City of San Diego v. Rider

47 Cal. App. 4th 1473, 55 Cal. Rptr. 2d 422, 96 Cal. Daily Op. Serv. 5710, 96 Daily Journal DAR 9301, 1996 Cal. App. LEXIS 738

• Court: California Court of Appeal
• Decided: July 30, 1996
• Docket: D025921
• Status: Published

Opinions

Opinion

HALLER, J.

In this case we determine whether a lease-back financing arrangement to fund improvements to San Diego Jack Murphy Stadium (stadium) is valid. Under this arrangement, (1) the Public Facilities Financing Authority of The City of San Diego (agency) will lease the stadium from The City of San Diego (city), construct the improvements to the stadium and finance the construction by selling bonds to the public; (2) the city will then lease the improved stadium back from the agency pursuant to a “facility lease"; and (3) the agency will repay bondholders from rent the city pays under the facility lease. The financing arrangement is being effected without a vote of the electorate.

California Constitution, article XVI, section 18 (hereafter article XVI, section 18), prohibits the city from “incur[ring] any indebtedness . . . exceeding in any year the income and revenue provided for such year, without the assent of two-thirds of the qualified electors . . . .” Under Supreme Court authority referred to as the Offner-Dean rule, a public entity may incur contractual liability without voter approval and not offend the constitutional debt limitation if the contract “creates no immediate indebtedness for the aggregate installments, . . . confines liability to each installment as it falls due and each year’s payment is for the consideration actually furnished that year . . . (City of Los Angeles v. Offner (1942) 19 Cal.2d 483, 486 [122 P.2d 14, 145 A.L.R. 1358], quoted in Dean v. Kuchel (1950) 35 Cal.2d 444, 446 [218 P.2d 521].)

Our task is to determine whether the financing arrangement here falls within the Offner-Dean rule.¹ We are satisfied it does. We reject appellants’ alternative contention that the Supreme Court’s recent opinion in Rider v. County of San Diego (1991) 1 Cal.4th 1 [2 Cal.Rptr.2d 490, 820 P.2d 1000] should be interpreted as a signal that our high court has adopted a new and less friendly attitude toward Offner-Dean.

Accordingly, we affirm the judgment.

Factual and Procedural Background

In 1965, the voters of the city adopted a charter provision giving the city power to build and maintain a stadium. (San Diego City Charter art. VII, § 99.1.) The stadium has been operating since 1967 as home to the San Diego Chargers National Football League football team and the San Diego Padres National League baseball team as well as host to other events by way of leases granting tenants a nonexclusive right to use the stadium.

In 1995, the city entered into an agreement with the Chargers (the 1995 agreement) under which the Chargers agree to lease the stadium through 2020 and the city agrees to (1) improve the stadium for the 1997 professional football pre-season² and (2) build an offsite practice facility and office space for the 1996 professional football pre-season. The city sought assistance with the improvements from the agency.

The agency is a joint exercise of powers agency created in 1991 by the city and the Redevelopment Agency of The City of San Diego (redevelopment agency). The joint powers agreement provides the agency is “a public entity separate” from the city and redevelopment agency and its “debts, liabilities and obligations . . . [do] not constitute debts, liabilities or obligations” of the city or redevelopment agency. The agency has the power to issue bonds to “rais[e] the funds necessary to carry out its purposes . . . .”

Financing Structure

In January 1996, the city and agency approved a financing arrangement to fund the stadium improvements. The arrangement includes a ground lease, bond issuance, and a facility lease. Under the ground lease, the city will lease the stadium to the agency. As an obligation of the ground lease, the agency will build the improvements required by the 1995 agreement.

The agency will issue up to $70 million in lease-revenue bonds to raise money to build the improvements and lease the improved stadium back to the city under the facility lease for approximately $7 million a year. The city will make semiannual rental payments from its general fund; base rental payments will equal debt service on the bonds and additional rental payments will equal expenses of bond administration. The city will take necessary action to include base rental in the budget for each year, subject to section 5.06(b)³ of the facility lease which provides: “The Obligation of the City to Make Base Rental Payments Does Not Constitute an Obligation of the City for Which the City Is Obligated to Levy or Pledge Any Form of Taxation or for Which the City Has Levied or Pledged Any Form of Taxation. Neither the Bonds Nor the Obligation to Make Rental Payments Constitutes an Indebtedness of the City, the State or Any Political Subdivision Thereof Within the Meaning of Any Constitutional or Statutory Debt Limitation or Restriction.” (Capitalization in original.) The agency will repay bond investors from earnings on funds generated by the bonds and base rent paid by the city under the facility lease.

If the city defaults on rent due under the facility lease,⁴ the agency or its assignee (assignee includes trustee of the bonds) may elect to affirm⁵ the facility lease and (1) continue to collect rent from the city without taking possession or (2) take possession, relet the stadium and collect the rent deficiency from the city. In the event the agency exercises its right to relet the stadium, it does so as the city’s “agent and attorney-in-fact” (§ 10.01(c)(2)(B)) and subject to all of the city’s obligations with third parties “relating in any way to the [stadium].” (§ 10.01(c)(3).)

Bond investors are advised that if the city defaults, there is no right to accelerate base rental payments. They are also informed: “If the City defaults on its obligation to make Base Rental Payments with respect to the [stadium], the [agency] or the Trustee may retain the . . . Facility Lease and hold the City liable for all Base Rental Payments as each becomes due and enforce any other term or provision of the . . . Facility Lease to be kept or performed by the City. There is no remedy of acceleration of the total Base Rental Payments due over the term of the . . . Facility Lease, and the Trustee would be required to seek a separate judgment each year for that year’s defaulted Base Rental Payments.”

