemnation) and a waiver of sovereign immunity. (!d. at 726; Holtz v. San Francisco Bay A rea Rapid Transit Dis!., 1 7 Cal. 3d 648, 652 (Cal. 1 976) ("The authority for
27 prosecution of an inverse condemnation proceeding derives from article I , section 1 9, of the Cal ifornia Constitution . . . . ").)
28
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76. Moreover, the Un ited States Supreme Court has held that the taking of a security
2 interest pledged to bondholders for a public purpose is only permissible so long as just
3 compensation is paid. ( U.S. Trust Co., 43 1 U .S . at 1 9 n. l 6 (noting that contract rights, including
4 Syncora's interest in security pledged to Port Authority bondholders, are "a form of property and
5 as such may be taken for a public purpose provided that just compensation is paid").)
6 77. Because the Redistribution Provisions take and appropriate the contractual rights of
7 Syncora, and those contractual rights are a form of property that cannot be taken by the
8 government without just compensation, Syncora is entitled to compensation for any deprivation of
9 that property i n terest in the past and, to the extent the deprivation remains without remedy, in the
1 0 future.
I I Causes of Action
1 2 FIRST CAUSE OF ACTION
1 3 Writ of Mandate
14 Code of Civil Procedure § 1085
1 5
16 78.
(Unconstitutional Impairment of an Obligation of Contract)
Syncora hereby incorporates by reference paragraphs I through 77 of this
I 7 Complaint as though ful ly set forth herein.
1 8 79. The rights of RDA bondholders and the bond insurers to the irrevocable pledge of
1 9 tax increment financing, pursuant to a lien supported by the RDA as principal, as security on RDA
20 debt are enforceable contractual rights. The Redistribution Provisions substantially impaired
2 1 Syncora's contractual rights. The impairment was neither necessary nor appropriate to achieve the
22 stated public purpose.
23 80. The impairment of contract rights caused by the Redistribution Provisions'
24 el imination of the iJTevocable pledge of tax increment financing to secure RDA debt violates
25 Article I, Section 9 of the Cal i fornia Constitution and Article 1 , Section I 0, Clause I of the U nited
26 States Constitution.
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8 1 . Syncora is beneficial ly interested i n the outcome of this l it igation as i t guarantees
2 RDA bonds secured by tax increment financing and is a direct party to the bondholder contracts
3 among RDAs, bondholders, and Syncora.
4 82. Syncora has no plain, speedy, and adequate remedy at law.
5 83. Respondents have a clear, present, and ministerial duty to comply with Article
6 XVI, Section 1 6 of the Cali fomia Constitution, the Community Redevelopment Law (see, e.g . ,
7 Health & Safety C. § 33670; id. § 33670.5), and the terms of the RDA debt indentures, pursuant to
8 the Contract Clauses of the United States and Cal ifornia Constitutions, without regard for the
9 Redistribution Provisions.
1 0 SECOND CAUSE OF ACTION
I I DECLARATORY RELIEF
1 2 Code of Civil Procedure § 1060
1 3 (Unconstitutional Impairment of an Obligation of Contract Under State Constitution)
1 4 84. Syncora hereby incorporates by reference paragraphs I through 83 o f this
1 5 Complaint as though fully set forth herein.
1 6 85. An actual controversy has arisen and now exists between Syncora and
1 7 Defendants/Respondents (and each of them), concerning their respective rights and duties.
1 8 Syncora contends that the Redistribution Provisions violate At1icle I , Section 9 of the California
1 9 Constitution. Respondents have complied with the Redistribution Provisions.
20 86. Syncora desires a judicial determination of its rights and a declaration of whether
2 1 the Redistribution Provisions violate Article I , Section 9 of the California Constitution and
22 whether Respondents must comply with Article XVI, Section 1 6 of the Cali fornia Constitution,
23 the Community Redevelopment Law (see, e.g., Health & Safety C. § 33670; id. § 33670.5), and
24 the terms of the RDA debts.
25 87. A judicial determination is necessary and proper at this time under the
26 ci rcumstances in order to determine whether the Redistribution Provisions violate Article I ,
27 Section 9 of the Cal i fornia Constitution and to prevent the improper diminution in the value of the
28 security pledged to the RDA debts.
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2
3
4
5
THIRD CAUSE OF ACTION
DECLARATORY RELIEF
Code of Civil Procedure § 1060
(Unconstitutional Impairment of an Obligation of Contract Under Federal Constitution)
88. Syncora hereby incorporates by reference paragraphs I through 87 of this
6 Complaint as though ful ly set forth herein.
7 89. An actual controversy has arisen and now exists between Syncora and
8 Defendants/Respondents (and each of them), concern ing their respective rights and duties.
9 S yncora contends that the Redistribution Provisions violate Article I, Section I 0, Clause 1 of the
1 0 U nited States Constitution. Respondents have complied with the Redistribution Provisions.
I I 90. Syncora desires a judicial determination of their rights and a declaration of whether
1 2 the Redistribution Provisions violate Article I , Section 1 0, Clause I of the United States
1 3 Constitution and whether Respondents must comply with Article XVI, Section 1 6 of the
1 4 .California Constitution, the Community Redevelopment Law (see, e.g., Health & Safety C. §
I 5 33670; id. § 33670.5), and the terms of the RDA debts.
1 6 9 1 . A judicial determination is necessary and proper at this time under the
17 circumstances in order to determine whether the Redistribution Provisions violate Article I ,
1 8 Section 1 0, Clause I of the United States Constitution and to prevent the i mproper diminution in
1 9 the value of the security pledged to the RDA debts.
20 FOURTH CAUSE OF ACTION
2 1
22
23
INJUNCTIVE RELIEF
Code of Civil Procedure § 526
(Unconstitutional Impairment of Obligations of Contract)
24 92. Syncora hereby incorporates by reference paragraphs 1 through 9 1 of this
25 Complaint as though fully set forth herein.
26 93. Syncora contends that the Redistribution Provisions impair its contracts in violation
27 of Article 1, Section 9 of the California Constitution and Article I, Section 1 0, Clause I of the
28 U nited States Constitution and submit that it is entitled to relief consisting, inter alia, of
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restrain i ng the commission of the complained of act, to wit, enforcement of the Redistribution
2 Provisions.
3 94. Syncora wi l l suffer irreparable injury unless the Court issues a permanent
4 injunction prohibiting the enforcement of Redistribution Provisions and directing Respondents to
5 cease enforcement of the Redistribution Provisions immediately because otherwise Respondents
6 wil l continue to implement the Redistribution Provisions notwithstanding that they violate Article
7 l, Section 9 of the California Constitution and Article I , Section 1 0, Clause I of the United States
8 Constitution.
9 95. If injunctive relief is not granted, the contractual rights of Syncora wil l continue to
I 0 be substantially impaired by the Redistribution Provisions because the Redistribution Provisions
I I change the contractually-assured uses of the pledged tax revenues.
1 2 96. Issuance of a permanent i njunction by the court is necessary to permit the
1 3 Oversight Board of successor agencies to utilize tax incremenl revenue for the only remaining
1 4 allowable purpose for those pledged funds: repayment of RDA debts.
1 5 97. Issuance of a permanent i njunction by the court is necessary to prevent further
1 6 impairment of those vested contractual rights conferred on RDA bondholders and their bond
1 7 insurers by Article XVI, Section 1 6 of the Cal ifornia Constitution, the Community Redevelopment
1 8 Law (see, e.g., Health & Safety C. § 33670: id. § 33670.5), and the terms of the RDA debts.
1 9 98. Issuance o f an injunction i s necessary to prevent a multiplicity of judicial
20 proceedi ngs pursuant to continued impairment that would result absent an injunction.
2 1 99. The replacement security ostensibly provided by the Redistribution Provisions
22 amounts to a conditional promise of partial coverage of debt service shortfalls in the future. Nor
23 does it provide any assurance that the full amount withheld u nder the Redistribution Provisions,
24 with i n terest, wil l be timely returned to the successor agencies in the amount required to pay
25 vested contractual benefits in connection with RDA debts.
26
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2
3
SIXTH CAUSE OF ACTION
INVERSE CONDEMN A TTON
Article I , § 1 9 of the California Constitution
4 (Unconstitutional Taking of Private Property for Public Use Without .Just Compensation)
5 I 00. Syncora hereby incorporates by reference paragraphs I through 99 of this
6 Complaint as though fully set forth herein.
7 1 0 1 . Syncora has a mature and cognizable property interest i n its contractual right to the
8 security of the i rrevocably pledged tax increment revenues.
9 1 02. Through the Redistribution Provisions, Respondents appropriated Syncora's
I 0 property interest in its contractual rights.
I I 1 03 . Pursuant to the Redistribution Provisions, Respondents directly took Syncora's
1 2 private property interest in the security on bondholder debt and attempted to transform that
1 3 security. by the State's ipse dixit, into public property.
1 4 1 04. The Redistribution Provisions are not a regulatory provision because they do not, in
1 5 any meaningful way, regulate or promote the health, safety, morals or general welfare aside.
