After several months of debate regarding the potential
elimination of California Redevelopment Agencies ("RDAs")
in order to help reduce California's budget deficit, on June
28, 2011 Gov. Jerry Brown signed two bills that affect the future
viability of RDAs. ABX1 26 eliminates all 400 California
redevelopment agencies effective October 1, 2011. However, its
companion measure, ABX1 27 provides that an existing RDA can avoid
elimination after October 1 if certain steps are taken by an
RDA's local jurisdiction, including passage of an ordinance
requiring the RDA to pay certain statutorily mandated revenues to
school entities and other special districts. Taken together, the
two bills effectively eliminate RDAs, unless they
"voluntarily" pay over to their respective local
jurisdiction certain tax increment revenues for other,
non-redevelopment local government uses.
In response to these bills, on July 18, 2011, the California
Redevelopment Association, an organization representing the 400
RDAs throughout the state, along with the League of Cities and two
individual cities filed a petition for a writ of mandate with the
California Supreme Court. This lawsuit seeks to overturn ABX1 26
and ABX1 27 on California constitutional grounds.
On August 11, 2011, the California Supreme Court issued a partial
stay of the two statutes, temporarily putting on hold the
elimination of RDAs in California. In that decision, the Court
blocked the "elimination" provisions of ABX1 26. The
Court, however, allowed the "freeze" provisions of ABX1
26 (now codified at Health and Safety Code Sections 34161 to 34167)
to take effect. Sections 34161 through 34167 prohibit all RDAs from
taking on new obligations or making new agreements (e.g., incurring
new indebtedness, transferring assets, acquiring or disposing of
real property, entering into new or modifying existing contracts or
adopting or amending redevelopment plans). The Court's order
means that existing RDAs will remain in business while the
Court's stay is in effect but they can only perform obligations
or exercise rights under existing "enforceable
obligations," which as defined in Health & Safety Code
Section 34167, are those that were already in existence prior to
the effective date of ABX1 26, or June 28, 2011.
On August 17, 2011, the Court modified its August 11, 2011 order to
require that each RDA assess its financial condition and adopt a
schedule no later than August 29, 2011 showing when it would make
payments on its "enforceable obligations". In addition,
the Court required that each RDA prepare and submit a Preliminary
Recognized Obligation Payment Schedule no later than September 30,
2011. The Court's modification addressed the open question of
whether RDAs that were continuing to exist pursuant to an ordinance
adopted under ABX1 27 (e.g., requiring the RDA to pay its
non-redevelopment revenue to the local jurisdiction) would need to
comply with these deadlines. However, because the provisions of
ABX1 27 relating to adoption of an ordinance to make the payments
required under ABX1 27 remain stayed, it is now clear that all RDAs
must prepare and submit these materials prior to the applicable
statutory deadlines. Given these deadline, developers, property
owners and other third parties that have what they believe to be an
enforceable obligation with an RDA should carefully monitor the
RDA's actions to confirm that such obligations are listed
accurately in the applicable Enforceable Obligation Payment
Schedule and Preliminary Recognized Obligation Payment
Schedule.
The Court established an expedited briefing schedule through
October 7, 2011 for the California Redevelopment Association's
legal challenge, stating its intent to schedule oral argument as
soon thereafter as possible. The Court anticipates rendering a
decision on the merits of the petition prior to January 15, 2012.
Until such time, the Court's stay appears to greatly limit the
ability of RDAs to enter into new agreements or modify existing
contracts.
Based on these stays, RDAs continue to be limited in their ability
to enter into new deals or modify existing deals. Farella Braun +
Martel LLP will continue to advise you on any changes in RDAs'
legal status and of any Court decisions affecting their ability to
continue redevelopment activities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.