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California Redevelopment Association et al v. Ana Matosantos

December 29, 2011

CALIFORNIA REDEVELOPMENT ASSOCIATION ET AL., PETITIONERS,
v.
ANA MATOSANTOS, AS DIRECTOR, ETC., ET AL., RESPONDENTS; COUNTY OF SANTA CLARA ET AL., INTERVENERS AND RESPONDENTS.



The opinion of the court was delivered by: Werdegar, J.

Responding to a declared state fiscal emergency, in the summer of 2011 the Legislature enacted two measures intended to stabilize school funding by reducing or eliminating the diversion of property tax revenues from school districts to the state's community redevelopment agencies. (Assem. Bill Nos. 26 & 27 (2011-2012 1st Ex. Sess.) enacted as Stats. 2011, 1st Ex. Sess. 2011-2012, chs. 5-6 (hereafter Assembly Bill 1X 26 and Assembly Bill 1X 27); see also Assem. Bill 1X 26, § 1, subds. (d)-(i); Assem. Bill 1X 27, § 1, subds. (b), (c).) Assembly Bill 1X 26 bars redevelopment agencies from engaging in new business and provides for their windup and dissolution. Assembly Bill 1X 27 offers an alternative: redevelopment agencies can continue to operate if the cities and counties that created them agree to make payments into funds benefiting the state's schools and special districts.

The California Redevelopment Association, the League of California Cities, and other affected parties (collectively the Association) promptly sought extraordinary writ relief from this court, arguing that each measure was unconstitutional. They contended the measures violate, inter alia, Proposition 22, which amended the state Constitution to place limits on the state's ability to require payments from redevelopment agencies for the state's benefit. (See Cal. Const., art. XIII, § 25.5, subd. (a)(7), added by Prop. 22, as approved by voters, Gen. Elec. (Nov. 2, 2010).) The state's Director of Finance, respondent Ana Matosantos, opposed on the merits but agreed we should put to rest the significant constitutional questions concerning the validity of both measures.*fn1 We issued an order to show cause, partially stayed the two measures, and established an expedited briefing schedule. We also granted leave to the County of Santa Clara and its auditor-controller, Vinod K. Sharma (collectively Santa Clara), to intervene as respondents.

We consider whether under the state Constitution (1) redevelopment agencies, once created and engaged in redevelopment plans, have a protected right to exist that immunizes them from statutory dissolution by the Legislature; and (2) redevelopment agencies and their sponsoring communities have a protected right not to make payments to various funds benefiting schools and special districts as a condition of continued operation. Answering the first question "no" and the second "yes," we largely uphold Assembly Bill 1X 26 and invalidate Assembly Bill 1X 27.

Assembly Bill 1X 26, the dissolution measure, is a proper exercise of the legislative power vested in the Legislature by the state Constitution. That power includes the authority to create entities, such as redevelopment agencies, to carry out the state's ends and the corollary power to dissolve those same entities when the Legislature deems it necessary and proper. Proposition 22, while it amended the state Constitution to impose new limits on the Legislature's fiscal powers, neither explicitly nor implicitly rescinded the Legislature's power to dissolve redevelopment agencies. Nor does article XVI, section 16 of the state Constitution, which authorizes the allocation of property tax revenues to redevelopment agencies, impair that power.

A different conclusion is required with respect to Assembly Bill 1X 27, the measure conditioning further redevelopment agency operations on additional payments by an agency's community sponsors to state funds benefiting schools and special districts. Proposition 22 (specifically Cal. Const., art. XIII, § 25.5, subd. (a)(7)) expressly forbids the Legislature from requiring such payments. Matosantos's argument that the payments are valid because technically voluntary cannot be reconciled with the fact that the payments are a requirement of continued operation. Because the flawed provisions of Assembly Bill 1X 27 are not severable from other parts of that measure, the measure is invalid in its entirety.*fn2

I. Background

A. Government Finance: The Integration of State, School, and Municipal Financing

For much of the 20th century, state and local governments were financed independently under the "separation of sources" doctrine. In 1910, the Legislature proposed, and the voters approved, a constitutional amendment granting local governments exclusive control over the property tax. (Cal. Const., art. XIII, former § 10, enacted by Sen. Const. Amend. No. 1, Gen. Elec. (Nov. 8, 1910); see Simmons, California Tax Collection: Time for Reform (2008) 48 Santa Clara L.Rev. 279, 285-286; Ehrman & Flavin, Taxing Cal. Property (4th ed. 2011) §§ 1:9-1:10, p. 1-14.) Each jurisdiction (city, county, special district, and school district) could levy its own independent property tax. (See, e.g., Temescal Water Co. v. Niemann (1913) 22 Cal.App. 174, 176 ["It is conceded . . . that a municipality has the right to assess all real property found within its limits for the purpose of maintaining the municipal revenues, and that the county taxing officials have the right to levy upon the same property for county purposes."].)

This system of finance had significant consequences for education. Under the state Constitution, the Legislature is obligated to provide for a public school system. (Cal. Const., art. IX, § 5; Wells v. One2One Learning Foundation (2006)39 Cal.4th 1164, 1195.) Seeking to promote local involvement, the Legislature established school districts as political subdivisions and delegated to them that duty. (Wells, at p. 1195; Butt v. State of California (1992) 4 Cal.4th 668, 680-681; see also California Teachers Assn. v. Hayes (1992) 5 Cal.App.4th 1513, 1523.) Historically, school districts were largely funded out of local property taxes. (Serrano v. Priest (1971) 5 Cal.3d 584, 592 (Serrano I); Serrano v. Priest (1976) 18 Cal.3d 728, 737-738 (Serrano II); see County of Los Angeles v. Sasaki (1994) 23 Cal.App.4th 1442, 1450.) Under the California system of financing as it existed until the 1970's, different school districts could levy taxes and generate vastly different revenues; because of the difference in property values, the same property tax rate would yield widely differing sums in, for example, Beverly Hills and Baldwin Park. (Serrano I, at pp. 592-594.)