Validation Action

In February 1996, the city and agency filed an action in superior court seeking validation of the leases, bonds and related ordinances and resolutions.⁶ Richard Rider, Bruce Henderson and Steve Green (collectively Rider) answered. In an effort to resolve the issue on an expedited basis, the court shortened time for hearing a motion for summary judgment.

On April 2, the court granted summary judgment for the city and agency. Among other things, the court found the facility lease, ground lease and bonds were valid, constitutional and binding obligations enforceable under the terms of the agreements. The court explained:

“As to the validity of the lease, the plaintiffs have established that the lease falls within the well-established contingent-payment exception to the constitutional limitation on indebtedness of a city. (California Constitution Article XVI, section 18.) The lease specifically says the City of San Diego has no obligation to levy or pledge any form of taxation to pay rent or support the bonds. (Lease, section 5.06.) The [agency] has no right to accelerate rent on default, and the remedies for default are limited. Defendants’ allegations to the contrary are completely speculative and lacking in foundation. Furthermore, defendants’ arguments that the [agency] is somehow defective as a ‘mere shell’ ignores the long line of cases approving the establishment of such public entities.

“[T]he Court [also] finds the [agency] is not constrained in the issuance of bonds by the provisions of the City’s Charter. (City Charter Article VII, section 90.) The [agency] is a Joint Exercise of Powers Agency created by the City of San Diego and the Redevelopment Agency of the City of San Diego. The authority of the [agency] derives from the agreement establishing it as a public entity and the legislative scheme which authorizes and empowers such entities. There is a long line of authority upholding the validity of such entities. No case law has been cited which would constrain the [agency] to the limits of the City’s Charter. Once created, the [agency] is an independent public agency governed by the State laws pursuant to which it was created. (Government Code sections 6507, 6508.) It is specifically empowered to issue bonds under Government Code section 6588.”

Rider appealed. He has tailored the scope of his appellate challenge⁷ and, with certain exceptions, focuses on the facility lease. Thus, we begin our discussion with the facility lease.

Discussion

I.

The California Constitution requires a two-thirds vote of the electorate before a municipality may incur an obligation in excess of its yearly revenue. Article XVI, section 18, provides in part: “No county, city, town, township, board of education, or school district, 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 qualified electors thereof, voting at an election to be held for that purpose . . . .” Enacted in response to concern over excessive municipal indebtedness, the provision provided an instrument to control local borrowing and established the “pay-as-you-go” principle in municipal finance. (Grodin et al., The Cal. State Constitution: A Reference Guide (1993) p. 298; see Starr v. City and County of San Francisco (1977) 72 Cal.App.3d 164, 173-174 [140 Cal.Rptr. 73].)

In a generalized attack on the financing here, Rider asserts the facility lease is intended to avoid a two-thirds vote and is therefore invalid. We disagree. Even if the facility lease were written to permit the city to finance the stadium improvements without a vote of the electorate, the intent to avoid a vote does not render the facility lease constitutionally invalid. The validity of the facility lease does not depend on the city’s intent.⁸ Rather, it depends fundamentally on whether the city’s contractual obligations create prohibited debt.

In an uninterrupted line of decisions approving government commitments of every kind—from agreements to haul sewage to leases of offices and courthouses—our high court has sanctioned contracts in which public entities have entered into long-term obligations without obtaining voter approval. As the Supreme Court has consistently stated, the question is whether the public entity’s debt incurred in a particular year is a debt that can be paid from that year’s income. If the answer is yes, the public entity has not incurred constitutionally prohibited indebtedness under article XVI, section 18, and, thus, no public vote is required. In other words, if no indebtedness comes about until consideration is furnished, there is no violation of the “pay-as-you-go” rule. By contrast, where contractual obligations create immediate debt for an aggregate amount, the constitutional restriction applies.

In McBean v. City of Fresno (1896) 112 Cal. 159 [44 P. 358], the Supreme Court upheld a five-year contract to haul sewage over the objection it had not been submitted to the voters. In line with a series of earlier decisions construing the constitutional limitation on indebtedness to mean “[e]ach year’s income and revenue must pay each year’s indebtedness and liability” (id. at p. 164), the court concluded each year’s installment was within the public entity’s income as evidenced by the fact each year’s payment was for consideration furnished that year. As the court stated, “[I]t is at once seen that the city cannot be liable in any one year for more than [the amount of one year’s services], an amount far within the revenue derived to the sewer fund; and, further, that it cannot become liable for this amount at all until faithful service rendered by the contractor each year.” (Id. at p. 167.)

In City of Los Angeles v. Offner, supra, 19 Cal.2d 483, the City of Los Angeles proposed to lease real property for 10 years for $1 a month to a bidder who would construct an incinerator and lease the incinerator and property back to the City of Los Angeles for a monthly rental. Title to the incinerator would remain in the bidder unless the City of Los Angeles exercised its option to purchase. The Supreme Court determined the lease did not create a prohibited debt for purposes of the constitutional provision because no indebtedness came into existence until the consideration was actually furnished. In support of this conclusion, the court observed the monthly rent was intended to reflect fair rental value for each month’s use, purchase of the incinerator was tied to its appraised value and the City of Los Angeles was not obligated to exercise its option to purchase. (Id. at p. 487.)

