Two of the high-profile issues in Gov. Brown’s fiscal proposals – the elimination of enterprise zones and abolishment of redevelopment agencies – are all but certain to wind up in state or federal court, and other budget pieces may prompt legal battles, too.
“Not only will we litigate, we will make sure the state does not see a penny of this money. Any sort of budget savings is illusory, and we are going to stop it,” said Marty Kadessian, an attorney with the lead law firm representing an enterprise zone coalition.
The supporters of redevelopment agencies, led by the cities, are equally adamant.
They say Brown’s attempt to eliminate some 400 agencies and tap $1.7 billion in their tax funds violates the will of voters, who in November approved Proposition 22. That measure prohibits the “shifting, taking, borrowing or restricting” of money dedicated to “community redevelopment projects,” among other purposes.
“If the budget should pass with a provision to eliminate redevelopment, we will go to court to protect our local funds from state raids…,” said Chris McKenzie, executive director of the League of California Cities. The voters’ decision, he added, “will not be undermined by illegal schemes like the budget proposal to take local redevelopment funds.”
Not everyone agrees.
“None of the provisions cited speak to the authority of the governor and Legislature to eliminate the agencies altogether,” the California Professional Firefighters said in a written statement. The CPF, along with school employees and others, favor Brown’s plan, saying the redevelopment agencies take money away from critical services.
The courts and the Capitol are not strangers: The courts have weighed in frequently before on cuts to Medi-Cal, social services, welfare, the minimum wage and other issues, and in recent budget cycles nearly three dozen lawsuits were filed by public employee unions challenging moves to furlough state employees without pay.
This year, the court fights are taking shape even before the budget is decided. Urgency drives the issue: If the Legislature approves a tax-and-cut budget and places it before voters in a special election, there won’t be much time to resolve legal challenges before the new fiscal year takes effect on July 1.
As a pivotal vote neared on Brown’s budget nears in the Legislature, negotiations intensified dramatically and legal options were weighed on both issues.
On enterprise zones, Brown says eliminating the programs will save the state more than $900 million over two years. The zones were created over decades ago to encourage businesses to set up shop in dicey areas, thus bringing in economic benefits to the locals. The companies’ incentives include hiring credits, tax breaks and preferential treatment for state contracts.
For the backers of enterprise zones, the issue is simple: The companies, based on promises from government, assumed the risks to start businesses and now the state may pull the rug out. The zones offer needed jobs, they argue, and encourage small businesses.
“The enterprise zone proposal that is on the table and is being considered is illegal, plain and simple,” Kadessian said. “It violates the contract and due process clauses of state the state and federal constitutions.”
Legislative Analyst Mac Taylor and Jean Ross of the California Budget Project say the zones have provided little economic benefit.
Ross, whose non-profit group analyzes the impact of state fiscal policies on average citizens and low-income people, said last month that the “best available independent research finds that the state’s EZ program fails to create jobs or new businesses – key goals of the program.”
Taylor, the Legislature’s non-partisan budget adviser, noted that in 2008, about half of the zones’ hiring and sales tax credits went to businesses with more than $100 million in assets and that of those, some 40 percent went to companies with $1 billion or more in assets.
The redevelopment agencies also are under Brown’s knife. The agencies – typically members of local city councils – were set up to finance projects to encourage economic development, reduce blight and stimulate orderly growth. The agencies are funded through taxpayer dollars.
Brown, a former mayor of Oakland, sees the agencies as a place to cut and allow the use of that money – about $1.7 billion – for other purposes, such as schools, emergency services and law enforcement. The cities, in a race to use that money before the looming abolishment of the agencies, have approved hundreds of millions of dollars worth of projects up and down the state.