The California Supreme Court agreed Thursday to review the state's overhaul of redevelopment agencies and blocked their elimination for the time being, leaving a $1.7 billion budget solution in limbo.

Cities and redevelopment agencies sued last month to stop a two-bill package that would have eliminated the agencies unless they agreed to pay more to schools and relieve state costs.

Gov. Jerry Brown wanted to eliminate redevelopment agencies altogether in his January proposal, but he and lawmakers ultimately agreed on a deal that gives agencies an option to pay and survive. Cities challenged the plan as unconstitutional, citing voter-approved laws that prohibit the state from taking money from local governments.

The Democratic governor believes redevelopment dollars, which go toward construction projects in downtrodden areas, could be better spent on vital public services. Cities say redevelopment agencies create jobs and economic activity that generate tax revenues.

Both the Brown administration and city leaders said Thursday they were pleased that the state's highest court agreed to take up the case and place it on a fast track. The state Supreme Court asked lawyers to file briefs in September and promised to decide the matter by Jan. 15, the same day redevelopment agencies would owe their first payment under the state plan.

Five of six sitting justices agreed to temporarily block most of the plan until the case is resolved, allowing redevelopment agencies to remain open. The agencies cannot, however, incur new debt, purchase property or enter into new contracts during that time.

Chris McKenzie, executive director of the League of California Cities, said the court should block the state plan because voters agreed in November to prevent the state from taking redevelopment funds.

"The Legislature concocted a statutory scheme of two bills which was clearly designed to accomplish that purpose," McKenzie said. "You can see the trail lead right back to getting around Proposition 22."

Department of Finance spokesman H.D. Palmer disagreed, saying, "We are confident the state is on solid legal footing. Redevelopment agencies were created by an act of the Legislature, and they can be abolished by an act of the Legislature."

The Department of Finance, in a filing by Attorney General Kamala Harris, asked the court to preserve the new redevelopment laws contained in Assembly Bill X1 26 and AB X1 27 while the court reviews the case. That request was denied, but Palmer said the $1.7 billion is not in any greater jeopardy because the court agreed to expedite its review.

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