February 24, 2011

Redevelopment: Going...Going...

Click on the map to enlarge it.
This is a map of Poway's Redevelopment Agency Area.
Most of the property taxes from the blue areas
goes to the redevelopment agency.

Remember Prop 22? It was a proposition on last November's ballot. The official title was the "Local Taxpayer, Public Safety, and Transportation Protection Act of 2010." Unofficially, it was referred to as the measure that would "tell the state to keep their hands off of our local tax money." Prop 22 was sponsored by the League of California Cities, of which Poway is a member. Poway's city manager, Penny Riley, was outspoken in support of the measure.

Prop 22 passed with over 60% voter approval. And why not? According to the official arguments in favor of Prop 22 in the voter guide, Prop 22 would keep the state from swiping money that was needed for for local police, fire and emergency services, libraries, road repairs and public transportation. Nowhere in the arguments for, or the rebuttal to arguments against Prop 22, did the proponents mention that Prop 22 would also prevent the state from taking back redevelopment funds.

Redevelopment is a state program that was set up 60 some years ago to wipe out urban blight and create affordable housing. Here's how it works: A city, like Poway, declares that an area is "blighted". Then they form a redevelopment area comprised of all the blighted properties.
Poway formed their redevelopment area in 1983. They identified 8200 acres within the city that were blighted, 75% of them were undeveloped land. At the time, Poway's redevelopment area was larger than San Diego's. One of the reasons Poway gave for such large swaths of undeveloped land being blighted was that they didn't have enough traffic signals on them.
Today, some of the most expensive real estate in Poway is located in the redevelopment area.

One of the reasons Poway wanted undeveloped land in their agency area is because Poway would get to keep any new property taxes that resulted from an increase of value to the land or from any developments built on that land. Instead of going to schools or to the state, that "tax increment" was and still is diverted to the redevelopment agency. For the fiscal year 2008-2009, Poway Redevelopment Agency got $38.9 million dollars in diverted property tax. There are over 400 redevelopment agencies in the state of California. The amount of property taxes diverted to redevelopment agencies is now 12 % of all the property taxes that are collected in the state.

Redevelopment agencies borrow lots of money to finance their blight-busting projects like car dealerships, Wal-Marts and other shopping centers, hotels and sports stadiums. They use the tax increment money to pay off the bonds and to pay the salaries of the city staff that double as redevelopment staff. The state has been forced to fund the schools because so much of the property tax has been diverted to these redevelopment agencies. Last year, the state just couldn't make ends meet, even with smoke and mirrors, so Arnold "stole" some redevelopment taxes to shore up the state coffers. That pissed off the cities and they retaliated by putting Prop 22 on the ballot.

In addition to approving Prop 22, the voters also elected Jerry Brown last November. The first thing Gov Brown did was make a new budget plan. In a surprise move, Brown announced that he planned to eliminate the 400+ redevelopment agencies and use the billions of dollars that redevelopment has been using (or abusing) to fund essential services, particularly for schools.

If you are a reader of my blog, you might remember that last year I sent a letter to Arnold (and every state legislator) suggesting some changes he might make to redevelopment agencies. I thought my ideas were pretty good, but dissolving the redevelopment agencies was something I never dreamed could happen. Brown's plan is way better than mine.

Brown may have been forced to go that route because Prop 22 doesn't give any wiggle room for wheeling and dealing with redevelopment agencies. The state can't take any redevelopment funds. Period. Just last week, the mayors of several cities got together and proposed a futile plan to try to save their redevelopment agencies. They want the state to sell $1.7 billion in new bonds and then the redevelopment agencies will chip in $200 million and 5 percent of their revenue each year to help pay off the bonds. That's a nonstarter because of the way they slipped redevelopment funds into Prop 22. It would take a public vote to undo it. Now Brown is forced to eliminate redevelopment agencies altogether. Sweet schadenfreude!

Brown's plan to shutter the redevelopment agencies isn't a done deal, but it is getting close to the finish line. The state and assembly budget committees are working on the final measure. Brown's plan for dissolving the redevelopment agencies was posted on the California Department of Finance's website yesterday (Feb 23).

In the meantime, cities have gone on a greedy multi-billion dollar spending spree, trying to beat Brown's March 1st deadline and lock up as much redevelopment cash and assets for their own jurisdictions. Recession, what recession? These guys will build a stadium and new town center in every city if you let them. But Brown is on to them. He plans to give the state a 3-year window to examine any redevelopment agency spending or activities from Jan 1st on. They better have followed all the rules and the proper procedures, dotted every "i" and crossed every "t", if they don't want to see their actions rescinded.

So, what does all this mean for Poway? If redevelopment agencies get axed, there will be big changes for Poway.

In FY 2009, income from regular property tax was $8.7 million v $37 million for redevelopment tax increment. 81% of Poway's property tax income was from redevelopment. Poway won't get that $37 million any more, although a portion of the tax increment (about 20%) will come back to the city's general fund as regular property tax. Ironically, redevelopment money cannot be used for fire, police and regular city services. But the portion of property tax that will come back to the general fund after Brown dissolves the redevelopment agencies can be used for those services.

