california_state_capitolAs you know, Governor Brown has proposed eliminating Redevelopment Agencies in his budget. His administration’s claims that these agencies produce no net-gain for the State’s economy, instead they just create intra-state competition.

Yesterday, the Senate Committee on Governance and Finance met at the State Capitol to discuss the Governor’s Budget Proposal, specifically focusing on Redevelopment Agencies and economic development.

At this two-hour meeting, supporters and opponents of the Governor’s plan each had the opportunity to express their views and justify their positions. What ensued was a fascinating discussion of the successes and failures of Redevelopment Agencies, and a de facto debate of the future of Redevelopment Agencies.

State Treasurer Bill Lockyer summarized the position of those seeking the end of Redevelopment Agencies fairly succinctly when he said, “Blow [Redevelopment Agencies] up and start again. It would be the prudent, smart, and efficient way to do it… It is better to reinvent.”

Others would come to the defense of the Agencies.

Jean Hurst, of the California State Association of Counties, described the differences between redevelopment agencies that operate in her member counties and those that are formed by the cities.

While CSAC does not have a formal position on the Governor’s proposal for Redevelopment Agencies, Hurst’s example was left a lasting impression on at least some members of the audience.

Hurst said that county Redevelopment Agencies are responsible for the wellbeing and the tax dollars of multiple communities, each with varying needs. A county agency typically has to act to balance the larger needs. The cities, however, act in the best interest of the city, even though their actions impact funding to the county through decreasing available property tax dollars.

Jo MacKenzie, the President of the California Special District Association, which also has not taken a position on the fate of Redevelopment Agencies, said that funding to special districts can be impacted by Redevelopment Agencies. When funds fail to be passed-through, instead earmarked for redevelopment projects, less money is available to the Special Districts that deliver core services.

Currently, 11 million Californians receive their fire protection from special districts.

Additionally, the Committee’s Chairwoman, Senator Wolk (D-Davis), posited several questions to Bill Bogaard, the Mayor of Pasadena and Vice President of the League of Cities. She asked him how much money redevelopment agencies in his city had diverted from schools or core services.

He didn’t know the information off hand.

According to Senator Wolk, that seems to be the norm for cities and their Redevelopment Agencies. If true, that could be demonstrative of a broken relationship needing reform.

That was just some of the evidence offered.

Below, I offer citations and summaries of the testimony offered by others before the committee.

Bill Lockyer delivered the following opening remarks to the panel and assembled gallery.

State government has had countless conversations that start with statements like “You’re stealing our money.” But he finds the perception of “our money versus their money as both incorrect and unproductive.”

The post-Proposition 13 California has operated with a virtual pool of aggregated property taxes. From that pool, more than 70% of funds are transferred to the local governments.

According to Treasurer Lockyer, the Governor’s budget “provides long-term, increased revenues to local agencies and governments.”

This is a question of spending priority, according to Lockyer. How does it serve the state to use local property taxes to prompt inter-regional shifting of economic activity?

He claims that the modest benefits from RDA spending result from very expensive spending per job created.

Interest rates for Redevelopment agencies range between 6.5% and 10%. These groups pay “unconscionably” high rates due to the uncertainty of return and the future of the programs.

There are Redevelopment agencies that are on the cusp of financial insolvency, like those in West Contra Costa County’s community of Hercules.

And their expense keeps growing disproportionally compared to the property taxes and inflation. This growth is a result of redevelopment agencies spending taking larger chunks. Additional revenues continue to be absorbed into the redevelopment pots.

$32.2 billion was kept from schools in the past decade because of the current spending structure. “That’s a lot of teachers or classrooms or whatever.”

Michael Cohen, Finance Department, spoke second, offering the following rational and supporting evidence from the Governor’s administration.

Governor’s priority in his Budget Proposal:  What responsibilities are best served at the state level; which are best served at the local level?

The proposal, says Cohen, returns the decision making back to the local level. They should decide where a business should locate.

Central to the plan would be the continuation of funding for all legal obligations for previous agencies. Included in this funding obligation are all pass-throughs to various entities that currently receive funding.

Included in these pass throughs is $1 billion to local school districts. This money will be on top of the current Prop 98 funding guarantee. In subsequent years, cities would receive additional $500 million, counties $300 million, and special districts $100 million.

If the cities wanted to fund redevelopment from these moneys, according to Cohen, the Governor’s office has no problems with that happening.

There are trade offs as to what the best uses of these dollars would be. And those
trade-offs would have to be decided by the local governments themselves.

In future years, all money would go through to cities and counties, but this year, the state would take those monies to pay for Trial Courts and Medi-Cal. The following year the money would start flowing back into core services.

Part of the proposal is a constitutional amendment to reduce the threshold for new taxes or bonds from 2/3 to 55%, if those new levies would be used to continue specifically for redevelopment activities.

In other words, it would give local authorities the power to approve bonds or raise taxes specifically for RDA activities.

RDA laws would continue to exist to allow for Eminent Domain or combining properties to increase economic development. Those non-financial abilities would continue.

When offering other ways to find financial backing for new Redevelopment activities, it was suggested that local sales taxes or gas taxes could be used instead of state property taxes.

We are proposing that the entity that authorizes and operates the RDA, usually the city, along with the jurisdictions, to ensure that all legal debts are paid and paid on time, but all money that isn’t required for debt will become available for local core services.

If the city created the RDA, then the city would become the successor entity.

Senator Wolk asked Mr. Cohen: Given Proposition 22, can funding from Redevelopment Agencies help balance the State’s General Fund without legislation or going to the ballot?

Answer: Proposition 22 presumed that Redevelopment Agencies [or any local fund protected from State Raids] would continue to exist. If it would continue operating, the Prop would lock into place current funding (and funding levels). But because the state is ending the program, they have essentially bypassed Prop 22.

Over the last two budget cycles, the Legislature has helped balanced the budget with upwards of $2 billion in transferred funds. Under Proposition 22, those options are off the table.

Question from the Committee: There has been a lot of Land Banking. What happens to land that’s been acquired?

It will be a matter of city councils to answer to their constituents as to any decisions they made over the last few months. They would still hold the property, and it would be their decision what to do it in the future. They’ll be required to talk to their voters and find the funding and put in place the financial mechanisms to make the development happen.

Marianne O’Malley from the Legislative Analyst Office

In some areas, 1 in 4 property tax dollars go to Redevelopment Agencies. Statewide, 12% of state property taxes go to the Agencies. That leaves 88% for all other purposes, including schools public safety parks and recreation. Should that proportion remain the same?

If a city creates a RDA, it usually receives 2 or 3 times more tax from properties in the Redevelopment Area than from other parts of the city.

This creates incentives for establishing Redevelopment Areas, and large ones at that.
Can use these funds to respond to local priorities.

But for 50 years, the property taxes from a redevelopment area would stay entirely with the RDA, it wouldn’t go to any other core services. This is unlike other states’ programs.

Redevelopment Agencies are flexible tools. They can cause increases in property taxes and values. They can lead to increases in employment. RDAs are useful targeted economic development tool.

The LAO has concerns about redevelopment use of funds.

Typically, they’ve found that Redevelopment Agencies have limited oversight and transparency.

Among the activities that they do differently than most California government they are allowed to buy and sell bonds without voters’ approval.

The LAO agrees with the Governor’s Budget Proposal on nearly all matters. But they do feel that the method for school funding would further complicate an already convoluted funding mechanism.

Implementing this program would be highly disruptive. But at the same time, any cuts of this size would be disruptive, so the choice is what to disrupt.