SAN DIEGO (CNS) - The California Supreme Court Thursday upheld a new law that will abolish community redevelopment agencies, dealing a blow to San Diego city officials who tried to keep their agency open.

The state's high court also struck down a companion statute that allowed local governments to keep the agencies alive by making payments to the state.

Redevelopment proponents argued that voter-passed Proposition 22, which bars the state from seizing local tax money, invalidated both laws.

Redevelopment agencies are funded by the increase in tax revenue created by projects in their areas.

Supporters of the laws passed by the Legislature earlier this year, including Gov. Jerry Brown, say the money is better used to fund schools and other municipal functions during tight budgetary times. They cite a state analysts report that shows the cost of redevelopment growing without any tangible economic benefit to the state.

Since the court ruling aborted the plan to allow local governments to buy back into redevelopment, the agencies will be phased out when their currently contracted projects are completed.

The agencies not only fund major building projects, like proposed new football stadiums in downtown San Diego and Los Angeles, but spend 20 percent of their income on affordable housing.

San Diego Housing Federation Executive Director Susan Tinsky called for a new affordable housing funding source.

"In the current economic environment, more people are doubling up, living on someone else's couch, or worse yet, sleeping in their cars or on the street each day," Tinsky said. "We call on public officials and policymakers at all levels to join in developing and executing a plan to deal with the state's housing crisis now."

On Wednesday, Councilman Carl DeMaio said he would work with other officials across the state to pass a ballot measure to "absolutely guarantee that redevelopment dollars remain local."

The city of San Diego and many other local jurisdictions chose to pay the state to keep their agencies open. San Diego was due to pay $70 million.

San Diego officials point to downtown as an example of the success of redevelopment.