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January 3, 2012 > California Supreme Court upholds abolishment of redevelopment agencies

California Supreme Court upholds abolishment of redevelopment agencies

From the governor:
Governor Edmund G. Brown Jr. issued the following statement regarding today's (December 29, 2011) ruling by the California Supreme Court: "Today's ruling by the California Supreme Court validates a key component of the state budget and guarantees more than a billion dollars of ongoing funding for schools and public safety."

County of Santa Clara:
The California Supreme Court unanimously upheld the Legislature's power to abolish redevelopment agencies ("RDAs") statewide. This decision adopted arguments made by the County of Santa Clara ("County"), a party to the case. The result is that scarce public dollars will return to schools, counties, fire districts and other local agencies to perform vital public services.

The County joined as a respondent in the case, California Redevelopment Association et al. v. Matosantos et al. (California Supreme Court Case No. S194861), shortly after it was filed. The controversy centered on the validity of two legislative bills that were passed as part of the state's FY 2012 budget. The first, ABX1 26, abolished all redevelopment agencies in the state through an orderly wind-down process. The second, ABX1 27, created a new voluntary redevelopment program.

The Court unanimously upheld ABX1 26; and, by a 6-1 vote, it struck down ABX1 27 as a violation of Proposition 22. The end result is that redevelopment agencies throughout the state will be required to wind-down operations and public dollars will be returned to local governments as redevelopment debts are fulfilled.

"Redevelopment has had a huge negative effect on local governments' ability to provide basic public services," said Miguel Marquez, Santa Clara County Counsel. "Prior to yesterday's ruling, redevelopment agencies received 12 percent of all property tax revenue in the state. The Court affirmed that the Legislature may abolish redevelopment agencies to better serve the needs of all Californians during these difficult economic times."

In Santa Clara County alone, this decision will eventually mean a return of $90 million annually that can be used for critical health and safety services and vital infrastructure provided by the County and over $150 million annually for schools within the County.

"This decision does not mean an end to economic development or redevelopment activities, just an end to the diversion of money to redevelopment agencies," said Jeffrey V. Smith, Santa Clara County Executive. "In fact, the County - which does not have its own redevelopment agency - already plays a large role in job creation, public safety and economic development. The Court's decision will help the County address the enormous needs in public safety, health care, and transportation infrastructure such as roads and expressways."

"We look forward to implementing the careful wind down of redevelopment that the Legislature directed," said Vinod Sharma, Santa Clara County Director of Finance. "We are pleased that the County's participation in this case has led to the correct outcome, which will benefit schools and local governments for years to come."

Cities, lawmakers seek redevelopment compromise
By Judy Lin
Associated Press

SACRAMENTO, Calif. (AP), Dec 29 - The California Supreme Court on Thursday gave Gov. Jerry Brown and state lawmakers the right to eliminate community redevelopment agencies in a crucial decision that impacts the state budget.

But the fate of the more than 400 redevelopment agencies remains unclear as cities - and even many lawmakers - vowed to seek a legislative compromise next year that would ensure the agencies' survival.

The court affirmed the state's authority to dissolve the agencies, calling it ``a proper exercise of the legislative power vested in the Legislature by the state constitution.'' Doing so means more of the property taxes generated within redevelopment zones will go toward schools, law enforcement and other local services, freeing up as much as $1.7 billion in the state general fund during the current fiscal year. The money now is returned to the agencies to spend on future redevelopment projects.

Lawmakers and the mayors of several large cities said Thursday they were inclined to work out a compromise after the justices issued their split decision. While they affirmed the Legislature's authority to dissolve redevelopment agencies, the justices in a unanimous decision invalidated companion legislation passed last summer that was intended to keep the agencies operating by forcing them to direct a certain amount of property tax revenue to schools and other services.

The majority said that law ran afoul of voter-approved Proposition 22, which prohibits the state from raiding local tax money.

``I intend to work closely with leaders in Sacramento and across California to develop a responsible path forward that invests in our schools, our safety and puts the 14 million unemployed Californians back to work,'' Los Angeles Mayor Antonio Villaraigosa said in a statement. ``This includes new legislation to provide economic tools to communities most in need.''

Redevelopment agencies were authorized by the Legislature shortly after World War II as a way to restore blighted neighborhoods and are largely controlled by cities and counties to promote construction projects. They have been credited with revitalizing blighted districts such as the Gaslamp Quarter in San Diego, downtown San Jose and Yerba Buena Gardens in San Francisco.

Critics, including Brown, say some have become little more than slush funds for private developers. They want property taxes generated by new developments to be diverted from the agencies to local services that now must be funded by the state.

Redevelopment money in the past has been used to finance big box retailers, sports complexes and other projects that critics say run counter to the agencies' original mission.

``Today's ruling by the California Supreme Court validates a key component of the state budget and guarantees more than a billion dollars of ongoing funding for schools and public safety,'' the governor said in a statement.

The ruling was highly anticipated because it was a key component of balancing this year's state budget. The state is heading into the new year with a $13 billion deficit over the next 18 months, and a ruling against the state would have widened the shortfall.

The governor proposed dissolving redevelopment agencies in January, then transferring their property tax revenue of about $5 billion a year to the cities and counties that controlled the agencies. They would then use the money to repay redevelopment debt and distribute money to cities, counties, special districts and schools, saving the state about $1.7 billion this year.

State lawmakers inserted a compromise in last summer's budget that allowed the agencies to keep operating if they made additional payments of about $400 million annually to schools and other local services starting next year. The court invalidated that piece of legislation, calling it ``flawed.''

The court opinion was written by Justice Kathryn Mickle Werdegar and signed by five other justices. The seventh, Chief Justice Tani Cantil-Sakauye, agreed but wrote a separate opinion saying she would have upheld the compromise law that would have permitted agencies to continue if they shared revenue.

The decision means schools can expect more than $1 billion each year in additional property tax revenues, but a firm figure won't be released until Brown presents his spending plan next month, said Brown's finance department spokesman, H.D. Palmer.

Local government officials say it does not make sense for the state to eliminate redevelopment agencies, which contribute $2 billion a year in economic activity. They say because the Legislature did not intent to eliminate local economic development efforts, agencies should be reshaped.

``We do know that the governor will be a tough nut on this, but at the end of the day, his primary challenge is to help balance the state budget,'' said Jim Kennedy, interim executive director of the California Redevelopment Association, which filed the lawsuit along with the League of California Cities.

San Diego Mayor Jerry Sanders called it a ``sad day'' while San Jose City Attorney Richard Doyle called the ruling a disappointment but not a total surprise, given the judges' reactions during arguments in November.


Associated Press writer Juliet Williams contributed to this report.

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