On Thursday morning, two sides in a lawsuit filed over new state laws eliminating redevelopment agencies or requiring them to participate in a voluntary state program presented arguments before the California Supreme Court.
In July the California Redevelopment Association, the League of California Cities, and the cities of San Jose and Union City filed their suit, California Redevelopment Assn. et al. v. Matosantos et al., which the California Supreme Court agreed to hear.
Specifically, the suit is asking that the court overturn AB1x26, which eliminates all redevelopment agencies effective Oct. 1, and AB1x27, which allows agencies to continue if they agree to take part in a voluntary program requiring them to make annual payments from their proceeds to the state.
At stake are billions of dollars for the state government that would come from the estimated 400 redevelopment agencies around the state.
Arguing on behalf of the state, Deputy Attorney General Ross Moody told the court that the legislation provides a $1.7 billion budget solution for the state in the current fiscal year, with smaller increments in coming years.
If the payments end up being required, Clearlake would have to pay $974,000 for 2011-12 and $244,000 annually afterward; Lakeport would have to pay $309,000 initially and around $73,000 annually; and the Lake County Redevelopment Agency would pay just over $1 million in fiscal year 2011-12 and about $243,000 per year in future years, according to recent estimates provided by local officials.
The legislation is stayed while the court considers the case, but that stay also prevents agencies from continuing work on outstanding projects.
In the Lake County Redevelopment Agency’s case, that has resulted in work being stopped on the Lucerne Hotel renovation. In the city of Lakeport, the Lakeport Downtown Improvement Project is on hold, with the city redevelopment agency short of the money it thought it had for the project because of the new legislation, according to Richard Knoll, the city’s redevelopment and community development director.
Arguments offered against bills' constitutionality
In arguments that lasted just over an hour, the court heard from Moody, the redevelopment association’s lead counsel Steven Mayer and James Williams, deputy county counsel for Santa Clara County.
Mayer argued that AB1x26 and AB1x27 are unconstitutional and violate Proposition 22, which voters passed last November to prevent the state taking revenues dedicated to funding local government services or funds for transportation improvement projects and services.
He referred to Section 9 of Proposition 22, which accuses the California Legislature in recent years of “illegally circumventing” the California Constitution’s Section 16 of Article XVI – which deals with redevelopment – “by requiring redevelopment agencies to transfer a portion of those taxes for purposes other than the financing of redevelopment projects. A purpose of the amendments made by this measure is to prohibit the Legislature from requiring, after the taxes have been allocated to a redevelopment agency, the redevelopment agency to transfer some or all of those taxes to the State, an agency of the State, or a jurisdiction; or to use some or all of those taxes for the benefit of the State, an agency of the State, or a jurisdiction.”
He also stated that the program the state created with AB1x27 was as voluntary as a bank robbery. Even so, he said the information the association had said that more than 90 percent of redevelopment agencies statewide had opted to take part in order to continue.
Here in Lake County, all three redevelopment agencies – Lakeport, Clearlake and the county of Lake – have opted to participate, as Lake County News has reported.
Mayer suggested that the “worst possible outcome” for the association is that they win in their argument against AB1x26 and lose on AB1x27.
Justice Joyce Kennard suggested that Mayer’s argument that the Legislature may not abolish redevelopment agencies wasn’t supported by the state constitution.
State: Legislature can change the rules
Moody argued that state law “expressly recognizes” that the Legislature may change the rules governing redevelopment.
He also said the new laws provide for every legitimate redevelopment agency debt to be paid, although loans to cities aren’t covered.
“The key to Proposition 22 is the actual language of Proposition 22,” Moody said, explaining that the Legislature shall make no law requiring redevelopment agencies to make payments to the state, and there is no requirement of any kind that the voluntary payments be made.
Justice Carol Corrigan asked if the agencies can exist if they don’t make the payments.
“It’s hard to argue that it’s a voluntary payment,” she said.
Moody insisted that the city and county redevelopment agencies are not directed to make the payments.
Corrigan stated that it was a “facile” argument, to which Moody responded, “It’s a challenge to argue this case in the environment we’re in,” noting state tax revenues are down by 30 percent.
Justice Ming Chin asked what result Moody would be happy with, and Moody replied that it would be if both laws were upheld. That’s because of the $1.7 billion budget solution in this fiscal year. If only AB1x26 was upheld, it would mean $1.1 billion this year and annually going forward.
Corrigan asked if there were examples that the money could be taken. He said Proposition 1A was “the tail of the thing.” He said that legislation was designed to prevent raids of local funds by the state and so it focuses on the Legislature taking the money rather than having an agency take part in a program, like the voluntary program the new legislation established.
“The redevelopment agencies took a gamble on this lawsuit,” Moody said.
He also told the court, “It’s more important to look at Proposition 22 as it existed when the voters voted for it rather than the way it’s been presented here.”
Kennard asked, for the purpose of argument, about what would happen if the court decided AB1x27 was ruled unconstitutional. In such a case, she asked if it was correct that there is nothing to prove that AB1x26 is constitutional, and Moody agreed.
Williams said the county was asking that the court uphold AB1x26 and strike down AB1x27, arguing that the latter is unconstitutional because he said the Legislature can’t grant redevelopment agencies the power to spend tax increment revenue beyond what is outlined in Article 16 in the state constitution.
He also argued that AB1x27 was unconstitutional because it redirects certain property tax revenue. Such measures can only be taken when passed by super majorities – or a two-thirds vote of the Legislature – which the law wasn’t.
Justice Marvin Baxter asked Williams why it was to Santa Clara’s advantage to support upholding AB1x26 while striking down AB1x27.
Williams replied that redevelopment agencies have had an “extraordinarily diverse effect” on Santa Clara County, which has lost funds to the agencies. He said schools have been affected the worst.
Local redevelopment officials have indicated that the court’s decision is expected by the start of the year.
E-mail Elizabeth Larson at
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