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Brown Wins Right to Use Redevelopment Funds to Patch Budget

Dec. 29 (Bloomberg) -- California Governor Jerry Brown won the right to use more than $1 billion to help fill a budget gap thanks to a ruling by the state supreme court that upheld a law permitting both the elimination of redevelopment agencies and use of their funds and assets.

The ruling today means Brown can eliminate 400 agencies and use the money from them for education, roads and fire departments this year. The decision was a blow for cities that argued they needed money for affordable housing and other projects. Brown, facing a $13 billion budget deficit, said the money was necessary to plug a revenue shortfall.

The California Supreme Court ruled in a lawsuit brought by redevelopment agencies and cities seeking to overturn two laws meant to provide a continuing source of money for the state. The court majority held unconstitutional a statute that allowed the agencies to conduct new business only if they agreed to an make annual payments based on a portion of property tax revenue 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.” The justices affirmed the validity of a related law that dissolved the agencies and directed funds not needed to pay off debt to be used to fund schools, fire and police services.

“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,” Brown said in an e-mailed statement.

California Redevelopment Association

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. 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.”

Key Elements

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 keep 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.

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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