The state's decision to pull redevelopment funds to solve its budget woes is having a domino effect in cities throughout the region – from Galt to West Sacramento to Sacramento to Roseville.

Redevelopment money is the engine of local economies – getting the ball rolling on big and small projects.

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Kevin Payne, assistant planning and redevelopment director for the city of Roseville, said the community will pay a price in terms of lost jobs and community vitality.

"The issue that I see with the state taking our funding is basically, it's not constitutional," Payne said, "and it's really taking opportunity away … to create jobs, housing and a better physical environment overall."

The California Redevelopment Association is preparing to sue, possibly as early as this week, to block the loss of $1.7 billion taken to help finance schools under the current state budget.

Another $350 million would flow from redevelopment agencies' tax increment funds statewide starting next year to help schools under the state budget plan.

The fund shift would undercut agencies' ability to issue bonds to fund projects in future years, local officials say, and that would stymie civic improvements and projects that can be a core benefit to blighted areas.

"Part of the fear is that this will be an ongoing way for the state to balance its budget," Payne said.

If that occurs, he said, "essentially our agency will be reduced to doing nothing but auditing and financials. We'll no longer be able to finance programs or construct projects."

In West Sacramento, where $6.5 million is set go to the state this fiscal year, operations are continuing.

"We're going to be living for the next couple of years off the proceeds of our last bond issue," said Les Bowman, executive director of the West Sacramento Redevelopment Agency. "Once those are expended and we have no more ability to bond, the city's neighborhood improvement programs will be reduced."

Locally, budgets already are growing tighter.

The Sacramento Housing and Redevelopment Agency plans to temporarily close its redevelopment offices in late December. And it will reduce redevelopment staff schedules on three days in 2010. The redevelopment agency faces a $20 million loss this year and an additional $4 million to $6 million next year.

SHRA will save $1.7 million when it cuts the work schedules of 130 employees in December and on May 28, July 2 and Sept. 3 of next year.

"The agency needed to address an unprecedented and unanticipated $20 million expense caused by the state budget deficit, with very little time to comply," SHRA Executive Director La Shelle Dozier states in an e-mail explaining the decision.

The cutbacks, she wrote, were the fairest way to record some savings "in the event that we have to make the payment."

Redevelopment agencies succeeded earlier this year in blocking the state's 2008 budget, which sought $350 million statewide.

Sacramento Superior Court Judge Lloyd Connelly ruled in April in a suit brought by the redevelopment association that the state's plans to take $350 million in the 2008-09 fiscal year were unconstitutional.

The state dropped its appeal in that case. But the new budget contains modified language that calls for a much larger share – $2.1 billion – to be shifted from redevelopment to schools over a two-year period.

Now some city officials are becoming cynical.

If the court once again decides in the association's favor, the state maneuver to help close its yawning budget gap will have been for show, said Jason Behrmann, assistant city manager in Galt.

"I think it's a game that the state plays," Behrmann said. "They (state lawmakers) have to bridge this budget gap. They look at the redevelopment budget and say, on paper, we can take $2 billion" – fully expecting the budget to fall apart later.

The redevelopment association, meanwhile, is coaching local agencies on how to spread the word about its problems.

"It's not hyperbole to say it (the state budget) is devastating," association Executive Director John Shirey said in a recent interview.

He warned the state budget ultimately would put redevelopment agencies out of business.

Call The Bee's Loretta Kalb, (916) 321-1073.