In Dean v. Kuchel, supra, 35 Cal.2d 444, the state proposed a lease arrangement under which the state leased real property for a 35-year term to a contractor who would build an office building and then lease the building back to the state for 25 years. Title to the building would vest in the state at the end of 25 years if it performed all its duties under the lease, and in any event, at the end of the 35-year lease.

The Supreme Court held the contract qualified as a lease and did not violate the constitutional debt limitation. (Dean v. Kuchel, supra, 35 Cal.2d at p. 448.) The high court noted the rental payments were for month-to-month use and declared there was no logical distinction between the option to purchase in Offner and vesting of title in the state at the end of the lease term in Dean.9 (Ibid.) The court summarized as follows: “ ‘[I]f the lease or other agreement is entered into in good faith and creates no immediate indebtedness for the aggregate installments therein provided for but, on the contrary, confines liability to each installment as it falls due and each year’s payment is for the consideration actually furnished that year, no violence is done to the constitutional provision.’ [Citations.] If, however, the instrument creates a full and complete liability upon its execution, or if its designation as a “lease” is a subterfuge and it is actually a conditional sales contract in which the “rentals” are installment payments on the purchase price for the aggregate of which an immediate and present indebtedness or liability exceeding the constitutional limitation arises against the public entity, the contract is void. [Citations.]”’ (Id. at pp. 446-447, quoting City of Los Angeles v. Offner, supra, 19 Cal.2d at pp. 485-486, italics added.)

In County of Los Angeles v. Byram (1951) 36 Cal.2d 694 [227 P.2d 4], the Supreme Court upheld a lease-back arrangement in which a county retirement board built a courthouse and leased it back to the county. The lease required the county to pay monthly rent calculated to reimburse the board for its investment plus interest. The court held the duty to build a courthouse was one imposed by law and not one voluntarily incurred and was thus beyond the ambit of the constitutional debt limitation. The court also concluded there was no rational distinction between the financing and that in Offner-Dean and determined the transaction was a valid lease—i.e., no indebtedness came into existence until consideration was actually furnished. (Id. at pp. 698-700.)

In short, the Supreme Court lease cases rest on the principle that leases do not create present debt for aggregate payments due; rather, the debt is restricted to each payment as it falls due. This principle has been refined in the lease-financing cases after Offner-Dean to include the corollaries that payment of future rent may not be accelerated and rent is abated when the tenant is deprived of use by the default of the landlord. (County of Los Angeles v. Nesvig (Nesvig) (1965) 231 Cal.App.2d 603, 611 [41 Cal.Rptr. 918]; Starr v. City and County of San Francisco, supra, 72 Cal.App.3d at p. 172.)

The facility lease here mirrors the contracts approved in these cases in substantial respects:

the city pays rent semiannually as consideration for the right of use, possession and quiet enjoyment of the improved stadium (§ 5.01(c));

liability for rent is confined to each installment as it falls due (§§ 5.01(c)(1) & 10.01(c)(2)(A));

there is no dispute that the city treasury will always contain unencumbered revenue sufficient to satisfy the semiannual rental obligations;

the contract is typical of long-term lease-back financing commonly used to fund public construction; and

most important, if the city defaults on the rent, the lease creates no immediate indebtedness for aggregate payments due because the agency has waived its Civil Code section 1951.2 rights to future rent on an accelerated basis (§ 10.01(e)).

These provisions comply with Offner-Dean: there is no immediate indebtedness for aggregate installments; liability is confined to rental payments as they fall due; and each rental payment is for consideration furnished that year. Accordingly, we determine the general structure of the facility lease does not create article XVI, section 18, prohibited debt.

II.

We turn to specific provisions in the facility lease and examine whether any of these lease provisions take the facility lease beyond constitutionally acceptable limits.

A.

We start with the default provisions and concentrate on three subprovisions: sections 10.01(c)(2)(A), which permits reletting; 10.01(c)(2)(D), which awards to the agency excess rent received on reletting; and 10.01(c)(2)(E), which may require payment for alterations upon reletting. In evaluating these provisions, we address the consequences of a default as bargained for by the parties. The fundamental concept remains—the constitution by its terms requires only that current debt not exceed current revenue, The constitutional debt limitation is to prevent deficit financing, i.e., incurring debt in one year to be paid in future years, only to find it has increased “like a rolling snowball,” placing the public entity in a position where it might not be able to meet financial obligations in the future. (McBean v. City of Fresno, supra, 112 Cal. at p. 164.)

1.

In the event of a default caused by the city’s failure to make base rental payments (§ 10.01(a)(1)), the agency may stand on the lease, deem the stadium available for use by the city and collect rent from the city as it becomes due. (§ 10.01(c)(2)(A).¹⁰) The agency also has the option of reletting the stadium without terminating the facility lease and collecting any deficiency in rent from the city on the dates the rent falls due. (§ 10.01(c)(2)(A).)

Rider argues this reletting provision violates Offner-Dean because the city does not obtain any benefit when it is not in possession of the property. He maintains that because the reletting provision requires payment irrespective of revenue or use, it constitutes an unconstitutional debt.¹¹ The city and agency counter the reletting provision is a security device similar to the type approved in Nesvig, supra, 231 Cal.App.2d 603, and other cases.¹²

In Nesvig, the county proposed to lease real property to a bidder to build a theater and music center. The successful bidder would lease the improved property back to the county for 30 years. In the event the county defaulted in its rent payments, the bidder could reenter and terminate the lease, or reenter without terminating the lease and relet the premises for the county’s account.

