The California Supreme Court ruled today that the state has the right to abolish local redevelopment agencies, but can't compel them to spend more property tax dollars on local services as a requirement to stay in operation. Taken together, the two parts of the decision mean that barring any legislative intervention, the 400-plus local redevelopment agencies around the state will have to shut down for good sometime in 2012.
The rulings are related to two bills enacted as part of the budget deal this year. The changes in the redevelopment process were made in order to redirect $1.7 billion from the agencies to help close the budget gap. But now that only the elimination of the agencies has been ruled legal, even more money could accrue to state and local governments.
KQED Sacramento Bureau Chief John Myers clues us in on just what today's split ruling -- a worst-case scenario for redevelopment agencies and their supporters -- means...
First and foremost this ruling does appear to change a system of local development across California that has been in place for more than a generation. Remember that redevelopment agencies were first created after WW II and the way they're financed through local property tax dollars has been in place since the 1950s.
This ruling says that system of financing local RDAs is now abolished by action of the legislature, which occurred during the state budget debate this year.
So really what we have here is a split ruling, which interestingly enough could benefit the state budget a lot more than expected. There were two bills that dealt with redevelopment in the budget; the first bill said that redevelopment agencies were going to be abolished as they now exist. The second bill said those RDAs could continue to do business if they started sharing more of their property tax dollars with local services. The crux of the case was whether both or one of these were legal.
The court effectively said the first bill that abolished the agencies was legal, but that the stipulation that they can continue to do business if they shared money was not. So the net effect of this could be that the state and local governments will get more money out of the state budget through the years, because property tax dollars will no longer be earmarked for local redevelopment.
It's unclear as to how this will play out. Redevelopment supporters immediately said after the ruling they want to work with the legislature to try to find some way to keep RDAs in business. If they are unsuccessful, however, the law says those agencies have to close up shop sometime in 2012. The difficulty here is figuring out exactly when that will happen; there's a lot of activity going on at these agencies, and some of them, like the one in San Jose, are very big. They also have a lot of debt on their books.
It's also unclear as to how much money is going to be freed. Because the projects already in the pipeline would ostensibly stay in place.
One of the tougher things to understand about redevelopment is that it is used differently in different communities across California. Some cities have been very aggressive in their use of redevelopment funds. A great example of that is San Jose, where it has been in place for a long time and the vast majority of the city's downtown is part of a redevelopment district. Other cities have used it much more sparingly. That has led to a lot of the criticism about how redevelopment works and whether those property tax dollars are effective at, say, cleaning up blight or providing affordable housing, or whether they have become in effect subsidies for private developers to come in and build projects in cities.
Governor Brown, all though 2011, pushed this idea of abolishing local RDAs and using the money to relieve pressure on the state budget. The compromise that came out of the legislature by the spring was this alternate universe that this case revolved around, which said you can't keep doing redevelopment the way you've been doing it for years, but you can stay in business if you share money with us. That was an alternative that several members of the legislature wanted because it was the only way they would vote for the governor's plan to use redevelopment dollars for other purposes.
But with the Supreme Court ruling today, they got the worst of all scenarios. They agencies were not only abolished in the first bill, but the second bill that at least would have allowed them to stay in business was ruled illegal.
As to the net fiscal impact of the ruling, it's not easy to calculate. We know that the budget signed into law in June counted $1.7 billion of redevelopment property tax dollars toward the budget. But the long-term effect of the ruling would increase the amount of money available for local government and public schools, because these are local property tax dollars that would otherwise have been used by redevelopment agencies. The net effect of that is an easing of pressure on the state's finances.
What's your reaction to the California Supreme Court's ruling?
It's a decision that probably makes no one happy. We're not happy that the state has the power to eliminate redevelopment given how much is invested in it. On the other hand it didn't give the legislature the right to outright "blackmail" us. And it doesn’t give them the revenue they need to balance the budget. So that's why everyone is saying we have to work together with the legislature in January to try to come to a compromise in a way they can get the money they need for education and other programs and we can continue to work on our economic development projects, including and especially affordable housing.
How much does the city budget rely on redevelopment funds?
We have a whole separate redevelopment agency and I think Oakland has one of the bigger ones because we have a lot of blighted and low-income areas, and we have a lot of industrial areas that are being converted. The army base is a massive project to expand and extend the port of Oakland. And I think I have eight affordable housing projects lined up right now. Any really big development -- downtown, retail, the coliseum project we're talking about -- uses at least some redevelopment funding. There's probably not a part of urban life untouched by redevelopment funds.
About 150 workers are employed by the redevelopment funds involved in economic development for the city. We could end up losing those employees if a compromise is not worked out. Planners, blight inspectors, a wide range of employees.
We all believe there can be a legislative compromise to save most of the redevelopment functions. Obviously we'll have to plan for worst-case scenarios. But when you look at the comments of the [Assembly] speaker and the Senate Pro Tem, it was never their intention to totally eliminate redevelopment.
