California court rules on employee pensions case

In a recent case, a California court found that because Oakland City was only a contracting agency under the California Public Employees’ Retirement Law, the City alone had “legally enforceable” payment obligations with respect to redevelopment employees’ pensions.

The case of City of Oakland et al. v. Department of Finance et al. discussed the Dissolution Law, which dissolved redevelopment agencies (RDAs). The law recognized that certain agreements and loans linked with redevelopment projects would require continued funding. Under the law, the department of finance and state controller would oversee the payment of the former RDAs’ enforceable obligations.

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The Successor Agency to the Oakland Redevelopment Agency submitted its recognized obligation payment schedule to the finance department, which rejected the following items:

• item 426, which provided that a resolution of the Successor Agency’s oversight board reinstated a loan between the City of Oakland and its former RDA to fund the West Oakland Projects Initiative;
• item 370, which involved staffing costs for ensuring the completion of several housing projects.

In response to the denials, the City and the Successor Agency asked the superior court for a writ of traditional mandate. They sought to compel the finance department to pay the denied items.

The trial court, ruling in the finance department’s favor, found that the disputed items, including the one relating to staffing costs, were not enforceable obligations.

The finance department was not required to treat the City’s pension obligations as the Successor Agency’s enforceable obligations, the trial court said. Under section 34171(d) of the Health and Safety Code, enforceable obligations were limited to RDAs’ former obligations and would not include their sponsor entities’ obligations.

According to the trial court, the City, as the contracting agency under the California Public Employees’ Retirement Law, was the only one:

• with contractual obligations to fund redevelopment employees’ pensions, regardless of whether such employees since 1983 have continued to receive the same pension benefits as those provided under the earlier contract between the RDA and the California Public Employees' Retirement System (CalPERS);
• with “legally enforceable” payment obligations in connection with redevelopment employees’ pensions.

The City and the Successor Agency appealed. One of their arguments was that the finance department should not have denied item 370 since the staffing costs required for ensuring the completion of various unfinished housing projects continued to be enforceable obligations of the Successor Agency.

Although the funds encumbered and the amounts owed under the agreements were transferred as assets to the City, the agreements themselves remained the Successor Agency’s obligations, the City and the Successor Agency reasoned.

The California Court of Appeal for the Third District affirmed the trial court’s judgment and agreed with its decision to reject the appellants’ contention that the Dissolution Law allowed a splitting of the assets from the obligations arising under the agreements.

The Successor Agency could no longer claim staffing costs as an enforceable obligation since, under the Dissolution Law, the transfer of housing assets to the City had the effect of passing all related obligations to the City, the appellate court said.