CITY HALL — As the state battles to meet Gov. Jerry Brown’s March 9 budget deadline, cities like Santa Monica face a difficult choice — cut hundreds of millions of dollars worth of planned projects or risk getting the funding pulled out from under them mid-stream.

The governor’s budget calls for giving the ax to redevelopment agencies, special creations of cities and counties that take a portion of property taxes within a specified geographic district and use the money to combat blight.

If approved, the state would take approximately $1.7 billion from those coffers to cover budgetary gaps in MediCal and the courts.

In Santa Monica alone, that could mean the loss of $283 million worth of projects, which include the new Pico Neighborhood Library, multiple parks and $57 million for the revitalization of the Samohi campus.

Even as the considerable funding source appears to be coming under fire, City Hall is moving forward with costly planning processes, such as over $1 million fronted to the school district for planning and environmental studies.

“Our thinking is to proceed as if it isn’t happening, because we don’t want to rush and make mistakes,” said City Manager Rod Gould.

It’s a risk, but staff believes it is secure against the cuts for two reasons, Gould said.

First is what many view as the inevitable legal challenge to the state removing redevelopment agencies.

“If the legislature were to pass legislation that would kill redevelopment, an immediate legal challenge would be brought by the California Redevelopment Association and the League of California Cities,” Gould said.

The basis of that argument is that redevelopment appears three times in the California Constitution, and enjoys constitutional protections.

More recently, voters passed Proposition 22 in November, which expressly prohibits the state seizure of local government funds.

“We don’t think that the state can enact a law that contradicts the constitution,” Gould said.

The money held in redevelopment agencies cannot be touched under the state constitution, said Ethan Walsh, an attorney with Best, Best and Krieger. The firm represents the California Redevelopment Association.

“I think there are protections in place in the law that segregate this money for a specific purpose in the law and constitution,” Walsh said. “It’s protected for the specific purposes in which redevelopment got it in the first place.”

Santa Monica’s second defense rests in an action taken by the City Council in August 2010, when the council and the Redevelopment Agency entered into an agreement guaranteeing the pass-through funds would be used for a set list of projects.

The foresight may help the projects get past another legislative hurdle.

A trailer bill recently unveiled by the governor’s office would negate redevelopment projects entered into after Jan. 1, when Brown unveiled his budget plan.

“Sometimes it’s good to be lucky, and sometimes it’s better to be good,” Gould said. “This time, it’s a little of both.”

Many cities hustled to obligate as much of their redevelopment money as possible to prevent the state from taking it, but after the proposed budget was announced.

Under the language of the trailer bill, the state will have three years from the start-date of those contracts to rule whether or not they were entered into legally, said Brown spokesman Evan Westrup.

“This allows for ample time for review of those projects that were put on the fast track to sequester hundreds of millions of dollars,” Westrup said.

It won’t retroactively cancel contracts already made, he said.

Certainly that’s what Santa Monica officials are hoping for, but it’s not bulletproof, Walsh said.

As written, the plan freezes all redevelopment agency actions until July 1, at which point the agencies will be dissolved and the money and debt obligations will be transferred to the city or county which created the agency.

As the “successor agency,” the city would then move forward with projects already under way, and give the remainder of the money to the state for fiscal year 2012. After that, the property tax revenue which funds redevelopment agencies would go back to local taxing agencies, including the city and schools.

The governor’s position is that this will correct an imbalance in funds as the agencies’ coffers swell with property taxes while cities are forced to cut basic services because they cannot access redevelopment funds for those purposes, Westrup said.

As the successor agency, Santa Monica should then be able to continue on with the projects agreed to in August, but only if a cooperative agreement between a city and its redevelopment agency is considered an “enforceable obligation” under the law, Walsh said.

“From everything I’ve seen, the state’s clear that it’s their intent not to honor those obligations,” Walsh said.

It’s also disingenuous for the state to claim that cities will have as much money for redevelopment-type projects when fiscal times improve without redevelopment agencies, Walsh said.

Redevelopment agencies get more money from property taxes than a city would by itself, which would mean more dollars to put toward projects like building improvements, libraries and public parks.

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