Legal Landmark Set in Downey Renewal Case

An appeals court broke legal ground recently when it ruled that a Downey city councilman violated conflict-of-interest laws in voting to establish a redevelopment district in an area where he owned land.

The Downey case marked the first time a state appellate court has found that merely forming a redevelopment district--without approving specific projects within the district--could create a conflict of interest, officials said.

It is also the first California case in which a redevelopment district has been invalidated because of a conflict of interest, they said.

But experts disagree on the degree to which the decision will effect public officials deciding redevelopment issues.

The Dec. 7 opinion by the 2nd District Court of Appeal upheld a lower-court decision to invalidate Downey’s 386-acre redevelopment area because Councilman James S. Santangelo owned property there.

Vote Did Not Involve Specific Projects

Attorneys representing Downey had argued that Santangelo had no conflict of interest because he voted only to approve a redevelopment area, or plan, and did not vote on specific redevelopment projects from which he would benefit.

The appellate court, however, found that forming a redevelopment district triggers an immediate infusion of tax dollars into the area, which it considered grist for a conflict of interest.

Sandra Michioku, a spokeswoman for the state Fair Political Practices Commission (FPPC), said the court decision requires public officials to disqualify themselves more quickly from voting on redevelopment issues if they have a conflict of interest.

“It clarifies . . . that merely having the plan is significant consideration,” Michioku said.

The case--Downey CARES vs. the Downey Community Development Commission--was only the third case dealing with conflict of interest and redevelopment to reach the appellate court, she said.

David Beatty, a lawyer who represents the statewide Community Redevelopment Agencies Assn., said the court decision will have little practical effect because it only confirms past decisions by the FPPC, which cities have generally followed.

Murray Kane, a redevelopment lawyer who represents the Los Angeles Community Redevelopment Agency, agreed.

“I don’t see the case as having much impact at all,” Kane said. “We have always viewed the adoption of a plan as a time to carefully scrutinize a conflict of interest on the part of a city council.”

But for redevelopment attorneys statewide, conflict-of-interest law was not that clear.

In the Downey case, for example, Santangelo initially blamed City Atty. Carl Newton for giving him bad advice on whether he could vote to expand the redevelopment district. Both Santangelo and Newton have declined further comment on the vote.

Solano County Counsel Charles Lamoree, an authority on redevelopment, said the decision refines what was previously a rough area of law. Solano County is northeast of San Francisco.

“It seems the timetable for determining disqualification has been moved to earlier in the process than it might have been viewed otherwise,” Lamoree said.

The Downey case was sparked in July, 1984, when Santangelo cast the deciding vote to add 386 acres to Downey’s redevelopment district along Firestone Boulevard. Downey CARES, a group of local property owners, sued to invalidate the plan because, among other issues, Santangelo owned land in both the original redevelopment district and the expansion area.

A Superior Court judge found that Santangelo had a conflict of interest and invalidated the expansion. The appellate court affirmed the decision, finding that Santangelo stood to benefit from the establishment of a redevelopment area even though no specific projects had been approved.

The appellate court noted that property tax revenue to stimulate redevelopment is generated as soon as a district is formed.

(Additional tax revenue produced by a redevelopment district is used to finance public improvements such as new curbs and water lines as well as development incentives, such as discounts on land, and loans. Once a district is formed, the City Council approves specific redevelopment projects. In turn, new development boosts property values in the zone.)

The appellate court also found that Santangelo, who owns a Downey real estate business, could profit from sales in the redevelopment zone.

“The trial court . . . was justified in concluding the adoption of the redevelopment plan was reasonably foreseeable to materially affect Mr. Santangelo’s financial interest,” the appellate court found.

‘No Financial Impact’

Attorneys for the city argued otherwise. In a brief to the appellate court, attorney Paul Gale wrote that the 1984 expansion “was simply an enabling ordinance whose adoption had no material financial impact on Councilman Santangelo or anyone else.”

To defend Santangelo’s vote, Downey relied heavily on an FPPC “advice letter” to former San Bernardino City Atty. Ralph H. Prince.

In the letter, the FPPC advised that a city councilman could participate in the preliminary stages of establishing a redevelopment district even though the councilman owned property in the district.

But in a friend-of-the-court brief filed in the Downey case, the FPPC told the appellate court that the letter to Prince concerned a vote on a preliminary plan, not on a final redevelopment plan or district.

The Downey City Council has decided not to appeal the decision.

Attorney Dale L. Gronemeier, who represented Downey CARES, said the appellate court has drawn a clear line for public officials deciding redevelopment issues.

“The appellate court reaffirmed the tremendous impact of a redevelopment plan . . . the recognition that the mere enactment of a redevelopment plan generates very powerful and very substantial economic interests,” Gronemeier said.

Christopher A. Sutton, another attorney for Downey CARES, said the decision also removed the Prince letter as a tool in future conflict-of-interest cases.

The decision “forces these city attorneys to tell city councils about it so they can’t even get near using the Prince letter,” Sutton said. “The vacuum was an area of mischief for a creative city attorney.”

The ruling stands as a warning to public officials that they must be especially careful when deciding redevelopment issues, Gronemeier said.

“If a city council member has a genuine doubt as to whether a case could be proved against him, that he could foreseeable extract a financial benefit . . . he oughtn’t to be voting,” Gronemeier said.

Santangelo, who was charged with misdemeanor conflict of interest, is to be tried Jan. 4 in Downey Municipal Court.