The opinion
Filed 4/29/24
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
CITY OF SAN JOSÉ, H050889
(Santa Clara County
Plaintiff and Respondent, Super. Ct. No. 21CV391517)
v.
HOWARD JARVIS TAXPAYERS
ASSOCIATION et al.,
Defendants and Appellants.
In this appeal, we consider the application of the constitutional debt limitation to a
municipality’s constitutional obligation to its employees to make promised pension
payments and its duty to ensure pension plans have sufficient assets to be actuarially
sound.
Article XVI, section 18, subdivision (a) of the California Constitution sets forth
the constitutional debt limitation applicable to cities. It states in relevant part: “No . . .
city . . . shall incur any indebtedness or liability in any manner or for any purpose
exceeding in any year the income and revenue provided for such year, without the assent
of two-thirds of the voters of the public entity voting at an election to be held for that
purpose.” (Cal. Const., art. XVI, § 18, subd. (a).)
This provision, which “mandat[es] balanced budgets” (Rider v. City of San Diego
(1998) 18 Cal.4th 1035, 1045 (Rider)), has been part of the California Constitution since
1879. It was enacted in response to “municipal extravagance” (San Francisco Gas Co. v.
Brickwedel (1882) 62 Cal. 641, 642 (San Francisco Gas)) by local governments making
large capital investments and thereby “creating huge long term debts.” (Compton
Community College etc. Teachers v. Compton Community College Dist. (1985) 165
Cal.App.3d 82, 88 (Compton Community College).)
Courts have identified exceptions to the constitutional debt limitation, including
the “special fund doctrine” (City of Oxnard v. Dale (1955) 45 Cal.2d 729, 733 [debt
limitation not violated by obligations payable solely from a special fund]), obligations
imposed by law (City of Long Beach v. Lisenby (1919) 180 Cal. 52, 57 (Lisenby) [debt
limitation has “no application to cases of indebtedness or liability imposed by law or
arising out of tort”]), and contingent obligations (Rider, supra, 18 Cal.4th at p. 1047 [debt
limitation inapplicable to “multiyear contracts in which the local government agrees to
pay in each successive year for land, goods, or services provided during that year”
because each payment is a contemporaneous payment for the property, goods, or services
rather than an installment payment on a long-term debt]; see also Taxpayers for
Improving Public Safety v. Schwarzenegger (2009) 172 Cal.App.4th 749, 763).
Howard Jarvis Taxpayers Association, Citizens for Fiscal Responsibility, and Pat
Waite (collectively, HJTA) argue that the City of San José (city) violated the
constitutional debt limitation when its city council adopted a resolution authorizing the
issuance and sale of bonds, on the condition they result in a savings to the city, to address
a shortfall in the city’s pension plans. In validation proceedings, the trial court upheld the
city’s actions against a challenge by HJTA, deciding that the bond issuance falls under
the obligation imposed by law exception to the debt limitation. HJTA appeals the
judgment, contending the city’s actions violate the constitutional debt limitation and lack
statutory authority.
We affirm the judgment, but our reasoning differs from that of the trial court. We
decide that under the terms of the challenged resolution, the city has not “incur[red] any
indebtedness or liability in any manner or for any purpose exceeding in any year the
2
income and revenue provided for such year.” (Cal. Const., art. XVI, § 18, subd. (a).)
Because the city’s actions do not trigger the constitutional debt limitation, we need not
consider the applicability of its exceptions. We furthermore conclude the city has the
authority under state law to issue the bonds.
I. FACTS AND PROCEDURAL BACKGROUND 1
San José is a charter city, whose current charter took effect on May 4, 1965. (City
of San José City Charter, adopted 1965.) 2 The City Council established the city’s current
Federated City Employees Retirement System (federated plan) in 1975 (San José Mun.
Code, ch. 3.28, § 3.28.010) and its current Police and Fire Department Retirement Plan
(police and fire plan) in 1961 (San José Mun. Code, ch. 3.36, § 3.36.010) (collectively,
the retirement plans or pension plans), pursuant to the city’s authority under the charter.
(Charter, art. XV, § 1500.)
Under the retirement plans, pension benefits for individual city employees vary
based on factors such as age, final salary, years of service, type of retirement, and any
cost of living adjustments (COLAs). According to the city’s actuarial expert, “[t]he exact
amount of the pension benefit an active employee will receive upon retirement cannot be
known until their retirement date, since it depends on their years of service and
pensionable earnings. The current pension benefits of retirees are known, but their future
benefits will depend on cost of living and on how long they and their beneficiaries live.”
The city makes annual contributions (described in the record as the “normal cost”
or “[c]urrent [o]bligation”) to fund the retirement plans. If the normal cost does not cover
the present value of providing vested retirement benefits, an unfunded liability arises. An
unfunded liability is the difference between the present value of future retirement benefits
that have been earned as of the valuation date and the assets the city has currently set
1
We take these undisputed facts from the evidence admitted at the court trial and
the matters of which the trial court took judicial notice.
2
All subsequent charter references are to City of San José City Charter.
3
aside to pay for them. (San José Mun. Code, ch. 3.28, § 3.28.960.) According to the
city’s actuarial expert, an unfunded liability is “often large enough that it is not practical
for the employer . . . to pay the entire amount all at once. Instead, it is paid over time” or
amortized. While the city pays the “normal cost” on an annual basis, the “unfunded
liability” can refer to either the liability for any particular year or the amount of liability
accumulated over the years as of the valuation date. The “current plan assets” are those
assets the city has set aside to pay for the retirement benefits as of a particular valuation
date. The amount of the city’s unfunded liability is based in part on the discount rate, the
current expected annual rate of return on the city’s investments—estimated in 2020 and
2021 to be 6.625 percent.
The city’s actuary calculates annually the amount of the unfunded liability for
each retirement plan, taking into account a combination of factors, including the
performance of the city’s investments, city employees’ actual retirement and mortality
patterns, and changes in actuarial assumptions and methods. The city’s unfunded liability
has grown not because of increases in promised benefits, but because declining interest
rates on the expected rate of return on the city’s investments, as well as changes to certain
assumptions about demographic factors, including mortality and retirement rates, have
affected the present value of future pension payments. As of June 30, 2020, the total
unfunded liability was approximately $1,383,387,000 for the police and fire plan and
$2,099,614,000 for the federated plan.
In April 2021, 3 the city considered options for paying the unfunded liability to
return the retirement plans to actuarially sound footings. The city determined that it
would seek approval by resolution of the issuance of pension obligation bonds. Under
the plan selected by the city, the city council would not be obligated to issue the pension
3
Unless otherwise specified, all dates were in 2021.
