Update 6/16 10:50 AM – Governor Brown has vetoed both of the main budget bills, AB 98 and SB 69. The veto came as Brown has been is discussions with Republicans over tax extensions, which were half of his inaugural budget solution. The GOP has given no quarter on these taxes, which apparently has forced Brown’s hand. The trailer bills, such as the twin redevelopment bills, are still on Brown’s desk being held back by the Democrats for the time being. They are important for funding the “cuts” half of Brown’s budget plan, so don’t expect them to go away.

At one point during the current legislative session, there were at least a dozen bills having to do with redevelopment reform. In the end, the bills that prevailed were largely influenced by Governor Jerry Brown. With AB 26 and 27 passing and almost guaranteed approval by the governor, the only thing left that can save redevelopment as we know it is a lawsuit (or 400). A successful legal challenge by cities and RDA’s would completely upend the just completed budget process, since the budget is dependent on $1.7 billion in money flowing from RDA’s to the state.

The way this works is that as of October 1, all redevelopment agencies (city or county) would be dissolved. Any projects under contract before January 1, 2011 would continue to have tax increment (now simply named property taxes) as an ongoing funding source. Anything agreed to after January 1 is subject to review in order to determine whether any bond issues violate the spirit of the law.

In addition, redevelopment agencies could be reconstituted if they can perform their activities while taking care of their ongoing debt and these new payments. If they can’t, a successor agency will be appointed whose mission is to collect the these “excess” property taxes and send it to school districts and the like. Cities can apply to reconstitute or create new RDA’s via the mechanism described in AB 27, but they are bound to the aforementioned property tax revenue distributions.

The Merc’s Tracy Seipel reports that the City of San Jose’s share for the next fiscal year is $62 million, and $15 million per year after that. That’s going to be extremely difficult for San Jose to pull off because tax increment revenues have been so poor for the last several years that there’s been little excess to use for new projects. SJRA’s practice of landbanking has also tied up funds in real estate purchases, which have allowed SJRA to act semi-speculatively when it comes to encouraging new projects. Many cities practice this, few to the extent San Jose does. Now it appears that much of the landbanked property will have to be sold to cover these new payments, not to mention any shortfalls that might occur if the property tax receipts tank.

Remember that in December, Lew Wolff renegotiated the price of the Airport West property down to $89 million, a reflection of the depressed real estate market. Wolff doesn’t have to pay until 2015. I suspect that he may have no choice but to accelerate the purchase, if only to prevent the state from forcing the city to sell another piece of land Wolff covets, such as Diridon. It may be that the creation of SJDDA insulates the city somewhat, but my understanding of the bill language is that efforts to circumvent these new powers and responsibilities could turn into an ugly tug-of-war over dollars and dirt. San Jose’s moves aren’t nearly as egregious as what’s been squirreled away in LA, but if I were Wolff or a board member of SJDDA I wouldn’t rest easy until I knew how legal the new joint powers authority was via a court ruling. There seems to be a simple solution for Wolff if he wants his ballpark in San Jose: PAY UP. (BTW, you know what else probably costs around $89 million? The Fairmont SF.)

Oakland’s situation is different in that it has much more bonding capacity and property tax revenues in several districts are good. However, it will be difficult for ORA or a successor agency to round up the money needed for Victory Court. As I noted yesterday, ORA is buying the Henry J. Kaiser Convention Center for $29 million just so that the city can balance its budget. Other properties, including the Fire Training Center, were bought under similar circumstances. Those kinds of quickfixes won’t be available for much longer, especially if the lion’s share of excess property taxes ORA collects will have to go to Peralta CCD and Oakland School District (my guess: $15-25 million for the first year, $5 million annually thereafter).

The last obstacle in Brown’s quest to kill redevelopment is a legal one, which has been been telegraphed by cities and their lobbying groups for months. Their biggest problem is that so far, pro-redevelopment’s solutions have been predicated on RDA’s voluntarily sending money to the state and education as they get it. It’s kinda difficult to base a budget on voluntary payments, don’t you think? And as long as they keep up with the rhetoric about this legislation and Brown’s efforts being “unconstitutional” they’re setting themselves up for a big loss. They may prevail on technical legal terms, but even if they do it doesn’t bode well for the state, cities or counties. The budget was passed strictly on party lines, with very little give on display and numerous battles to come before Brown has to make a decision. We’re getting to the point where it’s time to start thinking about working in a post-redevelopment era. Municipalities that can’t make such a transition are in danger of being left behind.