08.17.2011

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Updates

California Redevelopment Association v. Matosantos, Case No. S194861

In June of this year, the California legislature passed two bills designed to address the state’s budget crisis.  The bills addressed redevelopment agencies, which are local agencies created to use property tax funds to redevelop blighted areas.  ABX1 26 suspended most redevelopment agencies and provided for their gradual dissolution.  It barred redevelopment agencies from taking action other than paying existing debts, performing existing contractual obligations and setting aside reserves required for bonds.  ABX1 27 created an alternative voluntary redevelopment agency program that allowed these agencies to avoid dissolution.  It allowed redevelopment agencies to continue to operate if they enacted an ordinance providing for payments to the state in amounts to be calculated by the Department of Finance.  The program was designed to generate $1.7 billion its first fiscal year and $400 million annually in subsequent years.

The California Redevelopment Association, the League of California Cities and others brought suit.  They allege that the bills contravene the California Constitution and they are focusing their argument on the provisions of Article XIII, Section 25.5 that were enacted by Proposition 22 in 2010.  These provisions prohibit the state from requiring a redevelopment agency “to pay, remit, loan, or otherwise transfer, directly or indirectly” income to or for the benefit of the state.  The official title and ballot summary for Proposition 22, prepared by then-Attorney General Jerry Brown, describes Proposition 22 as prohibiting “the state from borrowing or taking funds used for . . . redevelopment.” 

The court requested preliminary opposition from the state, and a brief was filed by the Attorney General’s office.  The state argues that redevelopment agencies were created by the legislature and therefore can be dissolved by the legislature.  It contends that the constitutional language does not prohibit the legislature from eliminating the redevelopment program entirely, and then providing for a new voluntary program with payments to the state. 

The procedural posture of the case is just as noteworthy as its political nature.  Petitioners sought immediate review in the California Supreme Court, bypassing the lower courts.  On August 11, 2011, the high court agreed not only to take the case, but also issued a stay and set an expedited briefing schedule.  The stay is limited in effect.  While it suspends the effectiveness of most provisions of ABX1 26 and ABX1 27, it also leaves in place the provisions that generally prohibit redevelopment agencies from transferring assets or incurring new or expanded legal or monetary obligations.  The court set an expedited briefing schedule, requiring opposition briefs by September 9, reply briefs by September 24 and any friend of the court application and proposed brief by September 30.  The court explained that this “briefing schedule is designed to facilitate oral argument as early as possible in 2011, and a decision before January 15, 2012.”  January 15, 2012 is the deadline for redevelopment agencies to make their first ABX1 27 payments to the state. 

The decision will have major financial and practical consequences in California.  Any party with an interest in the case who wishes to appear as amici before the court have until September 30, 2011 to file applications and proposed briefs.

© 2011 Perkins Coie LLP