Taxpayers for Improving Public Safety v. Schwarzenegger (172 Cal. App. 4th 749, 2009)

Opinion

HULL, J.

In response to severe overcrowding in the state’s prison system, the Legislature enacted Assembly Bill No. 900 (2007-2008 Reg. Sess.), the Public Safety and Offender Rehabilitation Services Act of 2007 (Assembly Bill 900 or the Act), authorizing the State Public Works Board (board) to issue up to approximately $7.4 billion in bonds for the construction and renovation of prisons to be operated by California’s Department of Corrections and Rehabilitation (CDCR).

Plaintiffs, Taxpayers for Improving Public Safety, Gail Brown, and Matt Gray, initiated this taxpayer lawsuit against Arnold Schwarzenegger, in his capacity as the Governor of California, James Tilton, in his capacity as the Secretary of the CDCR, and John Chiang, in his capacity as the State Controller, asking for declaratory and injunctive relief to bar implementation of Assembly Bill 900. Plaintiffs allege the proposed bonds will violate article XVI, section 1 of the California Constitution (article XVI, section 1 or the state debt limit), which prohibits the Legislature from creating any debt that exceeds an allowable maximum without obtaining a two-thirds vote of the Legislature and a majority vote of the people.

Defendants demurred to the complaint, and the trial court sustained the demurrers without leave to amend. The court concluded that, because bonds issued by the board under Assembly Bill 900 will be repayable solely from a special fund maintained through lease payments received by the board from CDCR, no debt will be created within the meaning of the state debt limit.

Plaintiffs contend the trial court erred, because (1) a declaratory relief claim is not subject to demurrer; (2) the complaint states a claim under article XVI, section 1; and (3) they should have been granted leave to amend in order to present evidence supporting their claim.

We conclude that, while plaintiffs’ declaratory relief claim may not have been subject to demurrer, we may nevertheless resolve the legal issue presented by that claim.

We further conclude defendants’ demurrers to the complaint were properly sustained. The underlying purpose of the state debt limit is to force government to operate within its means. Consistent with this purpose, the courts have carved out a number of “exceptions,” including one where the state undertakes an obligation to make periodic payments that are contingent on the future use or availability of property, goods, or services. The most common example of this contingency exception is where the state enters into a long-term lease of property and future lease payments are contingent on future availability of the property.

Because plaintiffs have mounted a facial challenge to the Act, it must be upheld if there is any way the Act may be implemented that would not violate the state debt limit. As we shall explain, we conclude the Act may be implemented in such a way as to fall within the contingency exception. The Act provides for the construction of prison facilities financed by bonds to be repaid from the state’s general fund. Those bonds may be structured in such a way that future periodic payments are contingent on future use or availability of the facilities. Hence, the state has not undertaken an obligation that offends the pay-as-you-go principle underlying the state debt limit.

Finally, we conclude defendants’ demurrers were properly sustained without leave to amend because a demurrer tests the adequacy of the complaint’s allegations, not whether plaintiffs can produce evidence to support those allegations. We therefore affirm the judgment of dismissal.

Facts and Proceedings

Overcrowded prisons are nothing new to California. In 1985, 47,082 state prisoners were housed in facilities designed to hold only 29,042. (Carlin, Chapter 252: Helping to Manage California’s Overcrowded Jails (2008) 39 McGeorge L.Rev. 602, 603, fn. 8.) By 2007, the prison population had increased to approximately 173,000, while the prison capacity had grown to only half that amount. (Muradyan, Government: California’s Response to Its Prison Overcrowding Crisis (2008) 39 McGeorge L.Rev. 482, 485.) It has been suggested this increase in prison population has been due to several factors, including enactment of the determinate sentencing law, which tended to increase terms for most offenses, the three strikes law, and the state’s parole and rehabilitation systems. (Muradyan, at pp. 485-487.) Prison overcrowding has prompted federal class action lawsuits attacking the adequacy of medical and mental health care provided by CDCR. (See id. at pp. 487-488.) On February 14, 2006, in Plata v. Schwarzenegger, No. C01-1351 TEH, the United States District Court for the Northern District of California took the drastic step of appointing a receiver to take control of the delivery of medical care within the state’s prisons. (We grant defendants’ request for judicial notice of the federal court’s February 14 order, attached as exhibit B to defendants’ May 27, 2008 request for judicial notice. We also grant defendants’ request for judicial notice of exhibits C and D, which are federal court orders convening a three-judge panel to consider the release of prisoners as a remedy for overcrowding. The trial court previously took judicial notice of each of these items. (See Evid. Code, § 459, subd. (a)(1).))