4
obligation bonds and the timing of any bond issuance would depend on prevailing market
conditions.
On October 5, the city passed a resolution which authorized the issuance of
pension obligation bonds pursuant to Government Code section 53570 et seq. 4 “in a
maximum principal amount not to exceed that required to refund [(i.e., repay)] the
[u]nfunded [l]iability, to prepay all or a portion of the city’s annual required retirement
contribution . . . (the ‘[c]urrent [o]bligation’), and to pay the costs of issuance of such
[b]onds,” subject to certain conditions. The resolution gave the city discretion to
determine the final principal amount of the bonds, provided that the aggregate amount of
the bonds “shall not be greater than the lesser of (a) $3.5 billion or (b) the sum of the
[c]ity’s [u]nfunded [l]iability and [c]urrent [o]bligation . . . together with the costs of
issuing the [b]onds” and the issuance of the bonds results in savings to the city. The
bonds would be issued at a lower interest rate than the current expected 6.625 percent rate
of return on the city’s investments. The resolution also authorized the issuance of
additional bonds on similar terms and conditions, as long as they would result in savings
to the city.
The resolution authorized the preparation and prosecution of validation
proceedings 5 pursuant to Code of Civil Procedure section 860 et seq. to determine the
validity of the bonds and related agreements. On November 18, in accordance with the
terms of the resolution, the city filed a complaint for validation with the trial court “to
determine the validity of the proceedings and obligations relating to the [c]ity’s issuance
of one or more series of pension obligation refunding bonds, execution of a trust
4
Unspecified statutory references are to the Government Code.
5
“Validation proceedings are a procedural ‘vehicle’ for obtaining an expedited but
definitive ruling regarding the validity or invalidity of certain actions taken by public
agencies.” (Santa Clarita Organization for Planning & Environment v. Castaic Lake
Water Agency (2016) 1 Cal.App.5th 1084, 1096.)
5
agreement and a bond purchase agreement, and approving additional actions related
thereto.”
On December 9, pursuant to California Rules of Court, rules 3.1200 et seq. and
Code of Civil Procedure sections 861 and 861.1, the city filed an ex parte application
seeking an order to issue, publish, and mail the summons, and to set a deadline for filing
an answer to the complaint for validation. The following day, the trial court issued an
order granting the city’s application.
HJTA filed an answer to the complaint for validation, alleging that the city lacked
authority to issue the bonds because it had not obtained the approval of two-thirds of its
voters, is not subject to any “ ‘obligation imposed by law’ ” that would exempt the bond
issuance from the debt limitation set forth in article XVI, section 18, subdivision (a) of
the California Constitution, and failed to state facts sufficient to constitute a cause of
action. 6 HJTA asked the court to deny the relief requested in the complaint for validation
and declare the invalidity of the resolution and the proposed issuance of bonds.
On February 16, 2023, the trial court entered judgment validating the resolution,
the issuance and sale of the bonds, and the execution and delivery of the trust agreement,
the bond purchase agreement, and supplemental and related contracts and agreements.
The court held that the city is “required under the [c]harter to establish, fund and maintain
actuarially sound [r]etirement [p]lans,” and, that, to maintain such actuarially sound
retirement plans, “the [c]ity is required to pay the [u]nfunded [l]iability.” The court
reasoned that, since the establishment, funding, and maintenance of actuarially sound
retirement plans are obligations imposed by law, the issuance of the proposed bonds is
exempt from the constitutional debt limitation set forth in article XVI, section 18 of the
California Constitution.
6
The city filed a motion to strike HJTA’s answer as untimely filed. The trial court
denied the city’s motion. The timeliness of HJTA is not at issue in this appeal.
6
II. DISCUSSION
HJTA argues the city’s actions violate the constitutional debt limitation provision.
HJTA maintains that, with the resolution, the city “proposes to incur a debt exceeding the
current year’s income,” which is unconstitutional absent voter approval. HJTA denies
that the city already has an obligation to pay the unfunded liability (rendering it a
preexisting debt), because the unfunded liability is not a fixed dollar amount that is
currently due and payable. Further, HJTA contends the city lacks statutory authority to
issue the bonds as refunding bonds because the unfunded liability cannot be characterized
as “ ‘revenue bonds’ ” under section 53583.
HJTA argues that issuance of the proposed new bonds would create “new debt”—
rather than convert existing debt—an action HJTA alleges requires voter approval on the
grounds that “if there is no obligation imposed by law in the first place, new financing of
something else is not constitutionally authorized without voter approval.” HJTA
contends the unfunded liability is not a debt but is merely “an actuarial projection.” It
characterizes the city’s actions as “prepayment of future pension benefits.”
The city responds to HJTA’s constitutional claim in two ways. It argues the
imposed by law exception applies because the city is obligated by the terms of the city
charter to provide actuarily sound pension plans, which includes paying the unfunded
liability. Alternatively, the city maintains that the proposed bond issuance does not
implicate the constitutional debt limitation at all. The resolution authorizing the issuance
of the bonds states that the bonds can be issued only if they result in savings to the city.
As the city already owes the unfunded liability to its current and former employees,
issuance of the bonds merely changes the form of an existing debt and does not
contravene the constitutional debt limitation. In addition, the city asserts statutory
authority to issue the bonds under section 53583, subdivision (a).
7
A. Legal Background
1. City Charters
Under article XI, section 3 of the California Constitution, “a county or city may
adopt a charter by majority vote of its electors voting on the question.” (Cal. Const.,
art. XI, § 3, subd. (a).) The Constitution further provides that “[a] charter may be
amended, revised, or repealed in the same manner.” (Ibid.) “The charter of a
municipality is its constitution” (Brown v. City of Berkeley (1976) 57 Cal.App.3d 223,
231), and “a charter city may not act in conflict with its charter.” (Domar Electric, Inc. v.
City of Los Angeles (1994) 9 Cal.4th 161, 171 (Domar).)
2. Public Employee Pensions
Pensions are “ ‘an integral part of the employment contract’ ” (Carman v. Alvord
(1982) 31 Cal.3d 318, 332 (Carman)) that “help induce faithful public service and
provide agreed subsistence to retired public servants who have fulfilled their employment
contracts.” (Id. at p. 325, fn. 4.) As such, “ ‘pension laws are to be liberally construed to
protect pensioners and their dependents from economic insecurity.’ ” (County of Orange
v. Association of Orange County Deputy Sheriffs (2011) 192 Cal.App.4th 21, 41 (County
of Orange).)
