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REDEVELOPMENT MAY NOT BE DEAD AFTER ALL

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Legislators pass bills that would revive anti-blight program

Chris Levister

A legislative compromise that would expand cities’ and counties’ ability to divert property taxes for local development projects may be too late for bankrupt San Bernardino but there is new hope for the state’s 60-year old redevelopment agency program intended to combat blight.

Four bills made it to the final sprint of the state legislative session, which ended August 31. The four bills would revamp the funding mechanism that allows cities and counties to divert property tax revenues from local agencies if an area is designated for development. Unlike the redevelopment law, however, none of the property tax diversions could come from the taxes that fund schools, a crucial difference from how redevelopment agencies were financed. Voters approved a proposition requiring minimum funding for education in 1988, which required the state to make up the difference for some of the money reallocated from schools to redevelopment agencies. That cut into the state general fund and was a major reason Gov. Jerry Brown and the Legislature pushed to end the program.

SB1156, by Senate Pro Tem Darrel Steinberg, D-Sacramento, would create new entities called Sustainable Communities Investment Authorities. Although similar to redevelopment agencies, they would allow counties and other agencies to withhold their property tax contributions if they don't support the development project. The previous model of redevelopment often pitted cities and counties against each other because it allowed cities to capture counties’ tax money.

The three other bills modify a little-used development tool known as infrastructure financing districts, which, like the former redevelopment agencies, use property tax revenue increases to fund projects. The bills would reduce the voter approval requirements for establishing a project area and issuing new bonds. Existing law requires cities and counties to get two-thirds of voters to approve a new project area before they can divert property taxes to fund it and take on debt. Brown and the Legislature threw hundreds of agencies out of business last year, saying that the property tax money flowing to their operations would be better spent to help close the state's budget deficit. The agencies fought the decree in court and lost in the state Supreme Court. The court traced the growth of redevelopment agencies in California back to Proposition 13, the 1978 initiative that slashed property taxes and limited governments' ability to raise new revenues. "Proposition 13 created a kind of shell game among local government agencies for property tax funds,'" Justice Kathryn Mickle Werdegar, wrote, quoting a planning guide.

"'The only way to obtain more funds was to take them from another agency. Redevelopment proved to be one of the most powerful mechanisms for gaining an advantage in the shell game.'" When Brown pulled the plug in February, $5 billion was being sent annually to 400 redevelopment agencies throughout California.

Since then, the Legislature has considered several proposals to mitigate the fallout as cities and counties struggle to wind down the agencies and fight to maintain control over tax dollars. So-called "successor agencies" -- usually city governments -- are now shifting assets into other public coffers, as local oversight boards and state officials keep an eye on their decisions. However, squabbles have broken out in several communities over who should administer the funds or who should sit on the oversight boards.

Some cities used a greater share of the money for administrative costs, paid for police, fire or other city employees, and some loaned the state money to their redevelopment agencies at above-market interest rates.

The loss of redevelopment funds cost struggling San Bernardino $30 million annually and put the spotlight on how redevelopment money was used. San Bernardino was using about $6 million of those funds to back fill its general fund.

"It was never intended to be a source of permanent revenue for cities," said Assemblyman Chris Norby, R-Fullerton.

In San Bernardino, where small businesses and empty storefronts dot the downtown, redevelopment funds paid the salaries of the city manager, code enforcement officers, human resources staff, the city clerk and the city attorney. They also paid for the operation of the city's public access television, its 5,000-seat minor league baseball stadium, and a renovated historic theater.

“Morris defended the city’s use of the funds for salaries and renovation projects saying the projects stimulated economic growth. He said, without that money, things only got worse. 
"One might say it was the nail on the coffin in terms of our unbalanced budget of losing redevelopment funds.

Redevelopment agencies were created in California in the 1940s as a way to provide more affordable housing and reverse urban blight. To encourage projects, the state dedicated a funding stream for the agencies and attached few restrictions to the money.

"Cities depended on redevelopment to make additional dollars in property and sales taxes down the road, and they were spending down their reserves in the meantime," said Chris McKenzie, executive director of the League of California Cities. 

Because there were no hard rules on how cities could spend redevelopment money — except that it had to somehow address or eradicate urban blight and 20 percent of it had to focus on affordable housing — cities interpreted the program liberally, said Marianne O' Malley, an analyst at the Legislative Analyst's Office.

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