State Budget Ruling Expected Today on Redevelopment Agencies

From the San Jose Mercury-News: The California Supreme Court will issue a long-awaited ruling Thursdayon the legality of the state's move to grab $1.7 billion in redevelopment moneyto help close California's budget shortfall -- a move that rocked cities aroundthe Bay Area and across the state.

The ruling, expectedat 10 a.m., should give critical guidance on two state laws: one that dissolvesredevelopment agencies and redirects their property tax revenues to the state,and a second that allows agencies to stay afloat if they agree to relinquish alarge portion of their funding, which will be used to pay for schools…

What is this issue all about?  In November 2010, voters passed Prop 22 whichwas intended to prevent the state from grabbing pieces of local budgetrevenue.  Among the supporters of Prop 22were local redevelopment agencies.  Theseagencies – set up by local governments – are intended to do what their namesuggests, i.e., promote redevelopment of “blighted” areas.  They are in part funded through (property)tax increment financing.  As the propertyvalues of the redeveloped areas rise (because of the renewal), the added taxrevenue goes to the agency.  Other localgovernments – such as school districts – don’t get it.

Because state and local budgets are intertwined, thediversion of property tax indirectly pulls money from the state which hasobligations to the schools under Prop 98 of 1988.  Governor Brown, in putting forth his currentyear budget (2011-12), proposed to get around Prop 22 by abolishingredevelopment agencies entirely.  If theydid not exist, you could not take money away from them, so the reasoning seemedto go.  It is not clear that the stateSupreme Court will see it that way.  Inany event, as the budget progressed through the legislature – and the localagencies screamed – a compromise was reached whereby the agencies couldcontinue to exist, but only if they paid tribute to the state.  They have mostly done so under protest.

All of this matters to UC because if the state’s attempt totake money from redevelopment agencies is ruled to be a violation of Prop 22,another $1.7 billion will have disappeared from the current year budget.  If that happens, the governor will likelypropose to make it up in next year’s budget. That budget will be announced in early January, although the governorhas been leaking bits and pieces of it in recent days (as is the tradition).

Full story from the Mercury-News is at http://www.mercurynews.com/california-budget/ci_19632057

The court proceeding should go off on schedule - but you never know: