(CNN) -- The California Supreme Court handed Gov. Jerry Brown a victory Thursday by ruling the state legislature had the authority to eliminate more than 400 redevelopment agencies funded with property tax dollars.
However, the state's highest court struck down a replacement program proposed by Brown and state legislators, setting the stage for further political battles on the redevelopment issue.
Redevelopment agencies use property tax revenue to revive blighted areas.
A bill passed by the state legislature and signed by Brown eliminated the redevelopment agencies, providing $1.7 billion to help deal with California's $13 billion budget deficit.
In addition, the legislature passed a measure to create a new redevelopment program that would pump money back to state coffers.
The League of California Cities and the California Redevelopment Association challenged the measures, saying they violated a ballot measure passed in 2010 that sought to avoid the use of local funds to help the state erase its deficit.
In its ruling Thursday, the California Supreme Court decided the state constitution offered no protection to the redevelopment agencies. At the same time, it said the new plan was flawed by providing local money to the state.
San Diego Mayor Jerry Sanders called the ruling a "sad day" for his city.
"Plain and simple, this money grab by the governor will have severe negative impacts on our neighborhoods and our economy for decades to come," Sanders said in a statement.