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Next Steps for Redevelopment Agencies After Passage of Dissolution and “Pay to Play” Assembly Bills

On Tuesday, the Legislature approved the latest budget proposal (SB 87) and sent the previously passed trailer bills, AB 1X 26 and 27, to the Governor for signature. The California Redevelopment Association and the League of California Cities will be filing legal actions in efforts to invalidate the legislation and obtain a stay on implementation. 

If the legislation is upheld, redevelopment agencies will need to decide whether they should dissolve in accordance with AB1X26, or “pay to play” in accordance with AB1X27. This is a decision that should be analyzed in light of the particular circumstances of each redevelopment agency. Agencies should evaluate projects in process, property and other assets the city and agency may lose if the agency is dissolved, whether future net tax increment will be sufficient to fund planned redevelopment activities, and whether the agency can make the payments required by the legislation. 

If a redevelopment agency decides to “pay to play,” the city must adopt an ordinance (i.e., conduct a second reading) by not later than November 1, 2011, committing the agency to make the required payments to the County auditor-controller. The amount of the required payments will be published by the State Department of Finance by August 1, 2011, but the California Redevelopment Agency has provided estimates that agencies may use as a guideline. The payments will be due beginning January 1, 2012. 

If a redevelopment agency does not choose to participate in the payment program, the legislation provides that the agency will be dissolved as of October 1, 2011. In such case, the city may elect to be the successor to the agency, and an oversight Board will direct the disposition of agency assets with proceeds to be transferred to the county auditor-controller for distribution to school entities and local entities.

In the meantime, as of the effective date of the legislation, and continuing until the city adopts an ordinance committing it to participate in the payment program, redevelopment agencies are not permitted to: enter into new contracts, amend contracts, amend redevelopment plans, incur new debt, sell, lease or encumber property, acquire property, or commence eminent domain proceedings. 

Meyers Nave’s Redevelopment Practice Group continues to monitor litigation and legislative developments, including the still-pending proposed redevelopment reform legislation. We are working with cities and redevelopment agencies throughout the state to analyze the impact of the legislation and craft responses. For more information about the legislation or assistance with redevelopment projects, contact Sue Bloch or Erin Burg Hupp at 800.464.3559.