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Current Flux of California Redevelopment Law

Legislative Elimination of Redevelopment Agencies
As part of its 2011 – 2012 budget proposal, the California Governor’s Office proposed permanently shutting down local redevelopment agencies to free up $1.7 billion of tax increments to apply to the State’s budget deficit. The monies were slated to help fund schools, public safety and transit districts. On June 28, 2011, Governor Jerry Brown signed AB1X26 (the “Dissolution Bill”) and AB1X27 (the “Pay for Continuation Bill”) into law. The Dissolution Bill would permanently eliminate redevelopment agencies by October 1, 2011. The Pay for Continuation Bill allows redevelopment agencies to continue their existence and operation if the city or county that created the redevelopment agency commits to making annual payments to special funds administered by the county auditor controller by November 1, 2011.

Ensuing Litigation
In response to the passage of the Dissolution Bill and the Pay for Continuation Bill (the “Bills”), on July 15, 2011, the California Redevelopment Association, League of California Cities, City of Union City and the City of San Jose (collectively, “CRA”) filed a Petition for Writ of Mandate to the California Supreme Court challenging the Legislature’s adoption of the Bills and seeking an immediate stay of the Bills pending the outcome of the litigation.

CRA argued that shutting down redevelopment agencies violates multiple State constitutional provisions, including Article XVI, Section 16, which requires tax increment to be paid to redevelopment agencies and Article XIII, Sections 6, 24 and 25.5 (Proposition 22 adopted by voters in November 2010), which prohibits the State from taking tax increments from redevelopment agencies for its benefit. In other press releases and related documents, CRA also asserted that elimination of redevelopment agencies would impair contracts and in turn, negatively affect the State’s creditworthiness.

On August 11, 2011, the California Supreme Court granted part of the stay requested, which effectively prevents redevelopment agencies from being forced to make any payments until the Court rules on the merits of the case. Further, the Court established an expedited briefing schedule so that a decision would be made before January 15, 2012, the date when redevelopment agencies are required to make their first payment under the Pay for Continuation Bill.

Sixteen amicus briefs were filed with the Court. The Community Redevelopment Agency of the City of Los Angeles, Association of Bay Area Government, Long Beach, City of Irvine, Association of California Cities – Orange, Public Interest Law Western Center, Coalition of Cities, Riverside County and San Bernardino County filed amicus curiae briefs in support of CRA’s position while the Los Angeles Unified School District, Santa Clara Unified School District, Affordable Housing Advocates, California Professional Firefighters, Center for Constitutional Jurisprudence, California Teachers Association and the Municipal Officials for Redevelopment Reform filed briefs in support of the State.

On November 10, 2011, the California Supreme Court heard oral arguments, and the Court is expected to issue its opinion prior to January 15, 2012.

Impacts Ahead
Regardless of which party prevails in court, the future of redevelopment in California will assuredly be different.

If the Court upholds the Bills, those cities or counties that created the redevelopment agencies with sufficient funds will probably make the voluntary payment under the Pay for Continuation Bill. However, operations will be substantially curtailed due to limited budget. If the Court strikes down the Bills, it is likely the Legislature will draft around any errors in order to address the ongoing budget deficit. A third possibility exists where the Court upholds the Dissolution Bill and strikes down the Pay for Continuation Bill. This presents the worst case scenario for redevelopment agencies as they will be eradicated.

As a result of the current uncertainties in the redevelopment world, several projects have already come to a standstill. CRA/LA is only proceeding with those projects that are already in the pipeline. For those who are contemplating doing business with redevelopment agencies, stay tuned for our summary of the Supreme Court’s decision early next year.