To address the prison overcrowding problem, the Governor called a special session of the Legislature in the summer of 2006. However, this failed to produce any meaningful improvements. (California Correctional Peace Officers Assn. v. Schwarzenegger (2008) 163 Cal.App.4th 802, 809 [77 Cal.Rptr.3d 844].) On October 4, 2006, the Governor issued a proclamation directing the CDCR to mitigate overcrowding in 29 state prisons by transferring inmates to out-of-state correctional facilities. (We grant defendants’ request for judicial notice of this proclamation, attached as exhibit A to defendants’ request for judicial notice. The trial court previously took judicial notice of this item as well.) The proclamation said there were more than 15.000 inmates being housed in areas of the indicated prisons that were “never designed or intended for inmate housing, including, but not limited to, common areas such as prison gymnasiums, dayrooms, and program rooms,” thereby posing substantial health and safety risks to both inmates and prison employees. According to the proclamation, “in addition to the 1,671 incidents of violence perpetrated in these 29 severely overcrowded prisons by inmates against CDCR staff last year, and the 2,642 incidents of violence perpetrated in these prisons on inmates by other inmates in the last year, the suicide rate in these 29 prisons is approaching an average of one per week . . . .”

The following year, the Legislature enacted Assembly Bill 900. The Act adds two chapters to part 10b, division 3, title 2 of the Government Code, the State Building Construction Act of 1955 (the State Building Construction Act or SBCA) (Gov. Code, § 15800 et seq.; further undesignated section references are to the Government Code). As recently amended by Senate Bill No. 14 (2009-2010 Reg. Sess.), Assembly Bill 900 authorizes CDCR to design, construct, or renovate housing units, support buildings, and programming space at new or existing prisons to accommodate an additional 12,000 beds; to design, construct and renovate reentry program facilities to house 6.000 inmates; and to design, construct and establish new buildings at facilities to provide medical, dental, and mental health treatment or housing for 6,000 inmates. (§ 15819.40, added by Stats. 2007, ch. 7, § 2, as amended by Stats. 2009, 3d Ex. Sess., ch. 16, § 1.) It also authorizes CDCR, the board, and participating counties to acquire, design and construct local jail facilities. (§ 15820.901, added by Stats. 2007, ch. 7, § 4.) The Act requires CDCR to implement a system of incentives to increase inmate participation in academic and vocational education (Pen. Code, § 2054.2, added by Stats. 2007, ch. 7, § 6), to develop and implement a plan to obtain additional rehabilitation and treatment services (Pen. Code, § 2062, added by Stats. 2007, ch. 7, § 8), to expand substance abuse treatment services to accommodate at least 4,000 additional inmates (Pen. Code, § 2694, added by Stats. 2007, ch. 7, § 10), to develop an inmate treatment and prison-to-employment plan (Pen. Code, § 3105, added by Stats. 2007, ch. 7, § 13), and to implement a plan to address management deficiencies within CDCR (Pen. Code, § 2061, added by Stats. 2007, ch. 7, § 7). Finally, the Act authorizes the board to issue revenue bonds to finance the foregoing. (Gov. Code, §§ 15819.403, subd. (a), 15819.413, subd. (a), 15820.903, subd. (a), 15820.913, subd. (a), added by Stats. 2007, ch. 7, §§ 2-5, as amended by Stats. 2009, 3d Ex. Sess., ch. 16, §§ 2, 9, 12.)

Plaintiffs initiated this action seeking to prevent implementation of the Act. As noted, the complaint contains two causes of action, one asking for declaratory relief and one asking for an injunction. Plaintiffs allege defendants “seek to sell revenue bonds for the purpose of constructing prisons and jail cells in California . . . .” They further allege a present controversy exists between them and defendants, in that plaintiffs contend issuance of the bonds would violate article XVI, section 1, whereas defendants contend they are entitled to issue such bonds under exceptions to the state debt limit.

