Fate of Redevelopment Remains in Limbo
Posted in Redevelopment

Both the Senate and Assembly have adjourned for the weekend, but what a week it has been in the battle over the future of redevelopment.

The bill to kill redevelopment, SB 77, came up for multiple votes in the Assembly on Wednesday. The bill initially garnered only 50 of the 54 votes needed for the two-thirds majority. The Governor, working out of the Speakers office just off of the Assembly floor, personally lobbied and cajoled legislatures throughout the day. Eventually, he won over two wavering Democrats and one Republican, Chris Norby of Orange County. By the time of the bill’s final call late Wednesday night, the vote remained 53-23 - one vote short.

Though SB 77 was back on the Assembly's agenda for Thursday, Democrats did not take up the issue again, presumably because they are still hunting for that last vote.  Meanwhile, the Senate has yet to take any action on the parallel bill before it, AB 101. 

The Governor's main budget bill was approved Thursday on a party line vote, passing 25-15 in the Senate and 52-26 in the Assembly. You may realize that these numbers fall short of the two-thirds majority we've been discussing all week.  To get the main budget bill passed, the Democrats for invoked the first time Proposition 25, which changed the legislative vote required to pass a budget from two-thirds to a simple majority.

Having wrapped up the main budget bill with nearly $14 billion in spending reductions, the revenue side of the equation remains in limbo. The Governor must get his proposed tax extensions on the ballot and obtain voter approval in a June election. He also needs approximately $2.2 billion in redevelopment money to bridge the remaining gap for the upcoming fiscal year.

For both of those items, two Republicans in each chamber must cross over and vote with their Democratic colleagues, because the Governor needs a two-thirds majority vote. Or does he?

Some Republicans have argued that there is legal authority for placing the tax extension on the ballot by a simple majority vote of the Assembly and Senate. Democrats counter that Proposition 26, passed by the voters in November, requires a two-thirds margin for increasing taxes or fees

Abolition of redevelopment could also likely be passed on a simple majority vote if SB 77 and AB 101 were reintroduced as non-urgency legislation. However, this is not a particularly desirable solution for the Governor because rather than taking effect at the commencement of the upcoming fiscal year, they would not take effect until January 1, 2012.  Thus, a substantial portion of the $2.2 billion in redevelopment money needed to balance the Governor’s proposed budget would not be available, leaving a gap in this year’s budget.

Since there is a consensus that the constitutionality of abolishing of redevelopment agencies will ultimately be decided by the courts, such a gap may exist in any event. As we discussed in previous post, the California League of Cities and the California Redevelopment Association have already laid out their game plan for challenging these measures.

They will argue that they violate the constitutional amendment implemented by Proposition 22, which prohibits the State from directly or indirectly compelling the use of redevelopment tax increment for the benefit of the State or any agency of the State. The Governor’s proposal to divert tax increment to fund Medi-Cal and trial courts - both state programs - seems to run afoul of this prohibition.

The Governor’s office has expressed confidence that the proposal does not violate Proposition 22. With the abolition of redevelopment agencies, there are no longer any redevelopment tax increment funds. However, a lawyer from the office of the Legislative Council of California has added a cautionary note. In testimony before the Senate and Assembly Budget Conference Committee, an attorney from that office acknowledges that the proposed legislation is problematic because Proposition 22 specifically prohibits the legislature from enacting a statute that requires an (redevelopment) agency to transfer tax increment money for the benefit of the State.

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