State's High Court Deals Blow to Redevelopment Agencies

In a decision that deals a blow to city officials, the California Supreme Court upheld a new law Thursday that will abolish community redevelopment agencies, and struck down a companion statute that allowed local governments to keep the agencies alive by making payments to the state.

City Attorney James Lough says the ruling will have a severe effect on Lemon Grove.

“It will cause a difficult short-term problem, but the long-term impacts are more devastating,” he says.

The city will not be able to start new housing or economic development projects, Lough says. Current projects, like the Main Street Promenade, will not be affected, however, as they were in the pipeline prior to the deadline set under the legislation.

The agencies not only fund major building projects, such as Citronica and Home Depot, but spend 20 percent of their income on affordable housing.

“Overall, it will mean less money for low- and moderate-income housing in the state,” Lough says.

Cities now have to meet housing goals set by the state with local city funds, paid from their current general funds for economic development in the future.

“If they can afford it,” Lough says.

Redevelopment proponents argued that voter-passed Proposition 22, which bars the state from seizing local tax money, invalidated both laws. Redevelopment agencies are funded by the increase in tax revenue created by projects in their areas.

Supporters of the laws passed by the Legislature earlier this year, including Gov. Jerry Brown, say the money is better used to fund schools and other municipal functions during tight budgetary times. They cite a state analysts report that shows the cost of redevelopment growing without any tangible economic benefit to the state.

“The state will not need to spend as much of their budget on local education because of the shift,” Lough says. “The schools will get about the same amount of money as before, but more will come from local taxes instead of the state.”

Since the court ruling aborted the plan to allow local governments to buy back into redevelopment, the agencies will be phased out when their currently contracted projects are completed.

Lemon Grove, and many other local jurisdictions, chose to pay the state to keep their agencies open, .  The city was due to pay $521,000 in its first installment, with annual payment that would have adjusted in subsequent years, starting at $123,000 in 2012-2013 and increasing by $2,000 to $3,000 each year reaching $197,000 in 2036-2037.

—City News Service contributed to this report.