Plaintiffs moved for a preliminary injunction, but their motion was denied. Defendants then demurred to the complaint on the ground that it fails to state a claim.

The trial court sustained the demurrers without leave to amend. The court concluded that only obligations that are legally enforceable against the state’s general fund or taxing power are covered by the constitutional debt limit, and bonds issued under the Act would not be legally enforceable against the state’s general fund but only against rent payments received from CDCR. Plaintiffs appeal from the ensuing judgment of dismissal.

Discussion

I

The Legal Framework

A. Overview of the Constitutional Debt Limits

To aid in analyzing the Act and addressing the contentions of the parties, we first discuss the legal framework under which Assembly Bill 900 was enacted.

The California Constitution contains two general constraints on borrowing to finance governmental activities. Article XVI, section 18 of the California Constitution (sometimes referred to as the local debt limit) applies to local governments. (Further references to articles are to the California Constitution.) It reads in relevant 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 voters of the public entity voting at an election to be held for that purpose . . . .” The counterpart for state government is article XVI, section 1. It reads in relevant part: “The Legislature shall not, in any manner create any debt or debts, liability or liabilities, which shall, singly or in the aggregate with any previous debts or liabilities, exceed the sum of three hundred thousand dollars ($300,000), except in case of war to repel invasion or suppress insurrection, unless the same shall be authorized by law for some single object or work . . . ; but no such law shall take effect unless it has been passed by a two-thirds vote of all the members elected to each house of the Legislature and until, at a general election or at a direct primary, it shall have been submitted to the people and shall have received a majority of all the votes cast for and against it at such election . . . .”

The underlying purpose of these debt limits is to force government to operate within its means. (State ex rel. Pension Obligation Bond Com. v. All Persons Interested etc. (2007) 152 Cal.App.4th 1386, 1398 [62 Cal.Rptr.3d 364] (Pension Obligation); Pooled Money Investment Bd. v. Unruh (1984) 153 Cal.App.3d 155, 160 [200 Cal.Rptr. 500].) Hence, they have been viewed more accurately as balanced budget requirements than debt limits. (Rider v. City of San Diego (1998) 18 Cal.4th 1035, 1045 [77 Cal.Rptr.2d 189, 959 P.2d 347] (Rider II); Pension Obligation, at p. 1398.) As explained by the state Supreme Court more than 150 years ago: “The power of taxation was given to the Legislature, without limit, for all purposes allowed by the Constitution, and the framers of that instrument knew that it was not the practice of governments, well conducted, to borrow money for the ordinary expenses of government. These expenses are regular and certain, and can easily be provided for by taxation. In reference to such expenses, there is no cause for surprise upon the Legislature. It is easy to anticipate their amount with a reasonable degree of certainty, and the framers of the Constitution knew that if they permitted the Legislature to borrow money to defray the ordinary expenses of the government, it would not be long before the State must be brought practically to rely upon the yearly revenue; for the reason, that a yearly deficit of the revenue would soon destroy the credit of the State, so that she could not borrow for any such purpose. A family, or State, that borrows to pay ordinary expenses, must soon have no power to borrow; and as the State, from the very nature of the case, must sooner or later come to the point of ‘paying as you go,’ it was wise in the framers of our Constitution, to bring her to it at an early period.” (Nougues v. Douglass (1857) 7 Cal. 65, 68.)

Consistent with the underlying purpose of the constitutional debt limits, the courts have carved out a number of “exceptions.” Although, in each instance, the so-called “exception” is fundamentally a recognition that the transaction or legislation in question does not create a “debt” owed by the governmental entity within the meaning of the debt limit provisions, but is instead a payment arrangement that falls entirely outside of those provisions, we will refer to them as “exceptions” as others have done before us. In any event, as a general rule, such a debt subject to debt limitations arises only if a financial obligation is created that must be satisfied from the governmental entity’s general funds or taxing power. (City of Oxnard v. Dale (1955) 45 Cal.2d 729, 737 [290 P.2d 859].)