AB x27, which the court struck down because of the way it said the cities have to give over a large percentage of funds or the agency would end -- there has to be a way to make it voluntary to meet the constraints of the court and allow the agencies to continue. I think that's where most of us are going to put our efforts.
Do you want to say anything about the recall effort?
I'm just focusing on my work. If they get the signatures, I will fight it. I'm the first woman, first Asian American mayor, and clearly that's an important responsibility. I have a lot of issues to deal with like redevelopment today, and major issues we've been leading the city forward on. I really have to focus on those. If the signatures are gotten, I'll be more focused on that. But now we have a lot of battles.
“Today’s ruling by the California Supreme Court to eliminate redevelopment agencies is disappointing. In San Francisco, redevelopment has not only played a critical role in creating jobs, transforming disadvantaged communities and delivering affordable housing, but it has spurred economic growth for our entire City at a time when we needed it most. Time and time again, San Francisco has demonstrated that when redevelopment is used to its fullest potential, it can deliver results such as Yerba Buena Gardens and Mission Bay.
It’s unlikely that the Legislature intended to dissolve redevelopment agencies without an option to maintain true job creation, infrastructure and affordable housing projects. Under AB 1X 26, San Francisco’s major infrastructure and affordable housing projects are considered enforceable obligations. That means that major projects well underway such as the Mission Bay, Bayview Hunters Point Shipyard and Treasure Island can keep going. At risk, however, is continued future progress on developing affordable housing, revitalizing blighted neighborhoods and generating the resources to fund urban infill development and infrastructure. We call on the State to find a legislative solution to this problem.
And while we are committed to working with the State, we have already started to look at local solutions and alternatives. Abandoning the job creation, economic development, and community benefits that redevelopment has provided San Francisco for decades is simply not an option.”
Assembly Bills 1X 26 and 1X 27, companion bills to Governor Brown’s 2011-2012 budget, allowed California cities with redevelopment agencies to keep the entity by opting in to a state payment plan versus outright elimination. As a result of today’s decision, the State of California will be the beneficiary of $1.7 billion in the first year of implementation of this plan. The California Redevelopment Association and the California League of Cities among others challenged the constitutionality of the measures. With the Supreme Court ruling on AB 1X 26, all redevelopment agencies in California will be dissolved with their assets and existing obligations assumed by individual cities. The California Supreme Court struck down AB 1X 27 based on violations of various aspects of the State’s Constitution including Proposition 22, a 2010 voter approved initiative that prohibits State diversion of local tax revenues."
Update 12:15 p.m. San Jose Mayor Chuck Reed responds to the ruling...
Today’s Supreme Court decision eliminates critical tools to rebuild our economy, create jobs, and revitalize neighborhoods – exactly the kinds of investments California cities should be making in this recession.
This decision will stall job creation efforts in San José at the worst possible time. Redevelopment funding provides critical tools to rebuild our economy, create jobs, and build affordable housing – exactly the kinds of investments we should be making in this recession. Instead, we’ve had to cancel and delay projects that would get our economy moving again and put people back to work.
California must compete with states and nations around the world that offer multi-million dollar incentive packages to lure jobs away from our state. Redevelopment has been the key tool that California cities have to stay competitive.
Given this decision, I call on the Governor and Legislature to immediately work with California cities to make our state competitive again and find new ways to create jobs in California.
KQED's John Myers is tweeting about the ruling now. Click on the play button below...
You can read background on the case in the following Myers' posts on the Capital Notes blog...
- Budget Lawsuit #1: Redevelopment
- California Supreme Court Slugfest Over Redevelopment
- Brown's Redevelopment Firestorm
Also, from the California Redevelopment Association (which may not be in business too much longer apparently), here's a primer on the redevelopment process as it existed before the legislative change and court case:
What is redevelopment?
Redevelopment is a process authorized under California law that enables local government entities to revitalize deteriorated and blighted areas in their jurisdictions. Redevelopment agencies develop a plan and provide the initial funding to launch revitalization of identified areas. In doing so, redevelopment encourages and attracts private sector investment that otherwise wouldn’t occur...
What is a redevelopment agency?
State law gives a local government (city or county) the authority to form a redevelopment agency with the specific goal of revitalizing deteriorated areas. There are 397 active redevelopment agencies throughout California, all of which are overseen by the local city council, county board of supervisors or a separate appointed board -- all accountable to the public. Because they are locally governed and their boards are comprised of local elected or appointed officials, redevelopment agencies are in the best position to work with local citizens and businesses to identify community needs and to work with private investors on local projects to meet those needs....
How are redevelopment agencies funded?
Redevelopment agencies do not levy taxes and do not have the ability to raise taxes. They receive a portion of the property tax revenues generated when property values rise as a result of new investment. When redevelopment agencies improve deteriorated areas, property values within those areas rise, thus increasing property tax revenues. The increased property taxes resulting from redevelopment activity are referred to as “tax increment.” State law allows redevelopment agencies to pledge tax increment so that they can repay bonds and other types of debt incurred to make investments in project areas. In essence, redevelopment agencies fund themselves when they make improvements to their communities. They stimulate increases in property values that otherwise would not have occurred.