California Takes TIF Money from Redevelopment Agencies

California has adopted a new measure to bolster the State’s struggling economy.  In July 2009, the State adopted Budget Bill AB 26, which, among other things, requires Redevelopment Agencies (RDAs) to send a portion of their TIF funds to the State to help pay for certain State budget shortfalls.

On May 4, 2010, the Sacramento Superior Court upheld the constitutionality of AB 26 requiring California RDAs to transfer $1.7 billion in redevelopment funds to county Supplemental Educational Revenue Augmentation Funds to offset reductions in primary and secondary education funding.  RDAs were required to remit these funds by May 10, 2010 and pay an additional $350 million by May 10, 2011.  

This is not the first time that California attempted to use redevelopment funds to solve its budget problems.  In 2008, the State adopted a bill requesting the State RDAs to transfer $350 million in redevelopment funds to the Educational Revenue Augmentation Fund in each respective county. This was invalidated in 2009 because it was determined that the State could not apply an RDA’s tax increment revenues outside the RDA project area.

In its recent ruling, the Court found that AB 26 provided procedures designed to distribute redevelopment funds only to the school(s) serving redevelopment projects of the RDAs, thereby avoiding the legal and constitutional issues that affected the earlier legislation.

AB 26 provides that although the $2.05 billion is an indebtedness of the redevelopment projects, payable from tax increment revenues allocated to each RDA until paid in full, it is subordinate to payment of the principal and interest on any outstanding bonds of the RDA, including bonds secured by a pledge of tax increment revenues.

Although the RDAs were required to transfer their redevelopment funds to the State by May 10th, the California Redevelopment Association has started an appeal process, challenging the Superior Court’s May 4th ruling.

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