California Supremes Rule, Redevelopment is History

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The ruling from the California Supreme Court means that, absent legislative intervention, local redevelopment agencies must close their doors.

In a ruling that is no doubt sending shock waves through city halls across California, the state Supreme Court has ruled that only half of a state budget proposal diverting redevelopment dollars is legal. That split decision means that more than 400 local redevelopment agencies must cease operations -- for good -- sometime in 2012.

As it turns out, the comment made during last month's court hearing by the attorney representing the state. "The redevelopment agencies took a gamble on this lawsuit," said deputy state attorney Ross Moody.

And it's a gamble they lost.

Today's action may be the final chapter in one of 2011's most contentious budget fights, a fight that began with Governor Jerry Brown's proposal to abolish redevelopment agencies and divert the freed up cash to other state budget-busting needs.

That fight led to a compromise plan, albeit one forced on redevelopment supporters: a bill to abolish redevelopment agencies (RDAs) as they now exist, ABx26, and another allowing RDAs to stay alive provided they shared future revenues, ABx27.

In a 7-0 ruling (PDF), the state's highest court upheld the legality of the first bill, ABx26. The opinion, written by Justice Kathryn Werdegar, says the Legislature had full authority to abolish the RDA system it wrote into state statute a generation ago.

"Redevelopment agencies are political subdivisions of the state and creatures of the Legislature’s exercise of its statutory power," writes Justice Werdegar. She also strikes down, in pointed language, the argument made by redevelopment supporters that 2010's Proposition 22 protected the existence of RDAs:

Had the voters in fact intended to amend the Constitution to fundamentally alter the relationship between the state and this class of political subdivision, we would, moreover, expect to find at least a single mention of such an intention in the various supporting and opposing [Prop 22] ballot arguments. Instead, we find silence.

Justice Werdegar also smacks down Prop 22's language that says the funding of redevelopment agencies -- the "tax increment" of new property taxes within a redevelopment district, calling it "a clear misstatement of the law as it stood prior to the passage of Proposition 22."

But the fatal blow is the other part of today's ruling: a finding that the second bill, ABx27, was illegal. And furthermore, a majority of the Court ruled that the two bills were -- contrary to the argument of RDA backers -- severable. And in nixing ABx27, the Court uses the language of Prop 22 and its intent to stop forced fiscal transfers from locally directed programs.

Here, though, there was dissent... and it's notable, coming from Chief Justice Tani Cantil-Sakauye. She writes in a long opinion that "the majority’s conclusion rests on an impermissibly broad reading of Proposition 22 plain language," and that the revenue sharing plan is legal.

Still, the net result, for now, is that redevelopment agencies in California are history.

If the numbers in the budget signed into law on June 30 by Brown pan out, today's blockbuster ruling is a windfall to the finances of state government. The budget assumed $1.7 billion from the enactment of ABx26 and a $400 million a year boost in the future from ABx27. But the budget help in future years assumed a substantial portion of property tax dollars earmarked for RDAs would remain as such.

The Supreme Court's striking down of the RDA compromise means that the local agencies are fully dissolved -- and that some $700 million in local property tax dollars will revert to their otherwise earmarked uses, namely local government and local schools.

And that frees up state budget dollars that would have otherwise subsidized those local services. In other words, instead of $400 million in annual help to the state budget, the year after year boost would now be $1.1 billion. Hence, today's action on paper is a partial defeat for state officials, but in reality it's a fiscal windfall.

What happens next remains the real question. Redevelopment supporters, in their early spin on the ruling, said they will ask the Legislature to step in and find a new way for RDAs to survive. They point to the fact that several legislators, mostly moderate Democrats, seemed to vote for the ABx26 redevelopment elimination only because it was supposedly joined at the hip to the ABx27 alternative existence.

That issue was touched on by the Court ruling. "The issue," they wrote, "is whether a legislative body, knowing that only part of its enactment would be valid, would have preferred that part to nothing."

But even if redevelopment backers can gather some legislative steam to save them from eradication, it's important to note that their negotiating power seems pretty small. After all, inaction at this point by the Legislature means more fiscal relief for other state programs that Democrats ostensibly care about.