“A public employee’s pension constitutes an element of compensation, and a
vested contractual right to pension benefits accrues upon acceptance of employment”
(Betts v. Board of Administration (1978) 21 Cal.3d 859, 863 (Betts)), or “ ‘upon the
performance of services for a public employer.’ ” (Cal Fire Local 2881 v. California
Public Employees’ Retirement System (2019) 6 Cal.5th 965, 985 (Cal Fire).) “While
payment of these benefits is deferred, and is subject to the condition that the employee
continue to serve for the period required by the statute, the mere fact that performance is
in whole or in part dependent upon certain contingencies does not prevent a contract from
arising, and the employing governmental body may not deny or impair the contingent
8
liability any more than it can refuse to make the salary payments which are immediately
due.” (Kern v. City of Long Beach (1947) 29 Cal.2d 848, 855 (Kern).)
A public employee’s pension rights “may not be destroyed, once vested, without
impairing a contractual obligation of the employing public entity.” (Betts, supra, 21
Cal.3d at p. 863.) The employee’s vested right “is their reasonable expectation that the
city would meet its statutory obligations to finance the unfunded liability for past
accumulated debt.” (Association of Blue Collar Workers v. Wills (1986) 187 Cal.App.3d
780, 792.)
Both state and municipal law require that the city’s pension plans be actuarily
sound. State law provides that “any city may establish a retirement system for its officers
and employees and provide for the payment of retirement allowances, pensions, disability
payments, and death benefits, or any of them.” (§ 45301.) Further, it requires that a city
pension or retirement system “be on a sound actuarial basis.” (§ 45342; see also Valdes
v. Cory (1983) 139 Cal.App.3d 773, 785, fn. 5 (Valdes) [observing this statute “requires
cities which elect to adopt their own retirement system [] do so on a ‘sound actuarial
basis’ ”].)
Article XV, section 1500 of the charter, as last amended and approved by the
voters on November 2, 2010, states that “the [c]ouncil shall provide, by ordinance or
ordinances, for the creation, establishment and maintenance of a retirement plan or plans
for all officers and employees of the [c]ity. . . . [T]he [c]ouncil shall not establish any
new or different plan after November 3, 2010 that is not actuarially sound.” (Charter, art.
XV, § 1500.)
Article XV, section 1504 of the charter reinforces this requirement. “Any
retirement plan or system established for officers or employees of the [p]olice or [f]ire
[d]epartments shall be actuarially sound.” (Charter, art. XV, § 1504, subd. (c).) In
addition, article XV-A, section 1508-A, subdivision (a) of the charter, recognizing “the
interests of the taxpayers and the responsibilities to the plan beneficiaries,” requires all
9
pension plans to “be operated in conformance with [a]rticle XVI, [s]ection 17 of the
California Constitution” (also known as the 1992 California Pension Protection Act),
including subjecting all plans “to an annual actuarial analysis that is publicly disclosed in
order to assure the plan has sufficient assets.” Article XVI, section 17, subdivision (e) of
the California Constitution provides, in relevant part, that “[t]he retirement board of a
public pension or retirement system, consistent with the exclusive fiduciary
responsibilities vested in it, shall have the sole and exclusive power to provide for
actuarial services in order to assure the competency of the assets of the public pension or
retirement system.”
The two retirement plans at issue are codified in the city’s municipal code at title
3, chapters 3.28 et seq. (federated plan) and 3.36 et seq. (police and fire plan),
respectively. Under both plans, the city’s retirement board is charged with “maintaining
the actuarial soundness” of the plans consistent with article XVI, section 17 of the
California Constitution. (See, e.g., San José Mun. Code, ch. 3, §§ 3.28.200.A,
3.28.350.B, 3.36.540.B.)
3. Bond Issuance
Section 53583, subdivision (a) of the Government Code permits any local agency
to “issue bonds pursuant to this article or any revenue bond law under which the local
agency is otherwise authorized to issue bonds for the purpose of refunding any revenue
bonds of the local agency.” 7 Section 53580, subdivision (c) defines “ ‘refunding bonds’ ”
as “bonds issued to refund bonds.” Section 53550, subdivision (b) defines “ ‘[b]onds’ ”
as, in relevant part: “[B]onds, warrants, notes or other evidence of indebtedness of a
local agency.” Section 53570, subdivision (b)(1) defines “ ‘[r]evenue bonds’ ” as, in
7
A “ ‘local agency’ ” is defined under section 53580, subdivision (a) as “public
district, public corporation, authority, agency, board, commission, county, city and
county, city, school district, or other public entity or any improvement district or zone
thereof.”
10
relevant part: “Bonds, warrants, notes, or other evidence of indebtedness of a local
agency payable from funds other than the proceeds of ad valorem taxes or the proceeds of
assessments levied without limitation as to rate or amount by the local agency upon
property in the local agency.”
The proceeds of any refunding bonds issued pursuant to article 11 of the
Government Code “may be applied to the purchase, retirement at maturity, or redemption
of the bonds to be refunded either at their earliest redemption date or dates, any
subsequent redemption date or dates, upon their purchase or retirement maturity, or paid
to a third person to assume the local agency’s obligation to make the payments, and may,
pending that application, be placed in escrow and invested or reinvested in any
obligations or securities, and any interest or other increment earned or realized on any
such investment may be applied to the payment of the bonds to be refunded or to the
payment of interest on the refunding bonds, as provided in the proceedings of the local
agency authorizing the issuance of the refunding bonds.” (§ 53584.)
In addition, article XII, section 1222 of the charter authorizes the city to issue
revenue bonds “for any purposes other than those specified in [s]ections 1220 [for off-
street parking or airport facilities] and 1221 [for public utilities] only under and pursuant
to the laws of the State of California.”
B. Analysis
In considering the applicability of article XVI, section 18 to the challenged
resolution, “we apply the familiar principles of constitutional interpretation, the aim of
which is to ‘determine and effectuate the intent of those who enacted the constitutional
provision at issue.’ ” (Silicon Valley Taxpayers’ Assn., Inc. v. Santa Clara County Open
Space Authority (2008) 44 Cal.4th 431, 444 (Silicon Valley Taxpayers’ Assn.).) In doing
so, we “look first to the language of the constitutional text, giving the words their
ordinary meaning.” (Leone v. Medical Board (2000) 22 Cal.4th 660, 665.) We review
11
questions of constitutional and statutory interpretation de novo. 8 (City of Lafayette v.
East Bay Mun. Utility Dist. (1993) 16 Cal.App.4th 1005, 1013.) “[W]e construe [a]
charter in the same manner as we would a statute.” (Domar, supra, 9 Cal.4th at p. 171.)