We invalidated that system of financing in Serrano I and Serrano II, holding that education was a fundamental interest (Serrano I, supra, 5 Cal.3d at pp. 608-609; Serrano II, supra, 18 Cal.3d at pp. 765-766) and that financing heavily dependent on local property tax bases denied students equal protection (Serrano I, at pp. 614-615; Serrano II, at pp. 768-769, 776). The Serrano decisions threw "the division of state and local responsibility for educational funding" into " 'a state of flux.' " (Los Angeles Unified School Dist. v. County of Los Angeles (2010) 181 Cal.App.4th 414, 419.) In their aftermath, a "Byzantine" system of financing (California Teachers Assn. v. Hayes, supra, 5 Cal.App.4th at p. 1525) evolved in which the state became the principal financial backstop for local school districts. Funding equalization was achieved by capping individual districts' abilities to raise revenue and enhancing state contributions to ensure minimum funding levels. (Lockard, In the Wake of Williams v. State: The Past, Present, and Future of Education Finance Litigation in California (2005) 57 Hastings L.J. 385, 388-391; see generally Wells v. One2One Learning Foundation, supra,39 Cal.4th at p. 1194 [discussing current funding regime].)

A second event of seismic significance followed shortly after, with the voters' 1978 adoption of Proposition 13. (Cal. Const., art. XIII A, added by Prop. 13, as approved by voters, Primary Elec. (June 6, 1978).) As noted, before 1978 cities and counties had been able to levy their own property taxes. Proposition 13 capped ad valorem real property taxes imposed by all local entities at 1 percent (Cal. Const., art. XIII A, § 1, subd. (a)), reducing the amount of revenue available by more than half (Stark, The Right to Vote on Taxes (2001) 96 Nw.U. L.Rev. 191, 198). In place of multiple property taxes imposed by multiple political subdivisions, it substituted a single tax to be collected by counties and thereafter apportioned. (Cal. Const., art. XIII A, § 1, subd. (a).) Significantly, Proposition 13 did not specify how that 1 percent was to be divided, instead leaving the method of allocation to state law. (See Cal. Const., art. XIII A, § 1, subd. (a) [real property tax is "to be . . . apportioned according to law to the districts within the counties"]; Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 225-227; County of Los Angeles v. Sasaki, supra, 23 Cal.App.4th at pp. 1454-1457; City of Rancho Cucamonga v. Mackzum (1991) 228 Cal.App.3d 929, 945.)

Proposition 13 transformed the government financing landscape in at least three ways relevant to this case. First, by capping local property tax revenue, it greatly enhanced the responsibility the state would bear in funding government services, especially education. (See County of Los Angeles v. Sasaki, supra, 23 Cal.App.4th at pp. 1451-1452; California Teachers Assn. v. Hayes, supra, 5 Cal.App.4th at pp. 1527-1528.) Second, by failing to specify a method of allocation, Proposition 13 largely transferred control over local government finances from the state's many political subdivisions to the state, converting the property tax from a nominally local tax to a de facto state-administered tax subject to a complex system of intergovernmental grants. (See Rev. & Tax. Code, § 95 et seq.; Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, supra, 22 Cal.3d at pp. 226-227; Sasaki, at pp. 1454-1455; Stark, The Right to Vote on Taxes, supra, 96 Nw.U. L.Rev. at p. 198.)*fn3 Third, by imposing a unified, shared property tax, Proposition 13 created a zero-sum game in which political subdivisions (cities, counties, special districts, and school districts) would have to compete against each other for their slices of a greatly shrunken pie.

In 1988, the voters added another wrinkle with Proposition 98, which established constitutional minimum funding levels for education and required the state to set aside a designated portion of the General Fund for public schools. (Cal. Const., art. XVI, § 8; see Los Angeles Unified School Dist. v. County of Los Angeles, supra, 181 Cal.App.4th at p. 420; California Teachers Assn. v. Hayes, supra, 5 Cal.App.4th at pp. 1517-1518.) Two years later, the voters revised and effectively increased the minimum funding requirements for public schools. (Prop. 111, Primary Elec. (June 5, 1990) amending Cal. Const., art. XVI, § 8; see County of Sonoma v. Commission on State Mandates (2000) 84 Cal.App.4th 1264, 1289.)

In response to these rising educational demands on the state treasury, the Legislature in 1992 created county educational revenue augmentation funds (ERAF's). (Stats. 1992, chs. 699, 700, pp. 3081-3125; Rev. & Tax. Code, §§ 97.2, 97.3; see Los Angeles Unified School Dist. v. County of Los Angeles, supra, 181 Cal.App.4th at pp. 420-421; City of El Monte v. Commission on State Mandates (2000) 83 Cal.App.4th 266, 272-274; County of Los Angeles v. Sasaki, supra, 23 Cal.App.4th at p. 1447.) It reduced the portion of property taxes allocated to local governments, deposited the difference in the ERAF's, deemed the balances part of the state's General Fund for purposes of satisfying Proposition 98 obligations, and distributed these amounts to school districts. (County of Sonoma v. Commission on State Mandates, supra, 84 Cal.App.4th at pp. 1275-1276; see Los Angeles Unified School Dist. v. County of Los Angeles, supra, 181 Cal.App.4th at p. 426 [ERAF's are an " 'accounting device' " for reallocating property taxes to school districts from other local government entities].) Periodically thereafter, the Legislature through supplemental legislation required local government entities to further contribute to the ERAF's in order to defray the state's Proposition 98 school funding obligations. (Los Angeles Unified School Dist., at pp. 420-421.) Local governments had no vested right to property taxes (id. at p. 425); accordingly, the Legislature could require ERAF payments as "an exercise of [its] authority to apportion property tax revenues." (City of El Monte, at p. 280; see Cal. Const., art. XIII A, § 1, subd. (a).)

