Morgan Hill and about 400 other cities, counties and agencies
throughout California are eagerly awaiting the outcome of a state
Supreme Court case that could determine the long-term fate of
redevelopment agencies.
Morgan Hill and about 400 other cities, counties and agencies throughout California are eagerly awaiting the outcome of a state Supreme Court case that could determine the long-term fate of redevelopment agencies.
The state’s highest court has agreed to fast-track the filing of briefs and hearing of arguments in the case known as California Redevelopment Association vs. Matosantos, promising to make a decision by Jan. 15, 2012.
The plaintiff, CRA, filed the lawsuit in response to the controversial aspect of the state budget that diverts $1.7 billion in local property tax revenues from redevelopment agencies to fund the state’s shortfall in more basic services.
The current law, signed by Governor Jerry Brown earlier this summer, requires the local agencies to either dissolve themselves and give up the cash, properties and other assets they own to a new agency that would take their place; or to continue operating as they have for 40-plus years as long as they pay a hefty bill to the state.
It’s a sea change in the administration of redevelopment, which uses property tax-increment financing to declare private or public properties blighted and to revitalize them in order to attract economic development.
The Morgan Hill redevelopment agency receives about $22 million annually in local property tax revenues, and opted shortly after the state budget was approved last month to pay the “ransom” that will allow the agency to stay alive and continue its plans to revitalize downtown and construct new roads.
In the first year, the Morgan Hill RDA will have to give up $9.8 million to the state, as a result of the state budget. In each of the following two years the city would pay the state $2.3 million.
The city supports the CRA’s lawsuit, according to City Manager Ed Tewes. Should the Supreme Court make its decision after Jan. 15, Morgan Hill and other redevelopment agencies will not have to make their first “ransom” payment until after the decision is made. The RDAs’ deadline to pay the state is also Jan. 15.
In the meantime, the RDA cannot enter new contracts until the Supreme Court decides its fate. Morgan Hill’s agency can only continue work on previously authorized projects, including the southern extension of Butterfield Boulevard and various business and residential loans.
“We believe the (state) measures are unconstitutional,” Tewes said.
The state law, implemented and enforced by the department of finance, is a violation of Proposition 22 of the state constitution, which was approved by 61 percent of the voters in 2010 and prohibits state officials from “seizing, diverting, shifting, borrowing, transferring, suspending, or otherwise taking or interfering with revenues that are dedicated to funding services provided by local government or funds dedicated to transportation improvement projects and services,” says the complaint filed by the CRA.
“We’re very gratified that the Supreme Court has agreed to take our case, issued the stay we requested to preserve the status quo, and that it is moving forward on an expedited basis,” said Chris McKenzie, executive director of the League of California Cities, which is also a plaintiff in the lawsuit. “The redevelopment bills are unconstitutional, violating Prop. 22 and other provisions of the state constitution. We’re confident the Supreme Court will strike down this unconstitutional legislation that ignores the voters’ will and that will destroy local economies.”
If the state law stands, the city will have to make significant cuts to its general fund in order to make the first $9.8-million “ransom” payment. City staff will present a detailed plan listing the proposed cuts, which could include leaving two empty police positions vacant and turning out street lights, at the Sept. 7 council meeting.
Supporting the defendant, department of finance director Ana Matosantos, is the California Alliance to Protect Private Property Rights. Based in Sacramento, the alliance thinks the state law will limit what it sees as widespread abuse perpetrated by redevelopment agencies, according to alliance president Marko Mlikotin.
The public funds used by RDAs are often used to enrich private developers while siphoning money from basic services such as public safety, education and social services, Mlikotin said. A local example of such “abuse” is the Santa Clara RDA’s attempt to use tax dollars to hire a developer to build a new stadium for the San Francisco 49ers football team, he added.
“It’s remarkable how legislators are willing to cut funding for services but can’t seem to get politically connected developers off the public dole,” Mlikotin said. “Government should not be in the business of shelling out tax dollars to private businesses. It should be in the business of supporting public services.” He added a recent study by the state found “no evidence” that public redevelopment projects create jobs.
Though the alliance thinks RDAs should be abolished outright, it accepts the state’s new requirement that they “help support local schools” by paying what RDA supporters call the “ransom,” Mlikotin said.
Earlier this year the alliance filed a notice to place a referendum to abolish RDAs on the Nov. 2012 ballot. However they abandoned that effort due to the expected costs associated with gathering signatures and campaigning, Mlikotin said. Instead, they will support the state’s efforts by filing an “amicus” brief in the Supreme Court.
“The state created redevelopment agencies, and the state has the power to abolish them,” Mlikotin said.