When reviewing and interpreting a statute, “ ‘our fundamental task [] is to
determine the Legislature’s intent so as to effectuate the law’s purpose. [Citation.] We
begin by examining the statute’s words, giving them a plain and commonsense meaning.
[Citation.] We do not, however, consider the statutory language “in isolation.”
[Citation.] Rather, we look to “the entire substance of the statute . . . in order to
determine the scope and purpose of the provision . . . . [Citation.]” [Citation.] That is,
we construe the words in question “ ‘in context, keeping in mind the nature and obvious
purpose of the statute . . . .’ [Citation.]” [Citation.] We must harmonize “the various
parts of a statutory enactment . . . by considering the particular clause or section in the
context of the statutory framework as a whole.” ’ ” (San Diegans for Open Government
v. City of San Diego (2015) 242 Cal.App.4th 416, 428–429 (San Diegans).) “ ‘Where
uncertainty exists, consideration should be given to the consequences that will flow from
a particular interpretation.’ ” (Kerollis v. Department of Motor Vehicles (1999) 75
Cal.App.4th 1299, 1304–1305.)
1. Constitutional Debt Limitation
We begin by examining the legal status of the city’s obligation to pay the
unfunded liability.
The charter states that the city “shall provide, by ordinance or ordinances, for the
creation, establishment and maintenance of a retirement plan or plans for all officers and
employees of the City.” (Charter, art. VX, § 1500.) Article XV-A, section 1508-A of the
charter, read together with article XVI, section 17 of the California Constitution and
8
Although the city asserts there are factual issues in dispute related to the
accounting standards, we disagree with this characterization and apply de novo review to
the questions at issue in this appeal.
12
section 45342, requires that the city do so on an actuarially sound basis “to assure the
competency of the assets of the public pension or retirement system.” (Charter, art. XV-
A, § 1508-A; Cal. Const., art. XVI, § 17, subd. (e); § 45342.) The use of the term “shall”
in this context describes a legal obligation. (See Wright v. Compton Unified Sch. Dist.
(1975) 46 Cal.App.3d 177, 181–182.) Public employees have “a vested right to ‘integrity
and security of the source of funding for the payment of [pension] benefits.’ ” (Board of
Administration v. Wilson (1997) 52 Cal.App.4th 1109, 1136 (Wilson).)
In approving the charter, the city’s voters enacted the city’s obligation to provide
actuarially sound pension plans to its officers and employees. On November 8, 2016, the
voters reaffirmed their support of the city’s retirement plan obligations, including its
obligation to maintain the plans on an actuarially sound basis, by approving Measure F. 9
California law has long held that a municipality that has enacted a pension plan
incurs an obligation, protected by the constitutional contract clause (U.S. Const., art. I,
§ 10, cl. 1; Cal. Const., art. I, § 9), to make pension payments to covered employees. In
Kern, the California Supreme Court rejected the contention that a city could escape the
obligation to pay a pension to a city firefighter by repealing the pension provisions before
the employee was entitled to retire. The court reasoned “there is little reason to make a
distinction between the periods before and after the pension payments are due. It is true
that an employee does not earn the right to a full pension until he has completed the
prescribed period of service, but he has actually earned some pension rights as soon as he
has performed substantial services for his employer.” (Kern, supra, 29 Cal.2d at p. 855.)
Our Supreme Court in Kern decided that the city incurred the obligation to pay the
employee the pension payments in the same way—and at the same time—as it did his
9
Measure F amended article XV-A of the charter in accordance with the statement
of decision in San Jose Police Officers Association v. City of San Jose, et al. (Feb. 20,
2014, No. 1-12-CV225926) to require voter approval of any increases in employee
retirement benefits, modify disability retirement benefits, and maintain the retirement
plans in an actuarially sound manner.
13
salary. The employee “is not fully compensated upon receiving his salary payments
because, in addition, he has then earned certain pension benefits, the payment of which is
to be made at a future date. While payment of these benefits is deferred, and is subject to
the condition that the employee continue to serve for the period required by the statute,
the mere fact that performance is in whole or in part dependent upon certain
contingencies does not prevent a contract from arising, and the employing governmental
body may not deny or impair the contingent liability any more than it can refuse to make
the salary payments which are immediately due. . . . [I]n our opinion it cannot do so at
any time after a contractual duty to make salary payments has arisen, since a part of the
compensation which that employee has at that time earned consists of his pension rights.”
(Kern, supra, 29 Cal.2d at p. 855.)
In other words, “the receipt of pension benefits is granted constitutional protection
because the benefits constitute a portion of the compensation awarded by the government
to its employees, paid not at the time the services are performed but at a later time.” (Cal
Fire, supra, 6 Cal.5th at p. 985; Alameda County Deputy Sheriff's Assn. v. Alameda
County Employees' Retirement Assn. (2020) 9 Cal.5th 1032, 1077 [“It is the nature of
pension rights as deferred compensation that caused Kern to hold them protected under
the contract clause.”].)
The California Supreme Court in Kern grounded its conclusion that pension rights
enjoy constitutional protection on the importance of public employee pensions. It
described that objective as “to induce competent persons to enter and remain in public
employment.” (Kern, supra, 29 Cal.2d at p. 856.) It added, “It is obvious that this
purpose would be thwarted if a public employee could be deprived of pension benefits,
and the promise of a pension annuity would either become ineffective as an inducement
to public employees or it would become merely a snare and a delusion to the unwary.”
(Ibid.) Underscoring the special nature of pension obligations in California law, the
California Supreme Court has identified only three conditions of public employment as
14
protected by the constitutional contract clause: pensions, earned salary, and judicial
compensation. (Cal Fire, supra, 6 Cal.5th at p. 986.)
Under these principles of California law, the city has an obligation to pay future
pension benefits to its current and former employees, who have already earned them. In
addition, the city has an obligation to maintain its retirement plans “on a sound actuarial
basis” that assures that the plans have the assets to make such future payments. (§ 45342;
Cal. Const., art. XVI, § 17, subd. (e).) The city seeks to satisfy this duty by issuing bonds
that will enable it to fund its unfunded liability in a manner that reduces the city’s costs.
It is far from obvious that the challenged resolution triggers the constitutional debt
limitation. After all, that provision applies when a city “incur[s] any indebtedness or
liability in any manner or for any purpose exceeding in any year the income and revenue
provided for such year.” (Cal. Const., art. XVI, § 18, subd. (a), italics added.) The
actions that incurred the city’s existing liability—enacting the pension plans and
employing the individuals covered by them—have already occurred. Further, the
unfunded liability in this case arose out of unexpected changes in interest rates and
market conditions, rendering inadequate the current assets set aside for pension payments
that have already been earned but have not yet been paid.
