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CRA Prevails in Court Case -
Redevelopment Agencies Keep $350 Million!
Sacramento Superior Court Judge Lloyd Connelly this morning ruled
in CRA's favor and found unconstitutional a provision in the current
state budget, which would have required redevelopment agencies statewide
to transfer $350 million to be used to fund State obligations.
The Court held that petitioners are entitled to declaratory and
injunctive relief invalidating and enjoining Health and Safety Code
Section 33685 - the section which created the ERAF payment obligation
for redevelopment agencies for fiscal year 2008-09.
Judge Connelly has instructed the attorneys for CRA to prepare a
judgment in accordance with his ruling. It will take several days
to prepare the judgment, have it reviewed by opposing counsel and have
it signed by Judge Connelly. We expect to have the judgment signed
before the May 10 statutory deadline for transferring funds to
counties. In any event, based on Judge Connelly's ruling, agencies
should not transfer their ERAF payment to their county. We will
keep you informed of any new developments as they unfold and will be
able to give you more detailed advice once the judgment has been
signed.
While a great victory for all redevelopment agencies, today's ruling,
however, isn't likely to be the last word. It is expected that the State
Department of Finance will appeal the decision.
Background on the Lawsuit
The suit before the court was brought by CRA and the redevelopment
agencies of the Cities of Moreno Valley and
AB 1389 was approved in September 2008 as part of the FY 2008-09
budget package and authorized a one-time take of $350 million from
redevelopment agencies. The lawsuit against the State sought to do two
things:
1. Invalidate specific
sections of AB 1389, and
2. Prohibit the State
from forcing county auditors to divert these redevelopment funds to the
Educational Revenue Augmentation Funds (ERAF).
The lawsuit argued that State raids of redevelopment funds to balance
the State's budget are unconstitutional, violating Article XVI, Section
16 of the California Constitution on multiple counts. Article XVI,
Section 16 of the California Constitution states that redevelopment
funds can only be used to finance redevelopment project
activities. The lawsuit contended that taking redevelopment funds
to balance the state's budget - the unquestioned reason for AB 1389 -
does not qualify as a constitutionally permitted use of tax increment
funds and is a clear violation of the Constitution. The Court
agreed, holding that ". . . the distribution of contributions by RDAs to
their
The lawsuit also contended that taking redevelopment funds is an
unconstitutional impairment of bond contracts. The Court did not
address this claim in the decision since it ruled the State's action
unconstitutional based on the first claim.
The State Department of Finance is the principal defendant/respondent
in the lawsuit. For technical reasons, county auditors were also listed
as defendants/respondents since auditors are in the position of
transferring funds from the redevelopment agencies into the Educational
Revenue Augmentation Funds.
Click here to read the Court's decision.