B. Redevelopment Agencies

In the aftermath of World War II, the Legislature authorized the formation of community redevelopment agencies in order to remediate urban decay. (Stats. 1945, ch. 1326, p. 2478 et seq. [Community Redevelopment Act]; Stats. 1951, ch. 710, p. 1922 et seq. [codifying and renaming the Community Redevelopment Law, Health & Saf. Code, § 33000 et seq.];*fn4 see Cal. Const., art. XVI, § 16.) The Community Redevelopment Law "was intended to help local governments revitalize blighted communities." (City of Cerritos v. Cerritos Taxpayers Assn. (2010) 183 Cal.App.4th 1417, 1424; see Marek v. Napa Community Redevelopment Agency (1988) 46 Cal.3d 1070, 1082.) It has since become a principal instrument of economic development, mostly for cities, with nearly 400 redevelopment agencies now active in California.

A redevelopment agency may be (and usually is) governed by the sponsoring community's own legislative body. (§ 33200; Coomes et al., Redevelopment in California (4th ed. 2009) pp. 21-23.)*fn5 An agency is authorized to "prepare and carry out plans for the improvement, rehabilitation, and redevelopment of blighted areas." (§ 33131, subd. (a).) To carry out such redevelopment plans, agencies may acquire real property, including by the power of eminent domain (§ 33391, subd. (b)), dispose of property by lease or sale without public bidding (§§ 33430, 33431), clear land and construct infrastructure necessary for building on project sites (§§ 33420, 33421), and undertake certain improvements to other public facilities in the project area (§ 33445). While redevelopment agencies have used their powers in a wide variety of ways, in one common type of project the redevelopment agency buys and assembles parcels of land, builds or enhances the site's infrastructure, and transfers the land to private parties on favorable terms for residential and/or commercial development. (Coomes, pp. 16-19; see, e.g., Marek v. Napa Community Redevelopment Agency, supra, 46 Cal.3d at p. 1075.)

Redevelopment agencies generally cannot levy taxes. (Huntington Park Redevelopment Agency v. Martin (1985) 38 Cal.3d 100, 106; City of Cerritos v. Cerritos Taxpayers Assn., supra, 183 Cal.App.4th at p. 1424; City of El Monte v. Commission on State Mandates, supra, 83 Cal.App.4th at p. 269.) Instead, they rely on tax increment financing, a funding method authorized by article XVI, section 16 of the state Constitution and section 33670 of the Health and Safety Code. (City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 866; City of El Monte, at pp. 269-270.) Under this method, those public entities entitled to receive property tax revenue in a redevelopment project area (the cities, counties, special districts, and school districts containing territory in the area) are allocated a portion based on the assessed value of the property prior to the effective date of the redevelopment plan. Any tax revenue in excess of that amount--the tax increment created by the increased value of project area property--goes to the redevelopment agency for repayment of debt incurred to finance the project. (Cal. Const., art. XVI, § 16, subds. (a), (b); § 33670, subds. (a), (b); City of Dinuba, at p. 866.) In essence, property tax revenues for entities other than the redevelopment agency are frozen, while revenue from any increase in value is awarded to the redevelopment agency on the theory that the increase is the result of redevelopment. (City of Cerritos, at p. 1424.)

The property tax increment revenue received by a redevelopment agency must be held in a special fund for repayment of indebtedness (§ 33670, subd. (b)), but the law does not restrict the amount of tax increment received in a given year to that needed for loan repayments in that year. (Marek v. Napa Community Redevelopment Agency, supra, 46 Cal.3d at p. 1083.) The only limit on the annual increment payment received is that it may not exceed the agency's total debt, less its revenue on hand. (§ 33675, subd. (g).) Once the entire debt incurred for a project has been repaid, all property tax revenue in the project area is allocated to local taxing agencies according to the ordinary formula. (§ 33670, subd. (b).)

A powerful and flexible tool for community economic development, tax increment financing nonetheless "has sometimes been misused to subsidize a city's economic development through the diversion of property tax revenues from other taxing entities . . . ." (Lancaster Redevelopment Agency v. Dibley (1993) 20 Cal.App.4th 1656, 1658; see Regus v. City of Baldwin Park (1977) 70 Cal.App.3d 968, 981-983.) This practice became more common in the era of constricted local tax revenue that followed the passage of Proposition 13. Some small cities with blighted areas available for industrial redevelopment "were able to shield virtually all of their property tax revenue from other government agencies," but "[e]ven in ordinary cities . . . the temptation to use redevelopment as a financial weapon was considerable. Because it limited increases in property tax rates, Proposition 13 created a kind of shell game among local government agencies for property tax funds. The only way to obtain more funds was to take them from another agency. Redevelopment proved to be one of the most powerful mechanisms for gaining an advantage in the shell game." (Fulton & Shigley, Guide to California Planning (3d ed. 2005) pp. 263-264.) Today, redevelopment agencies receive 12 percent of all property tax revenue in the state. (See Assem. Bill 1X 26, § 1, subd. (f); Legis. Analyst's Off., The 2011-2012 Budget: Should California End Redevelopment Agencies?, supra, p. 1.)

