DOWNEY — In April, the City Council took a gamble.
Rejecting a proposed out-of-court settlement, the council decided to take its chances in court with a residents' lawsuit that challenged the city's plans to redevelop 380 acres along Firestone Boulevard.
The council's 3-2 decision was made in a closed-door session that members still refuse to discuss. At the time, both the city's lawyers and its then-city manager advised council members to make a deal rather than risk losing in court, other city officials said.
Council members found out Tuesday that they held a losing hand.
A Los Angeles Superior Court judge invalidated the proposed redevelopment district, ruling that council member James Santangelo, who cast the deciding vote to adopt the plan in July, 1984, had a conflict of interest because he owned property in the district.
Judge Norman Dowds said in a two-page decision that the city also "abused its discretion" by not following state law that requires it to call upon residents in the proposed redevelopment district to form a committee to review the city's plans prior to adoption.
City Council members said they will meet behind closed doors Tuesday to decide whether to appeal the case or to draw up a new redevelopment plan for Firestone Boulevard.
The decision, if not overturned on appeal, will cost taxpayers hundreds of thousands of dollars in legal bills and may mean the loss of millions of dollars in sales tax revenues, city officials said.
Auto Dealers' Threat
The sales tax losses could occur if the city's auto dealers make good on their threats to move out of town.
Frustrated with a two-year delay in the city's plan to develop an auto mall on the east side of Firestone, many Downey auto dealers have threatened to move to proposed auto malls in South Gate and Norwalk. Both cities have active redevelopment agencies that are competing to lure away Downey auto dealers, who annually contribute $3 million in sales tax revenues to the city.
The city also will have to pay its own legal bill of more than $150,000 and can expect to pay a portion of the legal fees for the residents' group, Downey CARES, said Paul Gale, the lawyer who represented the city in the case.
Dale Gronemeier, the Downey CARES lawyer, said the group has spent about $100,000 in legal fees but will ask the judge for an award of between $250,000 and $500,000 under a state law that allows greater awards for cases that serve a broad public interest. The residents' group is composed of property owners in the Firestone area who were fearful of the condemnation powers that the city would have gained under redevelopment.
Downey officials said they were distressed by the loss.
"I felt like somebody dumped a whole load of bricks on my head," said Jim Cutts, community development director. "It could very well set the city back a couple of years in regards to redevelopment. It's a shame that a handful of people can have such an effect on the property values and quality of life of 83,000 people."
"It's devastating," Santangelo said.
Paul Sarvis, Downey CARES president, said council members should have foreseen the loss. He called their decision to forgo an out-of-court settlement "stupidity in the form of stubbornness."
"The judge recognized what we have said all along, that the city should take the time to do it right and comply with state law," Sarvis said.
The judge's decision said that Santangelo "voted on the ordinance when he knew or had reason to know that he had a material financial interest in the decision and the ordinance would not have been adopted without his affirmative vote."
At the time of the vote, Santangelo owned property in the proposed redevelopment district, on South Downey Avenue. The property has since been sold. He also owned five properties totaling 1 1/2 acres on Firestone Boulevard and on Woodruff Avenue that are in a city redevelopment district set up in 1978. Under the city ordinance, both the new and old redevelopment districts were to share in property tax revenues set aside for redevelopment.
When a redevelopment district is created, the amount of property taxes the area generates to support traditional government services is frozen. As the property is upgraded, all additional taxes from the property's higher value are diverted to the redevelopment agency.
In an interview, Santangelo blamed former City Manager Robert (Bud) Ovrom and City Atty. Carl Newton for giving him bad legal advice on whether to vote on creating the proposed redevelopment district. The vote came a month after Santangelo had been elected to office.
Santangelo said that at the time, he was unfamiliar with state law regarding conflict of interest, but after reviewing the law, "It is clear in my mind now that I should have not voted." In subsequent votes on the redevelopment district, Santangelo abstained.
Ovrom, now Burbank city manager, and Newton both declined comment.