COUNTY OF LOS ANGELES
OFFICE OF THE COUNTY COUNSEL
648 KENNETH HAHN HALL OF ADMINISTRATION
500 WEST TEMPLE STREET LOS ANGELES, CALIFORNIA 900(2-27 13
November 21, 2001
LLOYD W. PELLMAN County Counsel
RE: Authority to Require the Transfer of Assets as Terms and Conditions of the Proposed Special Reorganizations
You have requested our opinion as to the extent of the Commission's authority under the Cortese-Knox Local Government Reorganization Act of 1985-(the "Coltese-Knots Act")[1] to set terms and conditions governing transfers of assets for the proposed special reorganizations of the City of Los Angeles. Prior to rendering our opinion, we requested that the applicants and the City of Los Angeles provide us with their legal positions on this issue. Counsel for the Valley Study Foundation, Inc. (the "Valley applicants"), and the Office of the City Attorney have graciously provided us their opinions and we have taken those opinions under consideration.
As explained below, the Commission has broad authority to set terms and conditions for proposed changes of organization or reorganization, including the transfer of assets. Certain constitutional constraints, however, limit the Commission's ability to transfer assets in the case of a special reorganization. Consistent with constitutional principles and applicable state laws, the Commission may transfer assets that are held pursuant to a public trust without compensation being paid. Assets held pursuant to a public trust include pueblo lands, roads and highways dedicated for public use, and properties dedicated by a donor or devisee for a particular public use, such as for park or library purposes.
I As you know, the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000, which became effective January 1, 2001, is not applicable to the San Fernando Valley area and Harbor area proposals for special reorganization because those proposals were pending prior to the effective date. All references herein are to the former Government Code sections of the Cortese-Knox Act.
Proprietary assets of a municipal corporation which will continue in existence after the special reorganization cannot be transferred without compensation, absent the consent of the existing city to the transfer. Proprietary assets of a city would generally include city parks, police and fire stations, libraries, and other assets of the city which, although put to a public use, are not held by the city pursuant to public trust.
The applicants' proposals contemplate that the Commission will set terms and conditions transferring certain City of Los Angeles assets to the proposed new cities. The applicants contend that, as residents of the City of Los Angeles, they are "shareholders" in all of the City's assets, and entitled to a per capita, proportionate interest in all of the City's assets, facilities, etc. Generally speaking, the applicants seek a transfer of all assets located within their respective geographic boundaries, as well as a proportional interest or joint ownership of centralized assets.
The Valley applicants assert the Legislature is authorized by Article XI, Section 2(a) of the California Constitution to "prescribe uniform procedure for city formation and provide for city powers." Based on this authority, the Legislature had adopted the Cortese-Knox Act which vests authority over government changes of organization and reorganization in the local agency formation commissions. The applicants assert that such matters are of statewide concern and that the Legislature intended the Cortese-Knox Act to preempt the field and supercede local laws regarding municipal reorganizations. The applicants further assert that Government Code section 56844 gives the Commission the authority to proportionately allocate the assets and liabilities from the original city to the two or more resulting cities without payment. Finally, the Valley applicants assert, without citation to any legal authority, that the transfer of the assets of a municipal corporation within the context of a special reorganization does not constitute a "taking" pursuant to Article I, Section 19 of the California Constitution.
It should also be noted that while the Valley applicants contend that assets are generally transferred to new cities without payment, as of this date, we have not been provided with any information identifying any
non-consensual or challenged asset transfers imposed by a local agency formation commission as a term and condition of an incorporation.
The City recognizes the Commission's discretionary authority under Government Code section 56844 to transfer property as well, but contends that there are constitutional constraints to the transfer of property held by a municipal corporation in its proprietary capacity. The City asserts that municipal corporations hold property in their proprietary capacity in the same manner and with the same rights as private persons holding property. Article 1, Section 19 of the California Constitution prohibits the State from taking such property without just compensation first being paid to the owner. The City further asserts that the constitutional protections afforded the City's property is strengthened by the City's status as a charter city.
