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State sued over raid of $2.05B in RDA funds

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POSTED October 21, 2009 3:10 a.m.
Manteca leaders are backing an effort to sue the state over a $2.05 billion raid on local redevelopment agency money that the California Legislature seized to balance the state budget.

The California Redevelopment Association Tuesday filed a lawsuit in Sacramento Superior Court to stop a state budget trailer bill passed in July that authorized taking local redevelopment funds to use for state purposes.

Manteca stands to lose $6,657,835 if the state is allowed to swipe the RDA money. The money was set aside for various Manteca economic development projects such as interchange improvements that the state will no longer fund. Ironically, the state is requiring local jurisdictions to come up with the money for such improvements with RDA taxes being one of the few ways to pay for the share that is borne by existing residents without seeking bonds.

The CRA won a court lawsuit in April blocking another such a raid. The state dropped its appeal in that lawsuit making it binding but then simply turned around and changed the language and passed a new bill.

City Manager Steve Pinkerton noted should the CRA prevail he fully expects the state to come back at the cities to get the money from general fund sources. Manteca already is losing $1 million this fiscal year in local property taxes to the state.

Pinkerton pointed out the League of California Cities is moving forward with a ballot measure designed to prohibit state borrowing of local money. Proposition 1A was supposed to have done that but the state suspended provisions within the measure to take money to balance the budget instead of cutting their expenses.

The state has been repeating the strategy of taking from local agencies in deficit situation since the early 1990s. Manteca alone has lost over $18 million in local revenue in the last two decades to the state balancing their budget on the backs of local government.

The lawsuit challenges the constitutionality of Assembly Bill X4-26 and seeks to prevent the state from taking redevelopment funds for non-redevelopment purposes.

“We believe the second budget raid by lawmakers is just as unconstitutional as the first,” said CRA Executive Director John Shirey. “Lawmakers ignored the State Constitution and attempted to write state budget legislation around it. That’s simply irresponsible policy-making, and it illustrates why many have concluded state government is broken and needs fixing.”

 “Though we fully expect to receive a favorable decision from the court a second time, local redevelopment agencies still must be prudent and set aside funding in case the court does not rule by the time the payment is due in May 2010,” Shirey continued. “What that means is that many agencies will, in effect, cease to operate because they will have no funds available for new investments in their communities. Having to set aside this huge amount of funding robs California of one of its most productive job creating engines, and at a time when unemployment is high and still rising.”

The lawsuit alleges ABX4-26 is unconstitutional for two main reasons:

• First, Article XVI, Section 16 of the California Constitution, approved by voters in 1952, states that redevelopment tax increment funds can only be used for specified redevelopment activities, specifically “to finance or refinance … the redevelopment project.”  Taking redevelopment funds to balance the state’s budget – the unquestioned purpose of ABX4-26 – does not qualify as a constitutionally permitted use of redevelopment funds and is therefore unconstitutional.

• Second, raiding $2.05 billion in redevelopment funds constitutes an unconstitutional impairment of contracts.  Under Article XVI, Section 16 of the State Constitution, redevelopment agencies irrevocably pledge redevelopment (tax increment) revenues to pay back bonds and other obligations that raise the capital to fund redevelopment projects.  By raiding funds that are pledged to pay back bonds and other creditors, ABX4-26 impairs the contractual pledge of revenues on which redevelopment financing is based.
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