Calif. Supreme Court Case Could Eliminate Redevelopment Agencies

SAN FRANCISCO -- The crux of the legal fight waged this morning in front of California's seven Supreme Court justices seems to be who controls the fate of local redevelopment agencies: legislators or voters?

And even then, is that fate a zero sum game -- that is, must the agencies continue to exist exactly as they are now? Or not at all?

The 70-minute courtroom debate in California Redevelopment Association v. Matosantos rekindled much of the four month fight over the budget and its action to abolish and then resurrect -- with conditions -- some 400 local redevelopment agencies (RDAs) across the state.

The stakes are high. For the state, losing the case means another $1.7 billion in budget red ink (and that, on top of additional deficit pressures announced elsewhere today). For RDAs, it's either a new revenue sharing system... or total elimination.

The back-and-forth in the San Francisco courtroom seemed to hint that the justices are grappling less with whether the Legislature has the power to abolish RDAs -- a power that the Court seems poised to uphold -- and more with whether the budget provisions that dissolve and then reconstitute RDAs are, as the attorney for the locals argued, "joined at the hip."

And that's not a small issue, especially for redevelopment officials. If the two budget provisions (ABx26 and ABx27) can be separated, then redevelopment supporters face the very real possibility that only ABx26, the abolishment bill, survives. That would mean RDAs across the state must close up shop for good.

"The redevelopment agencies took a gamble on this lawsuit," said Ross Moody, the deputy state attorney general representing Governor Brown's budget director. "They could've just accepted...the new fiscal reality that we're all living in."

Steven Mayer, the attorney representing cities and redevelopment agencies, focused his remarks to the Court on Prop 22, saying that the two RDA budget bills circumvent the initiative "with the stroke of a pen." He didn't dispute the general power of the Legislature to abolish redevelopment agencies -- created by statute in the 1940s and funded by the growth in property tax revenues from their communities -- but rather argued that Prop 22 blocks the Legislature from dictating the use of redevelopment funds in the event those RDAs are dissolved.

"The Legislature can't dissolve the RDAs and take their money and divert it to non-redevelopment purposes," Mayer told the Court.

But again, it's going to be a Pyrrhic victory for redevelopment agencies if they only convince the Supreme Court that the Legislature's power is limited to their existence. And that's why the case is so focused on whether the two bills (abolishing agencies, resurrecting them with new revenue-sharing rules) are inseparable. Or not.

Legislators wrote language stating the two are separable -- a point raised in a pointed exchange led by Justice Goodwin Liu. "How could it be any clearer?" said Liu after reading the relevant passage from the legislation.

The attorney for the RDAs replied by quoting transcripts of the legislative debate from this summer -- transcripts that he said prove several legislators only supported the budget because a compromise had been struck to offer RDAs the chance to stay in business under a revenue-sharing plan.

It's unclear just when the high court will answer all (or some) of these questions, though we know it will be before mid January. That's when RDAs are expected to hand over the first half of the $1.7 billion in local tax dollars. The state Department of Finance has already calculated the amounts expected from each redevelopment agency; a spokesperson says 212 local RDAs are appealing the estimates as they now exist. Although only about 100 local agencies have notified the state that they'll participate in the new 'revenue sharing' RDA system, it's expected that if the state prevails in this case, most will do so... given that it would then be the only way to stay in business.

That assumes, though, that the Supreme Court doesn't offer a split decision -- invalidating only the 'revenue sharing' legislation. If that happens, local redevelopment -- at least, as it's existed in California for more than 50 years -- will effectively be over.