The California Supreme Court killed redevelopment this morning, but that doesn't mean it's dead.

At first glance it would seem as though redevelopment agencies have no bargaining power at all. After all, it's hard to imagine a weaker position than a state Supreme Court ruling saying you don't exist.

But don't forget the most important point about the redevelopment battle: It's not about redevelopment. It's about money. And if all sides in Sacramento can resolve the money issue, the legal status of redevelopment will be practically irrelevant. There is every reason to believe a deal will be struck. It's just not the deal that the California Redevelopment Association and League of Cities were hoping for when they filed suit four months ago. 

So this morning's court ruling [.doc] is likely only an interim step. Both sides will likely be back in the Legislature within a matter of days to try to work out a deal that keeps redevelopment in some form, but transfers a couple of billion dollars of property tax revenue to the state. 

In the meantime, however, California's $6 billion redevelopment system has been thrown into uncertainly. Technically, at least, no redevelopment agencies exist and no redevelopment activities can move forward. Counties and school districts will presumably move forward in creating the oversight committees required under the law to take over and dispose of redevelopment agency assets.

One thing is clear: Time is on the state's side. For now redevelopment does not exist. The longer the status quo persists, the more the state can claim the money – and the farther down the line counties and school districts will go in trying to lay claim to redevelopment agency assets. If the redevelopment establishment can't strike a quick deal, we may be in for a long siege.

Even if legislators and the governor are inclined to dig in their heels, however, they need to keep in mind one thing: the longer they wait to reinstate redevelopment, the more the bureaucratic infrastructure of redevelopment will deteriorate. Within weeks, redevelopment agencies are to be replaced by "successor agencies" that will essentially liquidate their assets. This means that offices will close, staff members will be laid off, and institutional memory will vanish. So folks in Sacramento need to decide quickly if they're going to salvage redevelopment, and if they do, they need to then act quickly. 

The other big question is whether the state will seek to extract a substantive price from the redevelopment agencies as part of the deal. Last year, the debate revolved only around money and the Legislature didn't even consider any redevelopment reforms of redevelopment. But at least one knowledgeable insider, recently retired Senate Local Government Committee staffer Peter Detwiler, said that many legislatures have grown weary of the redevelopment establishment's "stubborn donkey" pose and will seek to tighten up the blight definition and extract other reforms as part of the deal.

The permissible use of redevelopment  "can't be a big long laundry list," Detwiler said Thursday afternoon. "It has to be tight and very well crafted."

On the other side, the redevelopment establishment is likely to lean heavily on logical allies – especially the affordable housing lobby and urban Democratic legislators from Los Angeles and the Bay Area – to gain political leverage in a tough situation.

Within hours of the ruling's release on Thursday morning, both sides issued statements that could be considered conciliatory. Gov. Jerry Brown – who instigated the proposed elimination of redevelopment agencies in his budget last January – issued a one-sentence statement saying that the ruling "validates a key component of the state budget and guarantees more than a billion dollars of ongoing funding for schools and public safety." 

Brown doesn't crow about the death of redevelopment. He doesn't even mention redevelopment; nor does he stake a claim to all $6 billion in redevelopment funds. He simply says the ruling means $1 billion more for schools and courts – making it easier for him to cash in last week's promise that schools will get more money in this fiscal year.

Meanwhile, the CRA and the League – which have taken a slash-and-burn rhetorical approach since Day 1 of this battle – also issued a statement containing calm-it-down language aimed at making a deal. CRA's interim executive director, Jim Kennedy, said the organization looked forward to finding "ways to restore redevelopment while also providing the state budgetary relief in a manner that doesn't violate Prop 22." The League provided quotes from the likes of Sen. Alex Padilla, D-Los Angeles, a former member of the L.A. City Council, touting the benefits of redevelopment. Padilla and all other Democrats in the Legislature voted to kill redevelopment last year when they passed AB 1x 26 and AB 1x 27 as part of the budget package.

The ruling in California Redevelopment Association v. Matosantos, S 194861, was surprisingly straightforward given the convoluted nature of the oral argument in front of the Supreme Court last month. And it was the redevelopment establishment's worst-case scenario: AB 1x 26, which eliminated redevelopment, was upheld. AB 1x 27, which gave redevelopment agencies the option of voluntarily paying a "remittance" to the state in order to avoid death, was struck down.

The basic issue was whether AB 1x 26 violated Proposition 22, the constitutional amendment to protect redevelopment funds from state raids, which passed in 2010. The League and the CRA had argued that Proposition 22 implicitly made it unconstitutional to eliminate redevelopment, even though the whole redevelopment system had been enacted by statute rather than by constitutional amendment.

In a 6-0 opinion written by Justice Kathryn Werdegar, the Supreme Court: "Proposition 22 contains no express language constitutionalizing redevelopment agencies. (Cf. Cal. Const., art. XXXV, § 1, added by initiative, Gen. Elec. (Nov. 2, 2004) [creating the Cal. Institute for Regenerative Medicine as a constitutional entity]; id., art. XXI, § 2, added by initiative, Gen. Elec. (Nov. 4, 2008) [creating the Citizens Redistricting Com. as a constitutional entity].) It would be unusual in the extreme for the people, exercising legislative power by way of initiative, to adopt such a fundamental change only by way of implication, in an initiative facially dealing with purely fiscal matters, in a corner of the state Constitution addressing taxation. As the United States Supreme Court has put it, the drafters of legislation ?do[] not, one might say, hide elephants in mouseholes.? (Whitman v. American Trucking Assns., Inc. (2001) 531 U.S. 457, 468.)"

On the question of AB x1 27, Werdegar wrote: "Proposition 22 … 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."

Chief Justice Tani Cantil-Sakauye concurred on the AB 1x 26 portion of the ruling but dissented from AB 1x 27, claiming that while the law calls for remittances, it does not require the money come from redevelopment tax-increment funds which is the one step prohibited by Proposition 22. Building on the points she made during oral argument in November, she noted that – at least in theory – a city could use any source of funds to pay the remittance.

The League and the CRA immediately tipped their hand as to what the likely negotiating points will be – and how they will build up enough political support to force a solution in the Legislature. Many urban Democratic legislators are logical allies of redevelopment and seemed uncomfortable in the party-line attack on it last year – just as Republicans seemed uncomfortable supporting it. 

The CRA board reportedly met via conference call this afternoon to discuss their strategy. CRA had already indicated that it would use at least two tactics to build support: First, use the powerful affordable housing lobby as much as possible; and, second, resubmit their proposal from last year, which would permit voluntary payments to school districts in exchange for extended life of project areas.

It was not immediately clear on Thursday afternoon what Brown and legislature leaders will seek to extract as a price. But one thing is clear: Time is on the state's side.