Addressing these concerns, the Legislature has required redevelopment agencies to make certain transfers of their tax increment revenue for other local needs. First, 20 percent of the revenue generally must be deposited in a fund for provision of low and moderate income housing. (§§ 33334.2, 33334.3, 33334.6; see City of Cerritos v. Cerritos Taxpayers Assn., supra, 183 Cal.App.4th at p. 1424.) Second, redevelopment agencies must make a graduated series of pass-through payments to local government taxing agencies such as cities, counties, and school districts from tax increment on projects adopted or expanded after 1994. (§ 33607.5, subd. (a)(2); see Los Angeles Unified School Dist. v. County of Los Angeles, supra, 181 Cal.App.4th at pp. 421-422.) The payments are distributed according to the taxing agencies' ordinary shares of property taxes. (Id. at pp. 422-423.)

Of greatest relevance here, the Legislature has often required redevelopment agencies, like cities and counties, to make ERAF payments for the benefit of school and community college districts. (See §§ 33680, 33681.7 to 33681.15, 33685 to 33692; former § 33681 (Stats. 1992, ch. 700, § 1.5, pp. 3115-3116); former § 33681.5 (Stats. 1993, ch. 68, § 4, pp. 942-944); Los Angeles Unified School Dist. v. County of Los Angeles, supra, 181 Cal.App.4th at p. 421; City of El Monte v. Commission on State Mandates, supra, 83 Cal.App.4th at pp. 272-274.) In each of the 2004-2005 and 2005-2006 fiscal years, redevelopment agencies were charged amounts intended to generate a combined $250 million. (§ 33681.12, subd. (a)(2).) In the 2008-2009 fiscal year, the Legislature required a combined $350 million or 5 percent of the total statewide tax increment allocated to redevelopment agencies under section 33670, whichever was greater, to be transferred to ERAF's (§ 33685, subd. (a)(2)), although that revenue shift was ultimately invalidated in litigation. (Cal. Redevelopment Assn. v. Genest (Super. Ct. Sac. County, 2009, No. 34-2008-00028334-CU-WM-GDS.) Similar provisions for shifts of tax increment revenue in the 2009-2010 and 2010-2011 fiscal years (§§ 33690, 33690.5) are the subjects of pending litigation.

Tax increment financing remains a source of contention because of the financial advantage it provides redevelopment agencies and their community sponsors, primarily cities, over school districts and other local taxing agencies. Additionally, because of the state's obligations to equalize public school funding across districts (Ed. Code, § 42238 et seq.) and to fund all public schools at minimum levels set by Proposition 98 (Cal. Const., art. XVI, § 8), the loss of property tax revenue by school and community college districts creates obligations for the state's General Fund. (See Los Angeles Unified School Dist. v. County of Los Angeles, supra, 181 Cal.App.4th at pp. 419-422; Lefcoe, Finding the Blight That's Right for California Redevelopment Law (2001) 52 Hastings L.J. 991, 999 ["[W]here cities and counties shift property taxes from schools to redevelopment projects, the state must make up the difference . . . ."].) The effect of tax increment financing on school districts' property tax revenues has thus become a point of fiscal conflict between California's community redevelopment agencies and the state itself, a conflict manifesting in the current dispute.

C. Propositions 1A and 22

In addition to sporadically shifting property tax revenue from local governments to schools via ERAF's, the state in 1999 rolled back the vehicle license fee, a tax traditionally relied on by local governments and constitutionally allocated to cities and counties. (Supplemental Voter Information Guide, Gen. Elec. (Nov. 2, 2004) Legis. Analyst's analysis of Prop. 1A, p. 5; see Cal. Const., art. XI, § 15.) Though the state committed to backfill this lost revenue with payments from the General Fund, in 2004 it deferred the replacement payments. (Supplemental Voter Information Guide, Gen. Elec. (Nov. 2, 2004) Legis. Analyst's analysis of Prop. 1A, p. 5.) Also in 2004, the state reduced local government's share of the sales tax by 0.25 percent, while making up for the lost revenue with additional property tax allocations, in order to permit the issuance of new state bonds. (See Rev. & Tax. Code, §§ 97.68, 7203.1; Gov. Code, § 99050 et seq.)

Local government interests responded to these fluctuations in their revenue sources by qualifying for the ballot Proposition 65, a set of constitutional amendments to restrict such state actions in the future, but they subsequently agreed to support a compromise measure, Proposition 1A, instead. (Supplemental Voter Information Guide, Gen. Elec. (Nov. 2, 2004) argument against Prop. 65, p. 15; see id., Legis. Analyst's analysis of Prop. 1A, pp. 4-6.) The voters approved Proposition 1A and rejected Proposition 65. Among its reforms, Proposition 1A prevented the state from statutorily reducing or altering the existing allocations of property tax among cities, counties, and special districts. (Cal. Const., art. XIII, § 25.5, subd. (a)(1), (3).) Unlike Proposition 65, however, Proposition 1A did not extend its protections to redevelopment agencies. (See Cal. Const., art. XIII, § 25.5, subd. (b)(2); Rev. & Tax. Code, § 95, subd. (a) [omitting redevelopment agencies from the definition of a local agency]; Supplemental Voter Information Guide, Gen. Elec. (Nov. 2, 2004) Legis. Analyst's analysis of Prop. 1A, p. 7 [contrasting the two measures and expressly noting that "Proposition 1A's restrictions do not apply to redevelopment agencies"]; id., text of Prop. 65, p. 18 [including redevelopment agencies in its definition of protected special districts].)

