The New Redevelopment: Up For Grabs

Last week the legislature passed a new California Budget. There were 2 redevelopment bills attached to the budget bill that will mean some big changes for any city with a redevelopment agency.

Here is the Cliff Notes version of this post:

1. Redevelopment Agencies "grabbed" 5 billion dollars of property tax in California this year.

2. About half of that grab was from property taxes that would otherwise go to schools.

3. The state has been "filling in" revenue for school districts that lost property tax to redevelopment agencies.

4. The state has a $26 billion deficit and can't do that anymore.

5. The state eliminated redevelopment agencies when they passed the new state budget.

6. The state let cities and counties by-pass their demise of their redevelopment agency if they promised (in writing) to give some (not all, but a lot) of the property taxes back to local schools.

7. Poway plans to do #6. But not without whining and suing the state.

OK, now for the longer version.

In January, Jerry Brown become governor of California and surprised a lot of people (including me) by proposing to eliminate redevelopment agencies. I never saw that coming and I pretty much have had my fingers crossed since then, wondering if it would come true. It did. The legislature passed a bill eliminating redevelopment. In a compromise with his own party, Brown also signed a second bill allowing redevelopment agencies to continue if the city or county those agencies were in agreed to several state demands, mainly to give back most of the property taxes that they had grabbed from local schools.

Before I get down to the nitty gritty, I want to mention that 5 Republican state legislators voted in favor of eliminating redevelopment. None were from San Diego county. You would think that Republicans, who often spout rhetoric decrying big government, deficit spending, and loss of private property rights, would be on the front line of any campaign to eliminate redevelopment. But you would be wrong. Even with right wing blog sites like Stop The Money Pit and the more moderate Cal Watchdog pleading for their demise, most Republican state legislators refused to vote to eliminate them.

AB1x-26 is the bill that ends redevelopment agencies and AB1x-27 is the bill that revives them, if certain conditions are met. Currently, all redevelopment agencies are prohibited from doing much besides making regular debt payments. They cannot make any new agreements or buy or sell property. They can't hire more people unless they are replacing someone. Some of the agreements they made to hide their assets are invalidated. On Oct 1st,2011, the redevelopment agencies are officially dissolved and a new successor agency takes over. The successor agency can sell the assets and pay off the debt of the agency. They have to chip in to a fund that returns property tax money to schools and other taxing agencies. Eventually, after many years, the redevelopment debts of the dissolved agencies will all be paid off and all of the property taxes will once again flow to the schools, and local tax districts.

If a city or county wants to hang on to their redevelopment agency, they can opt in for the new alternative. But it will cost them. They must agree, in writing, to the provisions laid out in AB1x-27:

1) Notify the county auditor-controller by Nov 1, 2011 that they want to go for the alternative redevelopment plan.

2) Enact an ordinance promising to comply with all of the provisions of AB 1x-27

3) Send some money for FY 2011-2012 (their share of $1.7 billion) to the county auditor-controller to be deposited into a Special District Allocation Fund and to an Educational Augmentation Revenue Fund. (Note: The redevelopment agency has to give the money to the city and the city must send the money to the county for deposit into these 2 funds.

4) Send some more money for FY 2012-2013 and every year thereafter to the county auditor-controller to be deposited into the Special District Allocation Fund and the Educational Augmentation Revenue Fund. The exact amount will be a proportionate share of $400 million although the amount may change.

5) Agree to give the schools 80% of their usual share of property tax on all new redevelopment agency debt payments. Suppose a redevelopment agency issued new bonds and the debt payment on those bonds was $1 million per year. The school's normally get about half of all the property tax. 80% of half a million is $400,000. A redevelopment agency would have to give the schools $400,000 for every million dollars of new debt repayment. The schools in the Poway Redevelopment Agency area are PUSD, the county office of education and Palomar Community College District. Each would get the same proportionate share of the tax monies that are returned by redevelopment agencies as they now get from regular property tax payments.

6) The alternate redevelopment agencies are still required to put 20% of the tax increment into a low and moderate housing fund. For the FY 2011-2012 only, they can skip this allocation if they do not have enough money to meet their other obligations, including their share of the $1.7 billion payment to the county auditor-controller.

Poway has opted for door number 2, the alternative redevelopment plan. At their July 5th meeting, the council approved an ordinance to comply with AB1x-27. The second reading of the ordinance is scheduled for July 19th. Poway's share of the $1.7 billion in property taxes that will be diverted back to schools and special districts in FY 2011-2012 is reported to be around $10.3 million. Poway's share for FY 2012-2013 will be around $3.3 million. In return, Poway will get to keep their redevelopment agency and the $41 million in annual tax increment, which they can use to pay off their debt, pay their employees, and plan new projects. AB1x-27 lets cities keep their redevelopment agency and their tax increment money, as long as they give back some of the property tax money that was taken from local schools.

