Court leans toward allowing abolition of redevelopment agencies

Reporting from San Francisco and Los Angeles -- The California Supreme Court appears inclined to permit the state to abolish municipal redevelopment agencies, but the justices did not clearly signal whether some of the entities could continue to operate as long as they shared tax revenues with schools and special districts.

During a hearing Thursday, the high court examined a lawsuit filed by redevelopment agencies that sought to overturn two laws passed earlier this year in an attempt to balance the state budget.

One of the bills abolished the agencies, which the Legislature has allowed cities to create since 1945. The other, passed as a compromise after cities balked, said the agencies could continue to exist only if they turned over money to help pay for schools and services such as firefighting and transportation.

Redevelopment agencies permit cities and counties to carve out blighted neighborhoods for improvement through partnerships with private developers, giving them the power to obtain property by eminent domain, purchase or lease. Proponents say they create jobs and improve quality of life, pointing to Old Pasadena, San Diego’s Gaslamp Quarter and Hollywood as success stories. Critics contend that they are starving schools and the state of needed funds and that many of the agencies have not spent money wisely.

As redevelopment districts have proliferated, they have controlled a larger percentage of tax revenue, leaving less for public services, the state contends. California officials estimated that the new laws would generate $1.7 billion during this fiscal year and an additional $400 million in future years from agencies that decided to continue operations.

But Justice Joyce L. Kennard suggested that the agencies’ challenge of both laws could backfire. She said the court could find the abolition constitutional but the revenue-sharing law invalid, a prospect that an attorney for redevelopment agencies called the worst possible outcome.

Steven L. Mayer said 90% of the agencies would rather share revenue than go out of business. The law that abolished the agencies “is the whole ballgame to my clients,” he said.

But the lawsuit contended that both abolition and revenue-sharing violated Proposition 22, a state constitutional amendment passed in 2010 that prohibited California from raiding funds from redevelopment agencies and other local governments.

Justice Marvin R. Baxter observed that it would be ironic if Proposition 22, which redevelopment agencies had promoted, ended up requiring the court to overturn the compromise and cut the lifeline that the revenue-sharing law provided. Baxter also appeared dubious that the proposition gave the agencies “perpetual existence.”

Deputy Atty. Gen. Ross C. Moody, representing the state, agreed that the agencies may have miscalculated in suing to overturn both measures.

“The redevelopment agencies took a gamble on this lawsuit,” Moody said.

And the justices’ questions indicated they may be split over the validity of the compromise law.

Chief Justice Tani Cantil-Sakauye suggested that it might be constitutional because, technically, it was not raiding redevelopment funds. The compromise required the revenue sharing to be paid by cities and counties that oversee the agencies. Justice Goodwin Liu also observed that the constitutionality of the compromise measure might depend on how it is enforced.

But Justice Carol A. Corrigan asked whether the purported “free and voluntary” revenue sharing called for under the compromise could be construed as ransom. “It is hard to argue that it’s a voluntary payment,” she said.

James R. Williams, representing Santa Clara County, asked the court to abolish the agencies and overturn the compromise law. Without redevelopment, the county would have an additional $90 million a year, he said.

A Times investigation last year found that redevelopment agencies across the state had flouted rules requiring them to build affordable housing and uncovered several instances of corruption.

If the court upholds the compromise law, redevelopment agencies would have to start sharing their tax revenues by Jan. 15. The court is expected to decide the case before then.

maura.dolan@latimes.com

jessica.garrison@latimes.com