It was always going to be ugly, given how we got here.
Governor Brown only meant to threaten cities with the dissolution of their redevelopment agencies. But when cities pushed back, the California Supreme Court - now it seems inevitable - upheld the vaguely written law that shuts down redevelopment and turns agency revenues over to the state for distribution to counties and school districts.
And now a new battle has begun. A coalition of cities - Pasadena, Palmdale, Glendale, Culver City, Huntington Beach, National City, Imperial Beach, Inglewood and Hayward - will try to persuade a Sacramento Superior Court judge Wednesday (05/30/12) to block the California Department of Finance (DOF) from determining what constitutes the "enforceable" debt that cities can claim their redevelopment agencies owe.
[Update 05/31/12: The cities lost this round, failing to convince a Sacramento Superior Court that the DOF should escrow disputed payments until all the issues are fully litigated. More suits are planned, however.]
So far, the DOF has rejected more than $350 million in agency debt. It's "nothing more than a naked money grab" say the cities that have joined the lawsuit, who also say that the DOF "is making up the rules as it goes along."
At issue is the property tax revenue cities say they need to pay back agency debt and finish redevelopment projects already underway. The law that eliminated redevelopment also lets cities retain some of property tax revenue their agency collected each year to pay existing debts. But the bigger the debt load cities claim, the smaller the cut of redevelopment property taxes the state and other taxing agencies will get.
The cities argue that their lists of debt obligations aren't inflated and that, in the end, they will have to drain already depleted budgets to pay those the DOF arbitrarily disallows. Cities also argue that the DOF, burdened with approving 425 separate payment schedules by early June, can't possibly be making informed choices about complex redevelopment deals.
Some in the Brown administration seem to agree. There is "no way in hell" the state will be able to effectively oversee the unwinding of redevelopment agencies, said one top DOF official earlier this year, before the cities sued.
According to the League of California Cities (which acts as a lobbyist for local governments), "The lawsuit seeks a court order that property taxes be distributed to pay for each valid enforceable obligation and further seeks a court order that each (county) auditor-controller set aside sufficient property tax to pay enforceable obligations that remain in dispute after June 1 until such disputes have been resolved."
The agency dissolution law gives the DOF a big hammer. If the DOF disputes the redevelopment obligations that cities say they must pay, the DOF will order county auditor-controllers to stop paying cities their share of property taxes. Cities with heavy debt loads fear that any delay in payments will erode their credit rating, boosting the costs of borrowing and threatening the state's overall creditworthiness.