As expected, the people who are addicted to redevelopment money, are not giving it up without a lot of moaning and groaning. And lies. Or at least, misrepresentations of the truth. I transcribed a statement made by Councilmember Jim Cunningman from the July 5th meeting. (Hat tip to Joe St Lucas for sending me the recording).

Just a comment. It's very clear that, and its been oftentimes said, that local dollars are best spent locally, and especially for a city like Poway. And the notion really is that this was supposed to be helping the school district on a local basis as well. Which again doesn't meet the formula because this city always has been a great partner. When Don was the mayor last time, they built the Performing Arts center, and the baseball stadium, and constantly make .... The parks, the gymnasiums, and the meeting centers, we've been a very, very, good partner of the school district. My concern is that we deliver, and we should deliver as council, we should hand deliver these checks, that the 10 million dollars, by the time it whittles down to the school, will be almost nothing. Whereas the 10 million dollars allocated by this city towards 10 million dollars of projects, we get Solera, and we get Brighton, we get brick and mortar differences, which certainly is not gonna happen, in a sense, on this 10 million dollars of our money, our taxpayers' monies, are given to the county with the notion that it goes to the city (sic) just like the notion of the lottery was gonna save all the schools. Well, that money was gonna come back that. The administration costs as we know was 85%.

Cunningham gets it wrong in so many ways. First of all, the redevelopment funds will have to be deposited into a fund overseen by the San Diego county auditor. That same county auditor who currently handles all of our property tax payments and distribution. The county auditor sends property tax payments to the local schools every year from non-redevelopment area properties without those taxes "whittling down to nothing". The auditor also manages to send Poway's Redevelopment Agency their money every year without an 85% overhead. So what evidence or reason does Cunningham have to suggest this might happen to the funds set up for redistribution to local schools? AB 1x-27 does say the auditor-controller can charge the city or county "a fee that does not exceed the reasonable costs of auditor-controller to implement the provisions of this part."

Second, Cunningham seems to think that the redevelopment agency does a better job of using the schools' property taxes than the schools do. His proof? They have some nice brick and mortar projects to show for it. Schools on the other hand, invest in something less visible, less tangible than sports stadiums and gymnasiums; they invest in the students themselves. AB1x-27 will force redevelopment agencies to give the schools most of their share of property taxes to be used for teacher's salaries or whatever the educational professionals determine is the best use of the money.

Third. Did you really think the lottery was going to produce a lot of money for schools? Sheesh.

And fourth, when the local property taxes are returned to the schools, our local dollars will still be spent locally. Almost all of the $10 million that Poway has to give to the county fund, will go to PUSD and Palomar College.

The California Redevelopment Association (CRA) plans to sue the state over the elimination of redevelopment agencies and the so called "extortion" payments required to keep the agencies alive. They claim that the new laws violates Prop 22, which was passed last November. Prop 22 prohibited the state from taking funds from redevelopment, although the word redevelopment was pretty scarce on that referendum.

CRA is the group of cities and counties that have redevelopment agencies. Poway will likely join the suit. If CRA and Poway sue the state, we the taxpayers will end up suing ourselves. Now, if you want to see our tax money get whittled down, how about a court case where we are paying for both sides?

The state's argument is that they created redevelopment agencies and they can eliminate them. They also wrote the classic provision in the bills, that if any part is declared illegal, the rest still stands. Wouldn't it be weird if the courts struck down AB1x-27 but let AB 1x-26 stand? Redevelopment agencies that sued to avoid giving back the property tax to the schools would then get eliminated.

My personal, non-lawyer opinion is that AB 1x-26 is pretty sound and will likely not be struck down. Suppose a court did find the elimination of redevelopment to be illegal. It would be like saying that redevelopment agencies could continue to grow and divert as many billions of property taxes as they wanted. The state of California does not have enough revenue to backfill the lost property tax for the schools. Constitutionally, states cannot declare bankruptcy. If the courts rule that redevelopment cannot be shut down, then the state would have bills to pay but they have no money to pay them. It would be a Catch-22. I don't think the courts will do that, especially since the courts are funded by the state and have taken a huge hit this year in the all-cuts budget. Likely, their sympathies will not be with the redevelopment agencies who are sucking up all of the revenue for development projects and depriving other government entities from providing basic services. But that is just my opinion. What's yours?