After several months of debate regarding the potential elimination of California Redevelopment Agencies (“RDAs”) in order to help reduce California’s budget deficit, on June 28, 2011 Gov. Jerry Brown signed two bills that affect the future viability of RDAs.  ABX1 26 eliminates all 400 California redevelopment agencies effective October 1, 2011.  However, its companion measure, ABX1 27 provides that an existing RDA can avoid elimination after October 1 if certain steps are taken by an RDA’s local jurisdiction, including passage of an ordinance requiring the RDA to pay certain statutorily mandated revenues to school entities and other special districts.  Taken together, the two bills effectively eliminate RDAs, unless they “voluntarily” pay over to their respective local jurisdiction certain tax increment revenues for other, non-redevelopment local government uses.

In response to these bills, on July 18, 2011, the California Redevelopment Association, an organization representing the 400 RDAs throughout the state, along with the League of Cities and two individual cities filed a petition for a writ of mandate with the California Supreme Court.  This lawsuit seeks to overturn ABX1 26 and ABX1 27 on California constitutional grounds.

On August 11, 2011, the California Supreme Court issued a partial stay of the two statutes, temporarily putting on hold the elimination of RDAs in California.  In that decision, the Court blocked the “elimination” provisions of ABX1 26.  The Court, however, allowed the “freeze” provisions of ABX1 26 (now codified at Health and Safety Code Sections 34161 to 34167) to take effect.  Sections 34161 through 34167 prohibit all RDAs from taking on new obligations or making new agreements (e.g., incurring new indebtedness, transferring assets, acquiring or disposing of real property, entering into new or modifying existing contracts or adopting or amending redevelopment plans).  The Court’s order means that existing RDAs will remain in business while the Court’s stay is in effect but they can only perform obligations or exercise rights under existing “enforceable obligations,” which as defined in Health & Safety Code Section 34167, are those that were already in existence prior to the effective date of ABX1 26, or June 28, 2011.

On August 17, 2011, the Court modified its August 11, 2011 order to require that each RDA assess its financial condition and adopt a schedule no later than August 29, 2011 showing when it would make payments on its “enforceable obligations”.  In addition, the Court required that each RDA prepare and submit a Preliminary Recognized Obligation Payment Schedule no later than September 30, 2011.  The Court’s modification addressed the open question of whether RDAs that were continuing to exist pursuant to an ordinance adopted under ABX1 27 (e.g., requiring the RDA to pay its non-redevelopment revenue to the local jurisdiction) would need to comply with these deadlines.  However, because the provisions of ABX1 27 relating to adoption of an ordinance to make the payments required under ABX1 27 remain stayed, it is now clear that all RDAs must prepare and submit these materials prior to the applicable statutory deadlines.  Given these deadline, developers, property owners and other third parties that have what they believe to be an enforceable obligation with an RDA should carefully monitor the RDA’s actions to confirm that such obligations are listed accurately in the applicable Enforceable Obligation Payment Schedule and Preliminary Recognized Obligation Payment Schedule.

The Court established an expedited briefing schedule through October 7, 2011 for the California Redevelopment Association’s legal challenge, stating its intent to schedule oral argument as soon thereafter as possible. The Court anticipates rendering a decision on the merits of the petition prior to January 15, 2012. Until such time, the Court’s stay appears to greatly limit the ability of RDAs to enter into new agreements or modify existing contracts.

Based on these stays, RDAs continue to be limited in their ability to enter into new deals or modify existing deals. Farella Braun + Martel LLP will continue to advise you on any changes in RDAs’ legal status and of any Court decisions affecting their ability to continue redevelopment activities