California Supreme Court's redevelopment ruling spells trouble for Merced projects

The California Supreme Court decided Thursday the state can ax local redevelopment agencies, a landmark ruling that Merced city officials say will have dire effects locally.

Gov. Jerry Brown praised the court's ruling, saying it validates a key component of the state budget and guarantees more than a billion dollars of ongoing funding for schools and public safety.

Local officials, on the other hand, call the decision a major blow to the city of Merced. Merced, along with cities statewide, the California League of Cities and the California Redevelopment Association filed a lawsuit against the state earlier this year.

Without a redevelopment agency in Merced, infrastructure associated with high-speed rail and the downtown entertainment complex at 16th Street and other projects will be affected, according to City Attorney Greg Diaz.

A neighborhood commercial center at Childs Avenue and Canal Street won't happen, according to Elaine Post, development manager. She said the 5-acre project would have provided shopping for Merced residents.

Projects in the works can be finished, Diaz said. Highway 59 improvements will move forward because "all of the redevelopment dollars have been obligated," City Manager John Bramble said.

'It's disappointing'

Nearly 400 agencies in the state help eliminate blight in the community and promote economic development. In Merced, redevelopment money, which consists of local property taxes, has helped spur commercial and industrial projects and have employed more than 1,500 people. The redevelopment agency has built 994 units of affordable housing.

"I don't think anybody won with this decision," Bramble said Thursday. "Clearly, it's disappointing, because at this point they've taken away one of the primary tools we have to help spur business and jobs."

Bramble said city officials would have to take a look at Assembly Bill 26, which eliminates redevelopment agencies, and determine what the long-term implications are.

The court also determined that AB 27, which required redevelopment agencies to give money to education and schools, was unconstitutional because it violated Proposition 22, Diaz said. Proposition 22 prohibits the state from borrowing or taking money used for transportation, redevelopment, or local government projects and services, according to the California Secretary of State's website.

What options for new entity?

In January, the Merced agency transferred its redevelopment funds to a separate entity, the City of Merced Public Financing and Economic Development Authority, which would complete future projects. Officials transferred a little more than $10 million in cash, 39 properties and several million in loans to the authority.

City officials said they were evaluating options for the authority as well as winding down the redevelopment agency.

Diaz said the city wasn't sure when the agency would cease to exist. "An entity doesn't just go away in one day. You have to finish an audit," transfer titles to another entity and look at what to do with current contracts, he said.

"What's not clear from the court decision is it takes somebody to process all of that. Will the state be paying for that?" Diaz asked.

Earlier this year, Brown eliminated funding for redevelopment agencies when he approved the state budget. State agencies were required to fork over $1.7 billion to the state to help balance the budget. A companion bill stipulated that if redevelopment agencies wanted to continue to operate, local governments would have to make an upfront payment to the state. If they couldn't pay, the agencies would have to stop doing business Oct. 1. The city, on behalf of the redevelopment agency, decided to make an estimated one-time payment of $3.29 million to the state to keep redevelopment going in August. The additional annual payments would have been an estimated $780,829.

Diaz said it will take a while to figure out what Merced has done and what it's supposed to do in light of the court's decision.

The state will be able to save more than $1 billion in this year's budget by eliminating about 400 redevelopment agencies, but it will not get an estimated $400 million a year thereafter from money that would have been set aside by agencies to continue operating. The state, which is heading into the new year with a $13 billion shortfall over 18 months, had initially estimated the current-year savings at $1.7 billion.

Redevelopment critics have noted the city of Palm Desert spent $16.7 million in redevelopment money to upgrade a luxury golf course, the Bay Area city of Hercules used affordable housing money to hire a lobbyist, and Montebello spent $31 million on, among other things, dinners in Las Vegas, golf and embroidered polo shirts.

Reporter Ameera Butt can be reached at (209) 385-2477 or abutt@mercedsun-star.com.

The Associated Press contributed to this report.