In December 2010, Governor Schwarzenegger declared a state fiscal emergency and in 2011 Governor Brown suggested eliminating redevelopment agencies entirely to help facilitate closing the gap of the projected $25 billion operating deficit. The Legislature then enacted Assembly Bills 1X 26 and 1X 27, both signed by Governor Brown. Assembly Bill 1X 26, Part 1.8 “is the “freeze” component: it subjects redevelopment agencies to restrictions on new bonds or other indebtedness; new plans or changes to existing plans; and new partnerships, including joint powers authorities. Cities and counties are barred from creating any new redevelopment agencies.” The existing obligations of the agencies are unaffected. Assembly Bill 1X 26, Part 1.85 is the “dissolution” component: it transfers control of the agency’s assets to successor agencies contemplated to be the city of county that created the agency. These agencies must continue to make payments and perform existing obligations but all unencumbered balances of redevelopment funds must be turned over to the county auditor for distribution to the other public entities. Assembly Bill 1X 27, Part 1.9, created an exemption whereby the agencies could agree to make a specified payment to both a county Educational Revenue Augmentation Fund and another newly created special district augmentation fund.
The issue before the Supreme Court was whether the Legislature has the power to dissolve the redevelopment agencies, and whether the Legislature has the right to require redevelopment agencies and/or their sponsoring communities to make payments to various funds as a condition for continued existence. The Court held that the Legislature has the power to dissolve the agencies but that it did not have the power to condition its existence based on payment to various funds.
To put it succinctly and quoting the Legislature, “redevelopment agencies were created by statute and can therefore be dissolved by statute.” Nowhere within the California Constitution, does it guarantee to redevelopment agencies continuation and existence into perpetuity. The Agencies tried to argue that based on California Constitution Article XVI, Section 16 the fact that the Legislature may authorize taxes to the redevelopment agencies that it must do so. However, the language in Article XVI, Section 16 is permissive not mandatory.
The second part of AB1X 26, Part 1.85, is also constitutional because redevelopment agencies do not have an absolute right to the incremental tax. California Constitution Article XVI, Section 16, again is permissive, in that it grants the Legislature the right to given the incremental tax funds to the redevelopment agencies, not that it must. Part 1.85 has determined that the tax increment will no longer be given to these agencies except as is necessary to satisfy existing obligations.
Finally, AB1X 27, Part 1.9, the Supreme Court has declared is unconstitutional. Based on Proposition 22, the Legislature is prohibited from directing the redevelopment agencies to divert its funds to any other fund, once the money has been given to the redevelopment agency.
In light of the decisions and the stays that the Court made when the case was first heard, all deadlines that were part of AB1X 26 will now be pushed back by four months, for this coming year only, thereafter; the deadlines will remain as outlined in AB1X 26.
What does this mean for redevelopment agencies and the people it conducts business with? Currently, it means that the agencies must not enter into any new plans or make changes to existing plans. It will continue to receive funds to pay off existing debt but will not be allowed to take on new debts.
The codified law can be found at Health and Safety Code § 34161, et seq. and Health and Safety Code § 34170, et seq. Also, to read the complete decision you may, click here.
A HISTORY OF COMMUNITY REDEVELOPMENT AGENCIES AND RELATED LAWS AS REVIEWED BY THE SUPREME COURT:
Community Redevelopment Agencies were created after World War II to remediate urban decay and to revitalize blighted communities. In the State of California there now exists around 400 redevelopment agencies that are usually governed by the sponsoring community’s legislative body.
These agencies are authorized to “prepare and carry out plans for the improvement, rehabilitation, and redevelopment of blighted areas. To carry out such redevelopment plans, agencies may acquire real property, including by the power of eminent domain, dispose of property by lease or sale without public bidding, clear land and construct infrastructure necessary for building on project sites, and undertake certain improvements to other public facilities in the project area.”
The agencies are able to complete these plans through tax increment financing. Essentially, the other public entities in the redevelopment area (including cities, counties, special districts, school districts, and fire and police) are allocated their portion of property tax based on the property prior to the redevelopment plan. The tax revenue in excess of that amount is then given to the redevelopment agency for repayment of the debt incurred. Basically, the property tax revenues are frozen for all other entities while the increase is given to the redevelopment agency. Unfortunately, this tax increment financing, “has sometimes been misused to subsidize a city’s economic development through the diversion of property tax revenues from other taxing entities…” Decision, pg. 10 citingLancaster Redevelopment Agency v. Dibley (1993) 20 Cal.App.4th 1656, 1658. Currently, redevelopment agencies receive 12% of all property tax revenue in the State. The concern is that where property taxes are shifted from schools to redevelopment projects the state must make up the difference that was diverted from the schools.
The Legislature then enacted a provision that a percentage of the incremental tax revenue was to be paid to the school districts whether by the agencies or its sponsoring community. However, in 2004, Proposition 22 was enacted that prohibited the Legislature from requiring a redevelopment agency to pay, remit, loan, or otherwise transfer taxes on the property allocated to the agency or require it to use, restrict or assign such taxes for the benefit of the State.
Cordially,
Jessica L. Jasper, Esq.
HARTNETT LAW GROUP
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