California cities, reeling over the difficulties in winding down the assets of former redevelopment agencies, have filed lawsuits in Sacramento Superior Court challenging the state's authority over city tax revenue.

The cities filed the last major suit over redevelopment in fall 2011, seeking then to block elimination of some 400 blight-fighting agencies. But by year's end, that effort lost at the state Supreme Court.

This time, the League of California Cities, along with scores of cities in close to a dozen lawsuits, are balking over provisions of Assembly Bill 1484, a road map for dismantling former redevelopment agency assets.

The suits, all filed since mid-July, reflect a new strain in relations between cities and the state over how best to generate more tax dollars for public education. Attorneys for cities warn that the state is looking for money that "just isn't there."

Senate President Pro Tem Darrell Steinberg counters that cities lost at the Supreme Court and are loath to help with the state's budget problems.

AB 1484, signed into law in June, spells out the process for identifying and redistributing former agency assets. And it outlines penalties – the seizure of city tax revenues – if redevelopment successor agencies don't fall in line.

A theme of two major suits – the one by the League of California Cities and the other on behalf of Bellflower and a dozen other cities – is the complaint that the authority bestowed on the state Department of Finance to take tax revenues as penalties under AB 1484 goes too far.

"At issue in this action is the unprecedented grant of power to the Department of Finance to eliminate or modify an enforceable obligation (a contract) … to simply help itself" to city tax revenues, according to the Bellflower lawsuit filed Sept. 19.

Folsom, one of the 13 cities in that suit, recently paid the Sacramento County auditor-controller $71,000 under protest "for fear that the state (Department of Finance) could direct that the county withhold other tax revenue" due the city, said Folsom City Attorney Bruce Cline.

The city is challenging the state's decision on what contracts are enforceable, including the $71,000 owed to a contractor for infrastructure work in the city's historic district.

Other lawsuits filed in Sacramento court outline similar scenarios.

"The biggest problem with this statutory scheme is all these powers in the hands of the state," Cline said. "We're experiencing the Department of Finance saying 'No' at many, many turns to things that are completely legitimate obligations."

Chris McKenzie, executive director of the League of California Cities, said he believes AB 1484 created a "very elaborate administrative process in the Department of Finance … in order to try to harvest as much money from redevelopment agencies as possible."

Cities are trying to comply with the law, McKenzie said.

But one of the cities' major purposes, "beyond helping fund state general fund obligations to schools," he said, "is to fund local infrastructure and affordable housing projects that legitimately qualify" under AB 1484.

Senate President Pro Tem Steinberg told The Bee he is not sympathetic. Cities had a better deal before they fought the modification of redevelopment at the state Supreme Court.

The court ruled that the Legislature was within its rights to dissolve redevelopment agencies to divert taxpayer funds to schools and other agencies.

The court also struck down a provision that would have allowed California's more than 400 redevelopment agencies to pay $1.7 billion to continue to exist for another year.

"Cities and redevelopment agencies made what has to be looked at in retrospect as the foolish-of-the-foolish of decisions to challenge that split between school and redevelopment agencies," Steinberg said. The result, he added, is that cities "ended up with nothing."

"Then to have the audacity, the chutzpah, the gall to complain that the Department of Finance is trying to collect … is pretty amazing," Steinberg said.

The cities, he said, decided that the state budget was not their problem and "how dare they look to our money to help pay for schools," he said. "Well, it's not their money. It's not our money. It's the state taxpayers' money.

"We're all called upon at times to do the best we can to balance the need."

H.D. Palmer, Finance Department spokesman, said taking local tax revenues as penalties has not occurred and would be a last resort. The preferred action, he said, is to work through differences.

Most of the 400 successor agencies – a governing role held largely by city councils – paid what they owed, he said.

"If a successor agency has a disagreement," Palmer said, "there is a meet-and-confer" process.

But lawyers for cities say the process is cumbersome and time-consuming.

Iris Yang, an attorney for Best Best & Krieger LLP in the League of California Cities case, said that, in all, more than two dozen redevelopment lawsuits have been filed in Sacramento so far this year.

Yang said she's not surprised at the recent filings, given the limited scrutiny that AB 1484 received. The measure passed both legislative houses and was signed into law June 27, two days after pertinent redevelopment language was inserted.

The bill allocated $22 million to the state Department of Finance, with $2 million of that paid to Sacramento Superior Court to handle litigation.

Michael G. Colantuono, lead attorney for plaintiffs in the Bellflower case, said the state in many instances is looking for money that just isn't there.

"In my judgment, when they finish going through all the cupboards, they are going to find them bare," Colantuono said.

"The agencies that have money," he said, "devoted them to local purposes when they had the ability to do so. The agencies that didn't have money didn't."

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