The court rejected the argument that the lease violated article XVI, section 18, because the county was precluded from terminating its obligations and “walking away from the lease:” “The gist of this argument seems to be that because the bidder can reenter and operate for the account of the county, the county is more firmly bound than if the bidder merely sued for rent at the end of each accrual period. We do not agree with this reasoning, for in the absence of any provision which would accelerate payment of the debt on default the obligation of the county remains precisely the same, viz., to pay certain fixed annual rentals, whether the bidder reenters or not.” (Nesvig, supra, 231 Cal.App.2d at p. 611.)

Nesvig construed the reletting provision as a security device not unlike that in Dean and “merely declaratory” of California landlord-tenant law. (Nesvig, supra, 231 Cal.App.2d at pp. 611-612.) Nesvig further reasoned that reletting did not offend the constitutional debt limitation because the county continued to receive consideration whether or not the property was relet; the first tenant received consideration in the form of a rent reduction—“value of the use of the property from year to year in the form of credits against its obligation.” (Nesvig, supra, 231 Cal.App.3d at p. 612.)

In our view, Nesvig was properly decided and is consistent with the rationale upon which Offner-Dean is premised. Where reletting permits the initial tenant to continue to receive consideration, i.e., some present economic value from the lease, the constitution is not offended, even if the tenant is precluded from possession and still must make some form of payment.

Our task, therefore, is to determine whether under the facility lease the city continues to receive consideration even if the property is relet after the city defaults. As explained below, we conclude it does. These benefits continue in the form of a rent credit and the guarantee that the city’s existing contractual obligations relating to the use of the stadium will be performed.

The default and reletting provisions here are much like those examined in Nesvig. If the agency affirms the lease, the city must “pay the rent to the end of the term of this Facility Lease” absent any relet. (§ 10.01(c)(2)(A).) The agency may “collect each installment of rent [but only] as it becomes due”—i.e., it may not accelerate the payments. (§ 10.01(c)(2)(A).) If the agency retakes possession and relets the stadium, the city receives a credit and is obligated only on the rental deficiency, which results as each payment falls due (§ 10.01(c)(2)(A)).

While the city is required to pay if the rent collected is less than the city’s rental obligation, the city is entitled to a credit for the amount paid by the sublessee. As in Nesvig, the city then receives “value of the use of the property from year to year in the form of credits against its obligation.” (Nesvig, supra, 231 Cal.App.3d at p. 612.) Under these circumstances, the city’s rent reduction after a default is a form of consideration required by Offner-Dean.

Furthermore, in the event of a reletting, the facility lease requires the agency to act as “the agent and attomey-in-fact” of the city.¹³ While we recognize that in many instances an “agency to relet” clause may merely be a “fiction” (see conc. & dis. opn., p. 1502, fn. 5), here this provision has real and significant meaning. The agency and/or the sublessee are bound to honor, and must perform, the city’s obligations with its tenants and other contracting parties, including the Chargers and the Padres.¹⁴ Thus, the agency is contractually required to relet the stadium for the benefit of the city and its existing contracts. Should the agency or the sublessee fail to satisfy these obligations, the city would have standing to enforce such obligations.

Reading the lease provisions together, we believe the city obtains benefits from the facility lease even if it is not in actual possession. The city obtains substantial benefit since its existing contracts and licenses with stadium tenants must be performed and satisfied. Additionally, the city has a right to a credit on the rent for which it would otherwise be obligated to pay.

In the final analysis, as in Nesvig,15 the obligation of the city to make rent payments as they become due remains precisely the same: the city has an obligation to pay semiannual rent if there is no reletting, and it has the same obligation with a right to a credit on the rent if the agency relets. Under these circumstances, we conclude the provision allowing the agency to relet the stadium will not convert the city’s obligation to pay rent into a prohibited debt under article XVI, section 18, when it was not previously a prohibited debt. Because the city continues to receive consideration, Offner-Dean principles are not violated.

2.

Having determined the reletting provision does not offend article XVI, section 18, we turn to section 10.01(c)(2)(D), a default provision in which the city waives the right to any excess rent collected upon reletting.¹⁶ Our approach is straightforward. Once the city’s rental obligation is reduced to zero, there is no debt, and if there is no debt, article XVI, section 18, is not implicated. Consequently, from a constitutional standpoint, the fact that the city has agreed to waive excess rents is irrelevant.

Our concurring and dissenting colleague contends section 10.01(c)(2)(D) renders the reletting provision (§ 10.01(c)(2)(A)) invalid. Our colleague argues that the facility lease may be construed as constitutional only if the lease terms mirror the common law rule that, after reletting, the public entity tenant is permitted to obtain all the economic value of the lease, including the opportunity to receive excess rent. In short, our colleague claims that when the city agreed to waive excess rents, it undermined the rationale upon which the validity of the reletting clause is based.

This narrow view is not supported by Supreme Court precedent and fails to recognize that notwithstanding the waiver of excess rent, the city continues to receive consideration. Our colleague’s approach disregards the existence and significance of the agency’s obligation, upon reletting, to honor and perform the city’s existing contracts with third parties (§ 10.01(c)(3));¹⁷ it also ignores credit against rent. Our colleague’s position further overlooks that sections 10.01(c)(2)(A) and 10.01(c)(2)(D) become applicable only upon default by the city. A party in breach of its contractual obligations cannot reasonably expect to continue to receive the full benefit of the bargain. The point is, upon default, the city continues to receive legally sufficient consideration even though the stadium has been relet and the city has waived excess rent. Section 10.01(c)(2)(D) does not transform the financing arrangement at issue here from a legitimate lease into prohibited debt.