Update 2:40 p.m. The early reaction has produced few surprises. It also points out the complexity of the road ahead. Chris McKenzie, executive director of the League of California cities and the architect of Prop 22, is predictably unhappy with the ruling that deals a one-two punch to a economic tool used mainly by cities. But he also points out that the ruling does nothing to define exactly what debts incurred by RDAs will -- or won't -- be paid before property taxes are put back into the local till. McKenzie also predicts a lot of lawsuits over that very same issue. "I think we may be looking at years of ongoing conflict over this," he said in a phone interview.

Which is why RDA supporters are already urging the Legislature to come to their rescue and find a new, constitutional way of keep redevelopment alive. The question, though, may be what legislative leaders are willing to do. The leaders of both houses issued statements this afternoon pledging to address the issues of "economic development" and affordable housing. But that's not the same thing as extending the life of the RDA system, one which has been used (and criticized) for projects that didn't universally qualify as economic stimuli.

And even so, the issue now may have to get in line with all of the other worthy goals of a state with more wishes than dollars. As Senate President pro Tem Darrell Steinberg put it in his statement: "The [court] decision gives us a chance to work with our partners at the local level to make [economic development] happen in a way that allows us to balance all of the priorities of the people we represent."

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About John Myers

John Myers is senior editor of KQED's new multimedia 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. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.
  • Richard Rider

    What is a “blighted area”?  It’s anything the government/developer property grabbers WANT it to be.  Up to and including “irregularly shaped lots.”  

    Blight “consultants” hired to “analyze” whether properties or an area are blighted know in advance the answer that they are to provide.  If they do NOT provide the proper answer, they will get no future “consulting” contracts.

    Good riddance to the often-abusive redevelopment agencies.  

  • Volunteer

    If redevelopment was a’s successful as so many developers and council members say, it would seem that the momentum in downtown would be self sustaining.

    I question many of the ways this money is spent. My understanding is that redevelopment monies were spent to build a sidewalk on the WEST side of Morena Blvd – no reason to be walking there. Just an empty field an traintracks.

    And monies spent for artwork under Hwy 5 and Rosecrans. Beautiful art, but in an area where few will see it. A few lights would have been much better.

    And these are just the small jobs.

  • Still not a homeowner

    While I am certain that the suspicion of RDAs mentioned previously is based on real abuses that only make money for developers, I also know that eliminating the one in my city just took away my option for buying a home in the next year or two. MY City’s RDA offers deferred interest second loans in the form of down payment assistance to be repaid with a percentage of equity that has accrued over the 15 term. I was counting on the $20K that now goes to a bloated and poorly managed state government. BAH.

  • Anonymous

    As much as I encourage home ownership, why should others be paying for your life-style.
    That sort of thinking is what created the Fannie/Freddie fiasco:  We’ll have the society at large subsidize the purchases of a few, even though the odds are that they won’t fulfill their part of the bargain, and we’ll be stuck with the tab.
    Don’t worry, if current trends continue, that home will continue to decrease in price, becoming more and more affordable to you – just keep saving.

  • Votefornewt

    Hooray, it’s about time to stop this corruption.  This will hurt them where it hurts most in their personal pockets along with the developers and Realtor they have aligned themselves with.   Hope this has some affect on Agenda 21.   Maybe things will begin to turn around with everyone so disgusted with the corruption we live with from people we have to pay.

    http://blogs.kqed.org/capitalnotes/2011/12/29/california-supremes-rule-redevelopment-is-history/

  • GG Voter

    The California Supreme Court’s decision to abolish redevelopment will return our state to the rule of law with regards to local government practices.  I look forward to voting for local bonds, rather than the city council issuing millions of dollars in COP, Certificate of Purchase, without a public vote.  A return to the use of the competitive bid process for publicly owned properties will ensure the public receives the money rather than developers.  The broad definitions of “blight” for private properties in redevelopment allowed for few options to keep their properties, as the city routinely used the redevelopment “tool” to take private properties to transfer to campaign contributing developers. Additionally, the definition of public use specifically for roads, schools, libraries, etc. rather than the broader “public purpose” which states it is permissible to take private properties, through the use of eminent domain, for the public purpose of possible increased sales tax dollars. Lastly, with the elimination of redevelopment agencies will revive of the capitalist system of competition rather than developers plotting one city against another for subsidies, rebates and other give-aways to developers at the expense of the taxpayer.

  • John Sakowicz

    Nice reporting