Nevertheless, HJTA asserts that refunding the unfunded liability cannot be a
legally imposed obligation because financial obligations not payable “today” are not debt.
In its view, the city’s issuance of the bonds incurs a new debt, which does trigger the
constitutional debt limitation. For this contention, HJTA relies on the decision in County
of Orange, supra, 192 Cal.App.4th at page 34.
In County of Orange, the Second District Court of Appeal considered the legality
of a county retirement board’s modification of the retirement formula in a manner that
resulted in higher pension payments for certain public employees. (County of Orange,
supra, 192 Cal.App.4th at pp. 30–31.) Several years later, the county sued the board to
rescind the more generous pension terms. The county argued that the board’s earlier
15
action violated the constitutional debt limitation because the additional debt exceeded the
county’s available funds for the year and no exceptions to the constitutional debt
limitation applied. (Id. at p. 33.) The Court of Appeal rejected the county’s argument,
ruling that the board’s previous decision to change the pension plan did not incur a
legally enforceable obligation within the meaning of the constitutional debt limitation.
(Id. at p. 39.)
We decide that County of Orange does not control here. In that case, the Court of
Appeal was asked whether the retirement board’s estimate of the cost of increasing
pension benefits triggered the constitutional debt limitation. The court decided that it did
not. It described the $100 million of unfunded liability as “an actuarial estimate
projecting the impact of a change in a benefit plan, rather than a legally enforceable
obligation measured at the time of the County’s 2001 resolution approving the 3% at 50
formula.” (County of Orange, supra, 192 Cal.App.4th at pp. 36–37, italics added.)
The facts here are materially different. With the challenged resolution, the city
does not seek to increase pension benefits but instead to issue bonds to provide an income
stream for a liability it has already incurred. As the California Supreme Court said in
1896, “merely to fund or refund an existing debt is not to ‘incur an indebtedness or
liability’ ” within the meaning of the constitutional debt limitation. (City of Los Angeles
v. Teed (1896) 112 Cal. 319, 327 (Teed).) “A bond is not an indebtedness or liability—it
is only the evidence or representative of an indebtedness; and a mere change in the form
of the evidence of indebtedness is not the creation of a new indebtedness within the
meaning of the constitution.” (Ibid.)
Contemporary professional accounting standards support the characterization of
the unfunded liability as a current debt. The current Government Accounting Standards
16
Board (GASB) 10 standards—GASB Nos. 67 and 68, enacted in June 2012— require
governments to include pension plans’ unfunded liability as a deficit on their balance
sheets. (See Statement No. 67 of the Governmental Accounting Stds. Bd.: Financial
Reporting for Pension Plans, an amendment to GASB Statement No. 25, No. 327-B (June
2012) <https://gasb.org/page/ShowPdf?path=GASBS67.pdf&title=GASBS%2067> [as
of April 26, 2024], archived at: <https://perma.cc/8TMS-FMWY >; Statement No. 68 of
the Governmental Accounting Stds. Bd.: Accounting and Financial Reporting for
Pensions, an amendment of GASB Statement No. 27, No. 327-C (June 2012)
<https://gasb.org/page/ShowPdf?path=GASBS+68.pdf&title=GASBS%2068> [as of
April 26, 2024], archived at: <https://perma.cc/RF5B-DETQ>.) 11
That the city’s obligation to make these pension payments will not occur in a
single calendar year does not mean that the obligation is not a debt. As our Supreme
Court observed in Carman, “ ‘The term “indebtedness” has no rigid or fixed meaning, but
rather must be construed in every case in accord with its context.’ [Citations.] It can
include all financial obligations arising from contract . . ., and it encompasses
‘obligations which are yet to become due as [well as] those which are already matured.’
[Citation.] We hold that indebtedness as traditionally understood covers obligations
arising under [the c]ity’s pension plan.” (Carman, supra, 31 Cal.3d at pp. 326–327.)
When construing whether the city’s decision to transform an existing debt (here,
the unfunded portion of the future pension payments already earned) into a new form of
10
The GASB is “an independent, private-sector organization, that establishes
accounting and financial reporting standards for state and local governments that follow
Generally Accepted Accounting Principles” (GAAP). The city follows GAAP.
11
In County of Orange, the court relied in part on the now-superseded GASB Nos.
25 and 27 to reach its conclusion. Under the former provisions, “[w]hile some pension
liabilities must be reported on the balance sheet, the [unfunded liability was] not one of
them.” (County of Orange, supra, 192 Cal.App.4th at p. 39.) The current version of the
standards requires that the unfunded liability be reported as a current deficit on the city’s
balance sheet.
17
indebtedness (the bonds) “incur[s] any indebtedness or liability in any manner or for any
purpose exceeding in any year the income and revenue provided for such year” (Cal.
Const., art. XVI, § 18, subd. (a)), we must “ ‘effectuate the intent of those who enacted
the constitutional provision at issue’ ” (Silicon Valley Taxpayers’ Assn., supra, 44 Cal.4th
at p. 444).
The constitutional debt limitation was enacted for the purpose of curtailing
“municipal extravagance” in the form of unchecked capital investments that resulted in
large, long-term debt. (Compton Community College, supra, 165 Cal.App.3d at p. 88;
San Francisco Gas, supra, 62 Cal. at p. 642.) In contrast to disfavored “municipal
extravagance,” public policy in California encourages pension plans as a means by which
governments may induce and reward long-term public service to a municipality’s
citizens. (See Bellus v. City of Eureka (1968) 69 Cal.2d 336, 351; see also Cal Fire,
supra, 6 Cal.5th at p. 983.) Likewise, the charter states that the city’s “financial ability to
provide basic services is essential to the health, safety, quality of life and well-being of its
residents.” (Charter, art. XV-A, § 1501-A.)
As our Supreme Court has highlighted, pension benefits for public employees are
constitutionally protected “because the benefits constitute a portion of the compensation
awarded by the government to its employees, paid not at the time the services are
performed but at a later time.” (Cal Fire, supra, 6 Cal.5th at p. 985.) These benefits are
currently owed, and “may not be destroyed, once vested.” (Betts, supra, 21 Cal.3d at
p. 863.) The city undoubtedly must pay these pension obligations.
