• California Supreme Court Decision Eliminates Redevelopment Agencies
  • January 3, 2012 | Authors: T. Brent Hawkins; Elizabeth Wagner Hull
  • Law Firms: Best Best & Krieger LLP - Sacramento Office ; Best Best & Krieger LLP - Irvine Office
  • The California Supreme Court today issued its ruling in California Redevelopment Association et al. v. Ana Matosantos et al. (Lawsuit), the case challenging the constitutionality of Assembly Bill 1X 26 (AB 26) and Assembly Bill 1X 27 (AB 27), the bills that sought to force redevelopment agencies to pay $1.7 billion to the State of California under threat of elimination. In its ruling the Court upheld AB 26, the bill that dissolves all redevelopment agencies. However it found that AB 27, which allows redevelopment agencies to avoid elimination by making certain payments to offset state budget expenses, is unconstitutional. As a result, all redevelopment agencies are required to dissolve and transfer their assets and liabilities to “successor agencies” that will wind down the redevelopment agencies’ affairs.

    The Supreme Court found that because the Legislature had the power to authorize the creation of redevelopment agencies, it also had the power to authorize their dissolution. Proposition 22, which amended the Constitution, only prohibits the Legislature from requiring redevelopment agencies, once established, to pay the state or other agencies. In addition, the Court found that the two bills—enacted together by the Legislature—were in fact separable.  Because AB 1X 26 established deadlines for certain actions that have already passed, the Court extended the deadlines for performance of those actions required prior to May 1, 2012 by four months. Based on the decision, all redevelopment agencies will be dissolved as of February 1, 2012, absent emergency legislation delaying or reversing this outcome.

    This outcome is a devastating blow to local government in California and will severely hamper redevelopment and economic development efforts across the state. While legislation may be introduced to mitigate the impact of this ruling, cities, counties and their redevelopment agencies have several immediate obligations that must be met under AB 26 as modified by the ruling. These steps include the following:

    • Cities with redevelopment agencies should conduct an accounting of all agency assets, liabilities and obligations as soon as possible. (In the interest of brevity, the term “city” is used herein to refer to both cities and counties with redevelopment agencies.) Many redevelopment agencies took steps to protect assets and ongoing redevelopment projects in the months prior to the adoption of AB 26 and 27. Cities should review the status of all ongoing projects and agreements, and evaluate their options with regard to these commitments. Cities should additionally make sure that they have complete information and documentation for any redevelopment agency activities over the past year in particular, to ensure that they can adequately protect their assets and any ongoing redevelopment activities.

    • Cities must determine whether they want to serve as the successor agency in charge of winding down their redevelopment agencies’ affairs. If they do not, they must pass and file a resolution declaring that they do not want to act as successor agency no later than January 13, 2012, based on the Court’s direction regarding the extension of dates in AB 26. Many agencies assumed that they would be able to exempt themselves from AB 26 and did not carefully consider the ramifications of serving as the successor agency. Before taking on this responsibility, each city should decide whether it wants to assume the obligations and potential liabilities that may come with serving as the successor agency. Cities that do not want to serve as the successor agency should adopt the required resolution as soon as feasibly possible.

    • The redevelopment agency is required to prepare a preliminary draft Recognized Obligation Payment Schedule (the ROPS) by January 30, 2012. and if a city does decide to serve as the successor agency, it must prepare a subsequent draft Recognized Obligation Payment Schedule (ROPS) by March 1, 2012. Many redevelopment agencies prepared preliminary draft ROPS in October in accordance with the original deadlines in AB 26, but most agencies anticipated they would make the AB 27 payment and likely did not focus on ensuring that the draft ROPS included all information necessary to implement the dissolution of the redevelopment agency. Cities should ensure that the ROPS includes all information required under AB 26 and includes the funds the city will need to carry out the dissolution process. The draft ROPS will be submitted to the oversight board, and once approved must be completed and delivered to the county auditor-controller, State Controller and State Department of Finance no later than April 15, 2011.

    • The city that established the redevelopment agency has the option of retaining the redevelopment agency’s affordable housing assets and functions, excluding unencumbered amounts in the low and moderate income housing fund. If the city wants to retain this responsibility, it should adopt a resolution to that effect prior to dissolution and commence the process of transferring those assets.

    • The city should begin to consider possible appointments to the oversight board. The mayor or board chair of each city with a dissolved redevelopment agency will appoint one member representing the city, and a second member representing the redevelopment agency employees, from the recognized employee organization representing the largest number of former redevelopment agency employees.

    • Lastly, if a city has taken any actions pursuant to AB 27, it will have to act to rescind those previous actions, as they are no longer valid. The actions that must be rescinded may include the adoption of a resolution of intention to adopt an ordinance committing to make the community remittance payment, the adoption of the ordinance committing to make the community remittance payment, and the approval of an agreement between the redevelopment agency and the city to transfer redevelopment agency funds necessary to make the community remittance payment.

    The Legislature may enact legislation that will address some of the issues and unintended consequences that will result from the Court’s decision to uphold AB 26 but overturn AB 27. However, each of the actions listed above is time sensitive and should be addressed as soon as possible.