California Supreme Court Will Decide the Constitutionality of a Plan to Dissolve Redevelopment Agencies

On August 11th, 2011, the California Supreme Court decided to hear a case filed by the California Redevelopment Association (CRA) and the League of California Cities (LOCC), challenging the constitutionality of two recently adopted Assembly Bills: ABX1 26 and 27. 

ABX1 26 would eliminate all redevelopment agencies in California effective October 1st, 2011; ABX1 27 however provides that a redevelopment agency can remain in existence if the host City or County participates in a Voluntary Alternative Redevelopment Program (VARP).  VARP requires a participating City or County to transfer a portion of tax increment to schools and other special districts on an annual basis by way of a Redevelopment Property Tax Trust Fund.  For the 2011 – 12 fiscal year, the State-wide total transferred amount is $1.7 billion and for the 2012 – 13 fiscal year and thereafter, the State-wide total transferred amount is anticipated to be $0.4 billion.  Cities and Counties not participating in VARP will see their redevelopment agency dissolved under ABX1 26.  The tax increment to be collected by the redevelopment agency and transferred to the taxing bodies will be used to first pay off any previously incurred redevelopment agency debt and then distributed to other taxing bodies.

On July 18th, 2011, CRA and LOCC filed a petition with California Supreme Court, alleging that ABX1 26 and 27 violate Propositions 1A and 22 and, therefore, are unconstitutional.

On August 11th, 2011, the California Supreme Court granted a partial stay of ABX1 26 and 27, allowing redevelopment agencies to continue to exist while the case is pending.  However, redevelopment agencies are prohibited from entering into new contracts and incurring new indebtedness.

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