1 6 I 05 . To the extent the Redistribution Provisions did constitute a public i mprovement, it
1 7 is solely because they freed up public money for other government expenditures.
1 8 1 06. The deliberate design of the Redistribution Provisions prox imately caused the
1 9 injury to Syncora's property interest. The Redistribution Provisions reduced the credit quality of
20 the RDA bonds, thereby i ncreasing the likelihood that Syncora wil l have to pay claims under its
2 1 financial guarantee policies or debt service reserve policies and made it materially more difficult
22 for Syncora to pursue reimbursement through rights of subrogation. Furthermore, Syncora has
23 experienced an increased risk of loss as shown by a projected increase i n GAAP loss reserves
24 resulting from the Redistribution Provisions. Finally, the Redistribution Provisions severely
25 impaired Syncora's reasonable credit expectations when it underwrote RDA bonds. Syncora was
26 not compensated for its loss of contractual rights pursuant to the Redistribution Provisions.
27 1 07 . The Redistribution Provisions constituted a public taking without just
28 compensation in violation of Article I, Section I 9 of the California Constitution.
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I 08. If Syncora were not compensated through inverse condemnation, it would be
2 contributing more than its proper share to the public undertaking.
3 1 09. Article l, Section 1 9 of the California Constitution is self-enforcing, meaning that it
4 gives rise to a private right of action sounding i n inverse condemnation and it constitutes a waiver
5 of sovereign immunity.
6 SEVENTH CAUSE OF ACTION
7 INVERSE CONDEMNATION
8 Fifth Amendment or the United States Constitution
9 (Unconstitutional Taking or Private Property for Public Use Without Just Compensation)
I 0 1 1 0. Syncora hereby incorporates by reference paragraphs I through I 09 of this
I I Complaint as though fully set forth herein.
1 2 1 1 1 . Syncora has a mature and cognizable property interest i n its contractual right to the
1 3 security of the irrevocably pledged tax increment revenues.
1 4 1 1 2. Through the Redistribution Provisions, Respondents appropriated Syncora's
1 5 property interest i n its contractual rights.
1 6 1 1 3 . Pursuant to the Redistribution Provisions. Respondents directly took Syncora's
1 7 private property i nterest i n the security on bondholder debt and attempted to transform that
1 8 security, by the State 's ipse dixit, into public property.
1 9 1 14. The Redistribution Provisions are not a regulatory provision because they do not, i n
20 any meaningful way, regulate or promote the health, safety, morals or general welfare.
2 1 1 1 5. To the extent the Redistribution Provisions did constitute a public improvement, i t
22 is solely because they freed up public money for other government expenditures.
23 1 1 6. The deliberate design of the Redistribution Provisions proximately caused the
24 injury to Syncora's property i nterest. The Redistribution Provisions reduced the credit quality of
25 the RDA bonds, thereby increasing the l ikel ihood that Syncora wil l have to pay claims under its
26 financial guarantee policies or debt service reserve policies and made it materially more d i fficult
27 for Syncora to pursue reimbursement through rights of subrogation. Furthermore, Syncora has
28 experienced an i ncreased risk of loss as shown by a projected increase in GAAP loss reserves
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resulting from the Redistribution Provisions. Finally, the Redistribution Provisions severely
2 impaired Syncora's reasonable credit expectations when i t underwrote RDA bonds. Syncora was
3 not compensated for its loss of contractual rights pursuant to the Redistribution Provisions.
4 1 1 7 . The Redistribution Provisions constituted a public taking without just
5 compensation in violation of Amendment V of the United States Constitution.
6 1 1 8 . If Syncora were not compensated through inverse condemnation, i t would be
7 contributing more than its proper share to the public undertaking.
8 1 1 9. Amendment V of the United States Constitution is self-enforcing, meaning that i t
9 gives rise to a private right of action sounding in inverse condemnation and it constitutes a waiver
I 0 of sovereign immunity.
I I
1 2 I .
PRAYER FOR RELIEF
A peremptory writ of mandate, temporary restraining order, preliminary
1 3 injunction, and/or permanent injunction:
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2.
a. Enjoining Respondents from implementing, enforcing, and/or carrying out
the Redistribution Provisions;
b. Ordering Respondents to immediately return all money remitted by
successor agencies to local tax ing agencies pursuant to the Redistribution
Provision:
c. Ordering Respondents to hold al l future TIF revenue in the Redevelopment
Property Tax Trust Fund, or a s imi lar fund, for the exclusive benefi t of, and
distribution to, the bondholders, until such a time when the bondholders are
completely repaid; and
d. Ordering Respondents to pay damages pursuant to Cal. C. Civ. P. § 1 095.
A judicial declaration that:
a. The Redistribution Provisions violate Article !, Section 9 of the Cal i fornia
Constitution;
b. The Redistribution Provisions violate Article !, Section I 0, Clause I of the
United States Constitution;
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3.
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c. The Redistribution Provisions constitute a taking without just
compensation in violation of Article I, Section 1 9 of the California
Constitution; and
d. The Redistribution Provisions constitute a taking without just compensation
in violation of Amendment V of the United States Constitution.
The following injunctive relief:
a. An in junction barring Respondents from implementing the Redistribution
Provisions; and
b. An injunction ordering Respondents to immediately return all money
remitted by successor agencies to local taxing agencies pursuant to the
Redistribution Provision, with in terest as permitted and applicable.
The following damages:
a. From Respondents, such damages as the court may calculate pursuant to the
self-enforcing provisions of Article I, Section 1 9 of the California
Constitution, with interest as permitted and applicable;
b. From Respondents, such damages as the court may calculate pursuant to the
self enforcing provisions of Amendment V of the United States
Constitution, with interest as permitted and applicable; and
c. Such other damages as the court deems just and proper.
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5. Additional Relief:
a. For reasonable attorneys' fees as allowed by law, including but not limited
to California Civil Code § 52. 1{h) and California Code of Civil Procedure
§§ 102 1 .5 & 1036;
b. For costs of suit as allowed by law: and
c. For such other and fun her relief as the Coun deems just and proper.
9 DATED: August I , 20 12
10
I I
1 2
1 3 Submitted by:
1 4 QUINN EMANUEL URQUHART & SULLIVAN, LLP 1 5
1 6
1 7 By Attorneys for Plaintiffs/Petitioners Syncora
1 8 Capital Assurance Inc. nnd Syncora
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Guarantee Inc.
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2 I, Frederick B. 1-lnat, declare:
VERIFICATION
3 I am Managing Director for Syncora Guarantee Inc. and Syncora Capital Assurance Inc.,
4 the Petitioners in this action. I have personal knowledge of the facts al leged in the foregoing
5 Petition and Complaint based on personal participation or on examination of original documents
6 and copies of original documents I believe to be true and correct, and the Petition and Complaint
7 contents are true o f my own knowledge.
8 I declare under penalty o f perjury under the laws of the state o f California that the
9 foregoing is true and correct.
1 0
II Executed August l, 20 1 2.
1 2
1 3
�--' > tl� 1 4
1 5 FREDERICK B. HNAT
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0326 I .fi24 .11)/.1881\M 1 . 1
CERTIFICATE OF COMPLIANCE
2 Calirornia Rules or Court 8.204(c)(l)
3 Pursuant to California Rules of Court 8.204(c)(l), I hereby certify that the foregoing
4 Petition and Complaint was produced on a computer and contains I I ,855 words, including
5 footnotes, according to the word count of the computer program used to prepare the brief.
6 I declare under penalty of peijury under the laws of the state of California that the
7 foregoing is true and correct.