The city’s ability to manage its pension resources in a financially prudent manner
forms part of its constitutional contractual obligation to its employees. “[U]nder
California law there is a strong preference for construing governmental pension laws as
creating contractual rights for the payment of benefits, and when feasible to do so such
laws should be construed as guaranteeing full payment to those entitled to its benefits
‘with the provision of adequate funds for that purpose.’ ” (Wilson, supra, 52 Cal.App.4th
18
at p. 1131.) “Actuarial soundness of the [pension] system is necessarily implied in the
total contractual commitment, because a contrary conclusion would lead to express
impairment of employees’ pension rights.” (Id. at p. 1133; see also Valdes, supra, 139
Cal.App.3d at p. 785, fn. 5.)
We acknowledge that bond issuance carries independent costs. Depending on the
terms of the bonds, such an additional cost might well trigger the constitutional debt
limitation. However, under the terms of the challenged resolution, the city may not issue
the bonds unless they result in a savings to the city. 12
In fulfillment of its duty under the charter, the city will assess market conditions as
they evolve to determine whether the issuance of the bonds, and the terms of any such
issuance, will be financially prudent. The city will be exercising its authority to issue the
bonds “in a manner tailored to the exigencies of its activities and in the light of the
practical considerations of the market place.” (Redevelopment Agency v. Shepard (1977)
75 Cal.App.3d 453, 459; see also Lisenby, supra, 180 Cal. at p. 60 [noting that “[i]t rests
entirely with the governing body of the town or city to determine” how to manage its
indebtedness in light of market trends].)
In summary, under the terms of the city charter, the city has an obligation to
provide pensions to city employees and maintain them in an actuarily sound manner. The
12
HJTA points out that the city may miscalculate whether the bond issuance will
result in a savings to the city. But HJTA’s speculative argument based on hypothetical
circumstances is insufficient to show that the city’s issuance of the proposed bonds will
result in the incurrence of debt that violates the constitutional debt limitation. (Wilson v.
L. A. County Civil Service Com. (1952) 112 Cal.App.2d 450, 452–453 [“ ‘A judicial
tribunal ordinarily may consider and determine only an existing controversy, and not
a[n] . . . abstract proposition.’ ”]; Id. at p. 453 [ “ ‘[A]s a general rule it is not within the
function of the court to act upon or decide a . . . speculative, theoretical or abstract
question or proposition.’ ”].) If the city errs in its fiscal calculations, it may be vulnerable
to a constitutional challenge at that time. That issue, however, is not currently before us.
We are tasked only with examining whether the challenged resolution violates section 18,
subdivision (a) of the California Constitution.
19
unfunded liability in this case consists of pension obligations the city has already
incurred, the payment of which is constitutionally protected by the contract clause. The
city has elected to fulfill its contractual commitment to its employees to fund those
payments in an actuarially sound manner through the issuance of bonds on the condition
that they result in a savings to the city. Under these circumstances, we decide that, by
passing the challenged resolution, the city has not “incur[red] any indebtedness or
liability in any manner or for any purpose exceeding in any year the income and revenue
provided for such year.” (Cal. Const., art. XVI, § 18, subd. (a).) Therefore, the city is
not required to seek voter approval before issuing the bonds.
2. Authority to Issue Bonds as Refunding Bonds to Refund Revenue
Bonds
HJTA maintains that, because the unfunded liability cannot itself be characterized
as “revenue bonds,” the city does not have statutory authority to issue the bonds in
question as refunding bonds because there are no bonds to refund. The city counters that
it has statutory authority to issue the bonds under section 53583, subdivision (a).
Section 53583, subdivision (a) permits the city to “issue bonds for the purpose of
refunding any [of the city’s] revenue bonds.” Under section 53580, “ ‘refunding bonds’ ”
are defined as “bonds issued to refund bonds” and “ ‘bonds’ ” are defined as “bonds as
defined in [s]ection 53550, or revenue bonds as defined in [s]ection 53570.” (§ 53580,
subds. (b), (c).) “ ‘Bonds’ ” are defined in section 53550, subdivision (b) as “bonds,
warrants, notes or other evidence of indebtedness” of a city. (Italics added.) Revenue
bonds are defined in section 53570, subdivision (b)(1) as “[b]onds, warrants, notes, or
other evidence of indebtedness” of the city. (Italics added.)
Whether the city has the authority to issue the bonds turns on whether the
unfunded liability is “evidence of indebtedness” as used in sections 53550, subdivision
(b) and 53570, subdivision (b)(1). If “evidence of indebtedness” includes the unfunded
liability, the city has the authority under section 53583 to issue the bonds. As the city has
20
not cited any authority other than section 53583 to issue the bonds, if the unfunded
liability does not qualify as “evidence of indebtedness,” we must conclude the city lacks
the necessary statutory authority.
HJTA argues that the phrase “ ‘evidence of indebtedness’ ” is a term of art that
refers to “written negotiable instruments” (italics added), which would not encompass the
unfunded liability. In support of this claim, HJTA cites to Civil Code section 1916.5,
subdivision (b)(5) for the meaning of “ ‘ “[e]vidence of debt,” ’ ” defined therein as “ ‘a
note or negotiable instrument.’ ” 13 However, Civil Code section 1916.5 limits the use of
that definition of “evidence of debt” to “this section” (italics added) and states that it is
“applicable only to a mortgage contract, deed of trust, real estate sales contract, or any
note or negotiable instrument issued in connection therewith.” (Id., subds. (b)(1), (d).)
Civil Code section 1918.5 includes the same definition and similarly limits its use to the
chapter in which it appears, chapter 7.5, which governs mortgage loans. (Id., subd. (a).)
Therefore, by their own terms, the Civil Code definitions are not applicable here.
HJTA also relies upon a provision from the Corporate Securities Law of 1968
(Corp. Code, § 25117). This provision, too, does not directly apply to bonds to fund
public employee pensions. (See, e.g., Hamilton Jewelers v. Department of Corporations
(1974) 37 Cal.App.3d 330, 335.) Nevertheless, our courts have interpreted the definition
of “evidence of indebtedness” in the corporate security context as “includ[ing] not only ‘a
promissory note or other simple acknowledgment of a debt owing [but]’ ” also “ ‘all
contractual obligations to pay in the future for consideration presently received.’ ”
(People v. Coster (1984) 151 Cal.App.3d 1188, 1193; see also Hamilton, at p. 334.) City
employees’ pensions “fall squarely within that definition” (Coster, at p. 1193) since
pensions are “ ‘an integral part of the employment contract’ ” (Carman, supra, 31 Cal.3d
at p. 332) and deferred payment for services rendered during employment (Kern, supra,
13
This appears to be a typographical error as Civil Code section 1916.5 does not
contain a subdivision (b)(5). We assume HJTA intended to reference subdivision (d)(5).
