California Supreme Court Slugfest Over Redevelopment

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AP/Jeff Chiu

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.

AP/Jeff Chiu

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.

Update, Friday: The audio from my radio story on The California Report is below.

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About John Myers

John Myers is senior editor of KQED's new California Politics & Government Desk. He has covered California politics for most of the past two decades, serving previously as Sacramento bureau chief for KQED News and most recently as political editor for KXTV News10 (ABC) in Sacramento. In 2014, he was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.
  • http://twitter.com/vjorgensen Vincent Jorgensen

    This is some amazing wonk. Would it be possible to get some background on what RDAs currently do (how they use their funds, who works for them, who runs them, etc.) so that it would be easier for the lay citizen to understand the stakes? Keep up the great reporting John!

  • Anonymous

    Vincent — in the runup to passing this legislation, there were reports by the State Controller and quite a bit of reportage by the LA Times, which you can find on their sites. Both were highly critical of RDAs, with SCO citing the studies that show RDAs don’t generate new economic activity — merely move money around, and the Times pointing to the many well-documented scandals and failures of RDAs to comply with their legal mandates (such as creating low income housing). The stakes are about $5 billion/year of local property taxes that otherwise flow to local schools and government services

    I’ve observed RDAs for many years, particularly in SoCal.  RDA money has become a huge slush fund for local pols in the great majority of cities, and is a corrupt wasteful system long overdue for abolition.

  • http://www.kqed.org/weblog/capitalnotes/blog.jsp John Myers

    Vincent: All good questions. In addition to the work of my fellow political reporters around the state, I’d offer up my story from earlier this year when Gov. Brown first introduced his plan to abolish redevelopment agencies — it’s here.

    Part of the challenge in fully understanding RDAs is the fact that they all operate differently; there are very few universal rules about these local agencies — including how they calculate debt and how they take on debt and long-term obligations. The only real systemic rules are that RDAs get the growth in property tax dollars inside the boundaries of their district, and that they must use a portion of the money for affordable housing. There were also previous rules regarding some sharing of dollars with local schools, but that’s pretty limited compared to what Brown first proposed in January.

    Many watchers of redevelopment will tell you that through the years, it’s become more about economic development…and that’s been the focus of many of the fights. Whether you see the use of these dollars as economic stimulus or private sector subsidy depends somewhat on your politics… and on your feeling about what the priorities should be for local property tax dollars.

    While some cities have very small RDAs, in other cases a redevelopment district can encompass the entire city. In some instances, the RDA will include land that’s never been developed in the first place.

    A major question, even if the state prevails in front of the Supreme Court: do the agencies really have $1.7 billion to give the state this fiscal year? That number is the source of some debate, as it was gleaned from some analysis done in the past. As my radio story pointed out this morning (Friday), the RDAs may have far many more obligations to pay back than the state thinks. And a key part of the Court fight is defining what debts are payable — which will impact the state’s bottom line.

    Thx for weighing in.. –JM

  • http://blogs.kqed.org/capitalnotes John Myers, KQED

    Vincent: All good questions. In addition to the work of my fellow political reporters around the state, I’d offer up my story from earlier this year when Gov. Brown first introduced his plan to abolish redevelopment agencies:

    http://blogs.kqed.org/capitalnotes/2011/02/21/browns-redevelopment-firestorm/

    Part of the challenge in fully understanding RDAs is the fact that they all operate differently; there are very few universal rules about these local agencies — including how they calculate debt and how they take on debt and long-term obligations. The only real systemic rules are that RDAs get the growth in property tax dollars inside the boundaries of their district, and that they must use a portion of the money for affordable housing. There were also previous rules regarding some sharing of dollars with local schools, but that’s pretty limited compared to what Brown first proposed in January.

    Many watchers of redevelopment will tell you that through the years, it’s become more about economic development…and that’s been the focus of many of the fights. Whether you see the use of these dollars as economic stimulus or private sector subsidy depends somewhat on your politics… and on your feeling about what the priorities should be for local property tax dollars.

    While some cities have very small RDAs, in other cases a redevelopment district can encompass the entire city. In some instances, the RDA will include land that’s never been developed in the first place.

    A major question, even if the state prevails in front of the Supreme Court: do the agencies really have $1.7 billion to give the state this fiscal year? That number is the source of some debate, as it was gleaned from some analysis done in the past. As my radio story pointed out this morning (Friday), the RDAs may have far many more obligations to pay back than the state thinks. And a key part of the Court fight is defining what debts are payable — which will impact the state’s bottom line.

    Thx for weighing in.. –JM