California Cities Sue State Over Redevelopment Budget Cuts

California was sued by cities challenging new legislation that would require redevelopment agencies to turn over about $1.7 billion to the state.

San Jose and Union City, along with the California Redevelopment Association and the League of California Cities, asked the California Supreme Court today to overturn two laws. The cities claim the statutes violate a ballot initiative approved by voters in November, Proposition 22, preventing the seizure of revenue dedicated to local government.

“Prop 22 prohibited the state from taking redevelopment agency money,” Steve Mayer, a partner at law firm Howard Rice Nemerovski Canady Falk & Rabkin in San Francisco, said today in a phone interview.

The budget California lawmakers approved last month keeps alive more than 400 redevelopment agencies that California Governor Jerry Brown had sought to close, though it requires them to turn over about $1.7 billion. Courts have ruled against the state for previous attempts to raid their revenue.

“California voters overwhelmingly passed Proposition 22 just eight months ago to stop state raids, shifts and diversions of local redevelopment funds,” Chris McKenzie, executive director of the League of California Cities, said today in an e- mailed statement. “The governor and legislature have blatantly ignored the voters and violated the State Constitution.”

Jacob Roper, a spokesman for state Controller John Chiang, named as a defendant in the complaint, declined to comment.

‘Legally Sound’

“We’re confident that this measure -- which was passed by the Legislature and signed by the governor - is legally sound,” H.D. Palmer, spokesman for the California Department of Finance, another defendant, said in an e-mail. “Redevelopment agencies were created by an act of the Legislature in 1945, and they can similarly be dissolved by an act of the Legislature.  We cannot afford to be spending more than a billion dollars a year on local redevelopment projects at a time when our core services - including education and public safety - are being cut.”

The state supreme court ordered the state to respond to the petition and gave the cities and the two groups until July 29 to file their reply, Mayer said.

Under California’s 65-year-old redevelopment law, if a city or county creates a redevelopment area to address urban blight, the agency receives related property-tax revenue increases that may result, known as the tax increment.

A copy of the petition was provided by the League of California Cities. The filing wasn’t immediately available in the court’s electronic docket.

The case is California Redevelopment Association v. Matosantos, S194861, California Supreme Court (San Francisco).

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net.

To contact the editors responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net; Andrew Dunn at adunn8@bloomberg.net

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