Associated Press: State asserts right to eliminate redevelopment in Court

State asserts power over redevelopment agencies

By PAUL ELIAS and JUDY LIN - Associated Press

Thursday, Nov. 10, 2011 | 12:42 PM

SAN FRANCISCO -- Gov. Jerry Brown and state lawmakers asserted their right to eliminate community redevelopment agencies and divert billions of tax dollars to fund schools and other services in oral arguments Thursday before the California Supreme Court.

Deputy Attorney General Ross Moody, who represented the state, said redevelopment agencies were created by the Legislature, so lawmakers have the power to dissolve them and impose new requirements if they want to continue operating.

Steven Mayer, the attorney representing cities and redevelopment agencies, told justices the state's actions this year are illegal because they constitute the type of raid on local government money that voters banned in 2010.

The case has long-term implications for state budgeting. The state is counting on $1.7 billion from the agencies in this year's budget and $400 million a year thereafter.

It also will determine the fate of about 400 redevelopment agencies, which primarily are controlled by cities and counties and are used to promote construction projects and rehabilitate downtrodden business districts. Critics say many of those agencies have strayed from that intent and audits have revealed some misuse of funds, a portion of which is intended to be used for low-income housing.

The Supreme Court is expected to rule before Jan. 15.

In June, lawmakers passed legislation to dissolve redevelopment agencies and another measure to allow cities and counties to continue their redevelopment efforts if they volunteered to funnel their tax revenue toward local services. The budget was passed on a majority vote by Democrats, who were unable to coax Republicans to support fee increases and closing tax loopholes.

Stephen Ryan, a housing redevelopment lawyer who watched the arguments, said one route the Supreme Court could take is upholding the elimination of the agencies but striking down the second law authorizing the new, volunteer funding plan of the redevelopment agencies, known as RDAs.

Such a ruling would be the agencies' worst-case scenario, because it would mean their complete elimination.

"The state had difficulty explaining why its voluntary payment plan was not tantamount to an unconstitutional ransom payment of property tax increment," Ryan said. "On the other hand, the RDAs had a difficult time explaining why RDAs had a protected right to stay in existence."

During an hour-long hearing before the justices, Mayer argued that Proposition 22, passed by voters in November with 61 percent of the vote, protects redevelopment agencies from tampering by the Legislature.

He said the state violated the measure in eliminating redevelopment agencies.

Mayer said the Legislature's offer to keep the agencies in business if they give up a large portion of their funding is unconstitutional. He compared that option to a bank teller receiving a note from a robber saying,

"The money or your life." He said most agencies will make payments so they can continue to operate.
Justice Carol Corrigan picked up on the bank robber analogy when she asked Moody if the state was demanding "ransom" from the agencies to stay in business.

"It's hard to argue it's a voluntary payment," Corrigan said.

Moody contended lawmakers had the authority to eliminate the agencies despite Proposition 22. He said the measure did not strip control of redevelopment agencies from the Legislature, which passed legislation in 1945 allowing cities and counties to establish redevelopment agencies.

"Proposition 22 had an extremely limited purpose," Moody said.

He said Brown was confronted with a historic deficit when he took office and had to make tough budget choices immediately after assuming office in January.

California began the year with a projected $26.6 billion shortfall and closed the gap with spending cuts, fee hikes and what may turn out to be overly optimistic revenue estimates. The state budget called for 70 state parks to close next year, tuition increases at state colleges and universities and funding cuts to schools and libraries.

A legislative memo has estimated the shortfall for the new fiscal year starting in July 2012 to be between $5 billion and $8 billion, and possibly more if revenue estimates don't materialize.

The governor and supporters of the law say redevelopment agencies have become little more than slush funds for private developers, and they want the tax money generated by new developments to be diverted from the agencies to local schools, law enforcement agencies and other services.

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.

The Supreme Court's decision could have implications for community agencies that have shaped economic development for decades.

After World War II, the state Legislature passed legislation allowing cities to combat blight by creating special districts for redevelopment. Growth in property taxes in those areas could then be used to finance redevelopment projects, known as tax-increment financing.

The agencies have, in turn, used their power to acquire property by eminent domain and sell, lease or develop the land.