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Ruling shuts down redevelopment agencies

by Sandy Brundage

Menlo Park bid farewell not only to 2011 this week, but also its redevelopment agency (RDA). The California Supreme Court upheld a bill that shut down the nearly 400 RDAs scattered around the state in a ruling issued on Dec. 29.

Redevelopment agencies were formed to fight blight, but Gov. Jerry Brown pushed for their elimination, arguing that diverting $5 billion in property tax revenue to RDAs left the state short on money needed for schools. The operating budget for redevelopment-related programs in Menlo Park, including affordable housing and code-enforcement programs, is about $2.7 million this fiscal year.

According to the court, since the Legislature had the authority to create redevelopment agencies, it also had the power to dissolve them.

"Today's ruling by the California Supreme Court validates a key component of the state budget and guarantees more than a billion dollars of ongoing funding for schools and public safety," Gov. Brown said in a statement released Thursday.

However, the court ruling wasn't a total victory for the governor. The agencies were eliminated by AB-26, but another bill, AB-27 — dubbed "extinction or extortion" by staff — let agencies stay open by making hefty annual payments to the state. The League of California Cities and the California Redevelopment Association filed a lawsuit challenging the constitutionality of both bills.

The California Supreme Court ruling declared AB-27 unconstitutional based on the passage of Proposition 22 in November 2010, which made it illegal for the state to take money from local funds such as redevelopment revenue.

Losing its RDA will cost Menlo Park about $17 million in redevelopment reserve funds, and an ongoing $1.4 million a year, according to city officials. Paying to keep the agency open would have been expensive — in September the City Council authorized a $3.5 million payment to the state, which was due in January. The annual fee after that would have been approximately $829,000, according to finance staff.

Earlier in the year the council had also unanimously approved the creation of new funding agreements and a housing authority to transfer assets out of its RDA beyond the state's reach, but city officials don't know whether the state will honor those agreements.

Asked how the court's ruling would affect the city, Interim City Manager Starla Jerome-Robinson said: "We are still sorting through the decision, but the bottom line appears to be the elimination of all redevelopment agencies in California, including Menlo Park. We need more time to understand the local impact."