Cities to battle California in court for redevelopment money

The city of Adelanto had planned to spend $15 million on affordable housing. Artesia proposed to invest $2.3 million in downtown improvements. Atascadero budgeted $53 million for upgrades including a pedestrian bridge downtown and a better wall at the city zoo.

These municipal projects and many more statewide are in question because of a dispute between cities and the state over what should become of hundreds of millions of dollars in property tax revenues that used to go to redevelopment.

California’s approximately 400 municipal redevelopment agencies were eliminated as part of a cost-saving measure by the state last year. Even so, city officials argue that hundreds of projects should be allowed to proceed because they were conceived before the agencies’ demise.

But state officials are fighting some of those plans, questioning, among other things, whether they were in place before a June 2011 deadline set by law. The result: Five months after a California Supreme Court decision gave the state the authority to eliminate redevelopment, cities are preparing to go back to court to contest the way the agencies are being dismantled.

The first round will be fought Wednesday in Sacramento County Superior Court. A group of cities including Pasadena and Glendale are asking a judge to prevent property tax money in dispute from being paid out Friday to school districts and other entities, as the state intends. The cities argue that the money — perhaps tens of millions of dollars — must be held in trust until their conflicts with the state are resolved.

The law that eliminated redevelopment allows cities to hold on to some of the $5 billion they used to collect each year so they can pay existing debts. The problem is that the two sides have drastically different views of which contracts must be honored as “enforceable obligations.”

As of Friday, state officials had questioned more than $350 million in projects for this year alone. Some of the denials have left city officials angry.

“Their No. 1 objective is to shut these projects down so they can take the money,” said Chris McKenzie, the executive director of the League of California Cities, referring to the cash-strapped state. “It’s just insanity, the way this program is being administered.”

Cities said the state might force them to abandon projects that have been promised to citizens and bondholders and that are key to revitalizing recession-battered neighborhoods. Already, some cities have had to lay off staff whose salaries were paid with redevelopment funds.

State Department of Finance officials counter that they are only following the law. They are counting on $1.4 billion from former redevelopment agencies to help fill the yawning hole in California’s budget next year.

Kimberly Hall Barlow, a partner at the law firm of Jones & Mayer who represents a number of cities, summed up the feeling of many city and state officials: “It’s a giant mess,” she said.

The hearing Wednesday deals with the narrow question of how to handle the property tax disbursement set for June 1. Cities, including Huntington Beach, Inglewood and Hayward, say they need some of that money to pay their bonds and other obligations. National City, for example, has a $6-million bond payment due in August, according to the suit. Imperial Beach also has bond payments due.

If cities start defaulting, the suit threatens, it will “be disastrous not only for the [city] but for the entire bond market in the state of California.”

In a response filed with the court late Tuesday, the state called the claims in the lawsuit “untethered from the facts and law.” Many of the needs cited in the suit, including National City’s bond payments, were approved by the state late last week. As for some of the others, “not everything a [city] wishes to spend money on qualifies,” the state noted tartly in a response to the cities’ lawsuit.

Cities and state officials can’t even agree on basic facts. For example, state officials argued that Imperial Beach’s bond payments for redevelopment projects were also approved last week, but Murray Kane, who filed the lawsuit, said payments for the city of Imperial were approved, but state officials have not yet taken action on the separate city of Imperial Beach.

“One of the reason we’re asking for an injunction is to stop these kinds of mistakes,” Kane said.

No matter how a judge rules on this question, both sides said they expect more legal wrangling over hundreds of other specific projects.

jessica.garrison@latimes.com