For example, in San Francisco S. Co. v. Contra Costa Co. (1929) 207 Cal. 1 [276 P. 570], the state high court found the local debt limit inapplicable where the county issued bonds for the improvement of streets and the bonds were to be repaid through special assessments on the properties benefiting from the improvements. (Id. at pp. 4—5.) Because the bonds were to be repaid from this special fund rather than the county’s general fund, no prohibited debt had been created.

In California Educational Facilities Authority v. Priest (1974) 12 Cal.3d 593 [116 Cal.Rptr. 361, 526 P.2d 513], the high court applied this special fund exception to the state debt limit. There, legislation created the California Educational Facilities Authority for the purpose of issuing revenue bonds to provide funding for expansion by institutions of higher education. The legislation authorized the authority to acquire land and construct or rehabilitate facilities and to lease those facilities to the educational institutions. The bonds were to be repaid solely from the lease payments; the authority was given no power to tax or appropriate public funds for this purpose. (Id. at pp. 596-597.) The high court concluded that, because the bonds were to be repaid solely from a special fund maintained from lease payments, no state debt had been created. (Id. at p. 607.)

Another exception to the constitutional debt limits has been recognized where the governmental entity enters into a contingent obligation. “A sum payable upon a contingency is not a debt, nor does it become a debt until the contingency happens.” (Doland v. Clark (1904) 143 Cal. 176, 181 [76 P. 958].) This contingency exception has been applied to uphold multiyear contracts, such as leases, where the governmental entity agrees to pay sums in succeeding periods in exchange for property, goods, or services to be provided during those periods. (Pension Obligation, supra, 152 Cal.App.4th at p. 1398.) Each periodic payment is viewed as a contemporaneous payment for the property, goods, or services received rather than an installment payment , on a long-term debt.

For example, in City of Los Angeles v. Offner (1942) 19 Cal.2d 483 [122 P.2d 14] (Offner), the city proposed to enter into an agreement whereby the city would lease real property to a private entity for 10 years and the private entity would construct an incinerator on the property and lease the property and the incinerator back to the city. The agreement further provided the city with an option to purchase the incinerator at various intervals during the lease. {Id. at pp. 484-485.)

The Supreme Court rejected a challenge to this transaction under article XI, section 18, explaining: “[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.” (Offner, supra, 19 Cal.2d at p. 486.)

In Dean v. Kuchel (1950) 35 Cal.2d 444 [218 P.2d 521] (Dean), the high court took Offner’s contingency exception one step further, applying it where, at the end of the lease term, title transferred automatically to the governmental entity. In Dean, the legislation authorized the state to lease real property to a private entity for up to 40 years under the condition that the entity construct a building or buildings on the property for use by the state and that title to such building pass to the state at the end of the lease term.

The high court rejected a challenge to this scheme under article XVI, section 1. The court said: “We find no logical distinction between the Offner case and the one at bar. It is true that there was an option to purchase in the former rather than a vesting of title at the end of the term in the instant case, but as far as liability is concerned, the state under the instrument here is in a better position, for it gets title without the payment of anything other than the rental. The essence of the Offner rule is that the payments are for a month to month use of the building. Here it is clearly stated that the rentals are for that purpose. There is no substantial or logical difference between the option to purchase in the Offner case and the vesting of title at the end of the term in this case. True, 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. We are satisfied therefore that the instant transaction qualifies as a lease for the purpose of the debt limitation.” (Dean, 35 Cal.2d at pp. 447-448.)

A third exception to the constitutional debt limits has been recognized for obligations imposed by law. In Lewis v. Widber (1893) 99 Cal. 412, 415 [33 P. 1128], the court concluded a county’s obligation to pay its treasurer’s salary was exempt from the local debt limit because the office was mandated by state law. The court explained the debt limit applies “only to an indebtedness or liability which one of the municipal bodies mentioned has itself incurred—that is, an indebtedness which the municipality has contracted, or a liability resulting, in whole or in part, from some act or conduct of such municipality.” (Id. at p. 413.) According to the court: “[T]he stated salary of a public officer fixed by statute is a matter over which the municipality has no control, and with respect to which it has no discretion; and the payment of his salary is a liability established by the legislature at the date of the creation of the office. It, therefore, is not an indebtedness or liability incurred by the municipality within the meaning of said clause of the constitution.” (Ibid.)

