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A battle over more than $2 billion in local redevelopment funds was headed to a state appeals court Tuesday after a Sacramento judge ruled that the money must be transferred to the strapped state and the redevelopment agencies said they wanted a court order to temporarily block the move.

The decision by Superior Court Judge Lloyd Connelly, a legal victory for the Schwarzenegger administration, ultimately could have a significant impact on the state budget just days before Schwarzenegger unveils his May Revision of state finances.

If Connelly’s decision stands, the state will have $2.05 billion more over two years. If the redevelopment agencies prevail, the state – which faces an estimated $21 billion shortage – will not get the funds and will have to scramble, again, for more money.

The first payment of $1.75 billion is due by May 10. The second, for $350 million, is due next year.

Tapping the redevelopment funds was been approved last year as part of the 2009-10 budget approved by the Legislature and signed by Gov. Schwarzenegger.

Connelly ruled that the Budget Act required the transfer of funds. Directors of the California Redevelopment Association voted Tuesday to appeal Connelly’s decision to the state appeals court.

“In addition to appealing the Judge Connelly’s decision, the Board of Directors also authorized CRA to pursue a temporary stay from the Court of Appeal so that redevelopment agencies do not have to make the first payment on May 10, 2010, while the appeal is being considered,” the group said in a written statement.

“Despite this ruling we continue to believe taking local redevelopment funds and using them to fund State obligations is unconstitutional, and we plan to pursue and appeal immediately,” said John Shirey, the CRA’s executive director.