Governor’s Proposal Looks To Elimination of Redevelopment

Redevelopment is a portion of local property taxes that is supposed to be used for blight.   The problem is that cities like Davis rely on redevelopment money, even in places where there really is no blight.

It is a tricky subject because for a city like Davis, we might be much closer to be able to balance our books without redevelopment, however, we also rely on it to pass money through the county in exchange for the county to not develop on Davis’ borders.

According to the Governor’s proposed budget, he wants to end billions of dollars in redevelopment subsidies for business, redirecting the funds to local governments to use in funding schools, law enforcement and other “core functions.”  This is an argument we made back in October as we discussed Proposition 22 that was passed to protect local government from raids from the state government.

In his budget proposal it is written, “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.”

Under Proposition 13, local property tax revenues were reduced by 57 percent.  The state shifted costs to itself and then provided new revenues to local government to replace this revenue loss.  About 37 percent of property tax revenues, for instance, currently fund K-14 schools under Proposition 98, offsetting what would otherwise be general fund expenditures by the state.

“The balance of property taxes are  distributed as follows: cities receive 18 percent, counties almost 25 percent, special  districts 8 percent, and redevelopment agencies 12 percent,” the Governor’s Budget Summary reads.

The problem according to Jerry Brown is, “The expansion of redevelopment agencies has gradually shifted property tax away from  schools, counties, special districts, and city general purposes. Redevelopment agencies  receive most of the growth in property tax revenue from within their boundaries,  including the growth that would otherwise be allocated to agencies providing services  in the redevelopment area — such as schools — that do not have a role in creating or  governing them.”

He also notes that some of the growth revenue is “passed through” to the “jurisdiction that provide services through locally negotiated agreements and under state law in  certain circumstances.”  This is our pass-through agreement that we use to protect growth on our borders.

However, as he points out “redevelopment is designed to eliminate blight.”  Instead, he argues that redevelopment subsidies, which are intended to be targeted at projects in areas with blight, fail to stimulate economic growth.

The Public Policy Institute of Ccalifornia (PPIC) found that “…fewer than one-quarter of  the (redevelopment) projects came close to being responsible for the property taxes  they received. These projects were also the ones with the most vacant land.”

The Governor’s Budget summary continues, “The private  development that occurs in redevelopment project areas often would have occurred  even if the RDAs were never established. There is little evidence that redevelopment  projects attract business to the state. Studies indicate most of the business development  is simply shifted from elsewhere in the state.”

The bottom line, “While this may help relieve localized  blight and equalize economic activity relative to nearby communities, there are better  alternatives for local entities to fund these efforts without shifting resources from  schools, counties, special districts, and core city services. This revenue could be funding basic public safety services and augment school funding. Cities, counties, special districts, and K-14 schools are losing billions of  dollars in property tax revenues each year to subsidize redevelopment.”

At the very least, as Governor Brown noted during his press conference, while existing projects would not be impacted, his goal is to return redevelopment to its historically intended purposes.

The Department of Finance notes, “The budget also proposes to change the role that state and local governments play in local development activities by eliminating state tax benefits for enterprise zones and phasing out the current funding mechanism for redevelopment agencies. This will return billions in property tax revenues to schools, cities and counties and help pay for public safety, education and other services.”

The San Jose Mercury news reported earlier, “City and redevelopment officials around the state have reacted with disbelief that the governor would contemplate such an idea, saying it would deprive them of a vital tool for attracting businesses amid an economic crisis.”

However, schools have applauded this along with county officials, saying that the idea is welcome and overdue.  As the San Jose Mercury News notes, “They argue that although redevelopment has its merits, local leaders have overused it to subsidize questionable private development at the expense of basic public services.”

It would be interesting to have a full discussion here in Davis on the impact of that.  I have, in fact, long wanted this kind of discussion about the role of the redevelopment agency in Davis. It seems that we have designed it to be overly-broad, to capture areas in South Davis that would not be rightly considered blighted under normal usage of the term.

As Governor Brown’s proposal notes, there is little evidence that redevelopment has reduced blight or improved the things it was intended to.  At most, while it may help to reduce blight on the local level, it also shifts vital resources away from schools and counties, which provide what many might consider to be more vital services to education and social welfare functions.

Moreover it is misused.

Back in August, the Bee reported on the City of Glendora, whose redevelopment had been ruled illegal, “The other shoe dropped recently when a state appellate court ruled that  Glendora’s redevelopment plan is illegal because the city had not proved the existence of urban blight as required by law, upholding a lower  court ruling in a lawsuit brought against Glendora by the County of Los Angeles.”

The article continued, “The appeal was pending when Adams’ Glendora bill was enacted last year.  The city quickly attempted to use it to fight off the county lawsuit,  claiming that, as the appellate decision put it, “the Legislature has now determined that Project Area No. 3 is blighted and entitled to an increased tax increment.”

Furthermore, “The appellate court, however, flatly rejected that assertion, declaring  that, no matter what the Legislature said vis-à-vis Glendora, the city still had to prove the existence of blight, which has specific  definitions in law, and “in the absence of blight, the redevelopment plan is invalid.”

A few months ago, I asked City Attorney Harriet Steiner whether Davis’ redevelopment area, which includes the entire core of Davis along with most of South Davis, falls into a legal definition of blight.

Her answer was interesting, “Blight is determined at the time the redevelopment plan is adopted.  At the time the Davis Redevelopment Plan was adopted, the City Council made findings that the project area was blighted.”

She continued, “Conditions in the Davis Redevelopment Project Area might or might not constitute blight under current law. However, this does not matter from a legal perspective, because the blight findings are conclusive once the findings are made at the time the plan is adopted and not challenged in court.”

In other words, once the determination is made and they are not challenged in court, the city is entitled to extract redevelopment money.

This is not free money.  Because the redevelopment agency includes a huge swath of South Davis, that means that the city’s general fund does not receive property tax money from those areas in South Davis in the redevelopment area.

That should not imply that redevelopment is by itself a bad thing, but it can be abused.  The parameters for the Davis Redevelopment Plan were set up in the 1980s and the law has changed, with regards to blight, numerous times since then.

The City of Davis is looking to use the funds from the redevelopment agency to put forth some major downtown projects in the next few years that could be of great benefit.

The most serious qualm I have at this point is the impact on the ability to pass through redevelopment dollars to the county in order to preserve the pass-through agreement and prevent the county from developing on our borders.

It is a serious problem that we will have to consider.  My suspicion is that this proposal will not go far, but perhaps it should.  We will have to see.

—David Greenwald reporting