Alert May 26, 2010

Court Upholds California's Redevelopment Payment Shift

In 2009, the California Legislature enacted AB 26 4x, which requires a shift of $2.05 billion of redevelopment funds from redevelopment agencies to county Supplemental Educational Revenue Augmentation Funds (“SERAF”).  The Legislature imposed the shift to combat the State’s budget troubles by reducing the amount of Proposition 98 moneys required from the State for local schools.

Redevelopment advocates, led by the California Redevelopment Association (“CRA”), filed a lawsuit seeking to overturn AB 26 4x, labeling the funds reallocation unconstitutional.  A Sacramento Superior Court upheld the constitutionality of AB 26 4x, but the decision has been appealed.

The California Court of Appeal recently denied a request by the CRA to issue a stay with respect to the shift of redevelopment funds.  Consequently, redevelopment agencies were required to transfer $1.7 billion of fiscal year 2009-10 redevelopment funds to SERAF on May 10, 2010, and, if the appeal proves unsuccessful, will be required to transfer an additional $350 million of fiscal year 2010-11 funds to SERAF next year.