ULI Los Angeles News

What Now? The Demise of the CRA in California

by Russell E. Morse, Truman & Elliott LLP

The California Supreme Court’s recent decision in California Redevelopment Association v. Matosantos served as the final death knell for redevelopment agencies inCalifornia.  In the landmark decision, the Supreme Court upheld as constitutional the state law dissolving municipal redevelopment agencies, but rejected the companion law, which allowed municipal redevelopment agencies to stay open if the cities/counties in which they existed agreed to make certain payments benefiting the state’s schools and special districts.

Redevelopment agencies are semi-autonomous creations of the state with the intended purpose of improving blighted areas by building housing and commercial projects.  In the City ofLos Angeles, the CRA/LA helped lead to the revitalization of areas such asHollywood(e.g. theHollywood&Highlandcomplex and the ArcLight/Cinerama Dome) and Downtown.

During the summer months of 2011, when Governor Jerry Brown called for a plan to eliminate municipal redevelopment agencies, a compromise of sorts was developed and two companion laws were passed in the California Legislature, Assembly Bills 1X 26 and 1X 27.  While Assembly Bill 1X 26 prohibited the redevelopment agencies from conducting business and ultimately dissolved the redevelopment agencies, Assembly Bill 1X 27 allowed the redevelopment agencies to stay open and operate, as indicated above, if those cities and counties with redevelopment agencies paid so-called “ransoms” or as some referred to it, “shakedown money” to the state.   The California Redevelopment Association, along with a number of other groups, sued the State arguing that each measure was unconstitutional.

After months of legal wrestling, the Supreme Court, on December 29, 2011, held once and for all that Assembly Bill 1X 26, the dissolution measure, was constitutional and the California Legislature could dissolve redevelopment agencies.  However, the Court also held that Assembly Bill 1X 27, the measure conditioning further redevelopment agency operations on additional payments, was unconstitutional.

This result is a worst-case scenario for redevelopment agencies.  As of February 1, 2012, all redevelopment agencies were officially dissolved.

Since February 1, 2012, cities and counties have made the decision whether to become the successor agency to the defunct redevelopment agencies and take on their “enforceable obligations” or not.  While many cities and counties in the state are choosing to take on the duties, the City ofLos Angeleson January 11, 2011, voted not to absorb the City’s redevelopment agency and its 193 employees into a city function.  With more than $109 million in costs if it took on the agency, the City declined.

Accordingly, Los Angeles’ redevelopment agency was handed over to an oversight authority of three members – all of them appointed by Governor Brown.  These members include Mayer Brown partner/former James Hahn chief of staff Timothy McOsker, Chairman of Rising Realty Partners, LLC Nelson Rising, and former CRA/LA city council liaison Mee Semcken.  The new appointees formed a “designated local authority” (DLA) that assumes certain duties associated with the terminated CRA/LA.

These duties include disposing of agency assets (including disposing of approximately 400 parcels of real estate), paying existing bond debt, following through on pre-existing contractual obligations, maintaining reserves, enforcing former redevelopment agency rights to protect and benefit bondholders, managing properties until contracted work has been completed and preparing an administrative budget and obligations payment schedule.

The DLA will be overseen by a seven-member Oversight Board consisting of representatives of the taxing agencies in whose boundaries the redevelopment agencies were located.

According to the CRA/LA, there are 26 projects in various stages of completion.

The DLA, along with the soon-to-be-appointed oversight boards, will supervise the completion of properties in development, at least until those contractual obligations have been delegated to third parties.

Since February, the DLA has met and is quickly coming up to speed to meet the demands of existing CRA projects.  The 7-member Oversight Board has not yet been appointed and must be in place by July 15, 2012.  The DLA cannot sign off on anything until the Oversight Board is established.

On the legal side, the Community Redevelopment Association can appeal the Supreme Court ruling to the U.S. Supreme Court, however, this appeal is unlikely to be heard before the selective Court.

So while the structure appears to be in place to continue the CRA/LA projects currently in motion under the authority of the DLA, questions on the mechanisms to be used in the future to help revitalize blighted communities and construct affordable housing remain unresolved.

For questions or comments on this article, contact the author at rmorse@trumanelliott.com.

 

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