The provision waiving excess rents on reletting complies with article XVI, section 18.

3.

Next, we address section 10.01(c)(2)(E),¹⁸ which permits the agency to recover from the city the cost of alterations or repairs necessary to place the stadium in a condition for reletting. Unlike sections 10.01(c)(2)(A) and 10.01(c)(2)(D), discussed above, the parties agree that the validity of this provision is fact specific. Some factual scenarios may create prohibited debt, others will not. In other words, the validity of the provision depends on the extent, cost and timing of the alteration or repair.¹⁹

Under basic rules of statutory and contract construction, provisions subject to both lawful and unlawful interpretations are to be interpreted in a manner which makes them lawful. Because the facility lease is part of the ordinance adopted by the city council in connection with the stadium expansion, those principles apply here.

If a statute is susceptible of two constructions, one that will render it constitutional and one that will either render it unconstitutional or else raise serious constitutional concerns, the court will adopt a constitutional construction. (People v. Superior Court (Romero) (1996) 13 Cal.4th 497, 509 [53 Cal.Rptr.2d 789, 917 P.2d 628].) The rules of statutory construction apply with equal force to ordinances. (Rodriguez v. Solis (1991) 1 Cal.App.4th 495, 502 [2 Cal.Rptr.2d 50]; Aptos Seascape Corp. v. County of Santa Cruz (1982) 138 Cal.App.3d 484, 497 [188 Cal.Rptr. 191].)

As a contract, the lease “must receive such an interpretation as will make it lawful. . . if it can be done without violating the intention of the parties.” (Civ. Code, § 1643.) Here the facility lease itself provides the city and agency intended the lease be carried out in a lawful and constitutional fashion. (§ 5.06(b).)

There are any number of circumstances in which the alteration and repair provision can be implemented in a manner constitutionally consistent with debt limitation limits and Offner-Dean. For example, if the agency makes the alterations and repairs necessary for reletting and charges the city for the work the same fiscal year, the constitution is satisfied because the city’s payment is for a debt incurred in the same fiscal year it is due. By contrast, if the remedy upon default results in future debt, it would render the provision constitutionally invalid. In that event, the city would have no obligation to perform, and the agency could not compel performance. (§ 5.06(b).) Accordingly, because the provision is reasonably susceptible of a construction that is constitutionally valid, it is entitled to such construction in this validation proceeding.

B.

Rider tenders a number of other contract arguments, all of which we find unpersuasive. We treat them briefly below.

Rider argues the provision in the facility lease, which (1) requires the city to purchase insurance to cover 24 months of base rental payments to the agency in the event an earthquake or other hazard renders the stadium unavailable for use and (2) permits the agency to buy the insurance if the city fails to maintain it, exceeds the Offner-Dean limits. (§§ 6.03(a) & 6.04.²⁰) Rider contends (1) if the city does not buy the insurance, (2) the agency fails to obtain it and (3) there is a catastrophic earthquake, nothing in the lease bars the agency from suing the city for damages of 24 months of rent even though loss of use due to earthquake damage would normally abate the city’s duty to pay rent.

The thrust of the argument is not that article XVI, section 18, makes it improper for the city to procure the insurance or pay the premiums from year to year, but rather that article XVI, section 18, is violated when the city fails to buy the insurance.²¹ We view the argument as unsound and premature. This is a validation action, and our concern is with what is in the facility lease—not with what is missing. We see no reason to speculate on what might happen if the city breaches its duty to provide loss-of-use insurance, there is an earthquake and the agency files an action.

2.

Rider complains the facility lease is not supported by consideration because it obligates the city to pay rent for use of a stadium it already owns. To the contrary, the city is paying rent for use of an improved stadium, not for use of the one it presently owns.

3.

Rider asserts it is improper under Starr v. City and County of San Francisco, supra, 72 Cal.App.3d 164, to spend part of the bond proceeds on off-site improvements to build a training facility and offices for the San Diego Chargers. Rider attempts to take Starr too far.

In Starr, the court determined a municipal lease-back arrangement was valid because each rental payment would be supported by consideration furnished that year, i.e., occupancy and use of the project. (Starr v. City and County of San Francisco, supra, 72 Cal.App.3d at p. 172.) A separate Department of Housing and Urban Development repayment contract, however, was held not to satisfy the Offner-Dean rule because it created a “future charge against general funds,” which was not supported by consideration in the year the obligation was incurred and which could not be included in the yearly budget. (Id. at p. 176.) Contrary to Rider’s contention, nothing in the opinion suggests a restriction on how or for what purpose a public entity may use bond proceeds obtained in the financing arrangement.

4.

Rider argues the ground lease is void for lack of consideration and uncertainty. He also argues the facility lease rent does not reflect fair rental value and, since the determination of value is a factual matter, the issue should be remanded to the trial court for resolution. These arguments were either conceded or not raised below.

A party waives a new theory on appeal when he fails to include the underlying facts in his separate statement of facts in opposing summary judgment. (North Coast Business Park v. Nielsen Construction Co. (1993) 17 Cal.App.4th 22, 30-32 [21 Cal.Rptr.2d 104].) A new theory on appeal is also waived when the new theory involves a controverted factual situation not put in issue below. (Richmond v. Dart Industries, Inc. (1987) 196 Cal.App.3d 869, 879 [242 Cal.Rptr. 184].) In his separate statement filed in opposition to respondents’ summary judgment motion, Rider conceded that consideration for the ground lease included the agency’s agreement to construct the improvements required by the 1995 agreement. In opposing the motion, he never contended the ground lease was uncertain or raised the factual issue of fair rental value in either his argument or separate statement. The superior court was the proper forum in which to raise these issues. We deem the arguments waived.

