The California Supreme Court examines a law that would kill the agencies and one that would let them exist if they shared tax money with schools and others. Both were aimed at cutting the deficit.

By Maura Dolan and Jessica Garrison, Los Angeles Times
November 11, 2011

Reporting from San Francisco and Los Angeles — The California Supreme Court appears inclined to permit the state to abolish municipal redevelopment agencies, but the justices did not clearly signal whether some of the entities could continue to operate as long as they shared tax revenues with schools and special districts.

During a hearing Thursday, the high court examined a lawsuit filed by redevelopment agencies that sought to overturn two laws passed earlier this year in an attempt to balance the state budget.

One of the bills abolished the agencies, which the Legislature has allowed cities to create since 1945. The other, passed as a compromise after cities balked, said the agencies could continue to exist only if they turned over money to help pay for schools and services such as firefighting and transportation.

Redevelopment agencies permit cities and counties to carve out blighted neighborhoods for improvement through partnerships with private developers, giving them the power to obtain property by eminent domain, purchase or lease. Proponents say they create jobs and improve quality of life, pointing to Old Pasadena, San Diego’s Gaslamp Quarter and Hollywood as success stories. Critics contend that they are starving schools and the state of needed funds and that many of the agencies have not spent money wisely.

As redevelopment districts have proliferated, they have controlled a larger percentage of tax revenue, leaving less for public services, the state contends. California officials estimated that the new laws would generate $1.7 billion during this fiscal year and an additional $400 million in future years from agencies that decided to continue operations.

But Justice Joyce L. Kennard suggested that the agencies’ challenge of both laws could backfire. She said the court could find the abolition constitutional but the revenue-sharing law invalid, a prospect that an attorney for redevelopment agencies called the worst possible outcome.

Steven L. Mayer said 90% of the agencies would rather share revenue than go out of business. The law that abolished the agencies “is the whole ballgame to my clients,” he said.

But the lawsuit contended that both abolition and revenue-sharing violated Proposition 22, a state constitutional amendment passed in 2010 that prohibited California from raiding funds from redevelopment agencies and other local governments.

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