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Sacramento Developers In Limbo While Waiting For A Supreme Court Ruling on Whether Redevelopment Agencies Will Be Dismantled

In an effort to balance its budget, the California legislature recently enacted new legislation (ABX1 26 and ABX1 27) dismantling California redevelopment agencies, unless the agency agrees to allocate a portion of it’s tax increment funds to specific government entities, such as school districts, fire protection agencies, and transit agencies.

Litigation (California Redevelopment Assn. v. Matosantos) was filed by the California Redevelopment Association (CRA) and the League of California Cities challenging the constitutionality of this recent legislation. On August 11, 2011, The California Supreme Court issued an Order to Show Cause, halting the State’s plan to dismantle redevelopment agencies. Redevelopment Agencies were granted a temporary reprieve; but, the agencies are prohibited from starting any new projects, issuing bonds or disposing of real property by sale, lease, or otherwise. The Court is expected to decide the issue some time after January 15, 2012.

Where does this legislation and litigation leave Sacramento developers?

Which Way.jpg In limbo – waiting. Prior to the legislation, redevelopment agencies had the authority to issue debt, own and lease property, and enter into other long-term contractual obligations. Now, redevelopment plans and requirements remain in effect and are applicable to current redevelopment projects, but the agencies’ powers to act are stalled. Developers fortunate enough to have a binding obligation in place will eventually see their developments completed – so long as no contract changes, new property transfers, or further agency funds are necessary for its completion. But, developers in negotiations with agencies are now dealing with agencies that cannot formalize the negotiations into contracts and cannot fund the expenditures negotiated.