III.

Finally, stepping back from contract-based issues, we return to a theme echoed throughout Rider’s argument: the city purposely structured the transaction to avoid the need for a two-thirds vote and thus violated the rule of Rider v. County of San Diego, supra, 1 Cal.4th 1 (County).22

In County, the San Diego County Regional Justice Facility Financing Agency (FFA) imposed a half-cent sales tax to finance construction of jail and courthouse facilities. The issue was whether the post-Proposition 13 FFA could validly levy the tax with the approval of only a simple majority of the electorate rather than a two-thirds vote, which is required under California Constitution, article XIII A, section 4 (hereafter article XIII A, section 4), before any special district can impose a special tax.²³ The California Supreme Court held the tax invalid explaining (1) the FFA was a “special district,” and (2) the tax was a “special tax.” (County, supra, 1 Cal.4th at pp. 10-15.)

Rider argues the applicability of County by analogy. In doing so, he quotes extensively from the opinion, consistently replacing references to the tax limitation under article XIII A, section 4, with citations to the debt limitation under article XVI, section 18. Then, without analyzing whether interchanging these two provisions is conceptually sound, Rider concludes that the “lesson” to be learned from County is that a public body such as the city may not intentionally circumvent the constitutional requirement of a two-thirds vote by creating a new entity such as the agency. While there is much to be learned from County, we find it inapplicable to Offner-Dean issues.

First, County is limited in scope to the taxing power under article XIII A, section 4: it deals exclusively with the issue of whether the public entity is a “special district” and whether the tax is a “special tax.” The opinion says nothing about the spending power under article XVI, section 18, nothing about lease financing and nothing about Offner-Dean. Except for a reference in County to Vanoni v. County of Sonoma (1974) 40 Cal.App.3d 743 [115 Cal.Rptr. 485], there is no suggestion the constitutional debt limitation has any application to the issues in that case.

In Vanoni, the water district entered into a contract to pay the federal government $40 million over 50 years to build a dam. Taxpayers challenged the contract as violative of the predecessor to article XVI, section 18 (former Cal. Const., art. XIII, § 40). Conceding the constitutional provision did not apply to a water district, the taxpayers argued the district and county were one and the same and that because the county was subject to the constitutional debt limitation, the water district was also. (Vanoni v. County of Sonoma, supra, 40 Cal.App.3d at p. 749.) Rejecting the argument even though the district and county shared the same boundaries, governing boards, citizens and taxable property and the district performed traditional county functions, the court concluded the district was a separate legal entity not subject to the debt limitation because there had been no showing “ ‘the entity subject to the limitation [i.e., the county] controlled the decision to incur the debt or levy the tax.’” (Vanoni v. County of Sonoma, supra, 40 Cal.App.3d at p. 750; accord, County, supra, 1 Cal.4th at p. 12.)

Vanoni does not change our analysis. Here it is the city, not the agency, which makes the payments under the facility lease and we have concluded these payments do not require voter approval under the Offner-Dean rule. Rider’s argument that the city controls the agency is thus irrelevant because there is no subterfuge—no switching of entities to avoid a vote.²⁴ This case is consistent with the rationale in Vanoni.

Second, to the extent Rider attempts to use the “lesson” of County to attack the financing arrangement on the basis that it was designed to avoid a vote, he faces an overwhelming obstacle. The Offner-Dean rule recognizes the facility lease is not a subterfuge for a conditional sales contract; the lease does not create an immediate indebtedness for aggregate payments and it does not violate the constitutional debt limitation. As discussed above, the Offner-Dean rule applies even where the public entity may have intended to avoid a vote. (City of Los Angeles v. Offner, supra, 19 Cal.2d at p. 486; Dean v. Kuchel, supra, 35 Cal.2d at p. 447.)

Third, to the extent Rider is attempting to argue County prevents the city from contracting with the agency, he faces the additional hurdle of precedent approving the mechanism of the facility lease notwithstanding an intimate relationship between the contracting parties. Rejecting a similar argument, the Supreme Court upheld a lease between the county and its retirement board in County of Los Angeles v. Byram, supra, 36 Cal.2d 694.²⁵ Rider’s theory of “purposeful circumvention” simply has no application to this case. As Lagiss v. County of Contra Costa, supra, 223 Cal.App.2d 77, summarizes: “Entering into such a lease-option agreement has the legislative sanction both as to [counties] and their retirement systems. These provisions, when read with the Supreme Court decisions . . . , clearly indicate that such a lease-option agreement is not a subterfuge, but, to the contrary, a legitimate financial transaction, not repugnant to the constitutional provision in question and one into which both the County and the Board of Retirement may enter intentionally and in order to arrive at a predetermined result in conformity with the spirit and purpose of the law.” (Id. at p. 94.)

We are not in a position to overrule the Supreme Court. We further remain unconvinced the “teaching” of County can or should be lifted out of the context of the taxing limitation under article XIII A, section 4, and superimposed into the body of law involving the debt limitation under article XVI, section 18. Furthermore, we are not persuaded that County signals the advent of a new approach to the principles of lease financing.

Disposition

The judgment is affirmed. Parties to bear their own costs on appeal.

McDonald, J., concurred.

