Do-or-Die Scenario Threatens California's Redevelopment Agencies

To save redevelopment agencies, cities and organizations have two bleak choices: sue or pony up $1.7 billion.
by | July 19, 2011

With their backs against the wall, local redevelopment agencies in California have one last option to stave off annihilation. And it's a long shot.

Actually, the new state budget, signed by Gov. Jerry Brown in June, already essentially eliminated redevelopment agencies via two bills. So unless cities and counties can somehow come up with $1.7 billion to pay to the state this year, the agencies are finished. Redevelopment agencies pump a large amount of the area's property tax revenue into local projects: roads, community and convention centers, stadiums and so on. But now, the Legislature wants to use that money to help close the state's budget gap.

As a response, the California Redevelopment Association (CRA), which represents 398 active agencies throughout the state, the League of California Cities and others plan to take the issue to court. The lawsuit against the state would allege that the redevelopment laws violate Proposition 22, which prevents Sacramento from treating local tax coffers like a grab bag.

But lawmakers added a "poison pill" to the legislation, according to the San Jose Mercury News. If the California Supreme Court rules the redevelopment laws unconstitutional, the agencies won't be able to sell debt. If these agencies can't sell debt (or issue bonds) to finance projects, they're dead anyway.

"They're saying that if you exercise that right (to sue), we'll penalize you," John Shirey, executive director of the California Redevelopment Association, told the Mercury News.

Lawmakers wouldn't call this a poison pill, however. A more appropriate phrase would be a "fail-safe mechanism," according to John Vigna, spokesman for state Assembly Speaker John Perez, one of the laws' architects.

None of this should be a surprise. Brown had has redevelopment agencies in his cross hairs from the beginning because of their rocky history with the state. In 2008, the Sacramento Superior Court ruled in favor of CRA, invalidating budget language that would have shifted $350 million in redevelopment funds to the state. It also filed a lawsuit in 2009 to stop a budget trailer bill, which authorized a $2.05 billion raid of local funds for state purposes.

In the meantime, local officials must decide whether or not to buy back their redevelopment agencies. The San Leandro City Council would have to pony up $5.1 million the first year and an additional $1 million each year after that to keep their agency. It would get the city "back to businesses as usual" earlier, Cynthia Battenberg, the city's business development manager, told the San Leandro Times. But nonpartisan advisers of the Legislative Analyst's Office maintain that there is no evidence that redevelopment improves the state or regional economy.

"Gov. Brown supported the complete elimination of redevelopment agencies because they siphon billions in local tax dollars away from critical public needs like education and law enforcement," Brown spokesman Gil Duran said earlier this month. "These two bills represent a compromise that will redirect over a billion dollars to critical public services and prevent the most egregious abuses of taxpayer money."

>How do you think this battle should play out? Let me know in the comments.