8 Executed on August 1 , 20 12
9
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I I
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Erica P. Taggart
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EXHIBIT A
�nc,y cr: MunldJual Deh1 I I IS;yn(llm Picll�y Numbers 'llrcss Eocptnsur.e I Association of Bay Areo Governments, CA ·Tax Allocation Bonds (Multiple
CA01486A, CA01486B, CA01487A, CA01488A, CA01489A 29,2ZO,OOO.OO Participants}
Atascadero Community Development Agency, CA. Tax Allocation Bonds CA01391A S11,63S,000.00
(.�thedral City Redevelopment Agenty, CA- Tax Allocation Bonds CA01448A, CA01448B, CA01449A, CA01449B $26,29S,OOO.OO
City of Hesperia Community Redevelopment Agency, CA ·Tax Allocation Bonds CA02057A. CA02058A $38,18S,000.00
City of lompoc, CA- Tax Allocation Bonds and Special Assessment CA01377A, CA01377B $8,73S,OOO.OO
City of los Angeles, CA Community Redevelopment Agency· Tax Allocation CA00689A, CA01807A $25,260,000.00
Bonds
City of Oc.ear.�\Oe, CA- Tax Allocation Ronds CA011S9A, [AQ1189B $11,190,000.0 City of O•nard, CA. Tax Allocation Bonds CA00933A $13,975,000.00
City of San Diego Redevelopment Agency, CA- Ta• Allocation Bonds CA00799A $10,775,000.00
(.it'-,' of San Diego Redevelopment Agency, CA [Centre City) - Housing Tax CA01062A $29,810,000.00
Allocation Bonds City of San Diego Redevelopment Agency, CA (Centre City) · Ta• Allocation
CA01062A, CA010628 $83,880,000.00 aonds City of San Jacinto Redevelopment Agency, CA · Tax Allocation Bonds CA02022A, CA020228 $8,230,000.00
City of San Jose, CA - Redevelopment Agencv • Housing Set-Aside CA00622A,CA00622B $40,815,000,00
Otv of San Jose, CA Redevelopment Agencv · TaK Allocation Bonds CAOlOllA, CA04164A, CA04164B, CA04164C $231,328.199.00
City of Southgate, CA • Ta• Allocation Bonds CA00378A $12,270,000.00
Cl�remont Redevelopment Agency, CA · Tax Allocation Bonds CA01490A $74S,050.00
Coachella Redevelopment Agency, CA Project Areas 1, 2 & 4 - l<JK Allocation
B "'' CA0146.1A S12, 7So,ooo.oo
Community Redevelopment Agencv of Hawthorne, CA • Tu Allocation Bonds CA03186A, CA031868 $28,490,000.00
Cotati Community Redevelopment Agency, CA. Tax Allocation Bonds CA00936A, CA009368 $4,305,000.00
Covina Public Financing Authority, CA · Tax Allocation Bonds CA01375A, CA013758, CA01376A, CA01376B $16,240,000,00
�l Cerrito Redevelopment Agencv, CA. Tax Allocation Bonds CA01262A, CA012628 $14,S60,000.00
�ayward Redevelopment Authority, CA · TaM Allocation Bonds CA00989A, CA03072A $48,630,000.00
�esperla PFA, CA CA04025A, CA04026A $122,520,000.00
L�ncaster Redevelopment Agency, CA ·TaM Allocation Bonds CM11199A, CAOlSOOA, CAOlSOlA $27,000,000.00
Lorna linda Redevelopment Agency, C A . Tax Allocation Bonds CA02570A, CA025708, CM257lA, CA025718 $22,495,000.00
Manteca Redevelopment Agency, CA ·Tax Allocation Sonds CA03444A $21,885,000,00
Novato Redevelopment Agencv, CA · Tax Allocation Bonds CA01676A $21,255,000.00
Orange Cove Redevelopment Agency, County of Fresno, CA · Tax Allocation
8ond5 CA00836A $5,060,000.00
Oroville Redevelopment Agency, CA • TaK Allocation Bonds CA01069A, CA010698 $9,760,000.00
�edevelopment Agencv of the City of San Mateo, CA · Housing Set Aside Tn CA02136A, CA021368 $8,985,000.00
Allocation Bonds
Redevelopment Agencv of the City of San Mateo, C A . Tal( Allocation Bonds CA02135A, CA021358, CA03748A, CA037488 $76,160,000.0
Rialto Redevelopment Agency, CA · Housing Tax Allocation Bonds CA02159A $9,935,000.00
Rialto Redevelopment Agency, CA · TaM Allocation Bonds CA02158A, CA02160A $42,395,000.0
�ichmond Redevelopment Agency, CA · Tax Allocation Bonds CA01290A $15,29S,OOO.OO
fl.iverslde County, CA · Housing Tax Allocation Bonds CA01S33A. CA01S34A, CA01S348, CA01S35A. CA01S36A $71,S46,54S.65
fl.lversldc Countv, CA - Tax Allocation Bonds CA01553A. CA02369A. CA023698, CA02369C $221,795,000.00
Fl.ocklln Redevelopment Agenc.y, CA - Tax Allocation Bonds CA02251A $10,385,000.00
Sacramento City Financing Authority, CA PI50169A $46,014,080.20
San R01mon Public Financing Authoritv, CA PI50169A $8,449,288.48
Santa Fe Springs Community Development Commission, CA P150169A $4,096,017.24
SGiedad RedeveiGpment l!.utl\orit'-,1, CA CA03936A, C.A03936B $12,:!25,000.0
Southern California logistics Airport Authority, CA • l;111 Allocation Bonds CA0306SA, CA03066A, CA03372A $133,07S,000.00
Southern California Logistics Airport Authority, CA · Housing TaK Allocation CA03067A $15,240,000.00
sands Victon.oille Redevelopment Agency (Bear Valley Redevelopment Project), CA CA02978A. CA0297BB $20,790,000.00
Whinier Redevelopment Agencv, CA. TaK Allocation Bonds CA02049A, CA02049B $6,81S,000.00
Windsor Redevelopment Agency, CA ·Tax Allocation Bonds CA01221A, CA012218 $3,600,000.00
--- ... __ -···-· Ml II --- -
EXHIBIT B
.. •
Ootcd os ofluo. 1.11)1):1
byond btrY-"C<n l�o
SOUTHERN CALTI'OR.'I/lA LOGISTICS AIRPORT ALmiOR!TV
'"
THE BANK OF �"IlW \'ORK TRUST COMl'At-'Y. t-/.A.
Rclotingto:
$�2,,80.000 Scu!hcm C•lifonri& l.osjotioo Ai'l"'"' Au�'rority
T.., A!I(IC.Olinn 1\c•CIIue l'ariry Bowl& (SI"I\Irl1<m C.lil"t>mio Ll>gisrit:�� Airpon Prt�jocr)
Rc!Un�in8 Strieo 1000
Colifomio l.ogi01i<' Airpnrt Aur�mil)' (rho "Arllhoricy JPA'"), the 1\11\hority moy '""i1e rc<levclopmont pov,•cu within tho lonitoty eompri•lnJ SCLA, ine:udinJ the PQwer to oollea ,., inorcrnerrr ro�cnuu oll<><'tl<ld lo SCU by rhe Member-. of VYEDA [a defined ht...,n) and tu in.....,CIII ""'"'" .. 1enr:nt<ld r,m oc:rivity ot Sct.A. !lorh rhc VVI!DA JPA ond Ill< 1\Urhoriry JPA prcvido lhor oll tu ii"IOtcm<:nr """""" ... .. reo ,., '""""" .. ond orl1rr r<veoua l<"<nl«l l'rom .-;iviry or .�CLA oholl be u•od oolcly for the P""""'"' of tho !"C"It. IIJ'CI"31ion. provisrM of "'rviou ond dc.,lnrrn.,.,t nf SCI .A. Thc AuthQ,;Iy io ompnwercd to rtod11• rhc ponion of ta• inettmerrl ,.......,u., oii<><Oiod tn SCLA by the �cm� o(VVEDA (a defined herein) ond all t"' incmncnl """"""" ir''"nlod by ootivirieo ot SCLA to ...,,.,.. !he iuu"""" of tu •l!ototiM tK>Mo or not .. , and oil ouoh t.or-<1 01 nore p101:eocd1 are "'�uircd to only be uo<ld ro1 rho redovolorment ond de•·elnpmen! ofSC,__._
6. Thc Ar.lhnrily hu ourhori•ed rhc ;..,roncc or it.rr Tu All..,..otinn RO"enrle Potiry Bond• (�ul).<m Colifomro \.ngiJiiCI Ailfl<ln Pf<ljc.:t) R.efln•;ling !>cri'" 1006 (rho '"llondo") in rho aggretote principal llli"IGIInt or S62.780,000 rnr I he purpo«> of: (i) "'�noncing cenoin nde•clopmont ootiviti01 bcnoiotong SCLA (rh< ""?mjmj, (ii) furtdin� 0 IU:oci'"O 1\Coount rorthe Bnndo. and (iii) funding <<>010 ori.,uoneo or tho Bon do.
7. 711• Aurhnriry hll dolmnilll:d to i,.. .. tire Bonrll pumnnr ro thio lndonrurc ond rn ""'"'"tho! Etondo in tho monnr:r pm•id..! hrm:in.
The Aulhnriry h ... dotcrminod that •ll thinso nec .. IO<}' lo ,.,,.e tho Bond•. ,..h:" •
_�lhonricotc:d by :he TNIItc &I'd isnod a io rhil lndcn:ruc pmviderl. tn be loa•l. opooill
l>bhgouono of 11-.o Aulh.,;.ry, ...,(OTO<ablc in oooood&nee -..irh rheir ror·m1. and to C<Jnstrllrl< rhio lod.,.,turo • valid ogrocment f,. rho u ... ond P'''"'" .. herein '" ronh <n or;oord.,ee wirh ill '""""'· ]\avo t>e<n done o;ld !1\trl, ond thc crcolion. e>ocoa;o., and doli""'l' ofthio lndcnlll<e 011d !he ereoticn. c•ooutiM ond luu•nce of rhe Bondo, orrbjoot ro rh& tcrm• he..,nf. ha•e ;,. oil ,.,,_,. been duly authori>.«l.
