SAN FRANCISCO — San Jose Mayor Chuck Reed proposed a freeze in redevelopment spending in California’s third-largest city to prepare for a $75 million state raid on the local budget.

Reed late last week proposed a fiscal 2009-10 budget for the San Jose Redevelopment Agency that would make no new commitments on capital expenditures, suspend payments of committed funds and encumbrances that are not contractually required, and prohibit the agency from entering into any new agreements to spend committed funds.

The move is a reaction to a $2.05 billion state raid on local redevelopment agency tax revenues that was approved part of a budget bill that closed California’s $26 billion state budget deficit. The bill said the state couldn’t take funds that are pledged for debt service.

“This budget makes significant cuts in the one-year spending plan adopted … in June,” Reed said in a message to the City Council and the SJRA board Friday. “This reduction is due primarily to the state raid of redevelopment funds and the economic downturn.”

The San Jose Redevelopment Agency, the second-largest RDA in the state, would have to pay $75 million over the next two years to balance the state budget under the July budget legislation.

The California Redevelopment Association last month filed suit in the Sacramento Superior Court to prevent the money grab on the grounds that it violates the California Constitution’s protection of redevelopment revenue.

While the group prevailed in a similar suit last year, redevelopment agencies like San Jose’s are planning for the worst.

“The Redevelopment Agency budget is being considered at a time when there are great uncertainties that make spending decisions fraught with perils and demand cautious fiscal vigilance,” Reed said.

The San Jose agency’s project areas cover a fifth of the area of the Silicon Valley city of one million people and are home to corporate residents such as Cisco Systems Inc., Adobe Systems Inc. and eBay Inc.

RDAs fund redevelopment using municipal bonds and repay the debt using the incremental growth in tax revenue that’s spurred by the new development.

The San Jose agency has more than $2 billion in bonds outstanding. Its uninsured tax allocation bonds are rated A-minus by Standard & Poor’s and Fitch Ratings and an equivalent A3 by Moody’s Investors Service.

San Jose has been hard hit by the economic slowdown, with unemployment surging to 13.1% in September, well above the national average of 9.8% that month and six percentage points higher than a year earlier.

Total commercial property assessed values are projected to hold steady over the next two years because of the completion of new buildings and property sales that trigger upward reassessments, according to Spectrum Economics, which projects tax revenue for the SJRA.

The agency hopes to sell $30 million of tax allocation bonds this fiscal year, but Reed said it had to be cautious in budgeting because of worries about ­market access.

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