The City of Taft is suing the State of California and the Department of Corrections and Rehabilitation over the Community Correctional Facility, alleging breach of contract.
The city is seeking reimbursement for the unemployment benefits it has had to cover and is trying to prevent the CDCR from taking over the CCF in the future and paying the city just $1 per year.
The suit was filed in Los Angeles County Superior Court.
The complaint says the city has already paid out nearly $500,000 in unemployment benefits and that the state is obligated by the contract under which the CCF operated to cover those costs.
City Attorney David Prentice discussed the suit in public for the first time at Tuesday Night's Taft City Council meeting.
The issue arose when Ben Mangum, a candidate for city treasurer, asked the council how they intended to repay the city's general fund with the money being loaned to the CCF to cover unemployment costs.
"That's a fair question," Mayor Pro Tem Paul Linder responded, then asked Prentice to handle the questions.
"The city is involved in a lawsuit to recover that money," Prentice told Mangum.
The suit has been served but the state has not responded, the attorney said.
The city contends the contract requires the state to cover all closing costs, including the unemployment benefits.
Tuesday night, the council approved another loan of $120,000 from the general fund to cover the CCF unemployment costs for the second quarter of 2012.
Prentice said the city has asked the state to cover the cost but it has so far refused.
The CCF operated until Nov. 30, 2011 under a contract that was supposed to run until 2017 with the Department of Corrections and Rehabilitation.
The city is alleging that, when the contract was terminated, it ended the state's right to lease the facility for $1 per year.
That has become a bone of contention between the city and the CDCR, the suit alleges.
"An actual controversy has arisen and now exists between the Plaintiffs and Defendants concerning whether Defendants have the continuing right to lease the CCF following the end of the term of the Contract in 2017," the city's complaint states. The city is seeking unspecified financial compensation and a judicial opinion in its favor saying the state has no right to lease the CCF starting in 2017.