School Districts and Community College Districts May Oversee the Liquidation of Redevelopment Agencies

California school districts and community college districts may soon be taking on a new responsibility – overseeing the liquidation of redevelopment agencies within their boundaries.

This new responsibility is the result of legislation adopted June which would eliminate all of the state’s redevelopment agencies (AB 1X 26), and a second bill which would allow redevelopment agencies to remain in existence if their host cities and counties make a “voluntary” payment for the benefit of the state (AB 1X 27). After the redevelopment agencies are eliminated, their share of property taxes would flow to other local agencies, including school districts and community college districts.

The legislation sets up a seven member oversight board which would supervise the dismantling of the redevelopment agencies. Representatives of school districts and community college districts would each have a seat on the oversight board.

Before the elimination of the redevelopment agencies took effect, however, a lawsuit was filed by the California Redevelopment Association to halt the new laws. The California Supreme Court accepted the case and issued a stay of the effectiveness of the new laws.

The Supreme Court held oral arguments on the case on November 10, and it appeared from the justices’ questions that they were prepared to uphold the bill that would eliminate the redevelopment agencies. It was less clear whether the justices would also uphold the companion legislation that would allow redevelopment agencies to make the voluntary payments and be reinstated. The Court’s decision is expected by January 15, and could be issued before the end of the year.

If the decision results in some or all redevelopment agencies going out of business, the oversight boards will need to quickly be formed and begin their supervision of the liquidation process. The oversight boards will direct redevelopment agencies to dispose of all of their assets and properties, and to terminate unnecessary contracts. Existing bonds and long-term contracts will remain in place, however. The oversight board will have the power to approve all major decisions by redevelopment agencies, such as bond restructuring, property sales, and the establishment of the list of contracts that will continue to be honored.

When the Supreme Court hands down its decision we will publish a further legal alert, which will analyze the effect of the ruling on school districts and community college districts.

Jon Goetz