1. Government Code Section 56844.
The Valley Applicant -------- assorts that the Legislator’s authority to prescribe procedures for the formation of cities is set forth in Article XI, Section 2(a) of the California Constitution. Based upon that constitutional provision, the Legislature has enacted the Cortese-Knox Act to govern changes of local agency organization and reorganization. The applicants also correctly assert that such changes of organization and reorganization are matters of statewide concern.; and thus preempt local legislation. See Ferrini v. City of San Luis Obispo, 150 Cal-App-3d 239, 197 Cal.Rptr. 694 (1983). As stated in Weber v. City Council of Thousand Oaks, 9 Ca1.3d 950, 109 Cal.Rptr. 553 (1973):
Municipal corporations are political subdivisions of the state. Subject only to its own laws and constitution, the state may create, expand, diminish, or abolish such subdivisions, and all this may be done, conditionally or unconditionally, with or without the consent of the citizens, or even against their protest.' (Citations omitted.)
Id., at 957. Both parties acknowledge that through the Cortese-Knox Act, the Legislature has granted local agency formation commissions broad authority to set terms and conditions for changes of organization or reorganization.
Government Code section 56844 provides the Commission with discretionary authority to impose terms and conditions on any change of organization or reorganization. First among the terms and conditions the Commission may impose is:
[t]he payment of a fixed or determinable amount of money, either as a lump sum or in installments, for the acquisition, transfer, use or right of use of all or any part of the existing property, real or personal, of any city, county, or district.
Cal. Gov't Code § 56844(a) (emphasis added). Section 56844(a) authorizes the Commission to set a term and condition requiring payment for the acquisition, transfer, use or right of use of property that is currently owned by another local agency. Section 56844(a) is specific in that it addresses the payment for property held by another local agency.
Section 56844(h) also addresses the transfer of property, providing for:
"[t]he acquisition, improvement, disposition, sale, transfer, or division of any property, real or personal."
Cal. Gov't Code § 56844(h). Section 56844(h) is more commonly cited by the applicants in their advocacy of the transfer of assets without compensation. The rules of statutory interpretation require that the intent of the Legislature be followed, as exhibited by the plain meaning of the actual words of the law, giving them a plain and commonsense meaning. See California Teachers Association v. Governing Board of Rialto Unified School District, 14 Ca1.4th 627, tf3 ~~39~, 59 Cal.Rpt.2d 671 (1997) Of the words used in section 568-44(h), "acquisition," "disposition," "transfer," and "division" are all terms of general application describing a change of ownership, and by their plain meaning include transactions where consideration is paid as well as transactions where no consideration is paid. Black's Law Dictionary, Abridged 5th Ed. (West Pub. Co. 1983), pp. 12, 246, 251, 778. The word "sale," on the other hand, connotes a transfer of assets that expressly requires consideration for the transfer. Id., at 695. Section 56844(h) also generally refers to "any property," and not a particular type or class of property or its ownership. As such, section 56844(h), standing alone, appears to grant the Commission general authority to deal with assets both with and without the payment of compensation.
It is a settled principle of statutory construction that: "a specific statute enacted by the Legislature to cover a particular subject 'controls and takes priority over a general statute encompassing the same subject."' Citizens for Covenant Compliance v. Andersen, 12 Cal.4th 345, 383, 47 Cal.Rptr.2d 898 (1995) (citations omitted). Unlike section 56844(h), section 56844(a) is directed toward a particular type or class of property-the existing property of a city, county or district and provides for the payment for a transfer these assets By the compensation be paid for the existing assets of a city, county or district. As such, when addressing issues related to the disposition of the existing property of the City of Los Angeles, section 56844(a), requiring compensation, should be controlling, not section 56844(h).
As set forth below, there are a number of situations in which the transfer of assets with and without compensation would be a logical term and condition of a change of organization or reorganization, and therefore, section 56844(a) and (h) may be harmonized. As will also be seen, the plain and specific language of section 56844(a) is also consistent with certain constitutional restraints which would otherwise limit the Commission's exercise of its statutory authority to transfer assets without compensation.
