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California Cities Lose Bid to Stop Law Redirecting $1 Billion

California’s law dissolving redevelopment agencies as of Feb. 1 and redirecting more than $1 billion of their funds to the state to fill a budget gap won’t be blocked by a judge in Sacramento.

State court Judge Lloyd Connelly, ruling yesterday in a pair of lawsuits filed by California cities claiming the law is unconstitutional and jeopardizes bondholder payments, rejected a request to issue an injunction blocking it.

Under the law, 400 redevelopment agencies will be abolished and taxes going to them will be blended in a caretaker fund run by local governments that would pay investors holding more than $20 billion in bonds.

“I have mixed emotions about this,” said Connelly, who said he previously served on a city council. “I understand the motivation of the state and their right to exercise that discretion. I also understand the problems with some of the ways in which the tax increments were spent, but as a whole it’s been a good thing.”

Jeffrey Oderman, an attorney representing the cities, said the law’s fine print could leave bondholders in third or fourth place behind other payees and without a funding source if the agencies run out of money. He said in a phone interview before the hearing that the law isn’t consistent with bondholders’ rights.

Yesterday, Oderman said he couldn’t discuss the cities’ next steps until he confers with his clients.

The California Supreme Court upheld the law Dec. 29 in a separate court challenge. The high court didn’t consider the legal arguments raised in the lawsuits led by the cities of Cerritos and Carlsbad. The cities had asked for a court order blocking enforcement of the measure pending the outcome of their cases.

Ross Moody, a lawyer for the state, said yesterday’s ruling was what he “expected would happen.”

The case is City of Cerritos v. California, 2011-80000952, California Superior Court (Sacramento).

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