California Supreme Court Upholds Law Dissolving Redevelopment Agencies—Impact on Eminent Domain As A Tool To Eliminate Blight

On December 29, 2011, the California Supreme Court issued its opinion in California Redevelopment Association v. Matosantos, the case which addressed the constitutionality of the laws passed by the Legislature preventing redevelopment agencies from engaging in new business and requiring them to wind up and dissolve.  The Court upheld the Legislature’s action in dissolving redevelopment agencies; but struck down the Legislature’s attempt to allow some agencies to continue in existence if they “voluntarily” paid over some of their tax increment financing to help finance police, fire, school and other “core” governmental services.

Responding to a declaration of “state fiscal emergency” made by former Governor Arnold Schwarzenegger and renewed by current Governor Jerry Brown, the Legislature passed two laws.  The first called for the dissolution and winding up of redevelopment agencies.  The second allowed those agencies that “voluntarily” paid over some of their tax increment financing for other purposes to remain in existence.

The California Supreme Court, in Matosantos, held that the first law was valid and constitutional.  The State creates redevelopment agencies; and, it can also end their existence.  The Court, however, struck down the second law because it violated a provision of the state constitution forbidding the Legislature to take tax increment financing revenue from redevelopment agencies once they had received it.

The decision will have the following impacts unless further legislation or constitutional amendments are passed:

  1. Redevelopment agencies will no longer be the “point” agencies for future redevelopment projects.  Such projects will have to be sponsored and implemented directly by other local bodies such as cities and counties.
  2. These other local bodies will have to use their own eminent domain powers to implement such projects.  Elimination of “blight” continues to be a recognized “public use” justifying the use of eminent domain in particular circumstances.  Redevelopment may still proceed in order to eliminate such blight, using eminent domain where necessary; but such redevelopment will no longer proceed through separate redevelopment agencies.  Instead, it will proceed through these other local bodies.
  3. The primary financing mechanism for redevelopment agencies was “tax increment financing”; i.e. the increase in property tax revenue generated by redevelopment through the elimination of blighted areas.
  4. As redevelopment agencies wind up and dissolve, completing the projects that existed prior to Matosantos and paying off their pre-existing indebtedness, this tax increment financing will go to other governmental agencies and be available for use as part of general funds for other “core” governmental services.
  5. This means that, if these other local agencies so choose, there will be less money available for redevelopment.  Nevertheless, these local agencies may opt to continue to use these funds, now part of their general funds, for redevelopment purposes and for eminent domain to implement redevelopment.
  6. In the current environment of severe budget shortfalls at all levels of government, it is to be expected, however, that less and less money will be allocated and used for redevelopment.  This will help alleviate part of the budget shortfall; but it is regrettable in the long run because it means that again we are robbing our future and the monies needed to develop our future in order to pay for the financial irresponsibility of our past and present.  The “Golden State” is becoming more and more the “IOU State.”

Posted: 01/03/12 Joseph Dzida

Categories: Eminent Domain Legal