NOW ni£Rf\I'OR.e, THIS TNDEN11JRil WrT1-l!.SSf!TH.11••1 rn ""'" oo '"'""' tho p•)"'fl""t or the p�ncipof ul. and tile inlmot ond premium. if lilY. on. oil !'Iondo 11 lilY rimo i"'U<d a...-1 Outmoding undtt thio !ndcnnrrc. oocordin11 tO rhcrr rennr, ond W IO<Utc lhc f'<'IO,.,.,..,tc •not ....n .. rvan<O ofoll l).c C<J•enanr. llld condirion• tllorcin Slid herein 001 roM. a.">ll In �ocl"'c r!lo tcmto &r-<1 O<lrditiono •pon ond .. �jr:o:r to wbi<h the llonds 1n0 1<1 1\e iuued ard teoci•rd. an� in ooouid=rion �frho �remioeo urd of rho muruol """""""" hen:in «loloincd ond or tho purohaoo ond oce......,nce or the nond1 by o,..,.,.. �oreof. ond foo orher voN••I• conoidmtion, l�c rcccipt wh�rcof" ht:l"o�y oclmowl«<$«1. the Autho>rity d.,.. hore\<y wv....,t ond >!JIU ....;rh rho TNUeo, for tho ben<fir �r tire ""Poeli"" holders from limo 10 timc of the nonds,., rollo"'>:
·
AI!TICL� I DP.:Fl/"011"10��; F.QUAL SII.CURITV
lii!CTION 1.01. �- Unlcso rhc '""'"-'t other>.ioe �uira, 11w: '"""' dotfo� in lhJ� Seorion o�oll for all PIIIPOICS or this lndcrmrn: and of rt.o. Fl<mrio ond of •n� ""'�"''"· oprnrrm. 1<!'1"'1"1. �001! nr ollie• Mr:um""l hcnin 0"1 l�<Tein mention.<! h•�• L ... moan in�• httein •proifiorl.
TillS P.<.'DEN'TtlllE (!ho "lndCII<III'I'") ;, mftd.o 1111d entered inrn u nf hl!lO 1. 200!1. by .,n hctw.,.,r lho SOVTHP.R..'< CALIFOR..'ilA I.OG!STICS AIRrORT Al.o"TIIORTTV, • joinr pcW«o ourhority duly orpni>O<I ond cxi.,ina llr<lcr ..,d by •irrrrc �flhe l•wo of tho S1a10 nfC.\ifnmia (rl1c "'Aullrnrity"). and T1ffi BANK OF NE'*' YORK TRUST COMJ'ANY. !'I.A. .• o norion•l b>riL.inB L"nclolioo duly nr11rliud and ''"ling under rho t ..... , of:ho U,ited Sloroa nf 1\morico nnd our]"ltlrired rn l«<!'t ond eocc11:e trurru of !he cl>lrrooctor �croin •e1 fl"ltth wirfl o erl!J>O�Ic tnl!t offrcc locntcd in l.n• Anaelr.�. Catifom.ia. !ll tnlJtcc (:I-.e 'Tnlfll!e""):
R.I!CrT.o.LS:
71re Audloriry ;., o joinl ,.......,... '"""'rily. o ru�lic ll<>rly. corpo,..re oM rr>litie. duly <"IU!o<l. cotoblishcd 011d ourhorir«l ro l"-"111:1 b"Oin ... Md e>rcroisc ito powm. oil r11>rlcr ond pt��>UAnt 1<1 the Joint P.x.,.i .. of Powon Aot. indu�ing Artidco I llwuglo � nf Cll'"f't"" l. DivisiM �. Title I (conrmerc.lnR ,..jlJr Sor:tron 6SOO) of the Co•cmmenl Code of tile Stare of C.lifomOa ("'f....-al to ...,in .., rl1o "JPA L.ow"l Tile flO""'" nt rho Authoriry inr:ludc '.!>e pr11•er 10 ;...,c bond• llld incurodlerir-<lchlod;cOI for ony ofiiJ r:.<lrJ'<Ir&te �IIIJlOO"
2. 71rc Vi<�nr Vol\q ];can om!� �olo:rrnent A�rhority I'"VVEDA""). t joint P""'""" outholi<y dulyereorod �llnU&tll lb llro Jl'A L.o ... io ou<l"lll�<cd by Socrion 13•91.40rlfrhe rlcaltb ll. Srlft�y Code of rho StOic of C.Hromio to .,olu,jvcty o:<creiK the power-. or • ralc•olnjrme"l ogency r"'""""' Ill t�• Cammuniry Rode\'Cir"IP"''"' L.owofr�e Stale nrC.tifnmia (he�n1 Put I of Drvroi<>n 2• or rh& Heohh ond Sof<1y Code of c'rc Sill< of Collfomi&. u .,anded, ond "'ferro:! tG hr:rcin ullr• "l..aw"), in frnhenrnce of the ,.jovclr>pmcnr oro pn>jeol arco in tho Cout�ry nf SOil Bemlll"llino (rhe ''Countyj 11vn includCI �"' farmer Gr:nrgc Air fr>lc.. Sue. """" rcfomod !o u ��e So""""'Colifomio l.noiniCI Ai'i'On (""SCU'").
J. VVEDA 1\u odoptcd !J1<] oppn:>Yed rJ,e 199] Victor V•llq Rede•elopmonr NAn, •• uncnd<d (rho "Redevelopment l'lon'l, fm tho! rcdc...,loprn<:nt pmje<� oJU """""' ond d<:Jigna�cd u lho "!99l Viclor VoiiCJ Rcd..,elo�"""'' Pmjc.:t _..,.... (the ""VVEDA Pmjoct A"'o""), 1111<1 all requlttmeniJ or low for. ond pttoodent to. dl• o�<•prion ond o�m••l ol rOo Redovo!�pmcnl �I on ka•e boer> duly r;ompli«< wilh Tho VVF.DA r"'joot A,... includ .. SCLA ond land i171111ediotcly >Ojoconr to SCLA or in pm•imity rhcmo, iftelrlding det<:rionted pmp!r"liotl. itllldf.l]Unle in�crure ard bliahre:l. c.onditiono that �uire lire I""''"CI"1 ofo """""el<rp-n,.n! >grncy l�reool�c
• In ocr:o..Oillll't ,..jiJI tile t"""' or 1ho Founh Ar,en<lod Joint r:.terci ... or Po .. ..,. Ai"'cmcnr Cre>ting Vi<�or Volley �oonnmic O.v�lnpmenr Autho�l)' (tho ·vvr:DA lPAj. VVEDA hu del<&&!..! ilJ clr.::iJion makin; ourhoriry with "''pc<l to SCLA ro lire Aurhoril)', ..,hioh """" hu oil doc.ision mo\ing IUlhrrrirypun"""' to rho L.o"' wirh ""P"'t on lard ""'· Anonee. on�tror:rual ond �udaotory ;,,.,. eoor:crninB SCLA. indudinK rl1c ou:IWiril� tn inuo !Winrl.o Md 110reo oecrrrtd by, .. inortr:>enr '"""'"" .. 10 fiflllrce n:de•elormeor octivirie� ol SCI.A.
5. ln otldrtion In tho wrhorirydelcpred 10 it hy VVEDA.. :.he Autl"lllrily olto rclllno Ill ofilo inhe,.nt P"'..,_ a o join! P"'"'"m amhcril)' polll>uanl to tho !l'A l..aw. Pur-.uan\ lo tho Sooond A:rron�cd ond Rumed Joinr EH!Cill of Powera Al:fecrn�nt \,roaring Sn"thcrn
SECTION 4.03. I imil gn Stmjg• Mr Tho Authority r:o•cnanlll with tl:e O....on of oil of llre Bcndo n! any time O!J!standing llral ir will not 111\10 or inow lilY dchl or ohlilotinn po.yo.b!c &om 1M Plr:<lged To.o Ro>tnllCI L"d ,..,un:>:) by • lion and eh0111" "P"" tho Plcrtgcd Tu Rcvr:nu.a ocnior to the lic:t lll� c:l"llrBc ar:ocurina the O!JI<>ondinn Bo!"O:Ia rheretofa"' ioourd.
SECTlO� 4.04. �gtJm lrmjl qn In��- Tho Authn�ly co•or,niO with the Qwn.,, of •II of the Bond:> •I ""Y time Oll\ltondin8 11111 il will not cnl<l into MY obliptiM ot mole ony Ot�i"'" po.yoblo from ••••• ollocated 10 lire Al,llhonry uod..- tho [...o., lllo poymcnl& ,.;,h tt<t>ot"l 10 ..-hioh. toaorhor with pojmlt�ll tho:r<1oforc mode nr 10 bc mo�e wi\11 ""�"' to o1!>er obligorion• (inclu�ing. bt:T not hm,\C<l lo th� Bnndo) prc•in111ly entered inln by lho �ul/>nrity. would C'Oeo:l l�c thtrr-dTooti•e limit r>n tl<o omnunl of tu .. ... �ic� con b< ollo<oled to ll"oe .lulhoriry pur<uonl 10 Scc1i�n JJ33.1.l(o)(IJ(A) nf tho L.ow ond rt.o R<ldOYolclpment PIOll.
