California appeals court sides with cities in fight with state over tax money

A California appellate court on Thursday struck down a law that let the state withhold tax funds from cities refusing to surrender money left over from the closing of their redevelopment agencies.

A unanimous three-justice panel of the 3rd District Court of Appeal in Sacramento said a provision of the California Constitution passed by voters in 2010 as Proposition 22 prohibits such action by the state.

“In passing Proposition 22, the people took away from the Legislature the authority to withhold sales and use tax revenue and property tax revenue from local governments,” the justices said in a 21-page opinion.

State Department of Finance spokesman H. D. Palmer said Thursday his office had not decided whether to seek a review of the decision by the California Supreme Court.

He said that, of the approximately 400 redevelopment agencies that existed statewide, nine cities have refused to turn over a total of $24 million that was left after their agencies’ affairs were wrapped up.

Those cities are Big Bear Lake, Goleta, Hercules, Mendota, Merced City, Needles, Selma, Suisun City and Westmoreland.

Before the state scrapped redevelopment, the agencies collected a cut of the property taxes in areas where their projects were located.

Gov. Jerry Brown and the Legislature abolished redevelopment agencies in 2011 as part of a plan to deal with the state’s chronic deficits, redirecting billions to local governments for schools, public safety and other services.

The enabling legislation requires that a dissolved redevelopment agency turn over remaining funds to the county’s auditor-controller for distribution to local taxing entities.

But some cities balked, claiming the money was theirs. So, in 2012, the Legislature passed a law authorizing the state Board of Equalization to withhold sales and use tax revenue to which those cities would normally be entitled, and county auditor-controllers to withhold property tax revenue to which the cities would be entitled.

Two lawsuits challenging the withholding of revenue from cities were filed in Sacramento Superior Court on behalf of the city of Bellflower and the League of California Cities. The results were split; one judge ruled for the cities and another for the state.

The 3rd District affirmed the ruling for the cities and reversed the one for the state.

The published opinion was authored by Associate Justice George Nicholson, with the concurrences of Presiding Justice Vance W. Raye and Associate Justice M. Kathleen Butz.

Denny Walsh: 916-321-1189