21
29 Cal.2d at p. 855). Therefore, although not directly applicable, the Corporation Code
definition does support a broad reading of “evidence of indebtedness.”
For its part, the city relies on Government Code section 53583 as statutory
authority to issue the bonds. Section 53583 itself delineates the bond issuance authority
by referencing two other provisions (sections 53550, subdivision (b) and 53570,
subdivision (b)(1)). It is these provisions that define bonds as “bonds, warrants, notes or
other evidence of indebtedness.” (Italics added.)
Neither of these provisions further defines “other evidence of indebtedness.” The
Government Code defines the phrase in only one instance, which applies to the sale of
state bonds under title 1. 14 The only question before us in this appeal is the city’s
authority to issue bonds, which is addressed in a different title of the Government Code,
title 5. (§§ 53400–53595.55.) Therefore, the provision applicable to state bonds, too, is
inapplicable.
Having examined HJTA’s arguments to the contrary, we conclude that the
Government Code does not specifically define the phrase “evidence of indebtedness” as
used in sections 53550, subdivision (b) and 53570, subdivision (b)(1). We therefore give
the words in the definition “ ‘a plain and commonsense meaning’ ” (San Diegans, supra,
14
Section 5700, which applies to title 1, division 6, chapter 9 addressing the sale
of state bonds, states, “ ‘Bonds’ as used in this chapter means (a) any bonds or other
evidences of indebtedness issued after the effective date of this chapter by the state or any
state department, board, agency or authority or (b) any bonds or other evidences of
indebtedness issued by any joint powers agency created under Chapter 5 (commencing
with [s]ection 6500) of [d]ivision 7 that are payable from payments made with respect to
a lease or sale of property to or from the state or any state department, board, agency, or
authority. For purposes of this chapter, ‘evidence of indebtedness’ includes, but is not
limited to, certificates of participation or interests in any rental or lease payments or
installment purchase payments, in an aggregate principal amount exceeding $10,000,000,
to be made by the state or any state department, board, agency, or authority with respect
to buildings or other capital improvements.”
22
242 Cal.App.4th at p. 428), while considering them “ ‘ “in the context of the statutory
framework as a whole.” ’ ” (Id. at p. 429.)
The phrase “other evidence of indebtedness” appears in sections 53550,
subdivision (b) and 53570, subdivision (b)(1) in a list. “Established canons of statutory
construction assist us in ascertaining the meaning of a term primarily defined by way of a
list of examples and the meaning of examples enumerated on such a list.” (Harrod v.
Country Oaks Partners, LLC (2024) 15 Cal.5th 939, 952.) Under the doctrine of ejusdem
generis, “ ‘[w]hen a statute contains a list or catalogue of items,’ ” we “ ‘determine the
meaning of each by reference to the others, giving preference to an interpretation that
uniformly treats items similar in nature and scope.’ ” (Friends of Oceano Dunes, Inc. v.
San Luis Obispo County Air Pollution Control Dist. (2015) 235 Cal.App.4th 957, 965
(Friends of Oceano Dunes).)
In section 53570, subdivision (b)(1) the phrase “other evidence of indebtedness”
appears at the end of a list that reads “[b]onds, warrants, notes, or other evidence of
indebtedness.” 15 Black’s Law Dictionary defines the term “bond” in various ways. The
broadest definition states that “bond” means “[a]n obligation; a promise.” (Black’s Law
Dict. (11th ed. 2019) p. 218, col. 1.) “[B]ond” is also more narrowly defined as “[a]
written promise to pay money or do some act if certain circumstances occur or a certain
time elapses; a promise that is defeasible upon a condition subsequent; esp., an
instrument under seal by which (1) a public officer undertakes to pay a sum of money if
he or she does not faithfully discharge the responsibilities of office, or (2) a surety
15
Black’s Law Dictionary does not define “evidence of indebtedness,” but, rather,
refers to the definition of “security” (Black’s Law Dict., supra, at p. 703, col. 1) where
the phrase appears in the definition of “security” from title 15 of the United States Code
(Black’s Law Dict., at p. 1626, cols. 1–2), addressing commerce and trade. Title 5 of the
United States Code, which governs government organization and employees and, thus, is
arguably of greater relevance to the question before us, does not define “evidence of
indebtedness.”
23
undertakes the responsibility to pay if the public officer so fails.” (Black’s Law Dict., at
p. 218, col. 1.)
The term “warrant” is defined as, alternately, “[a] document conferring authority,
esp. to pay or receive money” and “[a]n order by which a drawer authorizes someone to
pay a particular sum of money to another.” (Black’s Law Dict., supra, at p. 1901, col. 2.)
The term “note” is defined as “[a] written promise by one party (the maker) to pay money
to another party (the payee) or to bearer” that “is a two-party negotiable instrument.”
(Black’s Law Dict., at p. 1275, col. 2.)
The terms in the list that precede “evidence of indebtedness,” are similar in that
each refers to a written promise to pay or a direction to make specified payments. 16
However, they are not all negotiable—or transferable—instruments. For example,
warrants are not always transferable. (See, e.g., People ex rel. Barry v. Gray (1863) 23
Cal.125, 126; A.G. Spalding & Bros. v. Contra Costa County (1936) 12 Cal.App.2d 262,
264; People v. Mares (2007) 155 Cal.App.4th 1007, 1015.) Moreover, California and its
cities may use warrants to pay employees’ salaries (see, e.g., Lotts, supra, 13 Cal.App.2d
at p. 635; Compton Community College, supra, 165 Cal.App.3d at p. 86; City of San
Diego v. Dauer (1893) 97 Cal. 442, 443–444), and employees’ pensions constitute an
element of their compensation (see, e.g., Betts, supra, 21 Cal.3d at p. 863; Cal Fire,
supra, 6 Cal.5th at p. 985; Westly v. Board of Administration (2003) 105 Cal.App.4th
1095, 1105–1106 [noting that the state pays retirement funds via warrants]).
The city’s unfunded liability derives from its pension obligations under the charter
and municipal code and from its contractual obligations to its employees. These
promises are written, and the right to payments under them are vested. As a result, they
16
In other sections of the Government Code, the phrase “evidence(s) of
indebtedness” also appears in lists that include all manner of promises, including bonds,
notes, warrants, contracts, obligations, and judgments. (See, e.g., §§ 1095, 17700,
25210.6, 43740, 43744, 53511, 53570, 53822.)
