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California High Court Allows Agency Dissolution While Blocking Exemptions

A California (STOCA1) statute allowing the state to use funds from redevelopment agencies to avoid a shortfall of cash for schools and other projects was struck down by the California Supreme Court, which simultaneously upheld another law that allows the dissolution of the agencies.

The ruling allows Governor Jerry Brown to eliminate 400 agencies and use some of their funds for education, roads and fire departments. The court majority held unconstitutional the other statute because it conditioned the ability of the agencies to conduct new business on agreeing to an annual payment plan based on a portion of property tax revenues allocated to them.

The court explained that this opt-in plan violated California’s Proposition 22, which “expressly forbids the legislature from requiring such payments.”

At stake in the court fight is $1.7 billion in funds from the agencies that Brown wants put to other uses. By striking down the law that allowed the state to redirect redevelopment money, the court doesn’t allow it to seize the $1.7 billion, said Steven Mayer, an attorney for the agencies.

“That’s not going to happen,” said Mayer.

In a statement, Brown disputed that argument, saying “Today’s ruling by the California Supreme Court validates a key component of the state budget and guarantees more than a billion dollars of ongoing funding for schools and public safety.”

Elimination Necessary

“Redevelopment elimination was necessary to protect core services, such as schools and public safety,” Steve Glazer, Brown’s political adviser, said after the ruling.

State officials had argued redevelopment agencies that control billions of dollars of public money had to be revamped to allow California to divert the money for education, roads and fire departments.

The California Redevelopment Association, the League of California Cities and the cities of San Jose and Union City had urged the court to overturn the laws, saying they violate Proposition 22, a ballot measure approved by voters last year that prevents the state from seizing revenue dedicated to local government.

Brown, a Democrat who took office in January, had counted on the money to balance the 2011-2012 budget and avoid deeper cuts to education.

Redevelopment agencies provide funding for road, sewer, lighting and affordable-housing projects across the state. 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.

The California Supreme Court delayed enforcement of the laws in August and ordered the state to explain why the seizure of the funds shouldn’t be blocked. The funds diversion is scheduled to begin Jan. 15.

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

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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