Updated Dec. 30, 2011, 11:43 a.m.
The future of California's 400 redevelopment agencies was thrown into disarray today when the state Supreme Court upheld a law that dissolves them and seizes $1.7 billion in revenue, but struck down a second law that would have allowed them to restructure.
Both laws were enacted by the Legislature and signed by Gov. Jerry Brown in June as part of a series of emergency measures to address the state's $25 billion budget deficit.
They were challenged in a lawsuit by the California Redevelopment Association, League of California Cities and the cities of San Jose and Union City.
The first law, AB 26, terminates existing agencies and enables the state to transfer $1.7 billion in property tax revenue to schools and other programs.
The second law, AB 27, would have allowed the agencies to come back into existence if they agreed to contribute $400 million annually to schools and transit and fire districts in future years.
But the state high court, in a decision issued at its San Francisco headquarters, said only the first measure was constitutional.
The panel unanimously said the Legislature -- which created the agencies through a state law in 1945 -- had the power to abolish them.
But the justices ruled by a 6-1 vote that the companion law allowing for restructuring violated a 2010 voter initiative that specifically barred the Legislature from diverting redevelopment agency revenue to fund other state programs.
The state had argued that future payments by restructured agencies would be voluntary and thus not in conflict with the initiative, known as Proposition 22, which was enacted by voters as a state constitutional amendment.
Justice Kathryn Werdegar wrote for the court majority, however, that the payments were "not an optional condition but an absolute requirement," and therefore violated the initiative.
Chief Justice Tani Cantil-Sakauye dissented from that part of the ruling, saying that she would have upheld AB 27 as well.
Under the Legislature's original plan, as set by the two laws together, the restructured agencies would have agreed to transfer an extra $1.7 billion in revenue to schools in the current 2011-12 fiscal year and an estimated $340 million to schools and $60 million to fire and transit districts in future years.
State Finance Department spokesman H.D. Palmer said that as a result of today's split decision, schools will receive a somewhat smaller amount, in the neighborhood of $l billion, in the current fiscal year, but will continue to receive a similar amount in future years.
Another several hundred million dollars -- representing the remainder of the $1.7 billion -- will be divided among cities, counties and special districts both this year and in future years, Palmer said.
"We don't have a final number but we estimate it will be more than $1 billion for K-12 schools this year," Palmer said.
Brown issued a statement saying, "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."
The California Redevelopment Association and League of California Cities said they will "work with state legislators immediately" in a bid to revive redevelopment in some way.
"The California Redevelopment Association is ready and willing to engage in immediate dialogue with Legislators and the Governor on a meaningful 'fix' to this problem," said Jim Kennedy, the association's interim executive director.
"We have ideas for ways to restore redevelopment while also providing the state budgetary relief in a manner that doesn't violate Prop 22," Kennedy said.
Several mayors decried the decision, saying the dismantling of the agencies will deprive cities of a key means of economic growth.
"Today's Supreme Court decision eliminates critical tools to rebuild our economy, create jobs, and revitalize neighborhoods -- exactly the kinds of investments California cities should be making in this recession, said San Jose Mayor Chuck Reed.
Reed called on the Legislature and governor "to immediately work with California cities to make our state competitive again."
San Francisco Mayor Ed lee called the decision disappointing and said redevelopment "spurred economic growth for our entire city at a time when we needed it most," citing projects such as Yerba Buena Gardens and Mission Bay.
San Leandro Mayor Stephen Cassidy said, "The elimination of redevelopment agencies marks a further shift of our property tax dollars away from local communities to the control of Sacramento, and will likely result in a new round of budget cuts by cities without any guarantee Sacramento will use the funds wisely."
Redevelopment agencies, authorized by the 1945 law to rehabilitate "blighted areas," are usually governed by local city councils or county boards of supervisors.
They acquire land, sometimes through the power of eminent domain, clear it, make infrastructure improvements and then often transfer the land to private parties for residential or commercial development.
In recent years, the agencies have been financed by so-called property tax increment revenue, in a system in which they are given credit for all increased value of the property following redevelopment.
Under this system, the agencies now receive 12 percent of property tax revenues statewide, or an estimated $5.2 billion, while schools receive 37 percent, cities 18 percent, counties 25 percent and special districts 8 percent.
Supporters of redevelopment say that it has revitalized cities and created jobs, while critics contend it is draining money from schools and other programs at a time of fiscal crisis and that it sometimes results in luxury developments such as golf courses.
Under the Legislature's original plan, the agencies' current $5.2 billion revenue would have paid $2.1 billion for existing redevelopment debts and obligations; $1.1 billion for counties, schools and special districts under a pass-through formula mandated by the Legislature in 1994; and a new voluntary transfer of $1.7 billion for schools.
Palmer said that $1.7 billion will now be allocated under the 1994 formula, thus providing more than $1 billion for schools and another several hundred million dollars for counties and special districts.
State Sen. President pro tem Darrell Steinberg, D-Sacramento, said, "Today's decision validated important powers of the Legislature to conduct the people's business."
"Moving forward, we must work together to find a path to help local economic development and affordable housing become a sustainable reality," Steinberg said.