Cities and redevelopment agencies filed suit Monday in California Supreme Court to prevent the state from squeezing $1.7 billion out of nearly 400 local entities as part of a state budget solution.

The agencies, which subsidize construction in downtrodden areas, had vowed to challenge the state ever since Gov. Jerry Brown proposed eliminating them altogether in January.

Cities are fiercely opposed to the move, saying it would threaten jobs generated by redevelopment projects. Brown and Democratic lawmakers said scarce tax dollars should go toward basic needs rather than private development.

The governor and legislative Democrats ultimately agreed on a plan that allows agencies to survive so long as they contribute an estimated $1.7 billion to schools and local governments this fiscal year, followed by $400 million annually thereafter. California would then cut funding to schools by a like amount, saving the state money.

The California Redevelopment Association and the League of California Cities were joined Monday in their suit by San Jose and Union City. The two Bay Area cities contend that they are unable to make the payments and their redevelopment agencies face elimination under the plan.

The agencies previously received over $5 billion in property tax payments each year, according to the Legislative Analyst's Office.

Plaintiffs say the state violated voter-approved Proposition 22, which added protections for local government funding. Redevelopment agencies backed the measure after the Legislature took their funds to help balance the state budget.

John Shirey, head of the California Redevelopment Association, called the state plan a "ransom payment."

"This legislation is a job killer and an opportunity killer for many local communities in need," he said in a statement.

"Fortunately, voters passed Prop. 22 to put a stop to these types of destructive raids by the Legislature. We must now go to the courts to protect our local communities and economies."

Senate President Pro Tem Darrell Steinberg, D-Sacramento, defended the Legislature's action as legal and said redevelopment needs must be weighed against those of education.

"This is not the agencies' money nor the state's – it is the taxpayers'," Steinberg said in a statement. "We must all balance important priorities in tough times."

Cities and redevelopment agencies said they filed suit in California Supreme Court, the state's highest venue, because the budget plan affects cities across the state and only the Supreme Court can act authoritatively before the first payment is due in January.

Lawmakers agreed to the two-bill proposal, Assembly Bills X1 26 and X1 27, in a mostly party-line vote in June. The suit asks the court to block implementation of the bills until the case can be resolved.

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