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Court Showdown Looms on California Plan to Eliminate RDAs

The California Supreme Court will hear oral arguments for California Redevelopment Association v. Matosantos on November 10 in San Francisco.  This is the lawsuit challenging the constitutionality of the state’s plan to eliminate redevelopment agencies unless they agree to pay $1.7 billion for FY 2011-12 and $400 million in subsequent budget years.

The legal dispute over the controversial plan essentially has brought development activities at the state’s RDAs to a halt pending resolution of the court case.

CRA along with the League of California Cities and the cities of San Jose and Union City filed the initial petition challenging the state plan on July 18. The central claim in the lawsuit is that the state’s two-part plan–known as the Dissolution Act (AB x1 26) and the Redevelopment Restructuring Act (AB x1 27)–violates the California State Constitution, including Proposition 22, which was passed by 61 percent of California voters in November 2010.

In August, the state Supreme Court agreed to hear the case on an expedited basis, in order to reach a decision before Jan. 15, 2012, when the first payments under the plan would be due. The Court also issued a stay postponing the implementation of the restructuring program until a decision can be rendered in the case.

Had the stay not been granted, nearly 400 RDAs would automatically have been dissolved on Oct 1. However, the RDAs do not have the authority to conduct new redevelopment activities while the stay is in effect.

Gov. Jerry Brown has been pushing since January to abolish California’s redevelopment agencies. The proposed overhaul of the state’s redevelopment agencies would bring in $1.7 billion, money that would be directed primarily to schools, law enforcement and other local services.

Opponents used words like “ransom” and “extortion” to describe the bills because they would allow community redevelopment agencies to exist in a new form only if local governments agreed to make substantial payments to the state. They said many agencies would not be able to come up with the cash and would have to shut down, killing a source of financing for public improvements and the construction jobs they create.

“The only purpose of this legislation is to save the state from having to cut its spending by the amount it forces the cities to pay. Not one penny of this money is returned to taxpayers,” said San Diego City Attorney Jan Goldsmith in a prepared statement.

Redevelopment agencies were created in California in the 1950s as a way to provide more housing and reverse urban blight. The agencies typically finance improvements using bonds or other money, with the money eventually repaid using the increased property taxes that result from the improvements. Because that so-called “tax increment” is devoted to paying off the initial investment by the agency, it is not available to local governments. The state makes payments to replace the amount lost by schools. The need to reduce state spending to close a $9.6 billion budget deficit fuels the argument to eliminate those “backfill” payments by scrapping the agencies.

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