Brown’s Redevelopment Changes in Budget Proposal Text

If you have the time and the inkling, Governor Brown’s budget summary proposal is worth perusing (PDF here). I’ve taken the relevant portions related to redevelopment and pasted them here.

From the section titled Realignment, which describes how state and local services would be realigned to shift more of the burden/responsibility to the local level (p. 28):

Local Economic Development Change

As part of the determination of which level of government is best equipped to provide what service, it became clear that the state’s investment in local economic development and redevelopment agencies is less critical than other activities. (Please refer to the Tax Relief and Local Government Chapter for more information.)

The proposal outlines a new option for funding economic development at the local level by calling for a constitutional amendment to provide for 55‑percent voter approval for limited tax increases and bonding against local revenues for development projects similar to those currently funded through redevelopment and for infrastructure.

The Budget proposes legislation to phase out existing redevelopment agencies beginning in 2011‑12. Existing agencies will be required to cease creation of new obligations and successor agencies will be required to retire RDA debts in accordance with existing payment schedules. No existing obligations will be impaired.

In the 2011‑12 fiscal year, the freed‑up funds will be used for General Fund budget relief. In subsequent years, these funds will be allocated according to the existing property tax allocation, except for enterprise special districts, and will be available for cities, counties, and special districts to use for their high‑priority core functions. By 2012‑13, the Department of Finance estimates these local entities will receive close to $900 million in new resources to use for their priorities (with a similar amount going to education).

From the Tax Relief and Local Government section (p. 171-172):

The Budget proposes a new approach to fund economic development activities at the local level and phases out the current funding mechanism for redevelopment agencies. This proposal will return billions in property tax revenues to schools, cities, and counties. These funds will help sustain core functions including law enforcement, fire protection, and education. Below is a summary of the proposal:
  • Change redevelopment funding: Provide improved options to fund local economic development with voter approval. The Budget proposes a new financing mechanism for economic development. Specifically, the Budget proposes that the Constitution be amended to provide for 55‑percent voter approval for limited tax increases and bonding against local revenues for development projects such as are currently done by RDAs. Voters in each affected jurisdiction must approve use of their tax revenues for these purposes.
  • Shift existing redevelopment taxes to core local services. The Budget prohibits existing agencies from creating new contracts or obligations effective upon enactment of urgency legislation. By July 1, existing agencies would be disestablished and successor local agencies would be required to use the property tax that RDAs would otherwise have received to retire RDA debts and contractual obligations in accordance with existing payment schedules. This is estimated to cost $2.2 billion in 2011‑12. Finance estimates $3 billion will remain after these debt service and contractual payments. From this remaining amount, one‑time payments estimated at $1.1 billion will be provided equal to the pass‑through payments that otherwise would be received. Of the remaining $1.9 billion the Governor’s Budget directs $1.7 billion on a one‑time basis to offset state General Fund costs for Medi‑Cal ($840 million) and trial courts ($860 million). The final $210 million will be distributed on a one‑time basis to cities, counties, and special districts proportionate to their current share of the countywide property tax.
  • Provide revenues for core local services. Beginning in 2012‑13, the amounts remaining after payment of pre‑existing RDA debts and contractual obligations will be distributed to cities, counties, non‑enterprise special districts, and K‑14 schools in amounts proportionate to their share of the base countywide property tax. The only exception is that roughly $50 million that would otherwise be distributed to enterprise special districts (mainly water and waste disposal districts) will instead be provided to counties. Enterprise special districts are mainly fee‑supported. In 2012‑13, this is expected to result in an increase in annual local revenues (over the amounts they would have received in pass‑throughs) of approximately $1.0 billion for schools, $290 million for counties, $490 million for cities, and $100 million for non‑enterprise special districts. Funds received by K‑14 schools would not count toward the Proposition 98 guarantee. These monies would augment existing funding, and could be used at the discretion of school and community college districts. The sums received by schools would be distributed to both school districts and community college districts throughout the county, primarily based on numbers of students.
  • Use housing balances for housing. Amounts in the RDA’s balances reserved for low‑moderate income housing would be shifted to local housing authorities for low and moderate income housing.
  • Funding for core local services increases as debts are paid off. After 2011‑12, the money available after payment of RDA debt would be distributed to schools, counties, cities, and non‑enterprise special districts for general uses. These distributions will generally reflect the distribution of property tax in each county under existing law. This will help counties to absorb costs and provide enhanced services associated with realigned programs, if they choose to use the money in that way. Successor entities would continue the process of retiring RDA debt, which is expected to take at least 20 years. As the RDA debt is retired, the monies formerly used for debt service payments will flow to local governments.