ART1Cl.F. v PL!!:DGF.n TA){ RF.VF.�UF.S; CJI.F .... TION OF VU:"lnS
SllCTIO"' 5.01. Mrslrn pf P!Mrp! In 8rY""""· All l).o l'l«l&ed T., ROll"""" llld oil money in lire Sl""'ill Fut�d (hereinafter dofi�od) •rod in thc lllndo or oocorrnr. ..., IJ!<ci�«l o.�� rmvidod for in lhio lll(]o:nturc, "'h<t�cr hold by tho Aullroriry or tho TnJs!ee. vc N::rt:r<y ,,..�<><'f�ly pl«lgcd tn '"" pnn<�uo! r•l"''""' or rhe '"'.,.... �n ond principal M ""� .WemptiO<! prcmillr."l.l. il any. on the llandl, Uld tho PledKfd Tu Rc•enu01 O!ld '"'" orhcr mOflcy oholl not bo ul<:ll for ony n\ller purpo,.. ...ttilo ony of the Bood• remain O!Jllt..,∋ orrbjor:t 10 lire l'!'lvioronl orl).io Indenture ""'"ining IPI'Iicllinn lh=of for rhc p��,..,.., &I'd on tho rtrtno ond tondrrion< ocr roftlo horcin. Subjoct 1n Scotion 9.02. thio rledgo on oil onn•tillJie o firot lion on rho Plr:<l�ed To.o R"'enu .. ond OU<;h nlt.er "''"�Y for rhc poyrncnt of tloo Uonrlo in KCon!onoe will< t�e term! !hereof. Th< Aulhority �rQonU and Wlmlllll rho� orhor thon the To>Oble Nnn·l!nuoina Bonds. 11><. Forwotd Ta.,hlo Nnn•Hnusin1 rt<ondo on� t"'= s,,;._. 21"J:lJ Oo.-.l._ it h., not hettloforc mode • pledgo or. pt«l o lion on nr oecurity lntcrm rn. "' modo on '"i.!l""m<nt nr 11lo nf the Plodgm Tu Rc�..,U<;O llrll rvo�s on • pority '"ith nr p�nr tn lhe rleclo• sror.r..t hetCur-<icr thO! .,.;II ho out.:andin3 uprm """'"" nflhc !Iondo.
SP.CTIO/'Il.Q2. Saera)l ftmd· Bwin! •n4 QO!!l!il gr ri��Therc ;, hereby continued 1 1f'<'lr.l fund to he brown u ahc "Southcm Colifnmi• LnEiJti'-' A1rp011 ArriMrity T&>. Alloo:�rion Re•rnuo Poriry Bonrlo �clirnrling Soriea 2006 Spe<iol Fuod" (herein, the "Spociol Fut�d"). ,.fUch ohall be held by lire Tnr�teo. The Aurhori:y •h•ll CIUOC rl1e trvroftr croll P\r:<l�;«l Tu R .... cnuea ttl rho TNII .. lor rlr:pooir ln rhc Speci•l fund """" receipt by rJ,o Aurhnrity th....,r. There •�•II nol be dcpo111ed wirh tho TnJ"« any t .. .,. eli£ihle for olloation 10 tho Aulhority for dO;K>oit in the S!'«iol Fund """""'' to 111< u ... ln on omnU�>I in cxco::" of th"' ""'"""I thai. toactl!or wrth o:l monoy rhrn "" dep<>oil •virh rJ,o TNO!oo in the Speciol Fund 011d (�.e ac=un" lhottirr. i1 sul!ioir:rrl 10 diochorgc oil Ool.<lonriing Htlnrl.o a pmvi� in Soction iO.oJ.
Tho Aulhority eo>YtnlliiJ llld ogo:,. that oil N..!a•d To• R"""""01 d""'sitcd hy rho Authority ""'h rho Tr"UBioc in !he SpccjaJ I'und Will be IUI)unrorl for thmuaJo ond held in trust in tho Spr:oiol Fwr�, And the Arnhority shall ha•·• no bcnofrclaJ righ; nr inr� in an� of 111<h
"
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advcT'II<Iy oiT<d t�c cocluoion �UmJtnt to ,.,.lion 103 ofl.hc Cn<lo ofinl....,l on tile Bondi finm •ho g1011 il'<nmc ofo.lle OWI!ero lhcr..,ffor f .... cni income II• purpooo.o.
(J) In any cue whc� ll1c RcKrv<: Acrount io il.lnded with a comhinotion or Ct<h and 1 Quatir:ed Rocrve Accoum Cr..clil lnllnomont, the TNmc o:ball drpl<t& oil <Hh hoW.e<o hcf"'c �n11•ing on lllc Quali�ed R""""'" Account Cn:<lil lnr.rurncr>t. Wi•.h "'l'nl 10 1 d>-ow on the Qoolified Rcoc"'c A<'l:<lur.t Credit Tn•tntmcn� ony rvoii1Mc monc)'l M dOf'O•it in the S�<ci•l F\11'<1 in M lll'lf!Uot equo\"' lhc R"'""'" A�CI'unt Dcfiricnt)' (rluo nil iniC!C.OI '"hich would hove o<.cnJco! on the amooml of wch Rcoc"'c .O.ccnunt Dcfioi..,cy "'hilc <111 dcpn•it in the R .. •"""' Accaunt) ohall b< u•od r.rot to r<inlt•tc ony Quolifled Rc:1.,..t }Iecount Credit ln•trumoott. ond oOG<>nd. 10 roploni<lt lhc cooh in tho R"'""'" Account In the event the Quoli�cd Ra� Accaunl Credit instrument will lo;lle or ••pire, the Tru"ee shall dnw upcm ouch Qllalifocd Rescl'\le Aa:aunt Credit lo•!rumcnt prior to i<> lopoingoo o.piring. ""d ohc TN."'" oh•ll drow U;>')n O.ol !">'tin• nfo�y ovoilnhlc monoyo on dcpo1it in the Spa:iol Fund i11 on &mouno oqu1l !he R .. .,.. AC<XJunl Dcficoency (phu oil in <ere.<! which would have accrued oo <he omowol oflhe Rc:rc,.,..o Account Dcficia.cy while on dopooll in l.llc R ... M! Ae<ount) and dq"<lsil ouch """'""' into the Rcsel"'e A«<lur>l unlit the ou:reptc amouru on dopo•it t!�<rein io cquol "' lho Reoorve ActO\J�I Rcquiremen� or llle Trunco lha\1 lUboti:llle ouch Q.olincd Reocrvo Auounl Credit !n<ln!mC<ll witb o Qualified RCICf'le Ace<>UI11 Credit !n!lnu-nent thol "lioRa ll\C n:quin:menlo o(l.llio SII�<a:lion {b)
(c) I'Oneip•l A�<mml. L, lho Bond You crdi:og December I, �006 ..-.! Cllch Bood Ye01 <hen:ollc:r whole ll'le Bonds are O•ouondifll, ll'le Tru'lloe ohll '"' uide fiom tho Spcci•l Pwwl ond ""' \on thJ.n �...., !') day> prior 10 the IJlplicoble 1nt�t Paymtmt Dlledt))OSit in tho l'rincipnl Mcount on amount of money thai, toscthcr with O.e pmecorl< nf "'1\onding nblis-"ion• or otl\or monr)� olcpr>.<ilrd �y tho Auohority utioh lllc Tm01ee for ouch pu'J'<'Oc, ,.;IJ he JUffooirnl In �·r I he princi�ol o(ohc !Iondo u lhe ••me b<ct�mco �uc. A\\ monc)"' dq>ooitcd in thcl"rin<ipol Account •hall b< '''"" and ,.irhd""'" b� the Truot� «>le\y fm the P"'l"'" of �·rins oho princir"'l <'fthc !Iondo 11 1.'>c1r mornnly.
(d) S.Elll..u. AO<r m:U:inB ohe dCj>O!iU rOQui..,... by J>ll"'Jil"OPh• (o) illrou� (c) &i>o•< in ony Bond Yeor, lhc TN<tcc ohoil <ronofc, any o'"ou:ot remaining on dCI>Oiil "' lh� �f""Ciol Fund to lhe llulh0<11y upon lhc Wrincn Roqu"'t of lite Au•bonty 10 he ••rei lor ony lowM JIU.'J)Oie ofohe AUIIteorily.