In County of Los Angeles v. Byram (1951) 36 Cal.2d 694 [227 P.2d 4] (Byram), the court held the cost of constructing a courthouse was not subject to the constitutional debt limit, because the county had a legal duty, imposed by state law, to provide “adequate quarters” for the court. (Id. at p. 699.) By contrast, in Arthur v. City of Petaluma (1917) 175 Cal. 216 [165 P. 698], the court concluded a debt incurred to print a city charter did not fall within the “obligation imposed by law” (Byram, at p. 698) exception. Although state law required a city to print its charter in a local newspaper for 20 days whenever it chose to adopt a charter, the city’s decision to adopt a charter was itself discretionary. In other words, the obligation to pay the printing charge came about only because the city voluntarily chose to adopt the charter. Hence, this was not an obligation imposed by law. (Arthur, at p. 225.)

The last exception to the constitutional debt limit involves circumstances where, at the time a debt is created, the governmental entity makes an appropriation to retire the debt. This appropriation exception “provides that an obligation for which an appropriation is made at the time of its creation from existing funds, or reasonably anticipated funds subject to appropriation, is not within the constitutional limitation on indebtedness.” (Pooled Money Investment Bd. v. Unruh, supra, 153 Cal.App.3d at pp. 160-161.)

For example, in Riley v. Johnson (1933) 219 Cal. 513 [27 P.2d 760], the high court upheld the use of interest-bearing warrants in excess of $300,000 to pay expenses at times when there were no unapplied sums in the general fund to pay either the principal or interest on the warrants. However, at the time it authorized this warrant procedure, the Legislature appropriated money to meet these obligations. (Id. at pp. 520-521.) According to the court: “It is well settled in this state that revenues may be appropriated in anticipation of their receipt just as effectually as when such revenues are physically in the treasury. The appropriation of such moneys and the issuance of warrants in anticipation of the receipt of revenues in effect operates in the nature of a cash payment and, therefore, does not create an indebtedness or liability within the meaning of the debt limitation clause.” (Ibid.) In Riley v. Johnson (1936) 6 Cal.2d 529 [58 P.2d 631], the court extended this principle to situations where the warrants were not likely to be paid until sometime during the succeeding fiscal period. {Id. at p. 532.)

The fundamental principle underlying each of these exceptions is that the constitutional debt limit does not apply so long as no long-term debt has been created in a given year to pay for that year’s current expenses where that debt is to be paid from the governmental entity’s future general funds. The debt limits are intended to force government to live within its means and not saddle future generations with the cost of current obligations. With this principle in mind, we now turn to the legislation at issue in this matter.

B. The State Building Construction Act of 1955

In 1955, the Legislature enacted the State Building Construction Act to provide a general method for financing and constructing public buildings. Under the SBCA, no public building may be acquired or constructed unless authorized by a separate act or appropriation. (§ 15801.) Upon such authorization, the board may do any of the following: (1) acquire, in the name of the state, and use any property, and lease any property or interest therein to other state agencies; (2) construct public buildings; (3) contract with other state agencies for the use of real property; (4) collect rent and other charges for use of the public buildings; (5) make contracts and execute instruments necessary for carrying on its business; (6) obtain insurance against loss by fire or other hazards on public buildings and obtain insurance against loss of revenues from any cause whatsoever; (7) issue certificates or revenue bonds to obtain funds to pay the cost of public buildings; and (8) issue negotiable notes to obtain interim funds to pay the cost of public buildings. (§ 15809.)

However, the board “has no power at any time or in any manner to pledge the credit or taxing power of the State or any of its local agencies.” (§ 15811.) Section 15830 reads: “The bonds issued to finance the construction of a public building or buildings pursuant to this part shall be special obligations of this state secured solely by the revenues, rentals, or receipts received from the operation of the public building or buildings financed by such bonds, [f] No bond issued or sold pursuant to this part shall be or become a lien, charge, or liability against the State of California or against its property or funds except to the extent of the pledges expressly made by this part. Every bond issued pursuant to this part shall contain a recital on the face thereof stating that neither the payment of the principal nor any part thereof, nor any interest thereon, constitutes a debt, liability, or general obligation of the State of California other than as provided in this part. The board has no power at any time or in any manner to pledge the credit or taxing power of the state, other than as provided in this part.”

