California Scheme for School Funding Upheld

(CN) - California had the constitutional authority to make redevelopment agencies contribute part of their property tax funding to K-12 education, an appeals court ruled.

In fiscal years 2009-10 and 2010-11, Assembly Bill 4X26 directed the now-defunct agencies to transfer roughly $2 billion of property tax revenue into supplemental educational revenue augmentation funds [SERAFs] for public schools by May 2010.

California Redevelopment Agencies up and down the state sought to block enforcement of the bill, but the Sacramento County Superior Court upheld the law as constitutional.

The Third Appellate District affirmed Friday.

"Inherent in the power to dissolve is the power to limit funding available to redevelopment agencies," Justice Harry Hull wrote for a three-member panel. "And because Assembly Bill 4X 26 does not otherwise violate constitutional limitations on the use of property taxes or impair contractual obligations of redevelopment agencies or their successors, we conclude it is a valid exercise of the Legislature's inherent budgetary powers."

The decision adheres to Supreme Court precedent that upheld the state's power to dissolve the agencies altogether through Assembly Bills 1X26 and 1X27, both enacted in 2011.

Finance Director Ana Matosantos had argued that the protests were moot since the state could not return the $2 billion to agencies that no longer exist, nor could courts tell the Legislature how to appropriate funds.

Hull disagreed, saying the court could find that California had wrongly appropriated funds and then figure out a way to satisfy the order.

"The fact we cannot direct the Legislature on a specific appropriation of funds does not mean we are without power to enter a judgment in favor of the various plaintiffs," Hull wrote.

Otherwise, "no money judgment could ever be entered against the state," he added.

Nevertheless, the legislation did not improperly seize the agencies' money, according to the ruling.

The panel also rejected claims that the bill impaired the ability of agencies to repay debts and meet contractual obligations.

"There is no showing in this matter that any change in the law brought about by Assembly Bill 4X 26 has or will substantially impair any contractual obligation that has been assumed by the successor agencies," Hull wrote.

The appellate court also reversed an order awarding the redevelopment agencies attorneys' fees.

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