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In a significant budget win for Gov. Jerry Brown and lawmakers, the California Supreme Court ruled Thursday the state can eliminate the local agencies that subsidize construction in blighted areas.

The decision strengthens the state's ability to take funds from redevelopment agencies for the current budget. It also provides leverage for state leaders to use more than $1 billion annually in redevelopment property tax dollars to balance future budgets.

The court called the elimination of redevelopment "a proper exercise of the legislative power vested in the Legislature by the state Constitution."

But justices ruled invalid a second bill that would have reconstituted redevelopment agencies in a different form. That decision spells the agencies' demise unless lawmakers pass a new redevelopment plan when they return next month.

Lawmakers counted on raising $1.7 billion from the two-bill package. The court's ruling on the second measure may result in less money this year but more in future years from property taxes that would have otherwise gone to redevelopment.

"Today's ruling by the California Supreme Court validates a key component of the state budget and guarantees more than a billion dollars of ongoing funding for schools and public safety," Brown said in a statement this morning.

Local government advocates and some Democrats issued a response today calling for a new bill to reinstate redevelopment agencies.

"Without immediate legislative action to fix this adverse decision, this ruling is a tremendous blow to local job creation and economic advancement," said California Redevelopment Association board president Julio Fuentes. "The legislative record is abundantly clear that legislators did not intend to abolish redevelopment."

In his own statement, Speaker John A. Pérez, D-Los Angeles, called the decision a "mixed result" because the court struck down the second bill. He said lawmakers "remain committed to finding affordable housing solutions and making smart economic development investments in our local communities."

State leaders axed redevelopment agencies in June as they closed a deficit once projected at $26 billion. As part of the plan, cities could reorganize the agencies only if they agreed to use their money to pay for state obligations this fiscal year and make smaller $400 million contributions in future years.

Cities and redevelopment agencies sued the state in August to block the plan, saying it was akin to the state demanding a "ransom payment." Critics in the Legislature said the state could ill afford to subsidize private developers, pointing to venues such as "Dive Bar," a watering hole steps from the Capitol that features a mermaid tank.

The state's high court agreed to fast-track the case. By issuing a decision today, the court gave state leaders guidance before Brown proposes his 2012-13 budget in less than two weeks.

Updated throughout the day with additional responses and reporting.


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