An update on redevelopment agencies in CA

California’s 400 redevelopment agencies are fighting for their lives. Last month the California Supreme Court halted – for the moment – a plan to dismantle redevelopment agencies in the state. The court will decide by January 15, 2012 whether the state’s plan, enacted as part of the state budget in June, is legal. It issued an order to stay enforcement of the new laws, but also barred redevelopment agencies from starting any new projects, issuing bonds or purchasing or transferring any property until the suit is resolved.

The lawsuit was brought by the League of California Cities, California Redevelopment Association and the cities of San Jose and Union City. Ana Matosantos, the Director of the California Department of Finance, is the defendant. The lawsuit claims that the state’s plan to eliminate redevelopment authorities violates Proposition 22. Prop 22 bars the state from enacting new laws that require local government bodies, including redevelopment agencies, to shift local funds to schools or other agencies. It was passed by 61% of California voters in 2010.

Two laws enacted this past summer mandate the elimination of California’s redevelopment authorities. The first, AB 1×26, eliminates redevelopment agencies. A companion bill, AB 1×27, allows agencies to continue to exist if they agree to pay $1.7 billion collectively this year and $400 million annually thereafter to the state from their tax increment revenues. Taken together, these two laws effectively eliminate redevelopment authorities unless they turn over certain tax increment revenues for local government use. The Los Angeles Community Redevelopment Agency’s share of this survival payment is estimated at $97 million for the first year and then $25-$50 million annually.

Redevelopment agencies in California take in an estimated 12% of all property tax revenue, $5.7 billion in 2008-09. In some counties, nearly 25% of all property tax revenue goes to a redevelopment authority rather than schools, community colleges, and other local governments. In addition, redevelopment agencies have significant debt. The state controller’s office estimates that redevelopment agencies had about $29 billion in debt outstanding in June 2009. And since Governor Brown announced his plan to eliminate redevelopment authorities in January and until the budget was enacted in June, redevelopment authorities rushed to approve projects and issues bonds. According The Bond Buyer, a public finance daily newspaper, Californian agencies sold $1.33 billion in bonds in the first six months of 2011, more than the total for all of 2010, $1.18 billion.

With so much money at stake, both the redevelopment community and the Brown administration are ready to fight. The plaintiffs in the suit challenging the new laws are thrilled with the progress of their case so far. “We filed this suit to ask the court to determine whether what the Legislature and governor did was constitutional, and we think this [the court order staying enforcement of various aspects of the law] is an early but very important sign that they think our case is legitimate,” said Chris McKenzie, executive director of the California League of Cities, to the San Francisco Chronicle.

The Brown administration, however, also sounds confident. “We are pleased with the terms of the Supreme Court’s order. We specifically asked to take the case and put it on the fast track for consideration,” H.D. Palmer, a spokesman for the Department of Finance, told the Chronicle. He noted that “Redevelopment agencies were created by an act of the Legislature and they can be eliminated by an act of the Legislature.” The California Supreme Court expects to reach its decision by January 15, 2012.

Please see Redevelopment Authorities Under Fire in the Spring 2011 issue of the Inland Empire Outlook for a detailed examination of California redevelopment agencies.

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