The key here is the timing. The Governor expects this to be wrapped up by July, when the next budget has to be approved, not 18 months from now. Surely, the RDAs aren’t going to take this lying down. They’ll sue, knowing that they have Prop 22 to provide some protection. They may be able to delay things 6, 9, 12 months. The harsh reality is that California can’t run deficits as per the state Constitution, and if the left will more fervently fight additional cuts to services and the right does the same regarding tax hikes, guess who gets caught in the middle? Redevelopment. That only leaves two things for the RDAs: Figure out how to spend those nest eggs now (San Jose has $200 million in land assets after the downtown sale), and freshen up those resumes.

Quick aside: If nothing’s sacred in government or the budget anymore, it might be a good time for a constitutional convention just to clean things up. It’s only been 60+ years since that last happened.

10 thoughts on “Brown’s Redevelopment Changes in Budget Proposal Text

  1. What will happen to the money that the RDA’s have banked (such as San Jose’s land assets). Would they have to use that money now? And if so, what would they do with it? Start a bunch of infrastructure projects? Put it towards building the stadium?

  2. This seems like a drastic move just for a “one‑time basis to offset state General Fund costs for Medi‑Cal ($840 million) and trial courts ($860 million).” Does Brown have a fundametal problem with the philosophy of RDAs or will the state benefit long term from shifting RDA money to fund local core services?

  3. It could have to do with just overall fiscal responsibility. Cities may be more fiscally conservative if they are playing with their own money instead of spending someone else’s.

  4. @Gojohn10 – It’s both. The document cited a limited effectiveness of RDAs overall, and the public cost.

    @Zonis – The way the proposal is phrased it assumes that projects will have ongoing debt that needs to be serviced, and bonds and assessments for those projects are off limits. But it makes no mention of additional assets – liquid or not – that RDAs may have available. I can only guess that for now it means the assets are also untouchable.

  5. Found what I suspected in the budget proposal

    Cities, counties, special districts, and K‐14 schools are losing billions of dollars in property tax revenues each year to subsidize redevelopment…Furthermore, the state General Fund must backfill the property tax revenues diverted from K‐14 schools, at a cost of approximately $1.8 billion dollars per year.

    Can’t change the $ mandated to schools, so they direct more money to the local general fund to reduce the shortfalls. I would have preferred a more balanced approach. Didn’t see the word “union” or “pension” mentioned anywhere in the document.

  6. Supposedly, Brown made a deal with many of the unions and state employees. If they supported this, their cuts wouldn’t be nearly as severe. True to form, there is only a two-page section on state Employee Compensation and Retirement (p. 177-178).

  7. The loss of RDA’s makes the 980 Park only more sensible. It requires less public funding, say $20-30M versus the $100-250M the Victory Court or Diredon Station proposals. The Oakland RDA has over $20 in bond proceeds now. But alas, our politicians are profligate rather than practical or sensible.

    Maybe Jerry favors 980 Park.

    The only real criticism I have heard about 980 Park is the proximity to the crime in West Oakland. isn’t it time that the city give more attention to West Oakland. First priority is to tear down the Acorn Housing Project and implement a scatter housing substitute.

  8. @Bryan: I’d like to know more about the 980 ballpark proposal. Do you have any of your research posted on the web? I’d like to check it out.

  9. @Bryan Grunwald – I think what Briggs is referring to is a formal website where you can fully flesh out the concept. Piecemeal coverage in the media (including here) doesn’t really sell the idea. Putting together a site with sketches or renderings, a full explanation of the concept’s virtues, etc., would help your case and give potential supporters a greater sense of tangibility.

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