In California, the detachment of territory from a city and incorporation of that territory as a new city has been exceedingly rare. In 1889, the City of Coronado was created from territory formerly within the City of San Diego. One of the cases arising from that reorganization addressed the nature of municipal corporations and the Legislature's ability to control such corporations:
Municipal corporations in their public and political aspect are not only creatures of the state but are parts of the machinery by which the state conducts its governmental affairs. Except, therefore, as restrained by the constitution, the legislature may increase or diminish the powers of such a corporation-may enlarge or restrict its territorial jurisdiction, or may destroy its corporate existence entirely.
That the legislature by the terms of the act segregating the territory had the right to dispose of the common property, and provide the mode and manner of the payment of the common debt, imposing its burden in such proportions as it saw fit, is a proposition undisputed and indisputable.
Johnson v. City of San Diego, 109 Cal. 468, 474-475, 42 P. 249 (1895) (emphasis added). Johnson addressed the Legislature's authority to settle Coronado's liability for the outstanding debts of the City of San Diego, and did not specifically address the issue of asset allocation because the City of San Diego did not own any property within the territory that became the City of Coronado.
Generally speaking, the California courts have continued to hold that the State has broad authority over the corporate existence of cities within the State. Other cases, however, have recognized a constitutional limitation on the authority of the State to transfer certain types of property held by a municipal corporation without just compensation being paid for the property.
In People, ex rel. The Department of Public Works v. City of Los Angeles, 220 Cal.App.2d 345, 33 Cal.Rptr. (1963), the court addressed the issue of valuation for city park property condemned by the State for freeway construction. The court noted that:
Whatever may be the rule in other jurisdictions, or in regard to other political bodies, it has been the rule in California since 1861 that lands held by a municipal corporation in its proprietary capacity may not be taken from it by the State without the payment of just compensation.
Id., at 351 (emphasis added) (citing Grogan v. San Francisco, 18 Cal. 590, 612 (1861)). The court held that the City had to be compensated for the taking of the park property, which it had acquired by eminent domain and held in its proprietary capacity. The court required the State to pay fair market value for the property in spite of City-imposed restrictions on the transfer of its park property.
In Grogan, the case relied on in People v. City of Los Angeles, the State, by legislative act, had transferred certain properties to the City of San Francisco for the City's use and disposition. The State later attempted to ratify, by legislative act, an illegal sale of the property by the City's Common Council (the ordinance effectuating the sale did not have majority approval of the council). The court in Grogan held that the State-mandated conveyance of the property was invalid:
The estate having vested in the city, ceased to be subject to the legislation of the State, except to the same extent that all property is thus subject. It could not be afterwards divested by the State, or by any proceedings instituted by her direction.
Grogan, at 612. The court also went on to discuss the nature of municipal corporations in much the same manner as the court later did in Johnson, but elaborating on the concept that a municipal corporation may hold property in a proprietary capacity:
Nor is there any difference in the inviolability of the contract between a grant of property to an individual and a like grant to a municipal corporation. So far as municipal corporations are invested with subordinate legislative powers for local purposes, they are mere instrumentalities of the State for the convenient administration of the Government, and their powers are under the entire control of the Legislature; they may be qualified, enlarged, restricted, or withdrawn at its discretion. But these bodies . . .'may also be empowered to take and hold private property for municipal uses, and such property is invested with the security of other private rights.'
Id., at 612-613 (quoting Kent, 1 Com. 3 vol. 275). Thus, to the extent that a municipal corporation may hold property as a private individual holds property, those property rights are afforded the same constitutional protections as private property. It is the municipal corporation, and not the citizens, per se, that hold title to its proprietary property, and therefore, the municipal corporation enjoys the constitutional protections.
Article I, Section 19 of the California Constitution provides in pertinent part that:
Private property may be taken or damaged for public use only when just compensation ... has first been paid to ... the owner.
Cal. Const., Art. I, § 19. Article I, Section 19 sets forth the State's eminent domain powers. It authorizes the State to take private property for public purposes, but only when it pays just compensation to the owner. Based on the case law cited above, this constitutional requirement that just compensation be paid, must be adhered to when the Commission, acting on behalf of the State contemplates imposing as a term and condition, the transfer of a municipal corporation's proprietary property to another local agency.
