Connell

In this case of first impression, we conclude an elaborate bond-and-lease plan for funding a street widening project violates article XIX of the California Constitution. The trial court correctly concluded the City of Costa Mesa (the City) was misspending restricted-use state gas tax funds to pay rent on two golf courses.

In reaching our decision, we reject the City’s facile argument that because the money ultimately paid for street improvements, the circuitous route it took is irrelevant. The issue is not whether equivalent dollars were dropped into the bin labeled “Street Improvements” after the wash was done, but whether article XIX permits either direct expenditure of state gas tax funds on golf course leases or indirect routing to finance bonds which are not voter approved. As we will explain, neither transaction passes constitutional muster.

Facts

Costa Mesa Public Finance Authority (PFA) is a joint powers authority of the City and its redevelopment agency. To raise funds for street widening, the City and PFA devised the following mechanism: (1) The City leased two municipal golf courses to PFA; (2) PFA issued $15 million of lease revenue bonds and paid about $13…