August 16, 2011
A budget trailer bill signed by Governor Brown, ABX1 26, put immediate restrictions on redevelopment agencies (RDAs) transferring or encumbering their property. The California Supreme Court has agreed to hear a petition challenging the law. The lawsuit challenges the constitutionality of eliminating redevelopment agencies unless they agree to make payments to fund State obligations. The court also granted a stay, which allows redevelopment agencies to avoid paying until the court rules on the merits of the case, which is expected prior to January 15. Certain redevelopment agency transfers are still prohibited until the case is resolved.
The legislation dissolves all RDAs after October 1 and establishes a process to designate successor agencies. The law became effective on June 28, 2011 as part of the overall budget package signed by the Governor.
After the effective date of the act the RDAs were prohibited from executing trust deeds or mortgages on any of their real property. In addition, the RDAs could not dispose of assets by “sale, long term lease, gift, grant, transfer assignment, or otherwise . . .” The prohibition on disposition specially included real property, deeds of trust and mortgages held by the agency.
In anticipation of the law, some RDAs simply transferred land to local governments in order to get it beyond the reach of the proposal then being discussed in the Legislature. The legislation itself was amended into ABX1 26 on June 25th and passed the by Legislature on June 27th.
The Legislative solution to address the preemptive transfers by of the RDAs was to try to look backward at the transfers and allow them to be ordered to be undone. The law requires the Controller to review asset transfers after January 1, 2011 to a city or county that created a RDA to see if the government agency that received the assets was contractually committed to a third party for the expenditure or encumbrance of those assets. If the local agency is not contractually committed, then, to the extent not prohibited by state and federal law, the Controller is required to order the available assets to be returned to the redevelopment agency or its successor agency.
The act contains a Legislature finding that a transfer of assets by a redevelopment agency during the period after January 1 and covered by the act is deemed not to be in the furtherance of the Community Redevelopment Law and is thereby unauthorized.