The Valley applicants argue that Article 1, Section 19 is not applicable because there is no taking by the State. However, this position is not supported by any legal authority. It is clear that, based on Article XI, Section 2(a) of the California Constitution, only the State has the authority to effectuate the formation of cities. The Legislature has enacted the Cortese-Knox Act which expressly states the Legislature's intention that the Act serve as the "sole and exclusive authority and procedure for the initiation, conduct and completion of changes of organization and reorganization for cities and districts." Cal. Gov't Code § 56100. Pursuant to the Cortese-Knox Act, the Legislature has vested the Commission with power to "approve or disapprove, with or without amendment, wholly, partially, or conditionally, proposals for changes of organization or reorganization." Cal. Gov't Code § 56375. The Legislature has vested the conducting authority with the authority to "[o]rder the change of organization subject to confirmation of the voters" or "without election" under certain circumstances. Cal. Gov't Code § 57077. A special reorganization could not occur but for these government actions.
The constitutional limitation on the taking of proprietary property would not, however, limit the Commission's authority to impose a term and condition which transfers property without compensation if the property is held by t1so municipal corporation pursuant to a public trust as is explained below
In City of Monterey v. Jacks, 139 Cal. 542, 73 P. 436 (1903), affd, 203 U.S. 360, 27 S.Ct 67 (1906), the court distinguished the Legislature's ability to ratify the City of Monterey's sale of a portion of its pueblo lands:
[W]here land is acquired by a municipality through purchase or devise, or is specially granted to it by the state, the municipality stands in relation to the land so acquired the same as a private individual, and that it is beyond the power of the state to control its disposition, without the consent of the municipality.
There is a marked difference, however, between lands which are held by a municipality in trust for public municipal purposes, such as pueblo lands, and lands acquired by a municipality through purchase or special grant, and held in proprietary right.
And if this distinction is kept in mind it obviates all difficulty in determining what the legislator has absolute control and when it has no control.
Id., at 551. Pueblo lands are lands held in trust for municipal uses. These lands were originally assigned to pueblos in the Americas by the Spanish crown or Mexican government. After these territories became a part of the United States, the federal government in turn assigned them to the cities succeeding the former pueblos, subject to the sovereignty and control of the state legislatures. See, City VIf Monterey v Jacks 203 US 360 27 S Ct 67(1906) as such the legislator in Californian has absolute power to control the disposition of public lands.
Other properties that municipal corporations may hold in trust for public or governmental uses are: (1) tide and submerged lands or other State lands granted in trust to a city by the State (Mallon v. City of Long Beach, 44 Cal.2d 199, 282 P.2d 481 (1955)); (2) roads and highways dedicated for public use (San Francisco-Oakland Terminal Railways v. County of Alameda, 66 Cal.App.77, 225 P. 304 (1924)); and (3) properties dedicated by a donor or devisee for a particular public use, such as for park or library purposes depending on the specific provisions of the dedication (Cal. Gov't Code § 37354). So long as the use of such property remains consistent with its dedicated public purpose, the State may transfer the property from one trustee to another. See, Sacramento County v. Lauszus, 70 Cal.App.2d 639, 648, 161 P.2d 460 (1945).
Based on the above, Article I, Section 19 of the California Constitution prohibits the taking of the proprietary assets of a municipal corporation unless just compensation is paid for the assets. This constitutional limitation places a limitation on authority the Commission might otherwise have to transfer the assets of municipal corporations without compensation. On the other hand, property held in trust by a municipal corporation is not entitled to the same constitutional protection and may be transferred by the Commission to other local agencies without the payment of any compensation.
Part 5 of the Cortese-Knox Act (commencing with Government Code section 57300) is entitled: "Terms and Conditions and Effect of a Change of Organization or Reorganization." These provisions set forth the Legislature's general intended effects of changes of organization and reorganizations, and apply where no specific terms and conditions are imposed. Cal. Gov't Code § 57302. Pursuant to Government Code section 57302, the Commission's terms and conditions, imposed pursuant to Government Code section 56844, are controlling, and may differ from the provisions contained in Part 5; however, Part 5 is illustrative of the circumstances under which the Legislature intended assets to transfer without compensation, and demonstrates the consistency of the Cotese-Knox Act with the constitutional limitation set forth above.
