California High Court Hears Argument on Legislative Raid

SAN FRANCISCO (CN) California's Supreme Court on Thursday grappled with the question whether the Legislature could divert tax revenue from redevelopment agencies for education, with the court giving no indication as to how it would rule.

The justices seemed troubled by the state's attempt to raid the agencies for money to backfill its budget hole only a year after voters passed Proposition 22, a measure that prohibits the state from taking local redevelopment money. At the same time, they acknowledged the Legislature's power to dissolve the redevelopment agencies they created in 1945.

"If the Legislature has the right to terminate the existence because they created the redevelopment agencies, any rights under Prop 22 would be contingent on that existence," said Justice Marvin Baxter.

Justice Joyce Kennard said California's constitution does not require that the Legislature continue to fund the agencies. "Start with the recognition that what the state has created, it can uncreate," Kennard said to Steven Mayer, attorney for the redevelopment agencies.

In July, the League of California Cities, Union City, San Jose and a host of city redevelopment agencies sued the state to prevent it from enacting two bills as part of the 2011-12 state budget that would dissolve redevelopment agencies and redirect their funds for education.

One of the bills, ABIX27, requires the agencies to pay the state $1.7 billion in two payments due on Jan. 15 and May 15 next year. ABIX26 eliminates the agencies altogether if they fail to pay. "The worst possible outcome would be to win on 27 and lose on 26," Mayer said.

ABIX26 is "the whole ballgame" for his clients, he argued as it would effectively eliminate them. "They can live with 27," he said. "AB26 is life or death for them."

He argued that AB26 unconstitutionally seizes money from redevelopment agencies before they can pay their debts. "The Legislature did not intend to end redevelopment," the lawyer argued, "which is what will happen if 26 is upheld."

During an hour of oral argument, Mayer likened the legislation to a ransom, arguing that redevelopment agencies are essentially paying for their right to exist. "Most cities and counties will make the payments if they can because the alternative is so Draconian," he told the justices.

Mayer also equated the bills to bank robbery, saying that forcing agencies to pay the state or risk elimination is the equivalent of asking for "your money or your life."

Justice Carol Corrigan seized on Mayer's argument, telling Deputy Attorney General Ross Moody, who is defending the Legislature and its actions, that the legislation "presupposes this is a voluntary choice, not a ransom."

"If redevelopment agencies are in the position that they can cheerfully continue to exist or dissolve," Justice Corrigan continued, "it's hard to argue it's a voluntary payment."

"I don't like the word ransom or hostage," said Moody, defending the legislation. He noted that cities can vote to raise taxes if they want to support their local redevelopment agencies. Moody also emphasized that while the legislature authorized the funding mechanism for redevelopment in the constitution, it is not required to continue funding the agencies.

"The key element is its permissive," said Moody. "They may change the rules, and that's what they've done here."

The high court agreed in August to hear the case, and in the meantime ordered a halt on all new redevelopment projects. A ruling is expected mid-January.

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