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SACRAMENTO-A Superior Court Judge here last week ruled unconstitutional a provision in the Legislature’s September 2008 budget package that would have required redevelopment agencies statewide to give back $350 million to help fund state obligations in the current budget cycle. Officials at the state Department of Finance are reportedly reviewing the decision and evaluating their legal options.<PThe decision by Sacramento Superior Court Judge Lloyd Connelly was made in response to a lawsuit brought by the California Redevelopment Association and the Redevelopment Agencies of the Cities of Moreno Valley and Madera. The lawsuit sought to block certain sections of budget trailer bill AB 1389, which was approved in September 2008 as part of the 2008/09 budget package.

The lawsuit argued that diverting redevelopment funds to balance the state’s budget violating Article XVI, Section 16 of the California Constitution. The section states that redevelopment funds can only be used to finance redevelopment project activities.

Judge Connelly concurred, writing in his ruling that the ERAF transfer policy, ” … in its general and ordinary operation, inevitably conflicts with and violates the terms and intent of section 16, to allocate tax increment revenues to the financing of redevelopment projects.”

California Redevelopment Association executive director John Shirey says that in addition to being unconstitutional taking redevelopment dollars from communities is “poor policy” during a recession, when communities desperately need the funds can “to generate jobs and economic activity that we desperately need.”

The funds were to be diverted to the state’s Educational Revenue Augmentation Fund. The California Redevelopment Association did not mention that fact in announcing its victory.

Such RDA money transfers to ERAF have been completed several times since 1992. The transfers have been based on legislative findings and declarations regarding the relationship between redevelopment purposes and adequately funded school operations: “[T]he effectuation of the primary purposes of the Community Redevelopment Law, including job creation, attracting new private commercial investments, the physical and social improvement of residential neighborhoods, and the provision and maintenance of low- and moderate-income housing, is dependent upon the existence of an adequate and financially solvent school system.”

A new finding was added for the this year’s would-have-been transfer: “Because of reduced funds available to the state to assist schools that benefit and serve redevelopment project areas…it is necessary for redevelopment agencies to make additional payments to assist the programs and operations of these schools… .”

In addition to arguing that the transfers are unconstitutional, the CRA argued that the procedures surrounding the ERAF transfers provide no assurance that the funds will be distributed to schools within the redevelopment project area. It also argued that it could be a slippery slope leading to more transfers to fund police and other public agencies that could be seen as benefiting redevelopment areas.

While ruling in favor of the CRA, Judge Connelly stated that “the Court cannot dispute the existence of some relationship between the achievement of economic and residential development purposes and the adequate funding of school operations to educate students living within redevelopment project areas and housing assisted by RDAs.”

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