24
are similar to the other listed items in the relevant definitions of “bonds” and “revenue
bonds,” using the narrower definition of “bond” denoting a written promise to pay money
or do some act if certain circumstances occur.
Legislative history also supports a broader reading of “revenue bonds” than
HJTA’s narrow interpretation. Section 53570 originally defined “ ‘revenue bonds’ ” as
“bonds, warrants, notes or other evidence of indebtedness of a local agency denominated
revenue bonds under any law of this state and payable from funds other than the proceeds
of ad valorem taxes or the proceeds of assessments levied upon property in the local
agency.” (Stats. 1972, ch. 531, § 15, p. 919.) The Legislature amended the definition in
1985 to remove the phrase “denominated revenue bonds under any law of this state,”
loosening the definition and removing the limitation on the phrase “other evidence of
indebtedness.” (Stats. 1985, ch. 1033, § 9, pp. 3422–3423.)
The choice of the broader, more flexible concept of indebtedness over the
narrower and more restrictive terms of “securities” or “negotiable instruments” in the
“revenue bonds” definition suggest a legislative intent to broaden a city’s authority to
refund indebtedness beyond that of refunding of bonds, securities, or negotiable
instruments. (See, e.g., Carman, supra, 31 Cal.3d at p. 328 [“ ‘[A]ny indebtedness’ can
include all obligations to pay money, whether or not evidenced by bonds, notes, or
security.”].) Further, section 53570 was amended only one year after the decision in
Coster. The Legislature is deemed to be aware of statutes and judicial decisions already
in existence and to enact or amend statutes in light of them. (River's Side at Washington
Square Homeowners Assn. v. Superior Court (2023) 88 Cal.App.5th 1209, 1235.) While
the statute examined in Coster is not directly applicable, that the opinion concluded
“ ‘evidence of indebtedness’ ” includes “ ‘all contractual obligations to pay in the future
for consideration presently received’ ” (Coster, supra, 151 Cal.App.3d at p. 1193),
supports a broad reading of the phrase in section 53570.
25
We conclude that the phrase “other evidence of indebtedness” may include
unfunded liability as it is understood here, a representation of a city’s deferred obligation
to pay its employees. Such an interpretation neither renders the other instruments on the
list redundant, nor makes “evidence of indebtedness” “ ‘markedly dissimilar’ ” to those
other instruments. (See Friends of Oceano Dunes, supra, 235 Cal.App.4th at p. 965.)
The proceeds of refunding bonds issued pursuant to section 53583 “may be
applied to the . . . redemption of the bonds to be refunded either at their earliest
redemption date or dates, any subsequent redemption date or dates, upon their purchase
or retirement maturity, or paid to a third person to assume the local agency’s obligation to
make the payments.” 17 (§ 53584.) The statute allows the city to issue bonds for the
purpose of refunding the city’s indebtedness, here, in the form of the unfunded liability,
and grants the city flexibility with respect to the timing of the refunding of the unfunded
liability.
The refunding of the unfunded liability using the proceeds from the refunding
bonds converts the debt represented by the unfunded liability into debt in the form of
bonds. Such refunding does not create new debt. 18 As our Supreme Court has
consistently held, “merely to fund or refund an existing debt is not to ‘incur an
indebtedness or liability.’ A bond is not an indebtedness or liability—it is only the
evidence or representative of an indebtedness; and a mere change in the form of the
evidence of indebtedness is not the creation of a new indebtedness within the meaning of
17
“[R]edemption” has been broadly defined as “ ‘[t]he payment of principal and
unpaid interest on bonds or other debt obligations.’ ” (Carman, supra, 31 Cal.3d at
p. 327, citing Black’s Law Dict. (5th ed. 1979) p. 1149.)
18
The city has indicated that the cost of issuing the bonds will be paid from the
bond proceeds. This action is authorized pursuant to section 53556, which reads, in
relevant part: “The designated costs of issuing the refunding bonds may be paid
by . . . the proceeds of sale of the refunding bonds” or “the interest or other gain derived
from the investment of any of the proceeds of sale of the refunding bonds.” Section
53587 gives the city the discretion to include such refunding bond issuance costs in
determining the amount of refunding bonds to issue.
26
the constitution.” (Teed, supra, 112 Cal. at p. 327; see also Lisenby, supra, 180 Cal. at
p. 59.)
In Lisenby, the charter city of Long Beach was obligated to pay a judgment to
persons injured in the collapse of a public building. The city adopted an ordinance to
provide for the issuance of a bond to refund the indebtedness that resulted from that
judgment. (Lisenby, supra, 180 Cal. at pp. 54–55.) The city’s mayor and treasurer
refused to sign the bond on the grounds that doing so would cause the city to incur debt in
violation of the constitutional debt limitation. (Id. at p. 55.) Our Supreme Court
disagreed, concluding that the refunding of the city’s existing debt, which arose “by
operation of law,” is exempt from the constitutional debt limitation. (Id. at p. 59.) In
reaching this conclusion, the Supreme Court stated, “To ‘fund’ an outstanding debt of a
municipal corporation which is payable presently or at short periods is to convert such
indebtedness into a more permanent form with an extended time of payment and with
interest which is regular and which may also be reduced. The usual method of ‘funding’
such a debt is by the issuance of bonds.” (Ibid.) The debt represented by the judgment
was converted to a debt represented by the bond obligations.
For the reasons explained above, we have decided that the debt the city seeks to
refund already exists, in the form of the unfunded liability. The issuance of bonds will
refund and convert the existing debt into a different form. We conclude the city has this
authority under section 53583, subdivision (a), and we reject HJTA’s arguments to the
contrary.
III. DISPOSITION
The judgment is affirmed. Respondents are awarded costs on appeal. (Cal. Rules
of Court, rule 8.278(a)(1).)
27
______________________________________
Danner, J.
WE CONCUR:
____________________________________
Greenwood, P. J.
____________________________________
Bromberg, J.
H050889
The City of San Jose v. Howard Jarvis Taxpayers Association et al.
Trial Court: Santa Clara County Superior Court
Trial Judge: Hon. Sunil R. Kulkarni
Counsel for Defendants and Jonathan M. Coupal
Appellants Howard Jarvis Taxpayers Timothy A. Bittle
Association, Citizens for Fiscal Laura E. Dougherty
Responsibility and Pat Waite: Howard Jarvis Taxpayers Foundation
Counsel for Plaintiff and Respondent Allison E. Burns
The City of San Jose: Brian P. Forbath
Gregory J. Maestri
Stradling Yocca Carlson & Rauth
H050889
The City of San Jose v. Howard Jarvis Taxpayers Association et al.