The State of California is one step closer to a balanced budget, but the state’s solvency will come — in part — at the Turlock Redevelopment Agency’s expense.

A Sacramento Superior Court judge on Tuesday upheld a provision in last year’s state budget requiring redevelopment agencies across the state to transfer $2.05 billion in local redevelopment funds to help balance California’s budget. That money will be sent to local county auditors who will then redistribute the money to fund area school districts in lieu of the state’s obligation, freeing state general fund dollars for other purposes.

“We strongly disagree with Judge (Lloyd) Connelly’s ruling which effectively says the Legislature has unlimited discretion to redirect local redevelopment funds to any purpose it wishes,” said John Shirey, executive director of the California Redevelopment Association. “… The Legislature needs to deal with its budget problems by making hard decisions using its own limited resources — not by taking away local government funds.”

The City of Turlock’s Redevelopment Agency alone will be required to pay more than $4 million dollars over the next two years as a result of the taking.  The first payment of $3.3 million is due by May 10. An additional $686,565 is due next year.

The Turlock Redevelopment Agency received approximately $7 million in tax increment funding this year — down from past years.

“Siphoning redevelopment funds away in this tough economy is short-sighted and bad policy,” Shirey said. “Redevelopment stimulates billions of dollars in economic activity and supports thousands of jobs, which is exactly what we need right now to boost California’s sagging economy.”

Redevelopment agency funding, under state law, is intended to revitalize blighted local neighborhoods. Common uses for RDA funding include public works projects, the construction of community buildings, or rehabilitation of deteriorated downtowns or housing tracts.

According to Turlock Redevelopment Manager Heidi McNally-Dial, the ruling will not impact any projects that have already been funded — including the $5.1 million Carnegie Arts Center and the $2.8 million renovation of Joe Debely Stadium at Turlock High School.

But the ruling does jeopardize the city’s ability to move forward with the proposed Public Safety Facility, a $35 million structure intended to house the city’s police and fire employees. The City of Turlock had planned to issue bonds to pay for the development, but bonding may be made impossible without guaranteed revenue to repay the debt.

“If the state can just come and take money any time they choose to, you can’t really issue bonds without a known revenue stream,” McNally-Dial said.

Should the ruling stand, future redevelopment agency projects could be much smaller in scope, McNally-Dial said. Without the ability to reliably bond, projects would need to be funded entirely through the small allotment of yearly tax increment dollars.

The matter landed in Judge Connelly’s court as a result of a California Redevelopment Agency lawsuit arguing the budget measure was unconstitutional.

According to the suit, state law allows redevelopment funds to be used solely for narrowly specified redevelopment activities within an agency’s boundaries. Additionally, the suit argues the raid could impair bond covenants and other contracts, in violation of both the state and federal constitution.

In 2009, Connelly ruled against a 2008 attempt by the Legislature to take $350 million in statewide redevelopment agency funds for just those reasons. In this year’s taking, Connelly found that modifications to the state’s plan for seizure — including the local use of taken funds and a method for redevelopment agencies whose funding was already obligated to forego paying the state — negated those arguments.

Despite the ruling, the California Redevelopment Agency isn’t done fighting yet.

The California Redevelopment Agency announced Tuesday they will appeal the decision, and request a stay on the May 10 payment from the Court of Appeals. That request will be filed today, but no timeline exists for when a ruling may occur.

“We’ll just have to wait and see what happens because it’s pretty ominous,” McNally-Dial said.

To contact Alex Cantatore, e-mail acantatore@turlockjournal.com or call 634-9141 ext. 2005.