The California Supreme Court has announced that recently enacted legislation disbanding redevelopment agencies is constitutional, while the companion legislation that would have allowed redevelopment agencies to continue to exist if they made "voluntary" payments is unconstitutional.  As a result, redevelopment agencies throughout California must be dissolved within the next several months.  In California Redevelopment Association v. Matosantos (No. S194861), the California Supreme Court considered whether, under the California Constitution, redevelopment agencies (1) have a "protected right to exist that immunizes them" from statutory dissolution and (2) have a "protected right not to make payments" to various funds benefiting schools and special districts as a "condition of continued operation."  The court ruled that the answer to the first question is "no" and the answer to the second is "yes."

Upholding Assembly Bill 1X 26, the court held that the Legislature's dissolution of redevelopment agencies was a "proper exercise of the legislative power" vested in the Legislature by the California Constitution, which authorizes the Legislature to create entities to carry out the state's ends and grants the Legislature the "corollary power" to dissolve those entities when the Legislature deems it "necessary and proper."  The court found that AB1X 26 did not conflict with either Proposition 22, which imposed new limits on the Legislature's fiscal powers but did not rescind the Legislature's power to dissolve redevelopment agencies, or Article XVI, Section 16 of the California Constitution, which authorized the allocation of property tax revenues to redevelopment agencies.  The court held that redevelopment agencies have no "absolute right to continued existence."  In addition, the court upheld the wind-down provisions of AB1X 26 that barred redevelopment agencies from making new binding commitments and engaging in new business.  Based upon the specific severance clause enacted by the Legislature, the court concluded that AB1X 26 may be severed from AB1X 27 and enforced independently, finding that AB1X 26 "does not depend in any way" on AB1X 27.

Dealing a blow to the legislative compromise that would have allowed redevelopment agencies to continue operations uninterrupted, the court found Assembly Bill 1X 27 invalid in its entirety.  AB1X 27 conditioned continued redevelopment agency operations upon additional payments by an agency's community sponsors for the benefit of public schools and special districts.  The court found such  payments to be expressly forbidden by Proposition 22, by which voters approved a "constitutional prohibition" against the state's ability to demand back a portion of redevelopment tax increment funds for schools or other state purposes.  The court found the leeway AB1X 27 purported to grant redevelopment agencies and community sponsors to decide the source from which to make payments did not "diminish the payments' character as a levy on tax increment funds."  The court rejected the state's argument that the payments did not violate Proposition 22 because they were "technically voluntary," concluding that this is a "distinction without a difference" and noting that such payments "are a requirement of continued operation."

The court noted that it had previously stayed a portion of AB1X 26 when it accepted jurisdiction over the case and numerous "critical deadlines" in the stayed provisions have passed and can no longer be met.  The court exercised its "power of reformation" and revised each effective date or deadline for performance of an obligation arising before May 1, 2012 to take effect four months later.  In addition, the court stated that no reformation is needed for future obligations to be carried out in subsequent fiscal years.

The court unanimously upheld the constitutionality of AB1X 26.  In her first dissent since joining the California Supreme Court, Chief Justice Tani Cantil-Sakauye parted with the majority regarding the unconstitutionality of AB1X 27, arguing (1) nothing in AB1X 27 compels community sponsors to violate Proposition 22 and (2) petitioners had not met their burden of supporting the contention that AB1X 27 would cause community sponsors to utilize funds otherwise protected by Proposition 22.

In the wake of the ruling, the California Redevelopment Association and the League of California Cities have vowed to work with state legislators immediately to develop legislation to revive redevelopment in order to "protect local communities, job creation, and our economy."

© 2011 Perkins Coie LLP


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