Assessing the Impact of Loss of Redevelopment on Davis

Last week the Davis City Council took action to complete the steps they took back in February and March, which they argued would “protect community assets and strengthen the community’s ability to implement priority economic development and capital projects in response to the Governor’s proposal to eliminate redevelopment agencies.”

The Redevelopment Agency would then transfer the remainder of its 2010-11 fund balance, about $1.2 million, to the City to “provide resources for relocation properties in support of the hotel conference facility, and for downtown streetscape improvements.”

Tuesday night it was announced that the state legislature had adopted a budget with the provisions to eliminate redevelopment agencies.

While the City of Davis has taken steps to protect its redevelopment assets, redevelopment itself remains uncertain in its future.

Under the new law, redevelopment would not necessarily end, but rather they could choose a sort of “pay to play” scheme which would be an agreement to divert a certain amount of their tax revenue to school districts and other local governments.

The Governor believes this action will save $1.7 billion, or the amount of money redevelopment would divert into programs normally funded by the state’s general fund.  Beginning next year, that would be roughly $400 million on an annual basis.

However, last week, the San Jose Mercury News reported that at least 50 agencies have indicated that they cannot make those payments.

If this happens it will not be because cities and redevelopment agencies took the changes lying down.  That is because cities and redevelopment agencies are planning to file a lawsuit that claims that the Legislature violated Proposition 22 when it approved a pair of bills to eliminate the agencies and require them to make additional payments to schools if they want to continue operating.

Proposition 22 was passed just last November, and prohibits the state from raiding redevelopment, transportation or other local money.

“We’re deeply disappointed that the governor has joined the Legislature in blatantly violating the California Constitution because it was just seven months ago that the voters of California said that redevelopment funds should be spent for redevelopment and not diverted by the state for other purposes,” said Chris McKenzie, president of the League of California Cities in a statement late last week.

In particular, Mr. McKenzie criticized the provision that allows redevelopment agencies to continue if they agree to divert money to schools and other local government.

“The governor provided the elimination bill,” Mr. McKenzie continued. “What the Democrats did is they added a gun-to-your-head provision. The second one said, ‘Oh, but if you pay the extortion – the $1.7 billion – you won’t be eliminated.'”

What does that mean for Davis?  The city utilized the funds before the state could raid any money.  However, the future is now in question.  First, there is a belief that taking redevelopment money will mean that the city will have to make up for some of that spending in the form of general fund money.  That will put a further strain on the city’s budget.

Second, from a land use perspective, the city has used roughly $3 million from redevelopment and passed it through to the county in the form of the pass-through agreement.  It is this agreement that has thus far prevented the county from developing housing near Davis.

But with the potential loss of revenue from the pass-through agreement, the county is likely to be under more pressure to develop on Davis’ periphery and Davis will lack the protection they once had, in the form of purse strings, to prevent that development.

We have not seen a fiscal analysis at this point to calculate how much the RDA would have to pay to schools and other districts.  We would have to evaluate that to determine the impact of this legislation.  Given that the city has encumbered all existing RDA money, however, it would seem likely that they would not have the funds necessary to divert to schools.  This is sheer speculation at this point.

We need to know how much money the RDA would have to pay out under this plan, the benefit to the school district from this money, and then whether the RDA could continue to fund the pass-through agreement as well as its other functions.

On the surface this would appear unlikely, and it seems that the loss of the RDA will make Davis more vulnerable to development outside of its borders.

That said, looking at the make-up of the current board of Supervisors, it seems unlikely at least, at this time, that the county would entertain such a notion.  Duane Chamberlain is an opponent of any development of agricultural land.  Jim Provenza ran on a strong platform opposing county development on Davis’ borders.

That leaves two possible third votes.  Matt Rexroad has generally not wanted to interfere with other cities, as he prefers other Supervisors not to interfere with Woodland.  And Don Saylor, while generally pro-development, has at least in the past opposed efforts by the county to develop near Davis’ periphery, arguing that it was the job of the city council, not the county.

That would seem to be enough to avoid the showdown for now, but with the possibility of changing Supervisorial Districts, a lot is still up in the air.

Despite the problems with redevelopment in general, there are definite and clear risks to Davis should this action by the legislature survive judicial scrutiny, which on the surface and reading the language of Proposition 22, it should not.

—David M. Greenwald reporting

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