SECTION 5.07, Inyp)mm• gf Msme.,.. in fuM• Md Auol!nl'· t.:pen O.e Wnmn ll.equ<>! �fO.e Au!horioy re.ooived by the Tnate.o ol leW ,..... {2) Duo inc" ll•)"' prior 1o I he dole of ouch '""'"tmcn� moocy> in lho Sf*iol Fulld, tile ln!crCII Acoount, illc Principal Ac<xn1111, lhe r»pen!C Fund (n11<1 ony occount therein) nr O.e Rac"'e Ac<:ount oholl ho inv .. let! by <he Truo\e< in Authori�ed !r.vcol!n"""- In <he •borneo of1uch in.Wcti<HUI O.c TI'IUl<e oholl in,...�t in ille Autl!ori>.<<l ln•cstmcot> described in oulrpongnph (P) of rhc dcOnillon th=nf. The oblitpoim,. in "'hich oMne)"' in O.e Spo::iol Fwul, lhc lnl"""t A""""nl or O.c Principal Accounl ore JO invCII<d •�•II mlll'l:re prior to (!,o dote nn whi<h 1110h mono yo ore to\imo�od In bo require� to �e p•id 11111 hercomdor. "!he ohli3o!ion1 in which mone'ftl in lito �e10r'Yo Acrounl '" •o i""""'O<! •hoi\ M !ho .. "' deoctihod in oubpmjp1>ph (A), (1'1) a:>d (D) of lite defiruo"" of Aulhnrizorl lnvcotmo:n::, herein and •hall monon: nn more C�on Rvc (5) )'Ura from the dele of p�h&le by lite TNit<e 01 on !he final moll&rity date of the Bon<lo, w�he•or dOle i• ovli.,:, or
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(b) Por ony Suppl<mcn141 !ndentun: e<eeOicd fO< ''"''""' roll>er than (I) • reflln<�ing In ohio in dcht "<l"iOC •o�inB•· n• {1) tho ;., .. ,non nf r...nty !)clot, ohc <""'""' nf oho IN""'' muol be ob,.ino! by I he Agoncyprinr In O.e i .. uancc of any ad�itinn.o1 """"" l>l<llor the C>eculion of ony ooch Supplcmrnl•1 lnd<nturc,
(c) Tho! lnouror oh•ll be deemed to be tht '"'' Holder of tlte Don� I far tlte p11r�ooo of ouroiJing ony Wlting right "' pri•ii•G• or givina "'Y """1<11t or dirttlion "' tll<ing "·Y nO.cr oction th., the llnld.,.. nftho 1\roro:\o an: enhl�ed In tal.e P"'""nl In A�itle ',IJTJ ond Articlo L\ihmof.
(d) Q(!,cr llun in <onn<:<lion with mlncbtnry •inki"ii fUnd rcdcmptiono, ony tctolmt>en of prindpol po)"''!rn:o, h>cluding ony Ofltionol ttdomp!ion. mu<t be oubj""' It> lho prior .. ..;�., co,.ent of tho lnouror
(e) The TNstec "'"'' be a oorMtcn:i�l t>Mk wiO. Lnlll II"'"''' o r o nllion•l honki"' .......:iotion.
{I} The Iruurer io o ohird·pa�y bencfitiory 10 lhi< lndO!'.turo, "'it� lho po�>er tn cnforu ony rigll� remedy or cloim canfe,..<l, �vcn or )ltlll1ial �c.-eundcr.
{c) If l�e In""'"' mokoo 1111y poym<nt of �rinoipol ondfrn io<crcol due n� the Bondi, lho Dando iholl rcmoin Qu,r.ondina foroll pwpoooo, and o�ol\ ro>t I><> doomed dofouc.l or nih......;,. totior.cd, orpoid byoho Ammrity, onO lito o11il"m-cnl ond plcdK• ofl.llc Tu Re .. nuco ond oil CO�<rlMII, "!ff'COmctl!cl and other obliJIIIiU!II Q( t�o Authoril� loth� l!o\derl h<fCundcr tholl conltnuo to nill ond .�.all n:n m the bcnoftl of lh� lnotucr, ond <he '"'"'"' ohoJI he oubroi"<>:l oo the n!lhll of ouch Hold ott.
SJI.cn0;-.1\ \.0l. �- lf,an l.lle thitd D"'in ... Ooy pri<n lo c'oc •doted O<hedulcd inl<rcll payment dolo �· p-incil'"l f"'fmenl dote (''Po,.-ncnl llno"), •herr ;, nm on depooio with oho TN•ICe lltld<J lho ln�CIIIIlll:, onor malcin; oil IBIIIfen or<! dqoeliU R>quiml under the bdCI'.turo, mnncyo wffocicnl In poy the priot:i,..l nf, 011d inlcrcot on, the Bond!r duo en •nch ?&)'lllent Dote, ohe Tn11t<e oholl ti'< notice 1<1 tho ln•urer ond to i" dC1i11not<d "''"t f>f•nyl (!he "ln<urer'o Fi�a�l A'<nl"l, loy IOic�no or l<lo<opy, nf tho ""'"'"" of <Uch defid<n<)' by 10 00 '·"'-· N- Yor� Ciry lit110, on ouch a"''""" D•Y- If, �n <ho o..,;,.,. flay pricrr "" the ro!oled ?1yment Daoe, thoro io oot en dq>o<it with the Tnttte<t m"'"')'l Jllmcient to p.ty O.e pri..,ipol of, and itru:>c1\ nn, tho Doodo duo on o\ICh Porm..,t Dole, the Truotce 1holl rr.oke o <loim u�der tho lnluntnoc Polioy and gi•e Mnce '" lho Insurer ond lhe '"'""'''' Fioeol Aient (if ony) by telepilonc of tho nmounr nf OilY dc�•ci•"''Y in lho omonnt •�Ubblo lo poy principal .,d inlm:ol, and tile o!l<><otion of ouch deAcicn<y bnwecn tho amounl .-..qu;..,:� on P"Y iniO!UI on !he [Iondo Uld !he •mount roqul rod 10 pay �ri..,ip41 of lho llt>ndo, C<'ttlirn>ed in '"-riti1111 1n Ito: rclotod ln•met ond tho lnour<r'o FI.OCol "'gmt hy 10;00 o.m., New Yntt City time, on ouch Puoine" D•y. by dcii.,nn; '�' Notico nf�nn�•ym<nl ontl Cor<i�co10.
Foo t�c fFIUl>JOe• of <he f"<ccdini parogroph. "Nooic•" mOon! oclephnni� m O.IO<Opiod nolieo.. ••�··�u .. nly e<>nfonnru in u oignal um:tng. or wrin"' noli«: by n:siltcrtd or oa1ifiorl m>il, from I�< Tn:Jt"' In the In'"""'· ""'ich oolioc •f-•11 'fiCCify (o) lhe nome of the ontity molina the doim, (b) the policy number, (cl lhe claimed omount and {d) lite dole ouch
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EXHIBIT C
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INDENTURE 01' TRUST
D•"'d u of �hy 1,101'15
by ond �•tween the
HESPF.II.lA COMMUNin' REOF.VEI.OPMENT ACENCY,
Cn"Y OF HESPERIA
.. , U/'i101'1 !lANK OfCALIFOl!NlA, N.A .
a•Tru�lo•
Rel�ling to:
540.�00.00!1 llc•pcrio Curnrnunity_RodoYolapmenl Ar,onry
1005 T•c Alln<ollon homdo. Serieo A lRcfinoncin� •nd Rodevolopm�nt Projc(l!l
ARTICLE IV
SECURITI' OF SERII;S A BONDS: FlOW OF fUNDS; INVESTM�N"TS
1011 • !r:���·�.!��� ��r:Pt�. ·�.��:!� .. ��::�::���\1Th. :� .. �;;�!� d:�.�� .��:'ir��.� �,nJ In •dd'�""" 1�• llc>ndo •holt Nl_ ,.,.,o,.,,t �y n ;,,., .,nrl �·du•ivo pledge ol ond hen upon •II �ftl,. mM•)'ll in t�o Debt s.,...,,.. l·u�d, 1M Into,... I Acooun� the Princip•l Arro.,nt ond t�o R._. .... A<"«> Lint. $"<h pltdg'"" ·�d ,,.,, oJ.;,II_ ..., I<>< I�O <qu•l OCO\Ority <Of tho 0ul<IAnding llr>ndo _witMnut prd«<n"' or pnMity fM ..,,;.,. "'""· numb.r, d•t••d dolo, ••I• d•tc. d>i• nl ••ccuhon <'< dolo of ��hv<ry. �><epl lnr IM• T." R<:"o�uc• .1nd •ueh mon<)""- nn I undo '"" prof"'rli<> of \he llg<�'1' ,.),oil be pl<dgl!<l to. nr o'"""""" hablo f<•r. tnc r-ym=l Qf pn,ripol of or in!rrosl<m IMoBopdo
limo to ����:���������r�'�h.�';;';��";;,�:J�� ��·:�,� ",�;�';;,,;.�,::�:l����:��=;n�h::
A�o�cy. the Munirip•l B�nd l�met '"d the 0"'""" fmm timo lo lim� nl lh� fiM\d •• �nd I he rt;::;·�:� .�l;!;��::::,���� :,;�:; �,!r'.1�,�;�, �Ni�.::;�,��;n�"-;:�!.;�...;�: pn:f•.,.."'�· pn,.i<y �· doo\onct\�� "'" oeO\o.ily<>< ntho,..,.,. cf on� cl 1hc O.,.,do,.cr ony of 1hc nth••• �Y """n .nf lh< "umber�� dol< thcu·nf nr tMo tim< nl "1•, OoO<loli<m .1nd �<livery l�<n"<>I.M Nhc""''"' fnr•�y '""'" wh"""'""· <><opt oo o•pr<IIOI)· pmvidod t�croinnt h<t<in.
