Redevelopment Agencies Eliminated: What’s Next for California?

We recently reported on the California Supreme Court decision in California Redevelopment Association v. Matosantos, which upheld a state law that will dissolve the nearly 400 redevelopment agencies across the state. But that isn’t likely to be the final word on the subject, as recent commentary and analysis on the ruling would seem to indicate:

“Given the unanswered questions, however, the likely immediate outcome is that cities, developers, and investors will conduct (or continue) a wholesale assessment of existing redevelopment obligations to resolve the status of specific transactions and agreements. Without more guidance from the Court or a political solution, this is likely to result in many legal challenges for the foreseeable future…

In the meantime, however, litigation over the implementation of A.B. 1X 26 seems almost certain. With this much money at stake, it’s hard to imagine that cities, developers, or investors will abandon their interests without a fight, or that school districts and counties will let go easily of the redevelopment money that seems right in their grasp.” (Redevelopment Agencies: Dead, But Not Buried by Morrison & Foerster LLP) 

For your reference, issues to monitor:

Delayed Implementation of the Ruling

“SB 659, authored by state senators Alex Padilla (D-Pacoima) and Michael Rubio (D-Shafter), would postpone the now scheduled February 1 shutdown of RDAs until April 15. Labor groups, public safety advocates, business groups, local governments, housing advocates and community groups are urging the legislature to quickly pass and Governor Jerry Brown to sign SB 659 in order to give the legislature time to address serious issues and liabilities that would otherwise result from immediate dissolution of RDAs.” (Redevelopment Update: New Legislation and Designation of Successor Agencies by Manatt, Phelps & Phillips, LLP) 

Loans from Redevelopment Agencies

“Redevelopment agencies have frequently provided loans to developers, especially affordable housing developers, and non-profit organizations. Frequently, given the community development and planning goals of the redevelopment agencies, enforcement of such loans has not been strict. Since the successor agencies are charged with maximizing revenues for distribution to the taxing authorities, borrowers’ assumptions regarding loan extensions, modifications, non-enforcement or conversions to grants should now be re-examined.” (State Cancellation of Redevelopment Agencies May Affect You! by Sheppard Mullin Richter & Hampton LLP) 

Ongoing Projects in Early Stages

“The ruling in California Redevelopment Association is expected to have profound impacts on development projects depending on or expecting to receive funds or other benefits from an RDA, if the expected funds or benefits are not due pursuant to an ‘enforceable obligation’ under AB 1X 26. In addition, the dissolution of RDAs may be expected to cause confusion and delays as municipalities restructure certain regulatory and housing-related activities from RDAs to other departments or agencies.” (Supreme Court Upholds Dissolution of Redevelopment Agencies and Invalidates “Pay to Play” Option by Manatt, Phelps & Phillips, LLP) 

Next Steps for Successor Agencies

“Each successor agency must create a Redevelopment Obligation Retirement Fund, from which to pay the RDA’s enforceable obligations. In addition, each county auditor-controller must create a Redevelopment Property Tax Trust Fund to receive the RDAs’ tax increment revenues, and from which to fund the successor agencies’ Redevelopment Obligation Retirement Funds.” (California Supreme Court Kills Redevelopment Agencies. Now What? by Snell & Wilmer L.L.P.) 

Additional Legislation

“The decision in California Redevelopment Association v. Matasantos is final. According to the schedule established by the Court, provisions for the dissolution of redevelopment agencies will be effective as early as February 1, 2012. Any effort to salvage redevelopment as a tool for local agencies to eliminate blight and improve their communities is now back in the hands of the Legislature.” (California Supreme Court Upholds Elimination of Redevelopment Agencies by Allen Matkins Leck Gamble Mallory & Natsis LLP) 

“… any legislative effort to reinstate some form of redevelopment must overcome the very problem that led to the demise of ABX1 27: how to fund ‘Redevelopment 2.0’ without running afoul of Proposition 22. Moreover, a legislative compromise only works if the Governor approves it, and Governor Brown’s early comments do not suggest he is dissatisfied with the Court’s holding.” (It’s the End of Redevelopment as We Know It by Brad Kuhn) 

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See alsoRedevelopment Agencies Eliminated in California Supreme Court Ruling

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