Redevelopment Hearing 11/10/11

The following is purely my observations and reporting. By no means am I a legal expert of any kind.

Proceedings today were short and sweet, so that and the court’s ban on electronic devices made it impossible for me to liveblog. Not to worry for those interested in the redevelopment saga, as I took fairly copious notes.

The case is S194861, California Redevelopment Association et al. v. Matosantos et al., or more succinctly, Redevelopment v. State of California. You may remember that the state’s summer budget battle largely hinged on the fate of redevelopment agencies, as they would be tapped over the next few years to patch a gaping hole in the state budget. The previous November, Brown was elected along with Proposition 22, a piece of legislation designed to prohibit raids on RDAs. The case is based on the idea that the twin bills passed in the Legislature, ABX26 and ABX27, violated Proposition 22 and Article 16 of the State Constitution, and thus should be struck down.

A little background is in order. In short, ABX26 bans additional borrowing or bonding by RDAs retroactive to the beginning of the year. It outlines how payments are to be made to the State or local school districts (if cities choose to use that alternative). ABX26 prohibits additional functioning of any RDA if payments to the state/school districts are not made. ABX27 explains how RDAs or successor agencies are to function if payments are met. The program ABX27 details is called the Voluntary Alternative Redevelopment Plan.

Representing the CRA was Steven Mayer, a director at SF law firm Howard Rice. He faced two opponents, Ross Moody from the State Attorney General and James Williams from the Santa Clara County General Counsel. (After oral arguments were done, Mr. Williams’ mother stood behind me in the “device check” line, beaming with pride. Her son did a good job, BTW.)

As the petitioner’s counsel, Mayer was up both first and last. Despite the term “oral arguments,” the session doesn’t allow for big sweeping speeches by either party. Instead, the lawyers were peppered with questions by the seven justices. Immediately, Justice Joyce Kennard framed the argument in a question, asking Mayer if the case was basically the State and Schools vs. Redevelopment Agencies. Mayer didn’t answer the question directly, instead saying, “That is the effect” of the legislation. He went on to claim that the “vice” of the twin props is not that they dissolve RDAs, it’s that it transfers money to the state. Moreover, there are corner cases or gray areas in which the City (or County) loaned money to its RDA. Those types of debts aren’t guaranteed, which puts some cities, especially ones with large RDAs, at special risk. Moody’s rebuttal was that the cities who made such loans should have known how risky such transfers were and that they wouldn’t necessarily be protected. Most redevelopment-related financing is done via bonds backed by tax increment, so it’s easy to see how the money was raised, if not how it was spent. Loans from a municipality to an RDA don’t have such backing. Moody pointed to the fact that ABX26 has language that allows for “all enforceable agreements will be discharged.”

A major sticking point between the two parties was how the two bills functioned together. Moody and Williams argued that the two laws could be enacted separately. Williams actually argued for ABX26 to be upheld and ABX27 to be struck down, which would effectively kill RDAs dead. Mayer considered ABX26 a life-or-death matter for RDAs and argued for it to be struck down, while ABX27 could be upheld and RDAs could continue to exist, albeit in a somewhat neutered form. Moody spoke in favor of both being upheld. There were several questions from the Justices trying to get at whether the two laws are separate or, as Mayer put it, “joined at the hip”. Deciding that may be key to both laws’ eventual fate.

Complicating matters is Mayer’s admission that 90% of RDAs throughout California are getting ready to make payments in compliance with the new laws should they be upheld. As I’ve been reported throughout the summer, many cities are fighting the laws through the CRA lawsuit while hedging their bets by setting aside money for payments.

At the heart of the matter is the constitutionality of the laws. Mayer argued that because of the combination of redevelopment being enshrined in the Constitution and the effects of Propositions 1A and 22, the state was not authorized to either raid RDAs or kill them. Moody argued that redevelopment was enacted by statue in 1945, and only the power to raise funds via tax increment was enshrined in the Constitution in 1952. That’s an important distinction to make as it’s the difference between having the Legistature pass a bill and the public approving it via referendum. Therefore, the ability to create and run RDAs was created by statute and could be taken away by statute (ABX26/27). The Justices, perhaps looking for a third way, asked Moody if cities could have special tax imposed for redevelopment projects upon voter approval. Moody replied that this could happen.

All in all, I came away from the hearing with a much better understanding of the issues and what’s at stake for all parties. The fact that a lawyer representing Santa Clara County was present was no accident. The City of San Jose is a party in this lawsuit, and it only stands to reason that the County, which has had a contentious relationship with the City for years (if not decades), took up the fight as well. Discussion outside the courtroom centered around the timing of the Justices’ decision, which could be as early as mid-December. Regardless of the actual decision, that would be the best timing since it would allow the State and municipalities to plot their course with at least some advance notice. If the decision came in January, around the time of the first payment due date, the whole thing could become highly chaotic. That’s the last thing California and its cities and counties need.

5 thoughts on “Redevelopment Hearing 11/10/11

  1. @ML–so if the state takes the money to plug their budget gap how does this help SCC? Rather than seeing local benefit the state does whatever the state does with all the money—

    Also–curious–reading the Merc assessment as well as your own seems like the legislators acted within their rights (no attorney here either)—so redevelopment goes away–and potentially the resvised redevelopment for ransom concept goes away—does it really have any impact in SJ as it relates to the ballpark?

  2. @GoA’s – It prevents SJ from siphoning money away from SCCo anymore. SCCo pretty much blames SJ for the bulk of its fiscal woes ($90 million deficit this year IIRC).

    @Zonis – I saw that over the weekend. We may hear more stories like this in the near future. Don’t expect it to translate into anything concrete right away.

  3. ML, is 2014 still a possiblity like the 49ers? Or is 2015 the earliest for a new A’s ballpark in either SJ or Oakland?

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