Eminent Domain Report

The Supreme Court heard oral arguments yesterday in California Redevelopment Assn. v. Matosantos, the action filed by the California Redevelopment Association, League of California Cities and others challenging the constitutionality of ABX1 26 and ABX1 27.  Based upon their questions it appeared that the Justices were satisfied that ABX1 26, the bill abolishing redevelopment agencies, passes constitutional muster.  However, ABX1 27, the bill allowing for their reinstatement by the making of  voluntary payments, seemed to be on much shakier grounds.  The question then becomes:  are the two so inexorably intertwined that they must stand or fall together, or is 27 severable from 26?  The future of redevelopment in California may depend on how the Justices answer this question.  

A. What the Legislature Creates, the Legislature Can Abolish

Based on their questions, the Justices seemed convinced that, on a stand alone basis, AB1x 26 would be constitutional.  Redevelopment agencies are, after all, creatures of statute.  The Legislature which created redevelopment agencies has the power to abolish them.

Counsel for the Petitioners conceded this issue, but argued that the vice of 26 is not that it dissolves redevelopment agencies per se, but that it dissolves them and transfers their tax increments to schools and special districts in violation of Proposition 22.  The Legislature cannot use a constitutional means to achieve an unconstitutional end.  Of course, this argument hinges upon the contention that the Legislature enacted 26 in an effort to coerce cites and counties with redevelopment agencies to participate in 27’s Voluntary Alternative Redevelopment Program, which Petitioners claim is not at all voluntary.

The real test then becomes whether ABZX1 27 is or is not constitutional and, if it is unconstitutional, is it severable from ABX1 26? 

B. Is the Voluntary Alternative Redevelopment Program Truly Voluntary?

The Justices tested the Petitioners’ contention that reestablishment payments made by cities and counties under 27 would inevitably come from local tax revenue, in violation of Proposition 22.  As many of our readers will recall, Proposition 22 amended the California Constitution to prohibit the State from redirecting revenue from locally imposed taxes to pay for the State’s obligations.  Attorneys for Petitioners, Respondents and the Intervener, County of Santa Clara, all seemed to agree that payments under ABX1 27 would most likely come from local tax revenues. 

Counsel for the State argued that this was not prohibited by Proposition 22 because it merely prohibits the Legislature from making a law requiring tax increments to be diverted to state obligations.  ABX1 27 was drafted to avoid this prohibition by creating a Voluntary Alternative Redevelopment Program in which cities or counties may elect to participate.  Many of the Justices seemed skeptical of this argument.  More than once the term ransom payment was used to characterize the payments required by 27.

The Justices probed further as to what sources sponsoring agencies might have to make the ABX1 27 payments that would not otherwise be prohibited.  There seemed to be a consensus that if the payments made under 27 were deemed to be involuntary, they would indeed run afoul of Proposition 22. 

C. The Severability Clause in ABX1 27 

At various points the question was posed:  what happens to 26 if we decide that 27 is unconstitutional?  Counsel for the CRA and League of Cites argued that since 26 was enacted solely to compel cities to make the payments under 27, the two bills are not functionally severable.  He added that to uphold 26 and strike down 27 would be the worst of all possible outcomes for his clients.  Counsel for the State took a more nuanced approach, but ultimately acknowledged that his clients would be satisfied with such a result.  Counsel for the County of Santa Clara hammered hard on the theme that 26 should be allowed to stand while 27 should be struck down.  He argued that for too long redevelopment agencies have siphoned off money desperately needed by counties to meet their financial obligations. 

In the end, it may all come down to Section 5 of Chapter 5 of ABX1 27 which says, in essence, that if any provisions of 27 are held invalid, the provisions of ABX1 26 shall continue in effect.  Counsel for Petitioners argued that this clause is not conclusive.  He asserted that the Court must be able to conclude the Legislature would have passed 26 even if 27 had failed.  The legislative history of these two bills, he argued, shows that it was never the intent of the Legislature that redevelopment be abolished with no means for its reestablishment.  

Did the Legislature utilize a constitutional means in the adoption of ABX1 26 to achieve an unconstitutional end? Is ABX1 27 truly a voluntary program so as to not run afoul of Proposition 22?  Can the Court find that 26 and 27 are so joined at the hip as to not be functionally severable, despite the severability clause in 27?  These are the questions that the Justices are now weighing and which will be answered in their decision, which is expected to be handed down before January 15, 2012.

Stay tuned….