California Cities Sue State over Redevelopment Laws

When word spread in January that Gov. Jerry Brown was proposing an end to redevelopment agencies across the state, city and county officials across the state said they wouldn’t go down whimpering.

They made good on their word Monday when the League of California Cities and the California Redevelopment Association, along with the cities of San Jose and Union City, filed a lawsuit with the California Supreme Court questioning the legality of two recently passed laws that call for cities to either pay large sums to the state to continue redevelopment, or shut down the agencies entirely.

Two bills affecting redevelopment were approved by state legislators with last month: AB 1X 26, which will eliminate the 400 redevelopment agencies in the state by Oct. 1, and AB 1X 27, which allows agencies to continue to operate by paying their share of $1.7 billion this year and $400 million each year moving forward.

Those funds would be diverted largely to schools and special districts.

The lawsuit filed Monday claims the bills violate Prop. 22, an amendment approved by voters last November to prevent the state from taking money from local governments, including the tax increments generated by redevelopment agencies.

“The governor and legislature have blatantly ignored the voters and violated the State Constitution,” said Chris McKenzie, executive director of the League of California Cities. “We must now go to the Supreme Court to uphold the voters’ will and the Constitution by overturning this unconstitutional legislation. We are confident the courts will uphold the will of the voters.”

The lawsuit requests a stay by Aug. 15 to prevent the legislation from taking effect before the court can rule on the claims put forth in the lawsuit.

San Leandro's Business Development, Housing Programs Threatened

Unless the legislation is overturned, San Leandro’s redevelopment agency would be forced to either stop completely or significantly reduce its activities.

Besides facilitating upgrades and developments intended to spruce up the city and eliminate blight — including the Creekside Plaza Office Complex, MacArthur Boulevard shopping area, and the new downtown parking garage — the local redevelopment agency also assists local businesses and homeowners, and helps fund affordable housing projects. (See photos before and after redevelopment of the MacArthur Boulevard area at right.)

Last year, for example, the agency helped renovate the Bal Theatre’s marquee and entrance area through its commercial rehabilitation program. It also funded landscaping and other improvements to the Palma Plaza Shopping Center on East 14th  Street. (Read the agency’s 2010 financial statement by clicking on the image at right).

Local redevelopment money also funds a first-time homebuyer loan and education program, and a housing rehabilitation program. The latter provides loans to low-income residents — many of them seniors — to help them make necessary home improvements.

These housing and business development programs are currently on hold. If the Supreme Court rules in favor of the state, they could be reduced or eliminated, depending on whether or not the city decides to pay to keep its redevelopment agency.

Other long-planned redevelopment projects are also in jeopardy, including Town Hall Square — the mixed housing and commercial development planned for the corner of Davis and East 14th streets — and Village Marketplace, the commercial development planned for the old Albertson’s lot on East 14th Street between Juana and Dolores avenues.

In order to stay in business under AB 1X 27, San Leandro's redevelopment agency would have to pay around $5.1 million for the current fiscal year, and about $1.1 million each year afterwards. That money would be funneled through the county, primarily to San Leandro schools, to help meet funding amounts promised by the state.

Under the new state budget, if the state's revenues fall short of projections, the K-12 academic year would be cut by seven days to accommodate for funding losses. 

State Says Redevelopment Not Useful

While cities have cried that eliminating redevelopment would kill hundreds of thousands of jobs and shut down key revitalization projects, Gov. Brown has argued that, in tough budgetary times, there are more important needs than redevelopment.

Earlier this year, the non-partisan Legislative Analyst's Office (LAO) found in a report that there was no evidence that redevelopment agencies spur overall regional or state economic development.

Still, San Leandro City Council members have defended redevelopment efforts in the city.

“I think this city has used the redevelopment funds wisely,” Council Member Jim Prola said at a recent City Council work session. “I’m really disappointed in the state.”

Council Member Joyce Starosciak said: “We’ve seen some beautiful changes in our city based upon investments through the redevelopment agency.”

Starosciak and other council members expressed frustration at being placed in the uncomfortable situation of ostensibly having to choose between urban revitalization and education.

“It puts us in a terrible bind of seeing competition for the same tax dollars between the needs of our children and the broader needs of our community,” Mayor Stephen Cassidy said.

Cassidy blamed the lack of sufficient state resources for schools on Prop 13, the 1978 voter initiative that put a cap on property taxes, severely curbing the state’s income ever since.