$oclinn 4.0t Sped• I l·unol: Dcrooil <>f Tn Ro•onuoo. The Agom:y O•lohli•h•d • Spo01•l �\ln<J pur•u.1�' '"�"'"n" J 2 <•I tho 1'<94 1."'" Agn<mt·�l roi"M I<>'"" 5<-ri"" A Rondo . ..,h,ch oh.,ll t.. •e/c..,...d lo �'"'in oo oh• "Spociol Fund". and which 1h.1ll ronHnm '" bo �cl11 by 1ho A�oncy •·• • oeporolt rulnctco.l ocrouno. n,,. ,o.r,mcy oholl e<t,1blioh twom-roun:.• within IN �r����:�:�d: lol• R.,d<v<lw,.,r.nt Prnjoct N<>. I 1\�ono ond WI • �e<lcvrk>r"''"' l'"r<>i«t Nn.
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O$,,,bt..��.:�/:'e":'�.� �:;,:'.."'.:,:����;�r;;h�b!.,;r�o���ha �;�':f ;�·;:;�a� l"l<>nd• (referred t� h<t•ei�" ohc -r�liq Pnm•nb o\rmunt�l o�d """' which tho Tn,.:cc �hall
have <>clu>�vc co�m-.1 a!'.d oole nght ���ilh�t�lv,l. ThoTru.,oo '"''II rrC"Oive •"Y '"'nunl pnid un!l<t Municipal Bc,-,d ln•ut>Tit< l't>l1ry .,., In>"' nn �<h>lf Ql �' nf Stri., A Bund• •nd ,;.,u d"f"""ol '"{ ""'"' om<>unl in the l'ofi<y Povmo:nto An:ount ond dl.,ribulo 011ch amcounl <>nly
���.,","Zdb; ':.,,"'.;�;�",;: b':�:�r1;;n';.h�h na,:;�·;7,. �h: .::.•·m��! :";0p�ri'o:ri��i
1:.:d
���r�.' .. �;;!�����;. '�,":,.-;,tn �f.:W ;,:,t';:, ��;:.�:r:::d;,�;;
d•;:;��.��':, h=�
by chrc"" or "'"" tranofon "rar.llc lrnon tho chock or wire tranofer u!od t� pay debt ...viro w•:h othor funr!< '""'lnb!o tn moke•urh p.•yn10nto.
Fundo held in tho _Policy Poymcnto JI<O:ouno oholl not bo invootod by tho Tru•l"" •nd moy nnl he •pplu:d 10 oonsfy ony ..,.to, «pon.<e< nt h•bih�,.,. of tho TN<I<o
ll�y fund.• rcrnoinins in t),� Policy l'oymonlo Acct>�.�nt follo..-l"'l o l'oym<nl Dolo oholl prcmpllybo remtltcd to tho Murucopal tlrmd lnouru.
S«tion 1.12. Ri�kto af lh< M••nirip•l Dnnd lnontfr.
The loll"wing prnvioiM• ohall •pply lor "' l"nf. •• •ny Scrioo A Hondo romnin Out<londong or tho Ag.,cyow .. omrunt.< tn tho Municipo.l llond ln.•uro�
(ol Ul""' the"""'""""' ol on E...,nl nf Od•ull under thi• I Mont""'" tno Mu.UCI'"I Bond lll!lutet •holl be doom«! the o.,..,.., ol o!l Soria A Bno.,]o, on<l ohol] hnYe nil the tighlll •• lh< ?wn"' nf oho S•""' 1\ llon•l•. •• "" opcoiflo·rl in Atloclo 3 h•t«>f. pt�Yidod thai 1},, t,4tonoopol llond lnO<o .. , •hoi] Ml be on d�f•ull u�d<t th� Muniripal llond l ...... o.nnce PC\Iicy
(b\ n,.. Munici�ol !lorul !"'""'' iu tloic�·r><ty t:.o.,.r,.,;.ry ""'"''"'"'" ..,,� •hoi\ r.., •• the f"'W<t ln<"nl"'«" •ny n,c;hl. "modym d.11m •onfon.�. �ivon nt �r-•ntcd u�d•' ih" ln<lent.,,.,
Munoc!�l Ron� ���u"��::��= 1�: �h��l �;��i� ::�7.n���::�do:��1! l�d�·��"' "fo, �
r"'l"'�'· •"d •�•II ""' N: doc,od dcfoo5<"d or oth•rw1.<0 MMfocd. � p•id by the 1\�ono:y. ond the•••"8n.mont •nd plPd�" cl tho Tn R<!Vrm'.'"' ond nllv>r "''""nto plodr,l"d tn tno p•ymonl nf d<-�1 "'":o<•.<>l ��· Soto_, " nM<I' uno!cr th10 !ndonlm�. "''d •II co-.nnnlo. •'S""omcnl• a"ol "'""' obh�•Mn• "f the Agency In lhPOwno,. nf thcS..•rk"> A 11<md< ,h,fl continuo \U P.•O·'' •nd oholl run to ih� hrn_<fll �� th..! Muniripol Aond I""'""'· ond ICc Munu;if"'l Bnnd !f'.•uow <holl \>o """""i!"'"d In tho n�hlo�f •�ch Own. ..
ouchllond y.,., irlln tht fundo and aornun\11 .,oabli•hrd wilh '""P"'t lv Porily n..bl. •• pt<Md.d m...,yrontyMt lno;trumcnt •
in ••��f tMo���",;'��.:.f�"':.;::.',�i�Y��S::�F�:';t,,�� ::,
n: 6:".:: Yoor purou,rnt In the prco!ding pangropho nl thio Socbnn 1.02 ond any l'•nty Debt lnolnlm<�f •�•II be r<l"oed /rom tho pled�c n�d loon Mt=ndoc ''" the se<:urity �I !Me llo�d.•. •h•ll be clepi).Oited in !Me un..,ol•iOiod ·'"'"""" ol ih< Ar,c�<y •nd moy be •pplioo:l �y tnc Agtn<y frn ""Y Towful putp<�se �f tJ,, ll.cd.-.olnpmt'lll !_.ow. Prior I<> th. r•ymonl o� lull cfth� pnn.,pal of ond in"'''" en 1hc Bcn<l•. ond tho poymono in lull nf oil nlkrnmoont. p.>yoblc heo=ndor •n<l u�d•r onv l"'arity O.bi !n.,rumonl•. lho 1\g� oh.>ll nOI h••• •ny �•nef,.,nl nght or intrr .. l in t�e <MIIOfO on <lop<>" I in iht Spc-.:iol Fund. o>topt oo moy be l""vid«< in thiolndcntu,.,.
S«tion &.OJ. Dtbl Suvleo F11nd; T••nor .. of 1\mouo" to Tou,.••· Thoro ;, "'""-�'Y ,...t.>hli>hod ,, 'P'""I �,.t f11nd lnb< t.nnwn " tho "Debt So <Vi"' l'un�··. whj,M •h.> II be ho-ld by I�Tno<t"" h<"f•undtt \n �"'"· Money• on tho Sr;·nnl Fund 1holl b<: tranol,.,cd l>y ihP A�Pn<y In
����u�;;.,:��ti����';:;",t ��::o,�� '.�:�·���:::!,;�":i��� �����\��.��:�� ��� o<<nun�o ond oub-o<C('unto '"' h<l"<'hy ost•bli1hcd with the Tn�oiNt. on the fnlt,..,..;nA ntdcr <Of pno�ty
(il withdrow lrnm tM� Rco.lc•dopmcno Pr<>:cct No. I Acr<>11nl •nd �;,�;��· �:.'�'s�:",;���-�:' :::.:·�� o�-��� !����·:�:"�!d�:�����";,,Troi� No. 1 Sho«: nf am.cunto n� dopn•il in oho Into,..., 1\etounl. io �quol to '"" Rode�elnpmcnt l'r<lt<"Ol No. I �hn,. ol t\.o amount 11f i�tcr .. t """,;ng du� aNI p•yo�l" �n ihe Du<0Und1ng Serico 1\ ll<>ndo�n ou,h � .... ond
(ii) "'.'thdrow from I�• Rode><lnpmonl PtotP<I No 2 A<<DLont ond ''''�•Iorio theln,.l� for dc""po>JI o� ih< lntc,.ot 1\<,.,unt. lhn Ro-do•<:lfl'm�nl f'"''ect No. 2 S�'" ol 1he am���� when nddcd In the Red•Y<Inpmcn1 r.�jcr1 No. 1 Shn,. nf ""'"o�,. on depnoio in oh" 1�""'""' 1\C<ou"'· io e�unl ta '"" Rodevelnpn><nt r...,.,..., No. 2 5�.,. ol tho ornnunt cf onto""'' loc<n•mt>A duo on<l p>yobl< nn the 0�\>london�: S.:ri•• II 6nnd.• nn <ttch dOlo •
.0.11 """""' in tk lntn .. , A'rnunt •In\\ ben� >nd with<l<own �f thr "f""'""
::���:;:��: c�·,J:.r:.�·��;'.'l :��.�:�r��t :/���:� �
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pnnr to rnol�nty pun;uonl I<> tl1i< lnd<nture).
