On December 29, 2011, the State Supreme Court issued its ruling in California Redevelopment Association v. Matosantos. The Court largely upheld AB 1X 26, which provided for the windup and dissolution of redevelopment agencies, and invalidated AB 1X 27, which allowed redevelopment agencies to continue operating as long as their community sponsors (primarily cities, but also inclusive of counties and other local government entities) made payments to state funds benefiting schools and special districts.

This decision is the result of legislation which was passed in the summer of 2011, in response to a declared fiscal emergency that was originally declared by Governor Schwarzenegger and later renewed by Governor Brown. The intent behind AB 1X 26 and AB 1X 27 was, in large part, to reduce or eliminate the diversion of property tax revenues from school districts and special districts to redevelopment agencies. The California Redevelopment Agency and other interested parties petitioned the Supreme Court to overturn the legislation, arguing that the bills were unconstitutional.

The Court considered 1) whether redevelopment agencies, once created and were engaged in plans, had a protected right to exist which immunized them from statutory dissolution and, 2) whether redevelopment agencies and their sponsoring communities have a protected right to not make payments to various funds benefiting schools and special districts as a condition of continued operation.

With respect to the first question, the Court held that redevelopment agencies do not have a protected right to exist and despite Proposition 22, which amended the state Constitution to impose new limits on the Legislature’s fiscal powers, did not rescind the ability of the Legislature to dissolve redevelopment agencies. The Legislature is still empowered to create entities and dissolve those same entities as it deems appropriate. Redevelopment agencies were developed as a result of the Legislature’s exercise of its statutory authority, and therefore, a creature of state statute. For this reason, the Legislature could exercise those same powers in enacting AB 1X 26 and dissolving redevelopment agencies.

With respect to the second question, the Court held that the continued existence of redevelopment agencies cannot be conditioned upon an agency’s community sponsor making payments to state funds benefiting schools and special districts. This is because Proposition 22 forbids the Legislature from requiring such payments. However, because the requirement for sponsoring communities to pay as a condition precedent for continued operation of the redevelopment agencies is unconstitutional and could not be severed from the remaining bill, the Court invalidated the entire measure.


We will continue to analyze this decision more closely. In the meantime, if you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Mona G. Ebrahimi | 916.321.4500