Arrested Redevelopment

On December 29, 2011, the California Supreme Court dealt a severe blow to California cities in a decision not only eliminating redevelopment agencies, but also striking down compromise legislation that would have allowed the continuance of redevelopment agencies, contingent upon payments to the State.

In California Redevelopment Association v. Matosantos (S194861, December 29. 2011) 2011 WL 6822391, the Supreme Court considered the fate of two bills passed in conjunction at the urging of Governor Jerry Brown: AB 1X 26 and AB 1X 27.  The first bill, AB 1X 26, eliminated redevelopment agencies, while the second bill, AB 1X 27, reinstated those agencies, provided that the agencies made specified payments to local school districts.

As to AB 1X 26, the Court held that because the Legislature created redevelopment agencies, they also had the power to eliminate them: “What the Legislature has enacted, it may repeal.”

The compromise bill, AB 1X 27, was held by the Court to violate Proposition 22, passed in November 2010, which forbids shifting of redevelopment agency funds to the State.

Redevelopment agencies use property tax money to provide incentives for developers to invest in and develop “blighted” areas of their cities.  There has been much debate on their effectiveness.  Proponents claim that the agencies are vital tools to improve neighborhoods, and to build amenities that would not otherwise exist.  Critics claim that the agencies merely use public money to subsidize the for-profit projects of private developers.

The repercussions of this decision will be far-reaching. The Court has set a deadline of February 1, 2012 for all redevelopment agencies to be dissolved. Although any obligation that the agencies incurred before January 1, 2011 will be honored, many deals and projects currently planned, or in negotiation, may be abandoned or responsibilities transferred to other public entities.

Many redevelopment agencies, sensing the prevailing winds, attempted to transfer funds and assets to their cities and counties, in the event that the redevelopment agencies should meet their legislative demise.  However, AB 1X 27 includes a “claw-back” provision, which allows the State to rescind such deals and reclaim those assets.

Immediate fallout from the Supreme Court’s decision occurred in the City of Los Angeles, which voted on January 11, 2012 to jettison its redevelopment agency, as the City could not afford to absorb the costs of redevelopment activities or the agency’s many employees.  Dozens of projects, incuing new housing, parks and infrastructure are now threatened, and developers are warning the City that it may be sued if deals are not honored.

Efforts are now underway by the California Redevelopment Association and the League of California Cities to introduce legislation that would restore redevelopment agencies in some form.  One proposal seeks to extend the shutdown deadline until April 15.  Legislators less hospitable to the idea of redevelopment agencies have suggested auctioning off the agencies’ assets and giving the money to cities for use in economic development.  However, with state funds scarce in a lagging economic climate, redevelopment agencies, may face an uphill battle to continue their existence.

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