1 In the briefs before this court and the trial court, the parties express strong views on whether the decision to improve the stadium was a good one. The wisdom of that decision is not before us. Rather, our responsibility is to determine whether the mechanism selected to finance the project complies with the law. (Max Factor & Co. v. Kunsman (1936) 5 Cal.2d 446, 454-455 [55 P.2d 177].) Accordingly, we limit our review to that determination.

2 The project includes expanding seating capacity from 60,818 to 71,000 (including 7,800 new club seats and 29 new sky boxes) and adding 2 new scoreboards.

3 As used throughout, the word “section” followed by a number refers to provisions in the facility lease.

4 Under section 5.04 of the facility lease, rent is abated when damage or destruction substantially interferes with the city’s use and possession of any portion of the stadium. “Any abatement of rental payments pursuant to Section 5.04 . . . shall not be considered an event of default. . . .” (§ 5.04(2).)

5 Upon default, the agency or its assignee may also elect to terminate the lease. (§ 10.01(c)(1).)

6 Code of Civil Procedure section 860 et seq. authorizes a public agency to file suit to validate its actions. Code of Civil Procedure section 870, subdivision (a) provides: “(a) The judgment, if no appeal is taken, or if taken and the judgment is affirmed, shall, notwithstanding any other provision of law including, without limitation, Sections 473 and 473.5, thereupon become and thereafter be forever binding and conclusive, as to all matters therein adjudicated or which at that time could have been adjudicated, against the agency and against all other persons, and the judgment shall permanently enjoin the institution by any person of any action or proceeding raising any issue as to which the judgment is binding and conclusive.” (Code Civ. Proc., § 870, subd. (a).)

7 At oral argument, Rider confirmed he has abandoned arguments previously raised relating to the city charter, the statutory basis for the agency to issue bonds and alter ego issues. From the briefs, it also appears he has abandoned arguments involving the constitutional power of the Legislature to grant joint powers agencies independent bonding authority, securities law violations and the need for additional discovery.

8 We return to this issue in part III, post.

9 As the court described it, “True, [in Offner] the city was not bound to execute the option and thus pay the purchase price, but it was required to pay the rentals. Here the rentals also must be paid but the state need not pay any more.” (Dean v. Kuchel, supra, 35 Cal.2d at p. 448.)

10 Section 10.01(c)(2)(A) provides in part: “The [agency] or its assignee, in addition to all other rights and remedies it may have at law, shall have the option . . . [w]ithout terminating this Facility Lease, to collect each installment of rent as it becomes due and enforce any other term or provision hereof to be kept or performed by the City, and/or to exercise any and all rights to retake possession of the [stadium].

“(A) In the event the [agency] or its assignee does not elect to terminate this Facility Lease in the manner provided for in Section 10.01(c)(1) hereof, the City shall remain liable and agrees to keep or perform all covenants and conditions herein contained to be kept or performed by the City and, to pay the rent to the end of the term of this Facility Lease or, in the event that the [stadium] is re-let, to pay any deficiency in rent that results therefrom; and further agrees to pay said rent and/or rent deficiency punctually at the same time and in the same manner as hereinabove provided for the payment of rent hereunder (without acceleration), notwithstanding the fact that the [agency] or its assignee may have received in previous years or may receive thereafter in subsequent years rental in excess of the rental herein specified and notwithstanding any retaking of possession of the [stadium] by the [agency] or its assignee or suit in unlawful detainer, or otherwise, brought by the [agency] or its assignee for the purpose of obtaining possession of the [stadium].”

11 Rider reads the reletting provision in conjunction with section 5.06(a) which provides: “The agreements and covenants on the part of the City contained herein shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the agreements and covenants contained herein agreed to be carried out and performed by the City.”

12 Although the city and agency urge us to take judicial notice of the leases in Nesvig, supra, 231 Cal.App.2d 603, Ruane v. City of San Diego (1968) 267 Cal.App.2d 548 [73 Cal.Rptr. 316] and other cases based on the representation that the leases contain default provisions that are virtually identical to the one in our case, we decline to do so. Cases are not authority for propositions not considered or adjudicated. (Ginns v. Savage (1964) 61 Cal.2d 520, 524 [39 Cal.Rptr. 377, 393 P.2d 689]; Estate of Hafner (1986) 184 Cal.App.3d 1371, 1385 [229 Cal.Rptr. 676].) We will not look behind the record for particular lease provisions, which may or may not have been brought to the attention of the court and may or may not have led to its conclusions.

13 Section 10.01(c)(2)(B) provides: “Should the [agency] or its assignee elect to retake possession of the Leased Property as herein provided, the City hereby irrevocably appoints the [agency] or its assignee as the agent and attomey-in-fact of the City to re-let the Leased Property, or any items thereof, from time to time, either in the [agency’s] or its assignee’s name or otherwise, upon such terms and conditions and for such use and period as the [agency] or its assignee may deem advisable and the City hereby indemnifies and agrees to save harmless the [agency] or its assignee from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any retaking of possession of and re-letting of the Leased Property by the [agency] or its assignee or its duly authorized agents in accordance with the provisions herein contained.”

14 Section 10.01(c)(3) provides: “Notwithstanding anything herein to the contrary, the [agency] shall not reenter or re-let the [stadium] upon the occurrence of an Event of Default, unless the [agency] or its sublessee agrees to perform all of the City’s obligations under the Chargers Agreements, the Padres Agreement, the SDSU Agreement, the Association Agreement, the Service America Agreements and any other then existing lease, license or other agreement relating in any way to the [stadium]. In addition, the [agency] shall not reenter or re-let the [stadium] upon the occurrence of an Event of Default, unless the [agency] or its sublessee agrees to continue to honor the rights of the Chargers under the Chargers Agreements, the Padres under the Padres Agreement, the SDSU under the SDSU Agreement, the Association under the Association Agreement, Service America under the Service America Agreements and any other parties under any other leases, licenses or other agreements in any way involving the [stadium] . . . .”