Once all bonds or other certificates issued by the board under the SBCA to finance construction of a public building are retired, jurisdiction over that building transfers to the Department of General Services (DGS). (§ 15816, subd. (a).)

Chapter 3.1 of the SBCA (§ 15819.1 et seq.) concerns prison construction. Section 15819.05, subdivision (a), authorizes the board to issue revenue bonds, negotiable notes, or negotiable bond anticipation notes to finance the acquisition of prison facilities. Any bonds authorized by chapter 3.1 must be sold pursuant to sections 15832 and 15832.5. (§ 15819.5.) Section 15832 reads, in relevant part: “Upon receipt of a resolution of the board authorizing the issuance of bonds, the Treasurer shall provide for their preparation in accordance with the resolution. The bonds authorized to be issued shall be sold by the Treasurer, at public sale or at private sale, as directed by the board. . . .” Section 15832.5 authorizes the sale of short-term notes in the same manner as bonds.

Unlike other public buildings, facilities constructed pursuant to chapter 3.1 “shall be and remain under the jurisdiction and control of, and shall be operated and maintained by, [CDCR].” (§ 15819.6.) “Construction of any prison facilities utilizing the financing methods authorized in [chapter 3.1] shall be done on behalf of the board by [CDCR].” (Ibid.) Thus, in the case of prisons, the board’s sole role is to provide financing.

Under section 15819.9, rent received from the operation of a facility authorized under chapter 3.1 may be pledged for the payment of premium and interest on any bonds issued. Under section 15819.11, the board is also authorized to obtain hazard insurance and insurance against loss of revenue. A lease of prison facilities under chapter 3.1 may be for any term up to 35 years. (§ 15819.12.)

C. Assembly Bill 900

The Act adds several chapters to the SBCA and a number of Penal Code provisions. Government Code section 15819.40, subdivision (a), directs CDCR to “design, construct, or renovate housing units, support buildings, and programming space in order to add up to 12,000 beds at facilities under its jurisdiction.” (Stats. 2007, ch. 7, § 2, as amended by Stats. 2009, 3d Ex. Sess., ch. 16, § 1.) It also directs that all new beds be supported by rehabilitative programming for inmates and states the purpose of the new construction is to replace existing temporary beds currently in use rather than house additional inmates. (§ 15819.40.)

Section 15819.40, subdivision (b), authorizes CDCR to “acquire land, design, construct, and renovate reentry program facilities to provide housing for up to 6,000 inmates” (Stats. 2007, ch. 7, § 2, as amended by Stats. 2009, 3d Ex. Sess., ch. 16, § 1), while section 15819.40, subdivision (c), authorizes CDCR to construct new buildings at existing prisons “to provide medical, dental, and mental health treatment or housing for up to 6,000 inmates.” {Ibid.)

Under Assembly Bill 900, the scope and cost of the projects are subject to approval and administrative oversight by the board. (§ 15819.401, added by Stats. 2007, ch. 7, § 2.) The board is authorized to “issue revenue bonds, negotiable notes, or negotiable bond anticipation notes ... to finance the acquisition, design, and construction, including, without limitation, renovation, and the costs of interim financing of the projects authorized in Section 15819.40.” (§ 15819.403, subd. (a), added by Stats. 2007, ch. 7, § 2, as amended by Stats. 2009, 3d Ex. Sess., ch. 16, § 3.) However, authorized costs for all projects under subdivision (a) of section 15819.40 may not exceed $1.8 billion, while costs for all projects under subdivisions (b) and (c) of section 15819.40 may not exceed $975 million and $857.1 million respectively. (§ 15819.403, subd. (a).)

