City of Cerritos v. State of California

In the 1940s, the state of California (defendant) passed the Community Redevelopment Law. Under this law, cities and counties were authorized to create redevelopment agencies to address blighted areas. The agencies were funded through tax-increment financing, under which the agency received the growth in property taxes following the redevelopment of the blighted areas. By 2011, 12 percent of California’s property-tax revenue was allocated to redevelopment agencies, which amounted to redevelopment agencies receiving a total of $1.7 billion. In 2011 the state also incurred a $25 billion operating deficit. The governor of California declared a fiscal emergency, which authorized the legislature to pass multiple bills to address the crisis. Among these bills was Assembly Bill IX 26, which dissolved redevelopment agencies and, in the redevelopment agencies’ winding-up process, disbursed any remaining funds to other local agencies in the area. In response, the city of Cerritos, the California Redevelopment Association, the League of California Cities, and others (collectively, the city) (plaintiffs) filed an action in California trial court against the state. The city sought a preliminary injunction to prevent the bill from going into effect on the ground that the bill violated Proposition 1A in Article XIII § 25.5(a)(3) of the California constitution. Proposition 1A prohibited the legislature from trying to balance the state’s fiscal budget by modifying the pro rata shares of ad valorem property-tax revenues that local agencies received. The city argued that dissolving and winding up the redevelopment agencies constituted changing the pro rata shares in the ad valorem property-tax revenue the redevelopment agencies received and that, therefore, the bill unconstitutionally violated Proposition 1A. The trial court denied the preliminary injunction on the ground that the bill did not violate Proposition 1A. The city appealed.