In mid-July, Governor Jerry Brown signed into law a long fought over budget in hopes of addressing the ever increasing deficit problem faced by the State. The budget contained two trailer bills, AB1X 26 and AB1X 27. AB1X 26 effectively terminated the State’s 400-plus Redevelopment Agencies (“RDAs”). The bill froze all RDA activity and required them to dissolve by October 1, 2011. AB1X 27 offered a way out by allowing RDAs to continue in existence if they pay $1.7 billion over to schools and fire districts in their jurisdictions. After the initial $1.7 billion payment (due in two installments in January 2012 and another in May 2012), RDAs would continue to be on the hook for approximately $400 million annually. Although it is expected that most of California’s RDAs are to remain in existence by “opting-in”, the payments have been likened to “ransom money” by RDA and city officials.
In response, the California Redevelopment Association, League of California Cities, and the Cities of San Jose and Union City filed a lawsuit in late July with the State Supreme Court claiming that the trailer bills are unconstitutional. Specifically, the lawsuit claims that the bills violate Proposition 22 (passed in November 2010) which prohibits the State from seizing, diverting, shifting, or otherwise interfering with revenue which is dedicated to local governments. Such revenues specifically include the annual increments in property taxes allocated to the RDAs. On August 11, the Court issued a stay on the dissolution of the RDAs. The case has been put on an expedited track with oral arguments to be heard this fall and a decision before January 15, 2012. The stay effectively allows the RDAs to remain in existence and prevents them from being forced to make any payments until the Court rules on the merits of the case. However, the Court order allows AB1X 26 to remain in effect insofar as it prohibits RDAs from incurring new debt, transferring assets, acquiring real property, entering into or modifying contracts. Enforcement of all other aspects of both statutes is stayed.
Written into both bills is a provision which has become known as the “poison pill.” Both AB1X 26 and AB1X 27 contain language which states that if any lawsuit is successful in declaring the bills as unconstitutional, then “a RDA” will be prohibited from issuing new bonds, notes, or indentures. The plain meaning of the statute would suggest that this will apply to any RDA in the State, not just those who are litigants. RDAs would not be prohibited from continuing to make payments to developers from tax increments, against which a developer could leverage debt. It is unclear how the poison pill will work or continue as part of redevelopment reform.
Based on our review of online news reports, the following is a list of RDAs who have either approved measures to “opt-in” or are seriously considering as much. This list is not meant to be all-inclusive:
- Alameda County
- Antioch
- Arroyo Grande
- Atascadero
- Brentwood
- Camarillo
- Capitola
- Castro Valley
- Cupertino
- East Palo Alto
- Fontana
- Fortuna
- Foster City
- Fountain Valley
- Galt
- Glendora
- Grand Terrace
- Grass Valley
- Grover Beach
- Huntington Beach
- Imperial Beach
- Lakeport
- Los Angeles
- Merced
- Monrovia City
- Morgan Hill
- Murrieta
- Oroville
- Oxnard
- Rancho Mirage
- Rialto
- Riverside
- Roseville
- San Clemente
- San Diego
- San Francisco
- San Juan Capistrano
- Santa Rosa
- Shasta Lake
- Simi Valley
- Truckee
- West Sacramento
- Vacaville
- Ventura
- Yucaipa City
Nixon Peabody is closely following the developments in this field and is able to provide guidance through this rapidly changing environment.