In November 2010, following further legislative requirements that redevelopment agencies make ERAF payments, the voters approved Proposition 22. Among the initiative's many statutory and constitutional revisions, one is most central to the Association's argument: the addition of section 25.5, subdivision (a)(7) to article XIII of the state Constitution. That provision limits what the Legislature may do with respect to redevelopment agency tax increment: "(a) On or after November 3, 2004, the Legislature shall not enact a statute to do any of the following: [¶] . . . [¶] (7) Require a community redevelopment agency (A) to pay, remit, loan, or otherwise transfer, directly or indirectly, taxes on ad valorem real property and tangible personal property allocated to the agency pursuant to Section 16 of Article XVI to or for the benefit of the State, any agency of the State, or any jurisdiction; or (B) to use, restrict, or assign a particular purpose for such taxes for the benefit of the State, any agency of the State, or any jurisdiction," with two exceptions not pertinent here. We address section 25.5, subdivision (a)(7) in more detail below. (See post, pts. II.B.1., II.C.)

D. Assembly Bills 1X 26 and IX 27

In December 2010, then Governor Schwarzenegger declared a state fiscal emergency. (See Cal. Const., art. IV, § 10, subd. (f)(1).) On January 20, 2011, incoming Governor Brown renewed the declaration and convened a special session of the Legislature to address the state's budget crisis. (Legis. Counsel's Digest, Assem. Bill 1X 26; see also Professional Engineers in California Government v. Schwarzenegger (2010) 50 Cal.4th 989, 1001-1002 [detailing the ongoing crisis].)

As a partial means of closing the state's projected $25 billion operating deficit, Governor Brown originally proposed eliminating redevelopment agencies entirely. (See Legis. Analyst's Off., Governor's Redevelopment Proposal (Jan. 18, 2011) p. 4.) Parallel bills were introduced in the Senate and Assembly to "eliminate[] redevelopment agencies (RDAs) and specif[y] a process for the orderly wind-down of RDA activities . . . ." (Sen. Rules Com., Off. of Sen. Floor Analyses, analysis of Sen. Bill No. 77 (2011-2012 Reg. Sess.) as amended Mar. 15, 2011, p. 1; Sen. Rules Com., Off. of Sen. Floor Analyses, 3d reading analysis of Assem. Bill No. 101 (2011-2012 Reg. Sess.) as amended Mar. 15, 2011, p. 1.) Ultimately, however, the Legislature took a slightly different approach; in June 2011 it passed, and the Governor signed, the two measures we consider here.

Assembly Bills 1X 26 and IX 27 consist of three principal components, codified as new parts 1.8, 1.85 (both Assem. Bill 1X 26) and 1.9 (Assem. Bill 1X 27) of division 24 of the Health and Safety Code. Part 1.8 (§§ 34161 to 34169.5) is the "freeze" component: it subjects redevelopment agencies to restrictions on new bonds or other indebtedness; new plans or changes to existing plans; and new partnerships, including joint powers authorities (§§ 34162 to 34165). Cities and counties are barred from creating any new redevelopment agencies. (§ 34166.) Existing obligations are unaffected; redevelopment agencies may continue to make payments and perform existing obligations until other agencies take over. (§ 34169.) Part 1.8's purpose is to preserve redevelopment agency assets and revenues for use by "local governments to fund core governmental services" such as fire protection, police, and schools. (§ 34167, subd. (a).)

Part 1.85 (§§ 34170 to 34191) is the dissolution component. It dissolves all redevelopment agencies (§ 34172) and transfers control of redevelopment agency assets to successor agencies, which are contemplated to be the city or county that created the redevelopment agency (§§ 34171, subd. (j), 34173, 34175, subd. (b)). Part 1.85 requires successor agencies to continue to make payments and perform existing obligations. (§ 34177.) However, unencumbered balances of redevelopment agency funds must be remitted to the county auditor-controller for distribution to cities, the county, special districts, and school districts in proportion to what each agency would have received absent the redevelopment agencies. (See §§ 34177, subd. (d), 34183, subd. (a)(4), 34188.) Proceeds from redevelopment agency asset sales likewise must go to the county auditor-controller for similar distribution. (§ 34177, subd. (e).) Finally, tax increment revenues that would have gone to redevelopment agencies must be deposited in a local trust fund each county is required to create and administer. (§§ 34170.5, subd. (b), 34182, subd. (c)(1).) All amounts necessary to satisfy administrative costs, pass-through payments, and enforceable obligations will be allocated for those purposes, while any excess will be deemed property tax revenue and distributed in the same fashion as balances and assets. (§§ 34172, subd. (d), 34183, subd. (a).)

Part 1.9 (§§ 34192 to 34196), however, offers an exemption from dissolution for cities and counties that agree to make specified payments to both the county ERAF and a new county special district augmentation fund on behalf of their redevelopment agencies. Each city or county choosing this option must notify the state it will do so and pass an ordinance to that effect. (§§ 34193, subd. (b), 34193.1.) If it does, its redevelopment agency will be permitted to continue in operation without interruption, as is, under the Community Redevelopment Law. (§ 34193, subd. (a).) The amounts owed are to be calculated annually by the state's Director of Finance based on the fractional share of net and gross statewide tax increment each redevelopment agency has received in prior years, multiplied by $1.7 billion for this fiscal year and $400 million for all subsequent fiscal years. (§ 34194, subds. (b)(2), (c)(1)(A).)*fn6

Payments are due on January 15 and May 15 each year. (§ 34194, subd. (d)(1).) While remittances are nominally owed by cities and counties, the measure authorizes each community sponsor to contract with its redevelopment agency to receive tax increment in the amount owed, so that payments may effectively come from tax increment. (§ 34194.2.) Finally, any lapse in payments will result in a redevelopment agency's dissolution. (§ 34195.)

