As almost any tax paying person in California is well aware, the state has been embroiled in budgetary woes for many years. The current Governor, Jerry Brown, sought to find a new revenue source to address the ongoing deficits. Governor Brown turned to the Redevelopment Agencies that exist within almost every City and County within the State of California. A proposal was made whereby some of the tax funds received by the Redevelopment Agencies would be contributed to the State for use in paying its general obligations. The Redevelopment Agencies reacted with a universal “no way” and a political and legal battle was joined.
The Governor, in conjunction with the overwhelming Democratic majority within the State Legislature, adopted two (2) pieces of legislation. The first piece of legislation literally disbanded every Redevelopment Agency within the State. The second piece of legislation offered what the Brown Administration believed was an olive branch. Specifically, it offered the Redevelopment Agencies the ability to continue to exist and pursue various projects provided they would share a portion of their revenue with the State.
The Redevelopment Agencies again reacted with a uniform “no way” and filed suit. On December 29, 2011 the California Supreme Court issued its opinion in the matter entitled California Redevelopment Association v. Matosantos, the Director of the State’s Finance Department. The litigation filed by the Redevelopment Agencies asserted that the disbanding of the Redevelopment Agencies was illegal and that the demand for payment of a portion of their proceeds was similarly unconstitutional.
In a closely watched opinion, the California Supreme Court, in a six to one decision, reached two (2) conclusions. First, the California Supreme Court ruled that the legislation disbanding all Redevelopment Agencies was valid and constitutional. The majority’s reasoning was simple: the legislature had the authority and exercised that authority to create Redevelopment Agencies and gave them the authority to undertake their “redevelopment” activities. The Court reasoned that the very ability to create such agencies necessarily included the ability to simply reverse course and disband such agencies. In simple terms, what the legislature has provided, the legislature can take away.
Thus, the California Supreme Court concluded that the legislature had every legal authority needed to simply disband Redevelopment Agencies and compel such agencies to go about the process of orderly winding up their business. That ruling became effective February 1, 2012. In the months following, we will observe how the various redevelopment projects are moved forward to liquidation and completion. The legal and economic ramifications of the disbanding of the Redevelopment Agencies is still unknown. The impact upon how cities and counties react to future development plans and requests, with the disbanding of such agencies, will be an issue to be closely watched in the coming months and years. This author would certainly submit that many municipalities that utilized Redevelopment Agencies in an aggressive fashion to control how and when certain parcels were developed will now need to make decisions based upon what the private sector can and will support.
The California Supreme Court also addressed the issue raised by the Redevelopment Agencies that the companion legislation demanding that the Agencies “share” a portion of their proceeds, in order to exist, was unconstitutional. Ironically, the California Supreme Court ruled in favor of the Agencies and concluded that the demands of the legislature to extract money from the Agencies were invalid. Thus, while the Redevelopment Agencies prevailed as to the claim that the legislature could not take a portion of their funds, which the Agencies asserted were theirs in perpetuity, they, in reality, won a battle but lost the war.
This office represents many developers, builders and property owners throughout the state. We will certainly keep our clients advised as to the “real world” ramifications of the disbanding of local Redevelopment Agencies.
