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Solimar Research

Redevelopment Agencies' Worst Nightmare Discussed before Supreme Court

After yesterday's California Supreme Court oral argument in California Redevelopment Association vs. Matosantos the lawsuit challenging the state's new pay-ransom-or-die redevelopment system it's still hard to tell where the court will go. But the biggest question that emerged was: What happens it the court upholds AB 1x 26, which abolishes redevelopment, but strikes down AB 1x 27, which permits redevelopment agencies to continue to exist if they pay a "remittance" to the state?

Apparently it's a plausible scenario given the nature of Proposition 22, the successful 2010 initiative that sought to protect redevelopment funds from being raided by the state. AB 1x 26 might survive a constitutional challenge on the theory that, while Prop. 22 amended the constitution to prohibit raids, it didn't explicitly protect redevelopment itself, meaning redevelopment agencies can be killed by statute. However, because AB 1x 27 calls for "remittances" to the state, that could be interpreted violating Prop. 22.

The net effect of upholding AB 1x 26 and striking down AB 1x 27, of course, would be to kill redevelopment completely a worse outcome than the redevelopment agencies got from the Legislature and the governor. 

The state's lawyer, Deputy Attorney General Ross Moody, obviously would prefer that both laws be upheld. Steven Mayer of San Francisco's Howard, Rice law firm representing the California Redevelopment Association and the League of California Cities said AB 1x 26 "is the whole ballgame to my clients". Meanwhile, James Williams of the Santa Clara County Counsel's office argued passionately to uphold AB 1x 26 and strike down AB 1x 27.

All three lawyers were pepped with questions during the 70-minute oral argument. Much of the questioning had to do with whether or not the remittances were truly voluntary and whether cities had any options for paying the remittance other than using tax-increment funding. AB 1x 27 could fall if the court found that the remittances are not voluntary and/or that the cities must use tax-increment funding to pay them which would appear to be a violation of Proposition 22. 

Moody argued that, in a facial challenge, the court had no choice but to accept the "voluntary" contribution idea at face value. 

"It's hard to argue it's a voluntary payment," Justice Carol Corrigan said.

"Everybody gets paid," Moody responded. "Is that so bad?"

"It is if you want to keep doing redevelopment," Corrigan said. "That's a facile argument they get to continue to exist just as long as they are wrapping things up." 

Moody called the remittance program not a ransom but, rather, "a legislative offer to participate in a program." Not even all of the justices appeared to take that one seriously. "We're from the government and we're here to help you?" Justice Kathryn Werdegar gently mocked.

And a lot of the questioning focused on whether cities would any alternative in paying the remittances other than using tax-increment funding. Moody, of course, argued that it was entirely possible and, in fact, heartily agreed with Chief Justice Cantil-Sakauye asked whether cities could pass a tax increase to pay the remittances.

Mayer, on the other hand, basically argued that most cities have no other source of funds, so the practical reality is that they will have to use tax-increment financing to pay the remittances, possibly in violation of Prop. 22. 

Williams from Santa Clara County made a passionate pitch that AB 1x 27 is unconstitutional. That's not surprising considering the pickle the county is in. The San Jose Redevelopment Agency once of the richest and most powerful agencies in the state does not appear to have the money to pay the remittance; but if San Jose can figure out how to do so, the county will be out an enormous amount of money.

Mayer spent his final presentation responding to Williams and making what appeared to be circuitous arguments about why the two laws could not be severed even though there is a severability clause in the language. Mayer noted at one point that, regardless of the statute, "The Legislature designed 27 because they wanted agencies to op-in....the Legislature did not intend to end redevelopment." 

The court is expected to rule by mid-January, when the first installment of the remittance payments is due.