Judge: State must pay Glendale more than $40 million owed through recouped loans

A Northern California judge on Friday sided with the city of Glendale in a dispute over $40 million the California Department of Finance is trying to back out of paying to the city.

Sacramento Superior Court Judge Shelleyanne Chang said in her tentative ruling that the finance department “abused its discretion” when it tried to back off from its financial obligations.

The lawsuit filed by the city last July stems from loans it made over the past 40 years to the now-defunct Redevelopment Agency for revitalization projects.

When the then cash-strapped state government ended the redevelopment program in 2011, its principal amount and interest were shifted to fund public schools.

The following year, the state legislature sought to help cities recoup that money by passing a measure that established successor agencies and oversight boards.

Glendale satisfied all those requirements and earned approval from the department of finance in 2013 to repay the loans.

Only a few payments of around $2 million were paid until they halted completely.

Last year, finance department officials argued that, under changes to the state-approved Redevelopment Agency Dissolution, the loans didn’t qualify because they lacked documentation.

However, Judge Chang stated in her tentative ruling that the finance department had its chance to reject the city’s request to reinstate the loans previously.

“The record shows that [the department of finance] has had multiple opportunities to review the Oversight Board’s approval of the loan agreements and that [the finance department] has already reviewed the loan agreement and determined that they are enforceable obligations,” she wrote.

As for relying on amendments to the dissolution measure as a way to retroactively reject old loans, that’s not going to work either, she said.

“The fact that the court did not address the validity of the loan agreements in the prior litigation does not give [the department of finance] license to object to them now,” Chang wrote.

If the city is victorious in the final ruling, it would be the second time Chang has sided with Glendale against the state’s finance department.

Last year, the department argued that interest rates for the redevelopment loans should be much lower than when they were issued decades ago — if the state got its way, the payback amount would have been reduced by tens of millions of dollars.

Chang ultimately decided the historical interest rates had to apply.

This recent case still awaits her final ruling, which the department of finance can appeal.

H.D. Palmer, deputy director of external affairs for the department, said he was in the process of reviewing the tentative ruling and did not offer a comment.

Glendale City Manager Scott Ochoa, however, said he was pleased with the tentative ruling. He said that eliminating $40 million to be paid out over several years would result in the elimination of some city programs and infrastructure projects such as road repairs.

“I believe Glendale has been vindicated for its good faith and good work on behalf of Glendale residents and businesses,” Ochoa said in a phone interview.

However, there’s no cause for celebration just yet, he added.

There’s always a chance the finance department could try to appeal and possibly even head back to the legislature to get a law passed to circumvent the payout, he said, adding that he calls that “moving the goal post.”

“[The city of Glendale has] become a bit cynical about how [the department of finance] operates and what they’re capable of,” he said. “We are going to remain in a state of constant and suspicious awareness.”

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Arin Mikailian, arin.mikailian@latimes.com

Twitter: @ArinMikailian