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Brown Wins Right to Use Redevelopment Funds to Patch California’s Budget

The California Supreme Court handed Governor Jerry Brown a late holiday gift, ruling that more than $1 billion in redevelopment funds can be used to fill a state budget gap.

Four hundred agencies can be eliminated and their funds used for education, roads and fire departments this year, the San Francisco-based court ruled yesterday in a lawsuit challenging two laws meant to provide an ongoing source of funds for the state, which is facing a $13 billion budget deficit.

Brown is counting on at least $1 billion from the redevelopment agencies for the fiscal year ending June 30, said H.D. Palmer, spokesman for the state Finance Department. The ruling will also mean an additional $430 million in the following year, cushioning schools from further cuts, he said.

The California Supreme Court (313364L) upheld a law that dissolved the agencies and directed funds not needed to pay off debt to be used for other purposes. The court majority struck down a related law that allowed the agencies to survive only if they agreed to make annual payments based on a portion of property- tax revenue allocated to them.

Once the agencies are dissolved, the levies will be distributed to local governments and schools under the formula set by Proposition 13 in 1978, Palmer said. Since some of that money will go toward schools, it would reduce the state’s obligation to fund schools by an equal amount under Proposition 98, which sets the floor for public school funding, thereby freeing the state to spend the money for other purposes.

‘Key Component’

The court ruling “validates a key component of the state budget and guarantees more than a billion dollars of ongoing funding for schools and public safety,” Brown said in an e- mailed statement yesterday.

Steven Mayer, an attorney for the California Redevelopment Association, which sued the state along with the League of California Cities, disputed that the ruling would lead to seizure of $1.7 billion, as was estimated earlier. Mayer said the court struck down the law that allowed the state to take those funds.

“That’s not going to happen,” Mayer said in a phone interview yesterday. Only about $1.1 billion of agency funds is available to the state after taking into account debt obligations and other payments, he said.

“This ruling is a tremendous blow to local job-creation and economic advancement,” Julio Fuentes, president of the League of California Cities, said in an e-mailed statement. “The legislative record is abundantly clear that legislators did not intend to abolish redevelopment.”

Eliminated Agencies

The two bills’ key elements eliminated the agencies and preserved their assets and revenue for schools and fire and police services. The third element would have kept alive agencies that agreed to make annual payments calculated at $1.7 billion for this fiscal year and $400 million for subsequent fiscal years. The court struck down that part.

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.

Affordable Housing

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 extended the deadlines for using the redevelopment funds by four months. The payments were originally slated to start 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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