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The California capitol building

The governor has not signed the budget yet, but two bills he did sign Wednesday that would contribute $1.7 billion to the state's coffers are likely to be tied up in court for months. The bills effectively eliminate the state's 398 redevelopment agencies.

The California Redevelopment Association and the League of California Cities are preparing to file a lawsuit in the next few weeks challenging the bills that force the agencies to dissolve and join a new program. 

CRA’s Executive Director John Shirey said the suit will ask the court to delay enacting the legislation until the full case is heard. Shirey argued the law is unconstitutional and violates Proposition 22, which voters passed last November. That initiative prohibits the state from borrowing or taking funds used for redevelopment, transportation and local services. Cities viewed Prop. 22 as a way to prevent California from using local tax dollars to fix the state's budget problems.

Redevelopment agencies were created in 1945 to fight urban blight by subsidizing investment in rundown areas with bonds and paying that money back to cities when property values increase. Critics argue many agencies now use that money to creatively solve other local financial issues.

Under the new legislation, the agencies have to hand over $1.7 billion the first year and $400 million per year after that. At least 50 agencies have said they cannot afford to meet those requirements, according to Kathy Fairbanks, a spokesperson for the League of Cities and the CRA.

On Tuesday, the state legislature passed a budget that relies on deep spending cuts and optimistic revenue projections to fill the state's budget deficit. If those projections are not met, the budget includes triggers for more spending cuts.

But the $1.7 billion from the redevelopment agencies doesn’t count toward those revenues, according to H.D. Palmer, spokesman for the California Department of Finance. Even if the bills are tied up in court and that money doesn’t materialize, it won’t pull the trigger on more cuts, Palmer said.

That money is proposed to offset the general fund expenditures and isn’t considered revenue, he explained.

San Jose Mayor Chuck Reed, a vocal critic of Brown’s proposal since the beginning of the year, said his city plans to participate in the lawsuit.

“I think it’s a mistake to eliminate the one thing you can point to that’s helped create jobs in California over the last few years,” Reed said. “We’re certainly not going to have the ability to help Silicon Valley companies that want to stay here and grow here with redevelopment funding. We’re competing with other cities and other states that have substantial state support for companies that are expanding. We’re down to next to nothing.”

Oakland Mayor Jean Quan in Oakland and San Francisco Mayor Ed Lee also expressed their reservations about the legislation.

“Mayor Lee is extremely concerned about how the state's budget impacts the San Francisco Redevelopment Agency. Projects like the Transbay Terminal, Hunter's Point Shipyard and Mission Bay are negatively affected by this sweeping move,” said Lee’s director of communications Christine Falvey.