Pursuant to Part 5, assets transfer without compensation under the following circumstances: (l) the roads and highways transfer in annexations and incorporations (Cal. Gov't Code §§ 57329, 57385); and (2) property held in trust for city use transfers in an incorporation (Cal. Gov't Code § 57382). These types of transfers are consistent with the constitutional limitation on the transfer of property since they involve property held in trust or dedicated to public uses. Also of note is Government Code section 57383, which provides a discretionary mechanism for the County of Los Angeles Board of Supervisors to convey public parking lots located within incorporated cities to those cities under certain circumstances. This provision indicates that assets do not transfer without compensation from the county to a city in incorporations as a matter of course because if they did, this provision would be unnecessary.
All assets of the predecessor agency transfer to the successor agency in a city disincorporation, district dissolution, district merger, and city or district consolidation. Cal. Gov't Code §§ 57401, 57457, 57476, and 57526. The constitutional limitation would not be applicable in these circumstances, where the predecessor agency ceases to exist and the purpose of the transfer of all of the assets is either for liquidation to wind up the affairs of the predecessor agency or where the predecessor agency becomes a part of the successor agency, and, in effect, retains ownership as a part of the whole.
Part 5 does not provide for the automatic transfer of assets in city or district detachments. Public property located within the territory annexing or detaching presumably remains with the county, in the case of unincorporated territory, or the remainder city or district. Once again, this is consistent with the constitutional limitation on the transfer of property. It should also be noted that, in the case of a detachment, Government Code section 57353 expressly provides that:
No inhabitant, property owner, taxpayer, consumer, or user within territory detached from a district or city shall be entitled to either of the following:
(a) All or any part or to any payment on account of the moneys or funds, including cash on hand and moneys due but uncollected, or any property, real or personal, of the city or district.
(b) Any refund by reason of any taxes, assessments, service charges, rentals, or rates collected prior to the effective date of the detachment.
Cal. Govt Code § 57353 (emphasis added). This provision appears to be contrary to the applicants' assertion of a legally cognizable shareholder interest in the assets of the City of Los Angeles.
A "special reorganization" consists of "the detachment of territory from a city or city and county and the incorporation of that entire detached territory as a city." Cal. Gov't Code § 56075.5. Pursuant to Part 5, the assets of a city from which territory was detached would not automatically be transferred to the new city, except for roads and highways, and public property held in trust for the use of the new city. Cal. Gov't Code §§ 57382 and 57385. The predecessor agency, here the City of Los Angeles, continues in existence and would presumably retain those assets it holds in a proprietary capacity, unless it otherwise consents to the transfer or is paid just compensation. Accordingly, Part 5 is consistent with the constitutional limitation and the authority of the Legislature to transfer the assets of municipal corporations. It is also consistent with Government Code section 56844(a), as explained above.
It should be noted that the Valley applicants' contention that they are entitled to a proportionate interest in all of the City's assets, could lead to some potentially troubling results. If a new Valley city would own one-third of all Los Angeles City assets, would the new Valley city also be responsible for one-third of the operation and maintenance costs of all Los Angeles City property? Would the new Valley city be liable for one-third of all liabilities arising out of the ownership, operation and maintenance of all Los Angeles City property? And, if subsequently there was a second special reorganization, would the City of Los Angeles need the consent of both the Valley city and the subsequently formed city to operate, maintain and improve Los Angeles City property? Questions such as these strongly suggest that proportionate ownership cannot serve as a basis for the division of the assets of the City of Los Angeles.
The Commission's authority to set terms and conditions relating to the transfer of assets in a special reorganization is constrained by the California Constitution. Absent the consent of the local agency owning the property, the Commission cannot impose the transfer of assets owned in a proprietary capacity, absent the payment of just compensation. The Commission may only require the transfer of assets that are held in trust for governmental purposes without compensation being paid. The provisions of the Cortese-Knox Act relating to the transfer of assets are not inconsistent with the constitutional limitation.
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