(il woth� .. w from lho Rcdevdopmenl l'mj<:<"l Nn. I 1\crn�nl md "·'�·<fer to thr TN•Ico, lor dOp<><il in oh• l'"ric.rip•l 1\«nnnt. the Red.,.dnpmc"! rr"!"'' No. I Shore ol lho amount whi<h. when ndJed "' ihc R�M•dnpment l'rq<:<"l No. 1 ��"'< nl ohe on>n11nl 1hon nn dopn��il In tt.-> l'ri"<"ip·•l A«nunl • ..;11 � •Gual to th" Rede...topmont r,qoct Nn. I SMote "I the omn""' ol prinripol
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EXHIBIT A FORMOFSfillmS B BONOS
UNTTED STATES OF AMr.RICA STATE 01' CALIFORNIA
COUNTY OF SAN BF.RNAROI:\'0
H�$1'ERIA aJMMLJNm' RliDEVEIDPM'F.NT AGE�'CY :zros Ta• All<>eoti�n lk>nd•. Sori<>'l B (Hou.<in! Pr<'ljoct�)
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MTE OF IN'TERI:sT: MATURHY DATF� ORIGIN/I.L!SSIJF. DATF.: CUSIP: S.ptomb<r 1, _ J�n• ?, 2005
I!EGISTF.RF.D 0\oo'I<JER: I'IUNCIPALAMOU}.T DOLLARS
Th• HE..':l'EIUII COM�IUNTTY RIIDEVEI.OPMEl\.'T AGENCY, o f"'blod:.,.ly. C<lrpor•t� ond pnlitic. d�ly orgoni•orl and e"oting 11ndot I�< lowo nl lh< Stole nl C•hlnmia (t�c "As<n<y"� r�r voluo �v<d. hor<by ptOonioto to poy (but <mly out of tf,o llou.,ng T�• Ro�onu"" •nrl Nl><r rnonoy• k•ufiOT •�rrod In �ol""" and in the lrdenru,. ldefinod b•k•w)) '" �����\'t''�:.�� �::;,:�·;;:.�; ,J,7����:�··����n·�·��;:"�::;J ::::;·;�;::2�;;,:;:�y �,'f :�: IJnitod �to<u �I Amorio.: •nd to poy •nW"""t thorO<'n M tM RMc nl I Mere:<� tdon.,ft«l •bnv• on
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authontiC'lltool an mh<>ln"' '" Into""! Poymcnt Dote •nd allot tl1e foftocnth c�lend•r d•y of 1),� ������ Pf.:':.
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D•los") until poymrnt <>f '"'h Pnn<op .. r Amnunl In f_ull. Th" rnnop•l llmounl h�r.of_., poy�Oio up�n pre .. niO�<>n \,orMf OI_IM pnncipol ""tp"'"'' <>llioe nl Union A on� of Coltlnmoo, N.A-. oo tru•loc (the "T1"1Jolcr"l, on \.oo_ Aroj:olc.<. Coltfnrnt•. nr " •u<h nthor pl.,<� •-• " do.,gn•ted hy thoT"'-''"'- IMeroot hrn:-c" '' �·>•blc by chcr� M droit('! tJ,, Tru""" mo11lod by �;� '�:�;�":!,ic;:,e,'�!�;o:; r:!;�\�:::;.�.·���of;'r:i-'"'�!.'�r�h:=;:� R=rrl Dale; prcvidod t�atot ;!:, wrill<n roque&<�� lhr """"''�r ot l•o•l SLOOO.OOO •r:t-"'"11"' prinoipal omnunt of Don do which written n:�oeol is on fofe_w1th tl1e Trust� •• of ony Httord IJ.re. 1nt�rc>t �n ourh B�n�; ohall bo po1d nn the '�"""rl'"! lntore." P.,ym�ol Dote �y """' trM15for In ""h .,;ttount"" •lloll be opecifie<l in"'"� wtitton ""'l"<ot.
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Thio Bm�d i• �nc of o duly outhmi .. d ''"""of bon�• of tl1• Agon.;y d.,.�gnoted u tho
;.���� �h;'�s':.�1,!;'�f'.�':!'s�;;:.�.5;"n<,;l�� ;;:,-.,:�;"�fb�;�h���·�.os:'�.�j���;'j Eig�ty•Fovc Tlluuoond Dullor• ($11,7115,00JI. oil of f.,_ ter>Ot and dote (0\n-pt lor "'"h vo,..OIIon, il any. "' mov bo ��uirod to dO!i�noto ooryin;; numb<,., l!lllunto..,, �· int<""l rat••) on� oil _i .. ucrl pu,.u'anl to !il the prnvi"""' of Port 1 cf Oivioinn 24 nf the Colifomlo Heohh onrl Sofety Code (tJ,e "Red•�•lop.,ont l.•_w·� and (oil on lnd<nture of Tru<L doted •• of Moy I. 2005. by and omong the City of Hnpcno. tl1o As"""! ond the T."''"'" (Ike "Indenture")_ The Ag<n<y ;1 �ulhori•od to; .. ,, the ll<lndo P"'""'"' to o eosoluhnn of ti\P Ag""'1' odapted m A�•il 10, 2r.-l.!l.
Mly •u� �:�h':\0:! j�; ��;:'�.:.d��;����t:;; ���e
pt'orit�• ���".;�� .. �;,�� ��
wko<i1 ""on �lo �I the afficr {)f tllr Truotoo) •�d oil ourpl""'c�i• th•rrt<> and to tJ,o
Rtd .. ei"Pm'""t !.ow ond tl1e R�lundin� Low f<>r o de..,.;ptan a tJ,e """" <>n whieh tho IIMolo ,,,. ; .. ,o:<l. tJ,o pmvi•mn.< wrtJ, .. gard !<> tllo n�tu"' ond o•tont<>f the H"''""& T" n...,�.._ " thot torm ,, 11ofin.,j in the fndon!lo� ond th,• n&hlo< l....._.,ndor of tlle ""TO"" af the Bond• and t�o nght.o. d01ttt1< ond omm01notico of l�o Tru•l"" nnd tkc nght.o 1nd n�li�o�ml-< cl tr... A�on<y th""'"ndor. tn •II of tho pmv;.,p,. nf wltkh tfw R<"!ll>ltr.-.1 Ow!1or of tkio (\nnd, b1 oootptonco Moren(. ••••mt.o Md agr..s
mndcro��.!:,�'�����fn:;�:�����=fi���"�.'�r�_;;,C: R:,�;�i��=.,�·pi,��o.�� ":'� H"-<perio Rodovelopmont l'rnjc<t :-J�. 2 ftho "Rodo .. lnpmenl Pmjorto") kn� t� rcr•y • p<>ttoon n( odvMo:<O from tho City ro!oling to I<>W-on� "'"''""'..,'""'me llnusin,ll •chvttoe.._
Thi• Bond and \llo int<rool herr<m ond �II othor p•nty nblig•tioou; and the into""'t tJ,or...,. (to tho <•t=loe! forth in th• lrd""tu'") '"' p.ryoblo h--om, ond_ are """"�d by • � ond li,on the Ht>u<i"'l Ta> Rnmu"" (u dofiord on the fnd""""") donv«l by the />.�""""1 from Red•velnpment Pl"<']oo\0.
Ao nnd tn the o>tont ..,t forth in tho hlentur<, oil ol the Hnu�n� T.u �""""""" ,,..., '"'"'""'hly pl<"<lgod in ":o:ntd•n« ...;rio tho :crmo hon."Oiond the P""''"inno of tho lnd•nNfO ond tho R"dovch;opmont l.o'IO,IO the poymon: of tko
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T),,. Bond io not a c!obt nf lhl! Coly of lloop�ri•. the l!c>r><:tin C<>mmunity RodoYOinpmont Ag•ocy, (•�«
�lin tllo limitod """"' ''" fMO in rho lnrlonhon:). t�o Stote ."r
���;'ii",';l;���;·.�;;��;�:.����:·n:."!�"���7.,· ;;�� ;:;�e;h���·�:tt:� h�d r�:���;· .. ��r�;'.�; Nnd• or pmp•rtin othor thon tho Hcu.01n� To• Ro"""" .. ond omnunto held in """'" fund• •nd •=unu ... ndor tho lnd<n!u"'.
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lnolon!ute, bul M •u<h mo<!ifoootion nr omtndmc:nl oholl permit a th•n�• in. Ill< tcrmo ol rod•mptinn or moh!fity of I"' p�ncip.rl of any OOit.<tondinr, !l<tnd Ot nf ony onmllm�l ol
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efie<l ony Ottch m<-.:�ir.cotion"' omrndmenl.
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