On August 17, 2011, we stayed parts 1.85 and 1.9, with minor exceptions, to prevent redevelopment agencies from being dissolved during the pendency of this matter. (Health & Saf. Code, div. 24, pts. 1.85, 1.9.)

II. Discussion

A. Jurisdiction

Santa Clara pleads as an affirmative defense that we lack jurisdiction. Though it does not further argue the point, we have an independent obligation in this as in every matter to confirm whether jurisdiction exists. (See Walker v. Superior Court (1991) 53 Cal.3d 257, 267; Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 302-303; Linnick v. Sedelmeier (1968) 262 Cal.App.2d 12, 12; see also Marbury v. Madison (1803) 5 U.S. 137, 173-175.) Assembly Bill 1X 26 provides that "[n]otwithstanding any other law, any action contesting the validity of this part [1.8] or Part 1.85 . . . or challenging acts taken pursuant to these parts shall be brought in the Superior Court of the County of Sacramento." (§ 34168, subd. (a).) We conclude this provision does not deprive us of jurisdiction.

In filing a petition for writ of mandate with this court in the first instance, the Association has asked us to invoke our original jurisdiction. That jurisdiction is constitutional. (Cal. Const., art. VI, § 10 [vesting the Supreme Ct. with original jurisdiction "in proceedings for extraordinary relief in the nature of mandamus, certiorari, and prohibition"].) It may not be diminished by statute. (Chinn v. Superior Court (1909) 156 Cal. 478, 480 ["[W]here the judicial power of courts, either original or appellate, is fixed by constitutional provisions, the legislature cannot either limit or extend that jurisdiction."]; see also Modern Barber Col.v. Cal. Emp. Stab. Com. (1948) 31 Cal.2d 720, 731; Standard Oil Co. v. State Board of Equal. (1936) 6 Cal.2d 557, 562; Lemen v. Edmunson (1927) 202 Cal. 760, 762.)

The Legislature does retain the power to regulate matters of judicial procedure. (Powers v. City of Richmond (1995) 10 Cal.4th 85, 98-110; Modern Barber Col.v. Cal. Emp. Stab. Com., supra, 31 Cal.2d at p. 731.) In some instances, the exercise of that power may appear to "defeat or interfere with the exercise of jurisdiction or of the judicial power" and thus come into tension with the general prohibition against impairing a constitutional grant of jurisdiction. (Garrison v. Rourke (1948) 32 Cal.2d 430, 436.) We avoid such constitutional conflicts whenever possible by construing legislative enactments strictly against the impairment of constitutional jurisdiction: " '[A]n intent to defeat the exercise of the court's jurisdiction will not be supplied by implication.' " (County of San Diego v. State of California (1997) 15 Cal.4th 68, 87, quoting Garrison, at p. 436; see also Garrison, at p. 435 ["The jurisdiction thus vested [by Cal. Const., art. VI] may not lightly be deemed to have been destroyed."].)

To avoid intrusion on our constitutional jurisdiction, section 34168, subdivision (a) is best read narrowly as applying only to, and designating a forum for, "action[s]" (ibid.), over which we retain appellate jurisdiction, while having no bearing on jurisdiction over "special proceedings" such as petitions for writs of mandate (see Public Defenders' Organization v. County of Riverside (2003) 106 Cal.App.4th 1403, 1409; compare Code Civ. Proc., pt. 2, § 307 et seq. [regulating civil actions] with Code Civ. Proc., pt. 3, § 1063 et seq. [regulating special proceedings of a civil nature]). It follows that, notwithstanding the fact the Association's petition challenges the validity of parts 1.8 and 1.85 of division 24 of the Health and Safety Code, we have jurisdiction to address it.

We will invoke our original jurisdiction where the matters to be decided are of sufficiently great importance and require immediate resolution. (E.g., Strauss v. Horton (2009) 46 Cal.4th 364, 398-399; Raven v. Deukmejian (1990) 52 Cal.3d 336, 340; Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, supra, 22 Cal.3d at p. 219.) Those circumstances are present here: Assembly Bills 1X 26 and 1X 27 place the state's nearly 400 redevelopment agencies under threat of imminent dissolution, while the Association's petition calls into question the proper allocation of billions of dollars in property tax revenue.

B. The Constitutionality of Assembly Bill 1X 26

We turn now to the merits. In assessing the validity of Assembly Bills 1X 26 and 1X 27, we are mindful that "all intendments favor the exercise of the Legislature's plenary authority: 'If there is any doubt as to the Legislature's power to act in any given case, the doubt should be resolved in favor of the Legislature's action. Such restrictions and limitations [imposed by the Constitution] are to be construed strictly, and are not to be extended to include matters not covered by the language used.' [Citations.]" (Methodist Hosp. of Sacramento v. Saylor (1971) 5 Cal.3d 685, 691.)

1. The Dissolution of Redevelopment Agencies Under Part 1.85 of Division 24 of the Health and Safety Code

In enacting Assembly Bill 1X 26, the Legislature asserted that "[r]edevelopment agencies were created by statute and can therefore be dissolved by statute." (Assem. Bill 1X 26, § 1, subd. (h).) We conclude the Legislature was correct.

At the core of the legislative power is the authority to make laws. (Nougues v. Douglass (1857) 7 Cal. 65, 70 ["The legislative power is the creative element in the government . . . . [It] makes the laws . . . ."].) The state Constitution vests that power, except as exercised by or reserved to the people themselves, in the Legislature. (Cal. Const., art. IV, § 1; McClung v. Employment Development Dept. (2004) 34 Cal.4th 467, 472; Nougues, at p. 69 ["[I]n all cases where not exercised and not reserved, all the legislative power of the people of the State is vested in the Legislature . . ." (italics omitted)].)

