Bond insurer Syncora Guarantee Inc. sued to challenge California measures that redirected funds from local redevelopment agencies, saying they jeopardize bond payments and unconstitutionally impair bondholder rights.
Syncora, which provided bond insurance for debt issues by California redevelopment agencies, claims that provisions of the law dissolving the agencies and redistributing their funds has “significantly reduced” money available to repay bonds.
The lawsuit is aimed at provisions that transfer debt payment obligations from the agencies to municipalities and allow cities to use tax revenue not needed to satisfy debt obligations instead of retaining it to cover future debt, according to the complaint filed Aug. 1 in state court in Sacramento, California.
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. The law, which was upheld by the California Supreme Court on Dec. 29, redirected more than $1 billion in redevelopment funds to fill a state budget gap.
Redevelopment agencies provide funding for road, sewer, lighting and affordable-housing projects across the state. State officials had argued that redevelopment agencies in control of billions of dollars of public money had to be revamped to allow California to divert the money for education, roads and fire departments.
The lawsuit seeks a court order blocking the redistribution provisions of the law, requiring that money be returned to local taxing agencies and setting aside tax revenue for bondholders until they are completely repaid. Syncora also seeks an order declaring certain provisions of the law unconstitutional and barring their enforcement.
H.D. Palmer, a spokesman for the California Finance Department, said the law upheld by the state high court makes clear that municipalities have to manage and execute all existing contractual obligations of the redevelopment agencies.
“Bond payments are an enforceable obligation,” Palmer said in a phone interview today. “There’s nothing in the bill that would in any way, shape or form interfere with bond payments.”
The case is Syncora Guarantee Inc. v. State of California, 12-80001215, California Superior Court, Sacramento.