Redevelopment: Rising From The Ashes Or Final Death Rattle?

Two cases filed in Sacramento County, City of Cerritos v. State of California and Syncora Guarantee Inc. v. State of California, have challenged the constitutionality of AB 1X 26, the 2011 bill that provided for the elimination of redevelopment in California. While the California Supreme Court previously upheld the constitutionality of AB 1X 26 in California Redevelopment Association vs. Matosantos, the new cases raise an issue not raised in Matosantos: whether AB 1X 26 violates the provisions of both the California and United States constitutions prohibiting legislation impairing existing contracts. A previous post on this blog discussed a potential challenge to AB 1X 26 based on unconstitutional impairment of contracts.

Article I, Section 10 of the Constitution provides "No State shall . . . pass any Bill of Attainder, ex post facto law, or law impairing the Obligation of Contracts ...." Similarly, Article I, Section 9 of the California Constitution provides that "a bill of attainder, ex post facto law, or law impairing the obligations of contracts may not be passed." These constitutional provisions prohibit states from enacting bills that prevent the performance of existing contractual obligations. Legislation running afoul of these constitutional protections can be invalidated. Teachers Retirement Board v. Genest (2007)154 Cal.App.4th 1012; Valdes v. Cory (1983) 139 Cal.App.3d 773.

City of Cerritos v. State of California, Case No. 34-2011-80000952, was the first of the Sacramento County cases to raise the unconstitutional impairment issue.1 Cerritos was filed before the California Supreme Court rendered its decision in California Redevelopment Association vs. Matosantos and was put on hold while that case was decided. After Matosantos was resolved, the Cerritos petitioners sought an injunction to prevent AB 1X 26 from going into effect, but the trial court declined to grant the injunction, stating that the petitioners had failed to meet their burden of demonstrating a likelihood of success on their claims. Since that time, the Cerritos case has been working through various pre-trial motions and is still awaiting a hearing on the merits.

The second case is Syncora Guarantee Inc. v. State of California, Case No. 34-2012-80001215. Syncora sued the State to prevent the State from eliminating redevelopment agencies, claiming that AB 1X 26 deprived bondholders of money owed under existing contracts. Redevelopment agencies had sold bonds to...