CITYWIDE — City Hall on Monday had to cut a check for nearly $21 million to the state as part of a legal ruling allowing Gov. Arnold Schwarzenegger to raid local redevelopment agencies to fund local schools.

According to Gov. Schwarzenegger’s spokesman Aaron McLear, California’s economy “dodged a bullet” with last week’s ruling, preventing an additional $2 billion from being added to the state’s deficit.

Despite this optimistic outcome for the state, last week marked a series of disappointments for the California Redevelopment Agency (CRA), which filed a lawsuit against the state in October 2009, claiming the raid violates the state and U.S. Constitution. Last Tuesday, Sacramento Superior Court Judge Lloyd Connelly upheld Assembly Bill X4 26, which authorized the transfer of funds, and subsequently obligated agencies to make their payments less than a week later, effectively instigating a statewide outcry against the ruling.

Agencies claimed that the transfer of funds would result not only in the cutting of projects and programs, but also in the loss of jobs and economic opportunities for their cities.

The repercussions for Santa Monica will be significant.

“This represents a huge portion of our income for the current year,” said Andy Agle, director of Housing and Economic Development for City Hall.

After Monday’s payment, Santa Monica’s redevelopment funds have been cut by 60 percent, compromising several planned projects including the creation of new parks, the building of a new library and early childhood center in the Pico Neighborhood, the revitalization of facilities at Santa Monica High School, updating of the city’s traffic signal master plan, and the enhancement of streetscapes.

Additional money for affordable housing and the Santa Monica Civic Auditorium have been lost as well.

After the ruling was announced, the CRA’s board of directors voted unanimously to appeal the decision. The association had hoped that a temporary stay could protect valuable funds while the appeal was being considered.

When the stay was denied, the CRA urged agencies to make their payments, though by no means conceding that the battle was over. Their website asked agencies to include a letter with their payments “reserving the agency’s rights under the pending litigation” in the event that the raid is deemed unconstitutional.

If the appeal is unsuccessful, Santa Monica will be required to pay an additional $4.3 million during the 2010-11 fiscal year. If the CRA wins the appeal, the state will technically have to return agency funds.

Agle said a successful appeal would create “an interesting situation.”

Last April, the CRA sued the state and won, resulting in the removal of 2008 budget language that would have allowed the state to take $350 million from redevelopment agencies. Agle recalled that although the judge ruled that the state was responsible for some of the association’s attorney’s fees, the court could not force the state to comply.

“I fear, given the way the state operates, that even if the Court of Appeals overturns this decision we may never see those funds again,” Agle said.

The debate over the constitutionality of the fund transfer represents a messy tangle of state versus local interests. For Angle, concerns extend beyond Monday’s payment to the possible precedent this bill could be setting.

“The big risk to Santa Monica is that the state will continue to raid local funds in order to balance a budget,” said Agle. “This could be a lot more than $21 million over time, and it’s going to be impossible to implement the programs that the city has identified as priorities.”

The CRA is encouraging redevelopment agencies to release detailed information to the public specifying the raid’s impact on local jobs and projects, in hopes that such data will give further clout to its efforts to defeat the bill.

Santa Monica’s RDA is currently working on a report and hopes to release it by the end of this week.

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