Section 15819.41 authorizes CDCR to design, construct or renovate buildings to provide medical, dental, and mental health treatment or housing for up to 2,000 inmates (§ 15819.41, subd. (b), added by Stats. 2007, ch. 7, § 3, as amended by Stats. 2009, 3d Ex. Sess., ch. 16, § 5) and to construct, establish, and operate reentry program facilities to house up to 10,000 inmates (§ 15819.41, subd. (c), added by Stats. 2007, ch. 7, § 3, as amended by Stats. 2009, 3d Ex. Sess., ch. 16, § 5). The board is authorized to issue bonds or notes not to exceed a total of $2,510,700,000 for this purpose. (§ 15819.413, subd. (a), added by Stats. 2007, ch. 7, § 3.)

Under chapters 3.11 (§§ 15820.90-15820.907) and 3.12 (§§ 15820.91-15820.918), the board is authorized to issue up to $1.22 billion in revenue bonds, notes, or bond anticipation notes to finance the acquisition, design, and construction of local jail facilities. (Stats. 2007, ch. 7, §§ 4, 5, as amended by Stats. 2009, 3d Ex. Sess., ch. 16, §§ 9-13.) CDCR and any participating county are authorized, with board approval, to enter into leases for any new county facilities so constructed. (§§ 15820.90-15820.907, 15820.91-15820.918.)

In addition to the foregoing, the Act adds a number of Penal Code provisions relating primarily to the development and expansion of rehabilitation programs. (See Stats. 2007, ch. 7, §§ 6-29, as amended by Stats. 2009, 3d Ex. Sess., ch. 16, § 14.)

II

Demurrer to Declaratory Relief Claim

As an initial matter, plaintiffs contend that, irrespective of the merits of their claims, the trial court erred in sustaining defendants’ demurrers, because the complaint states a cause of action for declaratory relief. Plaintiffs assert they may challenge the constitutionality of the Act in this litigation, and the relief to be attained is a declaration of whether or not the Act violates the state debt limit.

“The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. We not only treat the demurrer as admitting all material facts properly pleaded, but also ‘give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]’ [Citation.] [][] If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 [77 Cal.Rptr.2d 709, 960 P.2d 513].)

Code of Civil Procedure section 1060 authorizes an action for declaratory relief. “[I]n cases of actual controversy relating to the legal rights and duties of the respective parties,” any person may bring an action for a declaration of his or her rights and duties in connection with that controversy. (Code Civ. Proc., § 1060.) “The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought.” (Ibid.)

“Declaratory relief is not available unless there is a real dispute between parties, ‘involving justiciable questions relating to their rights and obligations.’ [Citation.] ‘The fundamental basis of declaratory relief is an actual, present controversy.’ [Citation.] An actual controversy is ‘one which admits of definitive and conclusive relief by judgment within the field of judicial administration, as distinguished from an advisory opinion upon a particular or hypothetical state of facts. The judgment must decree, not suggest, what the parties may or may not do.’ ” (In re Claudia E. (2008) 163 Cal.App.4th 627, 638 [77 Cal.Rptr.3d 722].)

The complaint here alleges the Act authorizes the board to issue up to approximately $7.4 billion in bonds to finance prison constmction and CDCR to lease the resulting facilities from the board. It further alleges plaintiffs contend such scheme violates article XVI, section 1, whereas defendants contend the scheme is lawful. Finally, the complaint alleges defendants are seeking to sell bonds pursuant to this legislation.

Assuming the foregoing adequately alleges the existence of an actual, present controversy subject to declaratory relief, plaintiffs are not thereby necessarily entitled to relief on appeal. “ ‘Strictly speaking, a general demurrer is not an appropriate means of testing the merits of the controversy in a declaratory relief action because plaintiff is entitled to a declaration of his rights even if it be adverse.’ [Citations.] However, ‘where the issue is purely one of law, if the reviewing court agreed with the trial court’s resolution of the issue it would be an idle act to reverse the judgment of dismissal for a trial on the merits. In such cases the merits of the legal controversy may be considered on an appeal from a judgment of dismissal following an order sustaining a demurrer without leave to amend and the opinion of the reviewing court will constitute the declaration of the legal rights and duties of the parties concerning the matter in controversy.’ ” (Herzberg v. County of Plumas (2005) 133 Cal.App.4th 1, 24 [34 Cal.Rptr.3d 588].)