15 We recognize Nesvig is a 1965 case, and the law governing a landlord’s remedies after a tenant breach was changed in 1970. (See Civ. Code, § 1951.2; see also 4 Witkin, Summary of Cal. Law (9th ed. 1987) Real Property, § 665, p. 849.) The prior statutes required a landlord who relet the premise to sue the tenant for the deficiency at the end of the full lease term. The current statutes permit a landlord to immediately recover future rent reduced to present worth for the balance of the lease term. (Civ. Code, § 1951.2.)

This change in the law, however, is not significant to our analysis. Read in context, Nesvig’s conclusion as to the validity of the lease was not necessarily dependent on the terms of the pre-1970 law. Likewise, many of the so-called new remedies generally existed before 1970 so long as the leases so provided. (4 Witkin, op. cit. supra, § 673 at pp. 857-860.)

16 Section 10.01(c)(2)(D) states: “The City further waives the right to rental payments obtained by the [agency] or its assignee in excess of the rental payments herein specified and hereby conveys and releases such excess to the [agency] or its assignee as compensation to the [agency] or its assignee for its services in re-letting the Leased Property or any items thereof.”

17 For example, without this provision, the city would have no protection from exposure to lawsuits filed by unhappy third party tenants as a result of the reletting.

18 Section 10.01(c)(2)(E) provides: “The City further agrees to pay the [agency] or its assignee the cost of any alterations or repairs to the [stadium] or any items thereof necessary to place the [stadium] or any items thereof in condition for re-letting immediately upon notice to the City of the completion and installation of such alterations or repairs.”

19 No California case has evaluated a provision like the alteration and repair provision before us. In Ruge v. State (1978) 201 Neb. 391 [267 N.W.2d 748], the Nebraska Supreme Court concluded a lease provision requiring the state to pay the reasonable costs of reletting and alteration incurred by the landlord violated the state constitutional debt limitation. In the court’s words, the provision was an “open-ended promise” to pay which “[became] effective upon a termination of the lease and qualifie[d] the earlier provisions which conditioned the liability of the state upon a legislative appropriation having been made at the commencement of each rental period.” (Id. at p. 752.) The Nebraska Supreme Court declared the clause “invalid and unenforceable” but sustained the validity of the financing arrangement.

20 Section 6.03(a) provides in pertinent part: “The City shall procure . . . and maintain . . . throughout the term hereof . . . : [SQ (1) Insurance against loss or damage to the [stadium] caused by fire, lightning or earthquake . . . [and] fiO (2) Use and occupancy insurance against loss, total or partial, of the use and occupancy of the [stadium] as a result of any of the hazards covered by the insurance required by [subpart (a)(1)] hereof, in an amount sufficient to pay the Base Rental Payments attributable to the [stadium] for a twenty-four month period

M

Section 6.04 provides in pertinent part: “In the event the City shall fail to maintain the full insurance coverage required hereby ... the agency may (but shall be under no obligation to) purchase the required policies of insurance and pay the premiums on the same . . . .”

21 While he does not pursue the argument, Rider adds in passing that, even if the city fulfills its duty and buys the insurance, Offner-Dean may be violated because the premium represents payment for use when the stadium is unavailable. Assuming the argument were squarely before us, we would nevertheless be compelled to reject it. The city is paying a yearly premium to buy insurance, which the agency as landlord requires for use of the property. In the event of an occurrence under the policy, i.e., an earthquake, the carrier will pay the proceeds. The fact that the proceeds the carrier pays is equal to 24 months of rent does not convert the annual premium the city pays into 24 months of rent; the city is not obligated to pay rent for the period the city’s use of the stadium is substantially impaired by damage or destruction.

22 We refer to Rider v. County of San Diego as County to avoid any confusion between the opinion and the name we have been using collectively to refer to appellants.

23 Proposition 13 established a one percent limit on ad valorem taxes on real property (Cal. Const., art. XIII A, § 1) and at the same time prohibited the imposition of special non-real-property taxes that would undermine the one percent limit unless adopted by a two-thirds vote (art. XIII A, § 4). Article XIII A, section 4, provides: “Cities, counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such City, County or special district.”

24 Repeated provisions in the bond issuing documents inform the bondholders that any cause of action they (or more properly their trustee) may have arises out of the assignment to the trustee of the agency’s interest in the facility lease.

25 The appellate courts have followed suit in cases involving leases between counties and their retirement boards. (McClain v. County of Alameda (1962) 209 Cal.App.2d 73 [25 Cal.Rptr. 660], and Lagiss v. County of Contra Costa (1963) 223 Cal.App.2d 77 [35 Cal.Rptr. 450].) In Corona etc. Hosp. Dist. v. Superior Court (1964) 61 Cal.2d 846 [40 Cal.Rptr. 745, 395 P.2d 817], Ruane v. City of San Diego, supra, 267 Cal.App.2d 548, and City of La Habra v. Pellerin (1963) 216 Cal.App.2d 99 [30 Cal.Rptr. 752], the courts approved leases between public entities and nonprofit corporations which were established for the purpose of facilitating the transaction.