According to the 2009/2010 Poway Redevelopment Agency Annual Report, the Poway Redevelopment Agency has $176 million in assets and $286 million in liabilities. Note: California cities are required to balance their budgets, but redevelopment agencies don't have to. In fact, they are required to go into debt. Brown's plan is to create a successor agency to the redevelopment agency that will pay off the debt in 3 yrs. I imagine that the successor agency will also sell off property and other assets to pay off the agency's debt.

Redevelopment supports about 9+ positions in the city. Redevelopment also sucks up city employees' time. Expect some staff cutbacks. With the staff freed up from planning shopping malls and moving car dealers around, maybe they can look into those lopsided sewer rates.

Poway redevelopment agency owns a lot of land that the city plans on using for affordable housing and/or commercial ventures, like the town center. On March 1 the city plans on forming a housing authority. After years of saying they want out of the affordable housing business, the city will now attempt to jump in in a very big way. Will it pass the Brown smell test? I don't know. Will the city be able to keep all of the land they bought by transferring it to the housing authority? I don't know.

If the city does form a housing authority, will it have to abide by state law that says affordable housing cannot be located in an area that is already over-saturated with such housing? Or will the housing authority be able to hide behind private developers to avoid that law?

What will happen to the agreement with Toyota? As a contractual agreement that was signed before Jan 1, it will likely be a valid agreement, but who will be the owner of the property that is leased to Toyota as the successor agency disposes of redevelopment property?

What about the Performing Arts Center? Is that still owned by the redevelopment agency? What will happen to agency owned property where there is a joint use?

Is McMillan still getting redevelopment tax increment? What happens with that deal?

Will the sewer fund ever get back all the money that was stolen from it and given to the redevelopment agency?

What will happen to all the bond sellers in Newport Beach without the billions they got from refinancing redevelopment debt?

The answers to these and many more questions are still unknown. Stay tuned in.


Anonymous said...

WOW, this is some very informing information,thanks so much. Lot's to look into.

My Account said...

Thank you for a well written explanation of this topic. For the edification of the rest of the citizens - a suggestion, please consider posting a link on Poway Patch to your blog.

NEWS_FLASH said...

Chris Cruse – Thank you for explaining Redevelopment in plain English.

In my opinion, REDEVELOPMENT has been the biggest fraud ever created in California to bilk and misuse taxpayer dollars. This is particularly true in Poway. I just hope that some folks who are unaware of Poway’s Redevelopment Agency will read your blog on this subject. Perhaps some Powegian eyes will be opened. So many Poway folks have no idea that Poway’s Redevelopment Agency even exists and that a big chunk of their hard-earned property tax dollars go into it.

Poway’s annual Redevelopment Agency Fund total is more than Poway’s annual General Fund total. And…… most of Redevelopment’s funds go to pay bonds. No wonder the wealthy bond brokers in California are fighting so hard to prevent the dismantling of the Redevelopment system. The LEAGUE OF CALIFORNIA CITIES, a lobbying group, fully supports these wealthy bond brokers in Sacramento…. And is doing everything they can to preserve this financial gravy train bureaucracy for brokers --- and everyone else connected with Redevelopment.

It is important to note that Poway’s Redevelopment Agency payroll and administrative costs are over $1million annually. Do we really need our hard-earned property tax dollars paying for this separate layer of government in the city of Poway??? Especially an agency with very little public accountability??!! Amazingly, in Poway the City Council and Redevelopment Agency board are comprised of the exact same people. They hold ALL the cards and make decisions regarding all the local government funds in Poway.

I hope that somehow -- with all of the Redevelopment items currently in the news -- Poway's ugly habit of placing all of its required Affordable Housing in the core of South Poway will be exposed. Of course, this concentration (read: segregation) of low income folks is illegal in California.

The state code states that it is illegal for a Redevelopment Agency’s Affordable Housing to “….exacerbate racial, ethnic, or economic segregation”. This has been pointed out very clearly numerous times to the City of Poway and its Redevelopment Agency. Yet Poway continues to get away with this because no one has come forward to threaten a lawsuit on this issue. [NOTE: Reference California State Health and Safety Code section 33413, PARAGRAPH 2(A), SUB-PARAGRAPH (v)]

However, in the wake of potentially losing control with the new state proposals, Poway is trying a last ditch effort to create a POWAY HOUSING AGENCY. Never mind that Poway’s goal for years was to “get out of the housing business”. Now the City wants a newly proposed agency to oversee housing. Hmmmm…… Most likely the major goal of this agency will be to prevent future Affordable Housing complexes from ever being placed in pristine and perfect North Poway (where Mayor Higginson and most council members and their good ‘ol boy supporters live) and continue to concentrate all Affordable Housing in South Poway.

There is an old saying: “The more things change, the more they stay the same.” How true.