Redevelopment Law Unconstitutional Because Of Impairment Of Contract?

Largely lost in the noise and furor surrounding the decision by the California Supreme Court upholding AB 1X 26 (California Redevelopment Association v. Matosantos (2011) 53 Cal.4th 231, which terminated the functions of local redevelopment agencies, is that there are strong arguments the new law violates state and federal constitutional provisions prohibiting legislation that results in impairment of existing contracts. Neither side in the Matosantos case raised the impairment of contracts argument and the Supreme Court chose not to raise the issue sua sponte. If AB 1X 26 was found to violate the Impairment of Contract clauses of either the state or federal constitutions, the violative provisions are so deeply woven throughout the fabric of the act that severance of non-offending provisions would be difficult at best, potentially resulting in the entire act being struck. While a successful impairment argument would possibly lead to the voiding of the legislation, it would not necessarily mean that the California Legislature could not enact a narrower RDA "abolishment" statute that terminated future and further contracts while better protecting the enforceability of existing contracts.

California Constitution Article 1, Section 9 provides in pertinent part that "a bill of attainder, ex post facto law, or law impairing the obligations of contracts may not be passed." In similar fashion the United States Constitution Article 1, Section 10 provides "No State shall . . . pass any Bill of Attainder, ex post facto law, or law impairing the Obligation of Contracts . . .." Legislation running afoul of these constitutional protections can be stricken. Teachers Retirement Board v. Genest (2007)154 Cal.App.4th 1012; Valdes v. Cory (1983) 139 Cal.App.3d 773 These constitutional provisions were put into place to prevent the legislative branch from enacting bills that prevented the performance of existing contractual obligations.

AB 1X 26 appears to violate constitutional contractual impairment prohibitions in several ways. First, billions of dollars of bonds have been issued through the actions of RDAs, and many of the contracts establishing the rights of bondholders are still in effect. Virtually all of those bonds were secured by the RDA's obligation to repay the bond debt through constitutionally protected tax increment sources, and that source of funds was specifically identified in those contracts. Cal.Const. Art. XVI, Sect. 16. The new law...

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