Of significance, the legislative power the state Constitution vests is plenary. Under it, "the entire law-making authority of the state, except the people's right of initiative and referendum, is vested in the Legislature, and that body may exercise any and all legislative powers which are not expressly or by necessary implication denied to it by the Constitution." (Methodist Hosp. of Sacramento v. Saylor, supra, 5 Cal.3d at p. 691; see also Marine Forests Society v. California Coastal Com. (2005) 36 Cal.4th 1, 31; People v. Tilton (1869) 37 Cal. 614, 626 [under the state Const., "[f]ull power exists when there is no limitation."].)*fn7

We thus start from the premise that the Legislature possesses the full extent of the legislative power and its enactments are authorized exercises of that power. Only where the state Constitution withdraws legislative power will we conclude an enactment is invalid for want of authority. "In other words, 'we do not look to the Constitution to determine whether the legislature is authorized to do an act, but only to see if it is prohibited.' " (Methodist Hosp. of Sacramento v. Saylor, supra, 5 Cal.3d at p. 691, quoting Fitts v. Superior Court (1936) 6 Cal.2d 230, 234; accord, State Personnel Bd. v. Department of Personnel Admin. (2005) 37 Cal.4th 512, 523; County of Riverside v. Superior Court (2003) 30 Cal.4th 278, 284.)

A corollary of the legislative power to make new laws is the power to abrogate existing ones. What the Legislature has enacted, it may repeal. (See People v. Superior Court (Romero) (1996) 13 Cal.4th 497, 518 [if a "power is statutory, the Legislature may eliminate it"]; Estate of Potter (1922) 188 Cal. 55, 63 [rights that "are creatures of legislative will" may be withdrawn by the Legislature]; County of Sacramento v. Lackner (1979) 97 Cal.App.3d 576, 589 [" ' "Every legislative body may modify or abolish the acts passed by itself or its predecessors." ' "].)

In particular, if a political entity has been created by the Legislature, it can be dissolved by the Legislature, barring some specific constitutional obstacle to a particular exercise of the legislative power. "In our federal system the states are sovereign but cities and counties are not; in California as elsewhere they are mere creatures of the state and exist only at the state's sufferance." (Board of Supervisors v. Local Agency Formation Com. (1992) 3 Cal.4th 903, 914; see also City of El Monte v. Commission on State Mandates, supra, 83 Cal.App.4th at p. 279 ["Only the state is sovereign and, in a broad sense, all local governments, districts, and the like are subdivisions of the state."].) It follows from the fundamental nature of this relationship between a state and its political subdivisions that " 'states have "extraordinarily wide latitude . . . in creating various types of political subdivisions and conferring authority upon them." [Citation.]' " (Board of Supervisors, at pp. 915-916.) As the United States Supreme Court has recognized in the context of municipal corporations: "The number, nature and duration of the powers conferred upon these corporations and the territory over which they shall be exercised rests in the absolute discretion of the State. . . . The State, therefore, at its pleasure may modify or withdraw all such powers, . . . expand or contract the territorial area, unite the whole or a part of it with another municipality, [or] repeal the charter and destroy the corporation." (Hunter v. Pittsburgh (1907) 207 U.S. 161, 178-179, quoted with approval in Board of Supervisors, at p. 915.) The state (and, in particular, the Legislature) has "plenary power to set the conditions under which its political subdivisions are created" (Board of Supervisors, at p. 917); equally so, it has plenary power to set the conditions under which its political subdivisions are abolished (Curtis v. Board of Supervisors (1972) 7 Cal.3d 942, 951; Petition East Fruitvale Sanitary Dist. (1910) 158 Cal. 453, 457).*fn8

Redevelopment agencies are political subdivisions of the state and creatures of the Legislature's exercise of its statutory power, the progeny of the Community Redevelopment Law. (See § 33000 et seq.; 11 Miller & Starr, Cal. Real Estate (3d ed. 2001) § 30B:2, p. 6 ["The redevelopment agency is solely a creature of state statute, exercising powers delegated to it by the state legislature in matters of state concern, and the scope of its authority is, therefore, defined and limited by the Community Redevelopment Law . . . ."].) Consistent with that nature, the Legislature has in the past routinely narrowed and expanded redevelopment agencies' various rights. (E.g., Stats. 1976, ch. 1337, p. 6061 et seq. [imposing low income housing requirements]; Stats. 1993, ch. 942, p. 5334 et seq. [Community Redevelopment Law Reform Act of 1993, enacting wide-ranging reforms]; Stats. 2001, ch. 741 [amending redevelopment sunset provisions].) Most significantly, the Legislature has mandated that redevelopment plans receiving tax increment have finite durations. (§ 33333.2; Community Redevelopment Agency v. County of Los Angeles (2001) 89 Cal.App.4th 719, 722.)

The Association offers a twofold argument for why, notwithstanding the legislative authority over redevelopment agencies historically inherent in the state Constitution, the dissolution provisions of Assembly Bill 1X 26 are invalid. First, the Association posits that Assembly Bill 1X 26 is inconsistent with article XVI, section 16 of the state Constitution, governing tax increment revenue. Second, the Association argues that Proposition 22 (as approved by voters, Gen. Elec. (Nov. 2, 2010)) amended the state Constitution to effectively withdraw from the Legislature the power to dissolve community redevelopment agencies for the financial benefit of the state.

