The California Supreme Court recently upheld the constitutionality of the assembly bill that dissolves redevelopment agencies and redirects their property tax revenues.
At the same time, the court struck down the assembly bill that would have allowed redevelopment agencies to continue to operate if they opted in on a plan that required annual payments.
In other words, it looks like Redevelopment Agencies in California will soon be a thing of the past.
The long-term impacts of the court’s Thursday, Dec. 29 decision on Seal Beach are not yet known.
Mark Persico, director of Development Services, told the Sun about the short term effect of the ruling.
“At this point there are two actions the city needs to take in January: the City Council must designate a ‘successor agency,’ which is charged with overseeing making payments to existing bondholders and existing contractors; and the council must approve an enforceable payment schedule indicting who will be paid over the next few months,” Persico said.
“There will be addition steps the council needs to take to close the redevelopment agency, but those decisions will be made in February or later,” Persico said. “There is also the possibility that the State legislature will adopt new redevelopment legislation that authorizes redevelopment but at a reduced level.”
“We will also work with other cities and agencies to see if new redevelopment legislation will be adopted,” Persico said.
Seal Beach activist and budget watcher Robert Goldberg speculated on the potential effect on Seal Beach if the city’s Redevelopment Agency is eliminated. He said the ruling could affect the city’s dealings with Bay City Partners, owners of the former Los Angeles Department of Water and Power property.
“AB 26 prohibits redevelopment agencies from encumbering any revenues or assets,” Goldberg said in a New Year’s Day e-mail. “This will likely prevent the RDA from being the source of funds to buy the southern 6.4 acres of proposed open space on the DWP property.
The tentative DWP settlement agreement provides for a $1.1 million payment from the city to Bay City Partners upon project approval by the Coastal Commission.
While the source of these funds is not specified in the settlement agreement, it was likely that the money would have come from the RDA, since the DWP property is within the boundaries of the RDA’s Riverfront Project. Now that AB 26 has been upheld, the $1.1 million will likely have to come out of the city’s General Fund reserves.”
“During the last fiscal year that ended June 2011, the RDA spent over $550,000 in legal fees related to litigation between the city and Bay City Partners. If the RDA is eliminated, any future legal costs will likely have to come out of the city’s General Fund,” Goldberg wrote.
“These potential increased costs to the General Fund might be partially offset by increased property tax revenues to the General Fund. Last fiscal year, the RDA was able to retain over $2.2 million in property taxes from hundreds of homes and properties within the Riverfront Project area.
With the dissolution of the RDA, the portion of this money that is not needed to make the annual RDA debt payments will flow to the state,” Goldberg said. “I would estimate this portion to be about $1 million per year in the near future.
If this money is treated as property taxes are in general, the State would then typically re-distribute 15-18% of this money back to City’s General Fund. Thus, property tax revenues to the General Fund might increase by over $150,000 per year, assuming the state will not keep all of it.”
“Currently 20 percent of the RDA revenue as required by state law, or about $440,000 per year, is set aside to promote low and moderate income housing. Traditionally, this money has been used in Seal Beach to support two programs for Seal Beach Shores residents,” Goldberg said. “The first is the RDA’s Home Improvement Program.
This program provides individual homeowners with loans of up to $60,000 at 0 percent interest to remove and replace residential trailers. The second program provides up to $180,000 annually in rental assistance. AB 26 allows a ‘Successor Agency’ (which the city must establish to make payments on the RDA debt) to use the remaining Low/ Moderate Housing assets to continue the existing programs. As of June 30, 2011, these assets totaled over $3 million, so theoretically, the programs could continue for quite a few years. However, at some point in time, the money will run out.
As for the RDA’s debt, Goldberg said that last year’s Redevelopment Agency debt service was about $730,000.
In August 2011, the Seal Beach City Council decided to pay the state $937,868 to keep the RDA going for the 2012 fiscal year.
The ruling
The following information was provided by the California Supreme Court Web site:
Associate Justice Kathryn M. Werdegar, writing for the majority, said the court upheld the enactment of Assembly Bill 1X 26, dissolving redevelopment agencies and redirecting their property tax revenues.
According to the court, because the Legislature had the authority to create redevelopment agencies, it also had the corollary power to dissolve them.
The court ruled that while Proposition 22, as enacted by the voters in 2010, amended the state Constitution to impose additional limits on the state’s fiscal powers, nothing in that initiative or other parts of the state Constitution guaranteed the continued existence of redevelopment agencies.
The majority, however, held that Assembly Bill 1X 27 was unconstitutional because it conditioned the ability of redevelopment agencies to conduct new business on agreeing to an annual payment plan based on a portion of property tax revenues allocated to redevelopment agencies.
The court said that this opt-in plan violated Proposition 22 because that measure arose in opposition to similar past legislation and was intended to preclude further required payments based on redevelopment agency property tax revenues.
Chief Justice Tani Cantil-Sakauye joined the majority opinion upholding Assembly Bill 1X 26, but dissented with respect to the conclusion that Assembly Bill AB 1X 27 was unconstitutional.
Chief Justice Cantil-Sakauye wrote that neither Proposition 22’s history nor its express language appeared to prohibit the opt-in payment plan created by Assembly Bill 1X 27.
Cantil-Sakauye said that it appeared the Legislature had carefully drafted Assembly Bill 1X 27 so as not to violate Proposition 22 by allowing the annual payment to come from any local revenue source and not specifically redevelopment agency funds, which Proposition 22 expressly protects.
Chief Justice Cantil-Sakauye said that Assembly Bill 1X 27 does not conflict with the state Constitution. The chief justice also wrote that the parties presented no evidence that the measure would actually violate the state constitution in practice.
The court unanimously reformed Assembly Bill 1X 26, which had been largely stayed during the pendency of this action, by extending its various deadlines by four months.
