"It's mine...my own...my precious"

In January, Gov. Brown announced his intention to get rid of redevelopment agencies as part of his plan to balance the state budget. Brown planned (and still plans) to dissolve the agencies, pay off their debt, and redirect local property tax back to schools, safety services and other local entities that have been "robbed" by the redevelopment agencies.

Fears that the goose-that-lays-golden-eggs will soon be gone has redevelopment agencies taking actions to horde their assets and commit to spending future assets. In less than 3 months, California redevelopment agencies have issued over $770 million in new bonds, and committed billions to new development projects. Meanwhile, 19,000 California teachers got pink slips last week. The number of laid off teachers could grow higher. Much higher.

California's deficit is $26.6 billion dollars. Brown wants to make up the deficit, half with cuts and half with extensions of the temporary taxes that were enacted under Schwarzenegger, but he needs the votes of 4 GOP state legislators to get the tax extensions on the ballot. He is unlikely to get their votes. They keep expanding what they want for those votes. I think the GOP legislators are just messing with Brown. I don't think they have any intention of negotiating in good faith or voting to put the extensions on the ballot so people can choose between them or more cuts. They just want to see him fail, and if that means thousands of teachers lose their job, so be it.

Brown also needs to dissolve redevelopment agencies to get the budget balanced. What does redevelopment have to do with teacher's pink slips? Redevelopment grabs property taxes that normally would go to schools. The state has been giving extra money to schools to make up for the loss, but they can no longer afford to do that.

The chart below is from the County of San Diego's website and it shows how property taxes will be apportioned in FY 2010-2011. Click on the graph to make it larger.

Redevelopment agencies are taking $400 million of local property taxes in San Diego county. That is 10.7% of all property taxes in the county. That is a bit less than the statewide average of 12%. The percentage of property taxes that has been going to redevelopment agencies is increasing steadily. In 1970, only 2% of all property tax in California went to redevelopment agencies. By 1980, the percentage doubled to 4%. By 1995, it doubled again to 8%. And now we are at 12% statewide. It is possible that redevelopment could consume more than half of all property taxes, even more. The bonds that the redevelopment agencies sell have to be paid back with future property taxes.

After redevelopment agencies are dissolved, Brown plans to use some of the money to pay off their debt. The rest of the money will be distributed among the other local agencies. Eventually, after the debt is paid off, all of our local property taxes would be distributed to provide local services. If the money that is diverted to redevelopment agencies were proportionately redistributed to all other entities, here is what the distribution would look like for FY 2010-2011:

Schools would receive 5.3% more of the county's property taxes, in the 2010-2011 FY just in San Diego county. The school's share of that diverted $400 million is almost $200 million this year.

Poway's redevelopment agency took almost $40 million in diverted property tax last year. Almost half of that would have gone to the school district if Poway did not have a redevelopment agency. And while Poway does have an agreement with the school district to spend money on the performing arts center and some joint use sports fields, the amount of money Poway redevelopment agency has given the school district is NOWHERE near $19 million a year. That $19 million could be used for teacher's salaries instead of the $5 million or so that went for artificial grass and bond payments on the performing arts center.

Redevelopment agencies are taking money from more than schools; they are also taking from libraries, the county, special districts and the cities' own general funds. General fund money is what pays for police and fire and city workerbees. The City of San Diego just approved $4.1 billion in redevelopment spending, and that doesn't even include an estimated $800 million they want to spend for a new Charger's stadium. But San Diego also plans to cut back on city services because their general fund is hurting pretty bad. They can't even man all of their fire stations. The choice is clear. We can use our tax money for schools and safety services and local needs or we can use it to fund development projects, like stadiums, shopping centers and luxury golf courses.

It is kind of surprising that school districts and teacher's unions, and other city worker's unions and safety services unions haven't said "Boo!" while cities have gone on this gluttonous rampage, selling bonds and grabbing assets and moving them around to keep them from being used by the state to pay off the redevelopment agency's debts. Why so silent?Poway didn't run out and sell bonds, but they did have a special meeting last Friday at 7:30 A.M. They transferred 75 properties owned by their redevelopment agency to the city and to a new entity they created, a housing authority.

No kidding, a public housing authority?

Yes, Poway created a public housing authority. The same Poway that has supported legislation to allow cities like Poway to pay some other city to build our low income housing. The same Poway that tried to get Sandag to let Poway pay National City to build our fair share of low income apartments in the last housing distribution cycle. The same Poway that sold all of their mobile home parks because they wanted OUT of the affordable housing business. The same Poway that built retaining walls instead of using 20% of their redevelopment money to build low income apartments and got sued by the Legal Aid Society and lost. The same Poway that makes an annual declaration that they need an exemption to state law that requires them to allow granny flats to increase the supply of affordable housing. That same Poway decided they had to have a housing authority to replace the slums of Poway.

In order to create the Housing Authority, Poway first they had to declare by resolution, that there was a need for an authority to function in Poway. According to the California health and safety code 34242 and 34243

34242

The governing body may adopt a resolution declaring that there is need for a housing authority if it finds either of the following:

(a) That insanitary or unsafe inhabited dwelling accommodations exist in the county or city.

(b) That there is a shortage of safe or sanitary dwelling accommodations in such county or city available to persons of low income at rentals they can afford.

34243

In determining whether dwelling accommodations are unsafe or insanitary the governing body may take into consideration:

(a) The degree of overcrowding.

(b) The percentage of land coverage.

(c) The light, air, space, and access available to the inhabitants of such dwelling accommodations.

(d) The size and arrangement of the rooms.

(e) The sanitary facilities.

(f) The extent to which conditions exist in such buildings which endanger life or property by fire or other causes.

When Poway created their redevelopment agency in 1983, the council made a finding that 8200 acres of mostly undeveloped land was so badly blighted, that private enterprise alone could not successfully make a go of any development on it. The city used a program that was meant to help poor, urban communities spiffy themselves up while providing housing and jobs for poor people. Here we are, twenty eight years later and the city has done such a bang up job of creating housing and jobs for poor people that they now need to create a housing authority so poor people don't have to live in slum-like conditions.

To be fair, nobody in the city has really pretended that this housing authority is anything more than a greedy grab for as big a chunk of the taxpayer's pie as they think they can get. The dishonesty is in blaming the state for "stealing" local money. In fact, the real choice is about what our local property taxes should be used for. Should it be used for safety services, local municipal services,libraries and schools? Or should it be used for development projects that enrich the likes of the Spanoses, Moores and Waltons?

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.