California Gov. Jerry Brown signed two bills tied to the budget Wednesday that will effectively eliminate most redevelopment agencies, sparking a legal battle.

Lobbying groups the League of California Cities and the California Redevelopment Association have said they will file a lawsuit to stop the legislation because it is unconstitutional.

Earlier this month during the first budget fight, lawmakers approved two budget trailer bills that either eliminate or drastically curtail the agencies by seizing $1.7 billion from the around 400 agencies.

One of the two trailer bills, ABX1 26, would eliminate all California redevelopment agencies on Oct. 1. But the second bill, ABX1 27, allows an agency to continue to operate if cities and counties take certain steps, including remitting some revenues to school and special districts, something the League of Cities described as “extortion.”

Even though Brown vetoed the first budget, the Legislature held the two bills and never sent them to the governor until they passed another budget.

The agencies, usually operated by city and county governments, collect property tax increments to back bonds that fund economic development in blighted areas.

Redevelopment agencies have come under fire because the incremental tax revenue they collect is lost to the local agencies that would have received the revenue if the RDAs didn’t exist. And some critics feel the agencies sometimes fund development that has little to do with improving rundown areas.

Redevelopment’s share of total statewide property taxes has grown sixfold, to 12% from 2% of total statewide property taxes, according to a report this year from the state Legislative Analyst’s Office.

The report found that redevelopment agencies receive more than $5 billion of tax increment revenues annually.

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