What is now article XVI, section 16 was added by initiative in 1952,*fn9 shortly after the Legislature enacted the Community Redevelopment Law.*fn10 It made express the Legislature's authority to authorize property tax increment financing of redevelopment agencies and projects. However, nothing in its text creates an absolute right to an allocation of property taxes. (See Cal. Const., art. XVI, § 16 ["The Legislature may provide that any redevelopment plan may contain a provision" diverting tax increment to redevelopment agencies (italics added)].)*fn11 Nor does anything in the text of the section mandate that redevelopment agencies, once created, must exist in perpetuity. On its face, the provision is not self-executing and conveys no rights; rather, it authorizes the Legislature to enact statutes, and local governments to adopt redevelopment plans, that are consistent with its scope.

What is apparent from the constitutional provision's text is confirmed by its history. The ballot materials provided to the voters gave no hint that the proposed amendment was intended to make redevelopment agencies or tax increment financing a permanent part of the government landscape. Rather, consistent with the text's use of the permissive "may," the Legislative Counsel explained that the proposed amendment was intended simply to "authorize"--but not require--the Legislature to provide for tax increment financing for redevelopment. (Proposed Amendments to Constitution: Propositions and Proposed Laws, Gen. Elec. (Nov. 4, 1952) Legis. Counsel's analysis of Assem. Const. Amend. No. 55, p. 19.) The arguments in favor of the proposed amendment similarly emphasized its non-mandatory character: "This constitutional amendment . . . is in effect an enabling act to give the Legislature authority to enact legislation which will provide for the handling of the proceeds of taxes levied upon property in a redevelopment project. It is permissive in character and can become effective in practice only by acts of the Legislature and the local governing body, the City Council or Board of Supervisors. It will make possible the passage of laws providing that tax revenues derived from any increase in the assessed value of property within a redevelopment area because of new improvements, shall be placed in a fund to defray all or part of the cost of the redevelopment project that would otherwise have to be advanced from public funds." (Id., argument in favor of Assem. Const. Amend. No. 55, p. 20.)

Against these indicia of intent, the Association emphasizes the final sentence of article XVI, section 16: "The Legislature shall enact those laws as may be necessary to enforce the provisions of this section." (Italics added.) The word "shall," however, depending on the context in which it is used, is not necessarily mandatory. (People v. Lara (2010) 48 Cal.4th 216, 227; Nunn v. State of California (1984) 35 Cal.3d 616, 625; see Garner's Dict. of Legal Usage (3d ed. 2011) pp. 952-953.) Moreover, consistent with its character as an "enabling act" (Proposed Amendments to Constitution: Propositions and Proposed Laws, Gen. Elec. (Nov. 4, 1952) argument in favor of Assem. Const. Amend. No. 55, p. 20), the final sentence directs only passage of those laws "as may be necessary." This portion of the text confirms the Legislature's authority to pass legislation it deems necessary to carry out the ends of redevelopment, but imposes no obligation to enact any particular law. It does not mandate that redevelopment agencies, or the allocation of tax increment to them, be made permanent.

The Association also looks to our decision in Marek v. Napa Community Redevelopment Agency, supra, 46 Cal.3d 1070. There, we determined that "indebtedness," the term used to measure how much property tax increment should be allocated to a redevelopment agency (see Cal. Const., art. XVI, § 16, subd. (b); §§ 33670, 33675), should be interpreted broadly (Marek, at pp. 1081-1086). We cautioned that neither article XVI, section 16 nor the Community Redevelopment Law, as then written, contemplated that "other tax entities [would] share in tax increment revenues at any time before the agency's total indebtedness has been paid or the amount in its 'special fund' is sufficient to pay its total indebtedness." (Marek, at p. 1087.) The Association contends Assembly Bill 1X 26 is invalid because it fails to continue allocating tax increment for existing indebtedness as broadly as in the past, most notably by allocating tax increment for only some, but not all, obligations owed by redevelopment agencies to their community sponsors. (See §§ 34171, subd. (d)(2), 34178, subd. (b).)*fn12

This argument misperceives both the role of article XVI, section 16 of the state Constitution and the nature of the issue we resolved in Marek v. Napa Community Redevelopment Agency, supra, 46 Cal.3d 1070. Article XVI, section 16 does not protect the receipt of tax increment funds up to the amount of a redevelopment agency's total indebtedness, nor does it grant a constitutional right to continue to receive tax increment for as long as redevelopment agencies have debt; rather, it authorizes the Legislature to statutorily grant redevelopment agencies rights to tax increment up to the amount of their total indebtedness. As the Legislature may extend that authorization (and did, in the Community Redevelopment Law), so it may limit or withdraw that authorization (as it has, in Assem. Bill 1X 26) without violating article XVI, section 16. In Marek, we addressed only the scope of the statutory term "indebtedness" and the corresponding scope of the constitutional authorization for redevelopment agencies to be granted statutory rights to tax increment; that issue has no bearing on the question we face here--whether article XVI, section 16 limits the Legislature's power to dissolve existing redevelopment agencies in the midst of ongoing projects. Marek thus is inapposite.

Finally, the Association draws our attention to the first two sentences of an uncodified section (§ 9) of Proposition 22, which, it contends, confirms that article XVI, section 16 is a guarantee of tax increment funding and a protection against dissolution. That section begins: "Section 16 of Article XVI of the Constitution requires that a specified portion of the taxes levied upon the taxable property in a redevelopment project each year be allocated to the redevelopment agency to repay indebtedness incurred for the purpose of eliminating blight within the redevelopment project area. Section 16 of Article XVI prohibits the Legislature from reallocating some or that entire specified portion of the taxes to the State, an agency of the State, or any other taxing jurisdiction, instead of to the redevelopment agency." (Prop. 22, Gen. Elec. (Nov. 2, 2010) § 9.) Whether or not article XVI, section 16 originally required tax increment allocations to be made ...


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