(Victorville)-– The effects of the dissolution of redevelopment in California continue to snowball as Syncora has filed suit against the State of California. Syncora is the guarantor of several bonds issued by redevelopment agencies (RDAs), including some issued by Southern California Logistics Airport Authority (SCLAA).
On June 28th, 2011, Governor Jerry Brown signed into law AB x1 26, which called for the dissolution of all redevelopment agencies in the state of California. AB x1 26 was challenged by the California Redevelopment Association (CRA) and the League of California Cities based on constitutional grounds and upheld by the Supreme Court last December.
With the passage of AB x1 26, Syncora’s lawsuit asserts that the State of California has“substantially and unconstitutionally impair(ed) the rights of parties to contracts among the RDA’s, the bondholders, and their bond insurers, including Syncora.” The lawsuit names the state of California, State Controller John Chiang, California Director of Finance Ana Matosantos and the County of San Bernardino Auditor-Controller Larry Walker. The lawsuit also specifically identifies debt issued by SCLAA as having been guaranteed by Syncora.
The lawsuit states that municipal bond insurers such as Syncora, offered RDAs credit enhancement to make debt more attractive to bondholders and reduce financing costs on the basis that RDAs were legally empowered to “irrevocably pledge” property tax revenues for the repayment of loans and debt.
With the elimination of all redevelopment agencies in the state of California, the tax increment that was allocated to this type of debt is now governed by the state of California and distributed by successor organizations. Syncora contends that without the tax allocation guarantees, successor organizations do not have the same ability to repay the bonds that were originally executed by RDAs, putting bondholders and bond insurers at great risk.