As we shall explain, the issue presented in this matter is one of law, which we may resolve without reference to evidence. Therefore, it would be an idle act to reverse the order sustaining defendants’ demurrers.

Ill

Preliminary Matters

The present matter involves a facial challenge to the Act. “When a statute is attacked as unconstitutional on its face, the attacker ‘cannot prevail by suggesting that in some future hypothetical situation constitutional problems may possibly arise as to the particular application of the statute’; instead, the challenger ‘must demonstrate that the act’s provisions inevitably pose a present total and fatal conflict with applicable constitutional prohibitions.’ [Citations.] The corollary of this burden is that if this court can conceive of a situation in which [the statute] could be applied without entailing an inevitable collision with and transgression of constitutional provisions, the statute will prevail over [a] challenge.” (People v. Harris (1985) 165 Cal.App.3d 1246, 1255-1256 [212 Cal.Rptr. 216].)

“In considering the constitutionality of a legislative act we presume its validity, resolving all doubts in favor of the Act. Unless conflict with a provision of the state or federal Constitution is clear and unquestionable, we must uphold the Act.” (California Housing Finance Agency v. Elliott (1976) 17 Cal.3d 575, 594 [131 Cal.Rptr. 361, 551 P.2d 1193] (Elliott).) Where possible, “[w]e must construe an enactment to preserve its constitutional validity, and we presume that the enactors understood the constitutional limits on their power and intended the enactment to respect those limits.” (Save Our Sunol, Inc. v. Mission Valley Rock Co. (2004) 124 Cal.App.4th 276, 284 [21 Cal.Rptr.3d 171].)

In ruling on defendants’ demurrers, the trial court relied on the special fund exception and concluded that, because the board’s obligation to repay bondholders will be limited to the special fund maintained from rent payments, there is no constitutional violation. Section 15830 limits payment on any bonds issued by the board to the “revenues, rentals, or receipts received from the operation of the public building or buildings financed by such bonds.” (§ 15830.) It further provides that no bond issued pursuant to the SBCA “shall be or become a lien, charge, or liability against the State of California or against its property or funds.” (§ 15830.)

Plaintiffs contend the special fund exception is inapplicable to the Act, because no true “special fund” is created where bonds are to be repaid from the state’s general fund. Plaintiffs argue the state will merely be transferring general funds from one agency to another before making the bond payments, and that transfer will not change the nature of the payments’ source.

Defendants counter that the trial court was correct in concluding the leases contemplated by the Act will create a special fund and the special fund constitutes the exclusive source for payment to bondholders. They further argue that, in any event, the leases fall within the contingency exception to the state debt limit.

As we shall explain, we need not decide whether the obligation of the board to make bond payments falls within the special fund exception to the state debt limit. We conclude instead that, viewed as a whole, the financing scheme contemplated by the Act falls within the contingency exception to the state debt limit, inasmuch as payments from CDCR to the board, and from the board to bondholders, will be based on use or availability of the facilities constructed with the bond proceeds during the period in which future payments will be made. Hence, the pay-as-you-go principle underlying the state debt limit is satisfied.

Plaintiffs have requested that we take judicial notice of certain legislative history materials regarding Assembly Bill 900 and a companion bill that was not enacted, that would have authorized $6.9 billion in revenue bonds and a $100 million general fund appropriation for prison health care construction. Plaintiffs argue these documents “support the contention that notwithstanding the Governor’s Emergency Declaration concerning State Prisons, the State Senate did not find the necessity to authorize an additional $7 billion for prison construction.” Because we fail to see what bearing this would have on the issues presented in this matter, we deny the request for judicial notice.

IV

The Special Fund Exception

The trial court concluded that, because the Act provides for the bonds to be repaid from a special fund financed solely from CDCR’s rent payments, no debt will be created. Regarding plaintiffs’ argument that the special fund exception is inapplicable where the so-called special fund is financed solely from the general fund, the court said: “While the cited cases involved third party entities, there is no reason to conclude that the same analysis would not be applied to the financing mechanism involved here, i.e., where all entities involved are subdivisions of the State of California. See 27 Cal.Apps.Atty.Gen. 113. Indeed, the Court of Appeal, Third Appellate District, has opined as follows: [